TOPIC 1: NATURE AND AIMS OF BUSINESS

Kinds of Business

1. Commerce. Business firms which are engaged in the buying and selling of goods and services are classified as those falling under commerce. Also
included are trading, merchandising, and marketing (see Figure 1). Examples of commerce as a kind of business are supermarkets, dry goods store,
peddlers, sari-sari stores, importers, and many others.

2. Industry. Industries are those which are mainly concerned with production. Goods produced are those which may be intended for ultimate
consumption and which are called consumer’s goods, or those which are intended for use of business and industry and which are called producer’s
goods.

Industry may be further classified into the following: (1) genetic, (2) extractive, (3) manufacturing, and (4) construction.

Genetic industries are those involve in agriculture, forestry, and fish culture.

Extractive industries, are involved in the extraction of goods from natural resources which include mining, lumbering, hunting, and fishing.

Manufacturing industries are those which convert raw materials into finished products. Examples of these are firms engaged in the manufacture of
drugs, plastics, food, liquor, footwear, motor cars, tools, office supplies, household appliances, and many others.

Construction industries. Consist of firms engaged in building infrastructures like airports, seaports, dams, and highways. Those involved in the
construction of dwelling houses are also included.

3. Services. A service business is one which sells service to the buyer. Service firms may be classified as: (1) recreation, such as movie houses, television
and radio stations, theaters for drama and stage presentation, and the like; (2) personal, such as restaurants, barter shops, transportation, hotels,
tailoring shops, and the like; and (3) finance, such as banks, insurance companies, investment houses, financing institutions, credit unions, savings and
loans associations, and the like.

TOPIC 2: ORGANIZING A BUSINESS

Entrepreneurship is one of the options available to persons who would want to engage in business. An entrepreneur is one who runs a business he
himself has created. His functions as an entrepreneur is vastly different from those of stockholder of a corporation.

His functions are:

To supply the capital of the firm;

To organize production, by buying and combining inputs;

To decide on the rate of output in the light of his expectations about demand; and

To bear the risk involved in these activities.

The Search for Business Opportunities

The talent scout, aware of the requirements of the market - radio, television, recording, and the movies - goes around searching. He stays longer,
however, in place where talents abound. The scout does not forget that there are lots of good talents but only a few of therm can be classified as
“commercial

The salesman, on the other hand, prepares a list of his prospects and from there makes his evaluation and decides on who is worthwhile seeing. The
salesman also does not forget that there are prospects of better quality than others.

Like a talent scout, the prospective businessman should choose an opening that will be “commercial” or one that will bring them enough revenues. Also,
like a salesman, the prospective investor should pick up from his list a business opportunity which is of better quality than the others.

TOPIC 3: TYPES AND FORMS OF BUSINESS ORGANIZATIONS

A business is an organization that uses economic resources or inputs to provide goods or services to customers in exchange for money or other goods
and services.
4 Types of Business

1. Service Business

A service type of business provides intangible products (products with no physical form). Service type firms offer professional skills, expertise, advice, and
other similar products.

Examples of service businesses are: schools, repair shops, hair salons, banks, accounting firms, and law firms.

2. Merchandising Business

This type of business buys products at wholesale price and sells the same at retail price. They are known as "buy and sell" businesses. They make profit
by selling the products at prices higher than their purchase costs. A merchandising business sells a product without changing its form.

Examples are: grocery stores, convenience stores, distributors, and other resellers.

3. Manufacturing Business

Unlike a merchandising business, a manufacturing business buys products with the intention of using them as materials in making a new product. Thus,
there is a transformation of the products purchased. A manufacturing business combines raw materials, labor, and factory overhead in its production
process. The manufactured goods will then be sold to customers.

4. Hybrid Business

Hybrid businesses are companies that may be classified in more than one type of business. A restaurant, for example, combines ingredients in making a
fine meal (manufacturing), sells a cold bottle of wine (merchandising), and fills customer orders (service). Nonetheless, these companies may be classified
according to their major business interest. In that case, restaurants are more of the service type – they provide dining services.

FORMS OF BUSINESS ORGANIZATION

1. Sole Proprietorship

A type of business unit where one person is solely responsible for providing the capital and bearing the risk of the enterprise, and for the management of
the business.

A sole proprietorship is a business owned by only one person. It is easy to set-up and is the least costly among all forms of ownership.

The owner faces unlimited liability; meaning, the creditors of the business may go after the personal assets of the owner if the business cannot pay them.

The sole proprietorship form is usually adopted by small business entities

2. Partnership

A partnership is a business owned by two or more persons who contribute resources into the entity. The partners divide the profits of the business
among themselves.

In general partnerships, all partners have unlimited liability. In limited partnerships, creditors cannot go after the personal assets of the limited partners.

Types of Partners

Based on extent of participation

*Active Partners

*Sleeping Partners

Based on sharing profit

* Nominal Partners

* Partners in Profits

Based on Liability
* Limited Partners

* General Partners

Based on nature of behaviour

* Partners by Estoppel

* Partners by holding out

3. Corporation

A corporation is a business organization that has a separate legal from its owners. Ownership in a stock corporation is represented by shares of stock.

The owners (stockholders) enjoy limited liability but have limited involvement in the company's operations. The board of directors, an elected group
from the stockholders, controls the activities of the corporation.

In addition to those basic forms of business ownership, these are some other types of organizations that are common today:

4. Limited Liability Company

Limited liability companies (LLCs) in the USA, are hybrid forms of business that have characteristics of both a corporation and a partnership. An LLC is not
incorporated; hence, it is not considered a corporation.

Nonetheless, the owners enjoy limited liability like in a corporation. An LLC may elect to be taxed as a sole proprietorship, a partnership, or a corporation.

Memorandum of Association - describes what company has been formed to do

Articles of Association - internal rules covering:

What directors can do

Voting rights of shareholders

Limited liability means that investors can only lose money they have invested.

Encourages people to finance company

Limited liability means that they can only recover money from existing assets of business. They cannot claim personal assets of shareholders to recover
amounts owed by company.

5. Cooperative

Cooperative Society is defined as “a society, which has its objectives for the promotion of economic interests of its members in accordance with
cooperative principles.”

A cooperative is a business organization owned by a group of individuals and is operated for their mutual benefit. The persons making up the group are
called members. Cooperatives may be incorporated or unincorporated.

Some examples of cooperatives are: water and electricity (utility) cooperatives, cooperative banking, credit unions, and housing cooperatives.

Types of cooperative societies

Some of the important types are given below.

(a) Consumers’ Cooperative Societies: These societies are formed to protect the interest of consumers by making available consumer goods of high
quality at reasonable price.

(b) Producer’s Cooperative Societies: These societies are formed to protect the interest of small producers and artisans by making available items of
their need for production, like raw materials, tools and equipments etc.
(c) Marketing Cooperative Societies: To solve the problem of marketing the products, small producers join hand to form marketing cooperative societies.

(d) Housing Cooperative Societies: To provide residential houses to the members, housing cooperative societies are formed generally in urban areas.

(e) Farming Cooperative Societies: These societies are formed by the small farmers to get the benefit of large-scale farming.

(f) Credit Cooperative Societies: These societies are started by persons who are in need of credit. They accept deposits from the members and grant
them loans at reasonable rate of interest.

MIDTERM

Replacement Investment - Refers to investment on replacement of worn-out or obsolete facilities.

Liquidity - Refers to the ability of the firm to pay its bills on time or otherwise meet its current obligations.

Accrual - Expense that has been incurred but has not yet been paid.

Sensitivity - Refers to the effect on investment of changes in some factors, which were not previously.

Promissory Note - Unconditional promise in writing made by one person to another.

Trade Credit - Form of credit extended by a firm to another firm.

Working Capital - Refers to the firm's total current assets.

Inventory Management - Refers to the activity that keeps track of how many of the procured items needed to create a produci or service are on hand.

Capital Budgeting - The planning and control of capital expenditures.

Investment - Happens when the firm spends some of its funds for the establishment of a project.

Bad Debts Cost - Refers to account receivables uncollected and subsequently written off.

Short term loans - Those with maturity periods of one year or loss.

Unsecured loans - Loans which do not require collateral.

Anticipated stock - Refers to that portion of the inventory used for expected seasonal, cyclical, and secular changes in inventory.

EOQ - Used to determine what quantity to order so as to minimize total inventory costs.

IRR - Refers to the environment required for the extension of credit.

Safety Stocks - Part of inventory used to absorb random fluctuations in purchases, production and sales.

Capital Expenditure - The substantial ouday of funds for the purpose of lowering costs and increasing net income for avere' years in the future.

Expansion Investment - Type of expenditure that provide additional facilities to increase the production and/or distibution capabilities of the firm.

Capacity - Retors to the ability of the applicant to operate successfully.

Investment Worth - Refers to the economic evaluation of a certain proposal.

Trade Acceptance - A time draft drawn by a seller upon a purchaser, payable to the seller as payee, and accepted by the purchaser as evidence that the
goods shipped are satisfactory and the price is due and payable.

Payback Period - Defermines the number of years required to recover the cash investment made on a project.

Personal Finance Companies - Finance companies which are engaged principally in personal loans

Cash Inflows comes from cash sales, colection of accounts receivable, loans, sales of assets, ownership contribution, and advances from customers.

Various Sources Of Cash Inflows

2. Cash from Loans

3. Collection of Accounts Receivable

4. Contributions of ownership

5. Sales from assets

6. Advance from costumers

Objectives of Capital Budgeting

1. Establishing Priorities

2. Cash planning

3. Construction Planning

4. Elimination Duplication

5. Revising Plan

Suppliers of Short term Funds

1. trade creditors;

2 commercial banks;

3. commercial paper houses;

4 finance companies:

5. factors;

6 insurance companies; and

7. company accruals.

Types of Short Term Loans

1. Secured loans

2. Unsecured loans