TOPIC 2: BUSINESS AND ENVIRONMENT

BUSINESS ENTITY

1. Sole trader2. Partnerships

3. Company (Corporation)

Sole Trader Partnership1. Member Only one (owner) 2 or more, but less than 20

2. Capital Contribution

Amount contributed by the owner

By each partner

3. Liability Unlimited liability Unlimited liability

4. Act Under no specific act

Under the partnership Act 1961

5. Legislation No legal separation between the business entity and the owner (the business debt will be the debt of the owner)

Same as sole trader

6. Agreement No written agreement

Written agreement between partners

7. Type of business Laundry shop, mini market, etc

Accounting firm& law firm

Comparison Between Sole trader and Partnership

COMPANY

Limited Company

Private Company Ltd Public Company Ltd

General Characteristics• Under Malaysia Company Act 1965

Separate legal entityLegal bodies to own assets, make credit, sign contract, sued and to be sued by court.Set up for the purpose of increasing the shareholder wealth.

The Difference Between Public and Private Ltd Company.Characteristics Public Limited Co Private Limited Co1. Members Min 2; Max unlimited Min 2; Max 50

2. Issue of share Public are invited to buy the share

Share are not allowed to be sold to public

3. Listing requirement listed unlisted

4. Financial information Publish to the shareholders

Have a right not to publish to the shareholders

5. Managing Hired group of professional management to run the business

Run by the shareholder or hired a professional management to run the business

6. Liability Liability limited to the amount invested (separate legal entity)

Liability limited to the amount invested (separate legal entity)

7. Examples Telekom, Tenaga Nasional, Petronas

MEASAT Broadcast

Network Systems Sdn Bhd

TYPES OF BUSINESS ACTIVITYServices

• Supply services only – accounting firms, banks• Supply services & goods – saloon

Merchandising/trading/retailing• Purchase goods in bulk from manufacturer and sell to customers• Range from hypermarket to specialist store• 2 categories of expenses

cost of good sold (COGS) - the total cost of merchandise sold

during the period Operating expenses - expenses incurred in the process of

earning sales revenue - eg. Sales salaries, advertising

expenses, insurance expenses.

Manufacturing • Manufacturing firm produces

goods for sale by processing raw materials in factory.

• Sell these goods either as finished products to a wholesaler, retailer or partly finished products to other manufacturers.

• 3 elements of cost: Direct Material Cost Direct Labor Cost Overhead cost

Understand the environment forces towards an organization:1. Politics

political power, differences in ideology, social and law stability.may cause power struggle, strong decline in stock price, extensive layoff in workforce and management turmoil.

2. Economyflow of inflation, financial base and fiscal base.

3. Socialsocial distribution, income distribution, education and attitudes towards work and business.

4. Technologythe changes of technology, future raw material availability, technological development in related areas, raw material costs.

5. Geographicalthe plant location will lead to the international tariff base.

6. Competitionthe entry of competitors into the market and the strategic changes and size of competition.

How to Set up a Business

1. SWOT AnalysisStrength – internal factors

• Identify the unique strength of the business

• Eg; quality, innovation, human resources

Weaknesses – internal factors• identify the internal weaknesses of

the organization• Eg; absenteeism rate, lack of capital

Opportunity – external factors• Exploit the opportunity • Eg: Changes in technology, government policy, consumers profiles, economic growth

Threat • Some external changes that will threaten the business.• Eg: sudden changes in technology, economic downturn, stock market crash, political turmoil/climate

Internal aspects External aspects

of business of business

Strength OpportunityWeakness Threat

2. Form an objective Every new business must form at least one objective. In which it is different compared to other businesses.Eg: Maximization of profit or shareholder’s wealth.

3. Considering other factorsLocation: Is the location is strategic for the type of business being set up?Resources: Are the resources easy to obtain and used by the business?Law: Is this business attached with any kind of a specific law?.

Managing a business

1. Planningdefinition- is the process of establishing enterprise objective”

2. Type of planning• Long term planning

planning made by top-level management for the period of more than one year period, in which they anticipated the future events.

2 types of planning Strategic planning planning for 3 –5 years responsibility of the high-level

management determination of corporate objective

and goals, as well as the development of broad policies and strategies by which they may be achieved.

Tactical Planning Planning range 1 – 3 years Responsibility of the middle-level

management eg: opening a new branch,

introducing a new product• Short term planning

planning by each section or department for the period of

less than one year to harmonizing all the planning.type of planning - operating planning

planning for less than 1 yearto support strategic and tactical plan

Eg: to set the price of the product; number of workers to be employed.

3. Budgetis an important tool for management planning and controldefinition: It is the quantitative expressions of long range planning stated in either physical or financial terms or both.types: periodic budget and continuous.Objectives:

1. To fulfill the organizational objectives – short run

2. To estimate revenue and expenses3. To estimate cash inflow and outflow4. To forecast sales volume that gives break

even point5. To motivate employees6. Communication tool for employees,

external users and management