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1. Business Organization
1.1 Concept of Business
Business may be defined as any economic activity on a continuous basis which involves production or purchase of goods for sale, transfer or exchange goods, or supply of services for the purpose of earning profit.
Business has a wider meaning beyond goods, services and profit. A business does not become a business without a customer. Therefore any definition of business is complete only when it includes the customer in it. The customer determines what a business is. The revenue of business comes from the customer, when he pays for the goods or services of the business. No business can exist without customer.
The existence of a business depends on its customers. Therefore it can be said that the purpose of business is to create and retain customers. To fulfill this purpose a business enterprise should concentrate on two basic functions – marketing and innovation.
Marketing is a specialized activity which covers the entire business. All activities in a business balanced according to the needs of market. Therefore marketing include identifying the needs of the customers, planning the product or service and selling the goods at price which satisfies the customer.
The second function of business in customer creation is innovation. Products available to customers are continuously improving due to technology. Therefore a business must strive for improving the quality of product and reducing the price continuously to stay ahead of competition.
Technology helps the business to innovate design, production and marketing techniques. Investment in technology will ultimately reduce cost and bring in more profit. Innovation is possible in every aspect of business. There can be innovation in distribution methods, advertising, selling and every other area of business. Thus business is not restricted to only dealing with goods and services. Creating customer, marketing and innovation are more important aspects of business.
1.2 Characteristics of Business
Business activities are different from all other economic activities in several respects. Following are the main characteristics of business activities:
i. Sale or Exchange of Goods and Services
Business activities mainly revolve round the sale or exchange of goods and services one way or other. It includes producing goods and selling it to the consumer. If the goods are produced for the producers’ personal use it cannot be called business. Food cooked at the businessman’s house is not business as long as he does not sell it. When goods are given free to somebody it is not business for the simple reason that it is not a sale. Thus the most essential feature of business is sale or exchange of goods or services.
ii. Regularity of Dealings
An economic activity is recognized as business only when it is done on regular basis. One single transaction of sale or purchase is not considered business. A person selling his old car and buying a new one is not doing car business. But if he does it regularly for purpose of making profit he is doing car business. The term business includes dealings in goods and services. Goods include consumer goods of daily use and capital goods like machinery and equipment. Services include facilities offered to business such as transportation of goods, banking, warehousing, electricity etc.
iii. Profit Earning
The main purpose of business is earning profit. No business can survive long without adequate profit. Profit is the reward for taking the risk of doing business. It is the driving force for continuing the business. The businessman will always attempt to maximize his profit by selling more goods and reducing his cost.
iv. Uncertainty or Risk
Risk is part of business. A businessman always faces the possibility of lack of adequate return or even no return for his hard work. He may even lose his investment or more than his investment in the business. Business conditions cannot be predicted accurately. There can be change in trend, fall in demand, change in technology, better products from competitors and hundreds of other reasons that can turn unfavorable to a business. Profit is actually the reward for taking risk.
vii. Management:
In sole proprietorship, the control of management of the business lies with the sole owner.
viii. Profit:
The single owner bears full risk of business, therefore, he gets total benefit of the business as well as total loss.
ix. Size:
The size of business is usually small. The limited ability and capital do not allow the expansion of business.
x. Secrecy :
A sole proprietorship can easily maintain the secrecy of his business.
xi. Unlimited Liability :
A sole proprietor has unlimited liability. In case of insolvency of business, even the personal assets are used by the owner to pay off the debts and other liabilities.
ADVANTAGES AND DISADVANTAGES OF SOLE PROPRIETORSHIP
ADVANTAGES OF SOLE PROPRIETORSHIP
Following are the advantages of sole proprietorship:
1. Contacted with the customers: In sole proprietorship a businessman has direct contact with the customer and keeps in mind the like and dislikes of the public while producing his products. 2. Direct Relationship with Workers : In sole proprietorship a businessman has direct relationship with workers. He can better understand their problems and then tries to solve them. 3. Easy Formation : Its formation is very easy because there are not legal restrictions required like registration etc. 4. Easy Dissolution : Its dissolution is very simple because there are no legal restrictions required for its dissolution and it can be dissolved at any time.
5. Easy Transfer of Ownership : A sole proprietorship can easily be transferred to other persons because of no legal restriction involved. 6. Entire Profit : Sole proprietorship is the only form of business organization where the owner enjoy 100% profit. 7. Entire Control : In sole proprietorship the entire control of the business is in the hands of one person. He can do whatever he likes. 8. Flexibility : There is great flexibility in sole proprietorship. Business policies can easily be changed according to the market conditions and demand of people. 9. Honesty : The sole master of the business performs his functions honesty and effectively to make the business successful. 10. Quick Decisions : Sole proprietor can make quick decisions for the development and welfare of his business and in this way can save his time.
DISADVANTAGES OF SOLE PROPRIETORSHIP
The disadvantages of sole proprietorship can be narrated as under:
1. Continuity : The continuity of sole proprietorship depends upon the health and life of the owner. In case of death of the owner the business no longer continues. 2. Chances of Fraud : In sole proprietorship, proper records are not maintained. This increases the chances of errors and frauds for dishonest workers. 3. Expansion Difficulty : In sole proprietorship, it is very difficult to expand the business because of the limited life of proprietor and limited capital.
In ordinary business the number of partners should not exceed 20, but in case of banking business it must not exceed 10. This type of business organization is very popular in Pakistan.
Characteristics:
The main characteristics of partnership may be narrated as under:
1. Agreement: Agreement is necessary for partnership. Partnership agreement may be written or oral. It is better that the agreement is in written form to settle the disputes. 2. Business : Partnership is a business unit and a business is always for profit. It must not include club or charitable trusts, set up for welfare. 3. Cooperation : In partnership mutual cooperation and mutual confidence is an important factor. Partnership cannot take place with cooperation. 4. Dissolution: Partnership is a temporary form of business. It is dissolved if a partner leaves, dies or declared bankrupt. 5. Legal Entity: If partnership is not registered, it has no legal entity. Moreover, partnership has no separate legal entity from its members and vice versa. 6. Management: In partnership all the partners can take part or participate in the activities of business management. Sometimes, only a few persons are allowed to manage the business affairs. 7. Payment of Tax: In partnership, every partner pays the tax on his share of profit, personally or individually. 8. Profit and Loss Distribution: The distribution of profit and loss among the partners is done according to their agreement.
9. Share in Capital: According to the agreement, every partner contributes his share of capital. Some partners provide only skills and ability to become a partner of business and earn profit. 10. Transfer of Rights: In partnership no partner can transfer his shares or rights to another person, without the consent of all partners.
ADVANTAGES AND DISADVANTAGES OF PARTNERSHIP
ADVANTAGES OF PARTNERSHIP
Following are the advantages of partnership:
1. Simplicity in Formation: This type of business of organization can be formed easily without any complex legal formalities. Two or more persons can start the business at any time. Its registration is also very easy. 2. Simplicity in Dissolution: Partnership Business can be dissolved at any time because of no legal restrictions. Its dissolution is easy as compared to Joint Stock Company. 3. Sufficient Capital: Partnership can collect more capital in the business by the joint efforts of the partners as compared to sole proprietorship. 4. Skilled Workers: As there is sufficient capital so a firm is in a better position to hire the services of qualified and skilled workers. 5. Sense of Responsibility: As there is unlimited liability in case of partnership, so every partner performs his duty honestly. 6. Satisfaction of Partners: In this type of business organization each partner is satisfied with the business because he can take part in the management of the business.
5. Limited number of Partners: In partnership, the number of partners is limited, so the resources are also limited. That is why business cannot expand on large scale. 6. Lack of Secrecy: In case of misunderstandings and disputes among the partners, business secrets can be revealed. 7. Chances of Dispute among Partners: In partnership there are much chances of dispute among the partners because all the partners are not of equal mind. 8. Expansion Problem: Partnership business may not be expanded due to limited number of partners, limited capital and unlimited liability. 9. Risk of Loss: There is a risk of loss due to less qualified and less experienced people. 10. Transfer of Rights: In partnership no partner can transfer his share without the consent of all other partners.
C. JOINT STOCK COMPANY
Joint Stock Company is the third major form of business organization. It has entirely different organizational structure from sole proprietorship and partnership. There are two advantages of Joint Stock Company. First of all, it enjoys the advantage of increased capital. Secondly, the company offers the protection of limited liability to the investors.
Features:
Following are the main features of a Joint Stock Company.
1. Creation of Law: A joint stock company is the creation of law or special `Act' of the state. It is formed and governed by the Companies Ordinance or by a special Act of the legislature.
2. Capital Borrowing:
The company can borrow capital in its own name to expand the business.
3. Separate Legal Entity:
A Joint Stock Company has separate legal entity, apart from its members. It can sue in a court of law in its own name.
4. Legal Person:
A Joint Stock Company, as a legal person, has the usual rights of any person to carry on the business in its own name, to own property, to borrow or lend money and to enter into contract.
5. Long Life:
A joint stock company has long life as compared to other forms of business organizations.
6. Limited Liability:
The liability of the shareholder is limited to the extent of the face value of the shares they hold.
7. Large Scale Business:
Because of more members, a company has larger capital as compared to sole trade ship and partnership, which helps in doing business on large scale.
8. Management of Company:
The shareholders elect the Board of Directors in the Annual General Meeting and all the management is selected by the Board of Directors.
9. Number of members:
In case of private limited company, minimum number of shareholders is 2' and maximum is50'; but in case of public limited company, minimum number is `7' and there is no limit for maximum number.
10. Transferability of Shares:
A shareholder of a company can easily transfer his shares to other persons. There is no restriction on the purchase and sale of shares.
9. Larger Capital: There is no problem of capital in a joint stock company because there is not limit for maximum number of members. So, a joint stock company collects capital from many people. 10. Long Life: A joint stock company has a permanent life. If one or more than one shareholder die, or sell their shares, it makes no difference to the company. New shareholders take their place.
DISADVANTAGES OF JOINT STOCK COMPANY
Some of the disadvantages of the joint stock company are given below:
1. Initial Difficulties: It is more difficult to establish a joint stock company as compared to other business organizations. 2. Lack of Interest: Most shareholders become relaxed and leave all the functions to be carried out by the directors. This usually encourages the directors to promote their own interest at the cost of the company. 3. Labor Disputes : In such organization there is no close contact of the workers with the owners or the shareholders. This leads to formation of labor unions to fight against the company's management. 4. Lack of Responsibility : There is lack of personal interest and responsibility in the business of a joint stock company. If any mistake occurs, everybody tries to shift or transfer his responsibilities to other persons and he remains safe. 5. Lack of Secrecy : A joint stock company cannot maintain its secrecy due to the reason that a company has to submit various reports to the registrar.
6. Lack of Freedom:
A joint stock company cannot perform its functions freely because it has to submit various reports to the registrar form time to time.
7. Monopoly :
Due to larger size and resources, a joint stock company is in a position to create monopoly. Sometimes a few customers make agreement and exploit the consumers.
8. Corruption:
The directors of the company do not show the picture of the company to the public and encourage corruption by changing the policies for their personal interest.
9. Complicated Process:
The formation of a joint stock company is a complicated process due to many legal formalities.
10. Centralization of Power:
In Joint Stock Company, all the powers have in a few hands and due to this, an ordinary shareholder cannot participate in the affairs of a company.
An operational plan is one that a manager uses to accomplish his or her job responsibilities. Supervisors, team leaders, and facilitators develop operational plans to support tactical plans. Operational plans can be a single‐use plan or an ongoing plan. II. Tactical Plan: A tactical plan is concerned with what the lower level units within each division must do, how they must do it, and who is in charge at each level. Tactics are the means needed to activate a strategy and make it work. Tactical plans are concerned with shorter time frames and narrower scopes than are strategic plans. These plans usually span one year or less because they are considered short‐term goals. Long‐term goals, on the other hand, can take several years or more to accomplish. Normally, it is the middle manager's responsibility to take the broad strategic plan and identify specific tactical actions. III. Strategic Plan: A strategic plan is an outline of steps designed with the goals of the entire organization as a whole in mind, rather than with the goals of specific divisions or departments. Strategic planning begins with an organization's mission. Strategic plans look ahead over the next two, three, five, or even more years to move the organization from where it currently is to where it wants to be. Requiring multilevel involvement, these plans demand harmony among all levels of management within the organization. Top‐ level management develops the directional objectives for the entire organization, while lower levels of management develop compatible objectives and plans to achieve them. Top management's strategic plan for the entire organization becomes the framework and sets dimensions for the lower level planning.
Steps in Planning
1. Setting Goals and Objectives:
Give some thought to your financial goals. Some may be short-term in nature, others long-term. Assign each one a time frame and put them in order of importance to you. These goals are the building blocks to any sound financial plan.
Our financial advisors can assist you in identifying goals and establishing time frames.
2. Data Gathering
One should always have their finger on the pulse of where they stand financially. However, it’s understandable that some matters get pushed to the back burner. Now is the time to gather all of your financial documents and ensure all information is current.
3. Analysis and Solutions
Depending on the goals that you established in Step 1, you will need to perform some further analysis to define a roadmap to help you achieve your goals. This may include analyzing your retirement, education, debt or insurance needs.
4. Recommendations
Now that you have established goals and objectives, you will want to begin by implementing the recommendations that will ensure that you reach these goals.
5. Implementation
Once the preparatory work of analyzing, determining and calculating is finished, the most important step is implementing the recommendations to ensure your goals are reached. Deverall, Calma & Associates Financial Services Inc. is designed to assist you in establishing a well-diversified portfolio that will help you meet your goals by spreading risk, reducing volatility and enhancing the potential for solid long-term returns. No matter what the goal, a well-balanced portfolio, based on your individual investor profile is a requirement of any financial plan.
6. Follow-up and Periodic Reviews
Finally, follow-up's and annual reviews by both yourself and your financial planner are critical to ensuring your success. Your financial situation should be reassessed at least once a year to account for any changes in your life cycle or economic conditions. Achieving your goals and objectives are the ultimate measure of success in the 6-steps to a personal financial plan.
marketing of cosmetics are grouped under one department, jobs related to textile under one and so on.
3. Assignment of Duties: After dividing the organization into specialized departments each individual working in different departments is assigned a duty matching to his skill and qualifications. The work is assigned according to the ability of individuals. Employees are assigned duties by giving them a document called job description. This document clearly defines the contents and responsibilities related to the job. 4. Establishing Reporting Relationship: After grouping the activities in different departments the employees have to perform the job and to perform the job every individual needs some authority. So, in the fourth step of organizing process all the individuals are assigned some authority matching to the job they have to perform. The assignment of the authority results in creation of superior-subordinate relationship and the question of who reports to whom is clarified. The individual of higher authority becomes the superior and with less authority becomes the subordinate. With the establishment of authority, managerial hierarchy gets created (chain of command) and principle of scalar chain follows this hierarchy. The establishment of authority also helps in creation of managerial level. The managers with maximum authority are considered as top level managers, managers with little less authority become part of middle level management and managers with minimum authority are grouped in lower level management. So with establishment of the authority the individuals can perform their jobs and everyone knows who will report to whom.
Organizational Structure
I. Bureaucratic Structures
Bureaucratic structures maintain strict hierarchies when it comes to people management. There are three types of bureaucratic structures:
1. Pre-bureaucratic structures This type of organizations lacks the standards. Usually this type of structure can be observed in small scale, start-up companies. Usually the structure is centralized and there is only one key decision maker. The communication is done in one-on-one conversations. This type of structures is quite helpful for small organizations due to the fact that the founder has the full control over all the decisions and operations. 2. Bureaucratic structures These structures have a certain degree of standardization. When the organizations grow complex and large, bureaucratic structures are required for management. These structures are quite suitable for tall organizations. 3. Post-bureaucratic Structures The organizations that follow post-bureaucratic structures still inherit the strict hierarchies, but open to more modern ideas and methodologies. They follow techniques such as total quality management (TQM), culture management, etc.
II. Matrix Organizational Structure
When it comes to matrix structure, the organization places the employees based on the function and the product.
The matrix structure gives the best of the both worlds of functional and divisional structures.
In this type of an organization, the company uses teams to complete tasks. The teams are formed based on the functions they belong to (ex: software engineers) and product they are involved in (ex: Project A).
This way, there are many teams in this organization such as software engineers of project A, software engineers of project B, QA engineers of project A, etc.
III. Virtual Organizational Structure
A virtual organization or company is one whose members are geographically apart, usually working by computer e-mail and groupware while appearing to others to be a single, unified organization with a real physical location.
