Unit 1 - Business Basics

Learning Target 2:  I can describe types of business activities

When you are in charge of a business you need to make sure you run it as efficiently as possible.  In order to do so there are certain business activities that must be addressed.  These are business activities all a business to run efficiently each day and also makes business planning easier for the owner and the management team. 

 

The basic types of business activities are operating, investing, and financing.  The goal of all of these activities are to create value for the customer.  An owner or a member of the management team can evaluate these activities by reviewing the company’s statement of cash flows.

Operating activities are activities a business performs that involve producing revenues.  This can include but not limited to the purchase of merchandise or raw good to manufacture merchandise for sale.  It is important to note that these activities should produce the majority of a company’s cash flow which will help determine if the company is profitable or not.  To read more about operating activities click here.  http://www.investopedia.com/terms/o/operating-activities.asp  (VIDEO) 

 

Operating activities also include the following items listed below. 

  1. Budgeting is how much money you plan to spend on daily operations, initiatives, and future growth.In larger corporations the senior managers of each department will provide the executive management team / CEO an outline of what they plan to spend and how much they plan to make.This allows upper level management to easily track and monitor the progress of the department over the fiscal period.

  2. Accounting is the management of the money coming into a business (revenue) and going out of the business (expenses).It also involves managing who owes you money (accounts receivables), who do you money to (accounts payable), paying your employees, taxes, looking at ways to reduce costs, and much more.

  3. Marketing is the action a business takes to promote and sell products to its customers.It also includes developing a company and brand recognition, advertising which in return will gain more exposure to the organization and its products.

  4. Sales these people have a direct contact with your customers. They are your number 1 brand ambassadors as they are on the front lines working directly with your customers.They reach out to potential new clients to see if what you offer can add value to the customer by solving a need.They also maintain relationship with current customers to encourage repeat sales.The sales team needs to be masters at matching up the (benefits with needs)

  5. Hiring employees or otherwise known as human resources is key to successful businesses.Companies must find the right applicants to apply, hire the best ones, train them and retain those employees for as long as possible.

  6. Customer service is the secret to a sustainable advantage.The only reason why anyone has a job is a because of the customer.How a well a company resolves their problems is directly related to the long term success of the company.A great example of this is Nordstrom’s who is known for their customer service which has allowed them to still be relevant in today’s super competitive retail environment.

 

Investing activities looks at the change in a company’s cash position which would have been caused from money the business has decided to put places such as a financial market or if they decided to purchase a property, plant assets or equipment otherwise known as long-term assets.  When a business spends money on items that will not be turned to cash or used in the current business cycle it is investing in what is called a long-term asset.  These long term assets can include but are not limited to investments in stocks, bonds or other corporations, as well as land, building, and machinery that are used by a business.  When a business is deciding to invest it will often look at the all the possible alternatives and will invest in the one that has the highest possible return over a given period. The key difference between investing activities and the operating activities is that the purchase of these investments usually does involve items for immediate resale.   Click here to watch a video that explains investing in more detail.  https://www.youtube.com/watch?v=6lmi4nz1Sl0  

 

Financing activities looks at a company’s cash that is received or paid to debit holders and shareholders.  Debit holders are owners of a bond or investment instrument that the business borrows from and repays.  Shareholders are people who own stock (a piece of ownership in a business) in which a business may pay a dividend to or raise capital from the sale of the stock.  Watch this video for a very simple explanation of financing activities https://www.youtube.com/watch?v=O3Kr92zZdWo 

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