Business Success and Failure

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Business Success and Failure

  1. 1. Chapter Five Business Success
  2. 2. What is Business Success? <ul><li>Business success is measured in four ways. </li></ul><ul><ul><li>Profit </li></ul></ul><ul><ul><li>Social responsibility </li></ul></ul><ul><ul><li>Employee satisfaction </li></ul></ul><ul><ul><li>Personal satisfaction </li></ul></ul>
  3. 3. Measuring Profit <ul><li>Total dollar value of profit </li></ul><ul><li>Return on Sales </li></ul><ul><ul><li>If you sell 500 chocolate bars for $1 each and make a profit of $75, your return on sales is 75/500 x 100 = 15% </li></ul></ul><ul><ul><li>Allows you to compare businesses with different volumes of sales. </li></ul></ul><ul><ul><li>The appropriate return on sales percentage depends on the industry. </li></ul></ul>
  4. 4. Maximizing Profit <ul><li>Increase revenues by increasing the selling price </li></ul><ul><li>Increase revenues by selling more products/services </li></ul><ul><li>Decrease expenses by controlling costs: </li></ul><ul><ul><li>Economies of scale – the more you produce, the cheaper each item becomes (normally happens when using machinery and technology to produce goods) </li></ul></ul><ul><ul><li>Important to try to manage both fixed costs and variable costs </li></ul></ul><ul><ul><li>Budgeting used as a tool to plan for reducing expenses </li></ul></ul><ul><ul><li>Businesses need to be careful when cutting costs to ensure the cuts don’t lead to further problems </li></ul></ul>
  5. 5. Social Responsibility <ul><li>Methods: </li></ul><ul><ul><li>Donations of goods and services </li></ul></ul><ul><ul><li>Sponsoring public service announcements </li></ul></ul><ul><ul><li>Sponsoring fundraising events and contests </li></ul></ul><ul><ul><li>Providing co-op or work experience for students </li></ul></ul><ul><li>Reasons: </li></ul><ul><ul><li>Owner or board of directors feel strongly about an issue </li></ul></ul><ul><ul><li>Gain good publicity or positive reputation </li></ul></ul><ul><ul><li>Tax deductions </li></ul></ul>
  6. 6. Employee Satisfaction <ul><li>Measured by surveys, employee retention rate </li></ul><ul><li>Methods: </li></ul><ul><ul><li>Good salaries </li></ul></ul><ul><ul><li>Good benefits (health care, vacations) </li></ul></ul><ul><ul><li>Employee discounts </li></ul></ul><ul><ul><li>Good working environment </li></ul></ul><ul><ul><ul><li>Safe, healthy, enjoyable </li></ul></ul></ul><ul><li>Reasons: </li></ul><ul><ul><li>Very expensive to train employees </li></ul></ul><ul><ul><li>Gives a business a positive image </li></ul></ul>
  7. 7. Personal Satisfaction <ul><li>Is the owner satisfied with the business? </li></ul><ul><li>Not always related to profitability </li></ul>
  8. 8. Factors Affecting Business Success <ul><li>Personal Factors </li></ul><ul><li>Economic Conditions </li></ul><ul><li>Influence of the Government </li></ul>
  9. 9. Personal Factors <ul><li>Starting and running a business often takes different kinds of skills </li></ul><ul><li>To run a business, you must have: </li></ul><ul><ul><li>A desire for control (you like being in charge, able to delegate tasks) </li></ul></ul><ul><ul><li>Vision (see opportunities others don’t see) </li></ul></ul><ul><ul><li>Passion (time commitment, love of the work) </li></ul></ul><ul><ul><li>Perseverance (staying with a task others would quit) </li></ul></ul><ul><ul><li>Teamwork (ability to work with others of different skills and abilities) </li></ul></ul>
  10. 10. Economic Conditions <ul><li>Economics conditions cannot be controlled by a business but a company can anticipate them and adapt. </li></ul><ul><li>Supply and Demand </li></ul><ul><ul><li>As supply increases, price normally falls – some businesses are unable to compete </li></ul></ul><ul><ul><li>To prevent this from happening, businesses can try to manipulate the market (legally or illegally) by: </li></ul></ul><ul><ul><ul><li>Price fixing (illegal in Canada) occurs when businesses in an industry get together to set a price for their product. </li></ul></ul></ul><ul><ul><ul><li>Supply Quotas: suppliers agree to supply only a certain amount of a good in the hopes the price will rise </li></ul></ul></ul><ul><ul><ul><li>OPEC (Organization of Petroleum Exporting Countries) – a cartel - tries to manage the price of oil through setting supply quotas </li></ul></ul></ul>
  11. 11. Economic Conditions <ul><li>Labour Market Conditions </li></ul><ul><ul><li>Businesses can’t control the availability of skilled labour </li></ul></ul><ul><ul><li>Unemployment rate measures the percentage of people who are able and willing to work who do not have jobs </li></ul></ul><ul><ul><ul><li>Considered low if it is less than 6% in Canada </li></ul></ul></ul><ul><ul><ul><li>Low unemployment leads to more competition for jobs, higher wages </li></ul></ul></ul>
  12. 12. Economic Conditions <ul><li>Inflation – occurs when the price of many products increases while the purchasing power of money (amount and quality of goods money can buy) decreases </li></ul><ul><li>A big problem for people on fixed incomes (retired people, social assistance) </li></ul><ul><li>Businesses have to spend more for the products and services they need </li></ul><ul><li>As inflation increases, consumers reduce spending. </li></ul>
  13. 13. Government Influence <ul><li>Governments influences businesses through the collection of taxes, the control of the distribution of goods and services and the development and enforcement of regulations </li></ul><ul><li>Taxes </li></ul><ul><ul><li>Sales taxes </li></ul></ul><ul><ul><li>Income taxes </li></ul></ul><ul><ul><li>‘ Sin’ taxes </li></ul></ul><ul><ul><li>Duties on imports </li></ul></ul>
  14. 14. Government Influence <ul><li>Control of Distribution </li></ul><ul><ul><li>Marketing boards: regulate the supply of agricultural products through quotas </li></ul></ul><ul><ul><li>Anti-trust legislation </li></ul></ul><ul><ul><li>Money supply </li></ul></ul><ul><ul><li>Licensing and permits </li></ul></ul><ul><li>Regulations </li></ul><ul><ul><li>Health and safety </li></ul></ul><ul><ul><li>Quality control </li></ul></ul><ul><ul><li>Ethical business practices </li></ul></ul>
  15. 15. Why Do Businesses Fail? <ul><li>Lack of Skill or Knowledge </li></ul><ul><ul><li>Obtained through either courses or practical experience. </li></ul></ul><ul><ul><li>Usually a lack of either marketing or accounting skills. </li></ul></ul><ul><ul><li>Marketers read the market, predict demand, and select products that will be popular. They know how to reach customers and are adept at sales techniques. </li></ul></ul><ul><ul><li>Accountants set budgets, handle inventory, take advantage of discounts etc. The major goal is to make sure that the business is profitable. </li></ul></ul>
  16. 16. Why Do Businesses Fail? <ul><li>Expanding Too Quickly </li></ul><ul><ul><li>Businesses decide to expand, develop new products, franchises etc. </li></ul></ul><ul><ul><li>If researched, usually these are good decisions, if not, these decisions can lead to losses. </li></ul></ul><ul><ul><li>Business needs to remember their ‘core competency’ (stick to what you’re good at!) </li></ul></ul><ul><ul><li>Example: McDonalds trying to bring in pizza spent millions and then withdrew the product from their menu. </li></ul></ul>
  17. 17. Why Do Businesses Fail? <ul><li>Lack Of Capital </li></ul><ul><ul><li>Failure to budget properly in the first year. </li></ul></ul><ul><ul><li>Lack of funds for expansion </li></ul></ul><ul><li>Inability To Stay Competitive </li></ul><ul><ul><li>Businesses can compete on product mix, product quantity, service, price, location, reputation or expertise. </li></ul></ul><ul><ul><li>Small businesses have been said to close due to ‘big box’ stores. </li></ul></ul>

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