BUSINESS OPERATIONS

Learn to Operate a Business.

Lesson Structure

There are 6 lessons in this course:

1. Introduction
   • Business law
   • types of businesses
   • starting a business
2. Finance
   • Liquidity
   • The money market
   • terminology
   • insurance
3. Financial Records
   • Simple Bookkeeping procedures
   • cash flow
4. Financial Management
   • Taxation
   • costing
   • budgeting
   • investing
5. Business Planning
   • Overview
   • Improving results in business
   • Developing a 12 month business plan.
6. Mistakes to avoid
   • Pitfalls: lack of market research, problems with marketing, cash flow, attitude, etc
   • Profitability
   • Profitability ratios
   • Reasons why businesses fail

What is involved in the Production Process?

Producing a product (or service) can involve the business operator in the following ways:

• Purchasing (e.g. buying the raw materials needed).
• Production (e.g. growing produce, mining, manufacturing, creating something).
• Managing the finished product – marketing, sales, product reviews.
• Controlling credit.

Businesses often fail when they do not balance these four components of production.

Consider:

• A business with excessive raw material, waiting to be used, but an inability to process the material into something that is saleable.
• Having a farm with heaps of produce, but nowhere to store it, let alone sell it.
• Having a team of consultants, all ready to provide a great service, but no clients to work for or sell to.
• Producing a product that is no longer wanted – all good businesses must review clients, needs and forecast new directions and requirements.
• Having produced and supplied products and services to lots of customers, but piles of unpaid customer accounts on your desk.

Think of this as a 3 part closed system:
1. Inputs
2. Operations
3. Outputs

• Inputs may be things such as raw materials, component parts of goods being created, energy and manpower used.
• Operations refer to the processing or converting of inputs.
• Outputs refer to the goods that are produced, as well as any waste (e.g. pollution, energy losses, etc.).

Production Activities
A typical manufacturing plant might involve the following production operations:

• Purchasing
• Receiving
• Shipping (dispatch)
• Quality Control
• Research and Development
• Maintenance
• Stock-keeping

Forecasting
When a business does forecasts, they are establishing what the expectations of customers, or customer opinions or trends will be at a later date. And they do this by using data collected in the past (such as past sales, marketing data etc.). This is an important process for any business, because forecasting will also tell them how much money the business will need today, in order to capitalize on future. And forecasting establishes the benefits of such long term investments. It allows you to decide whether such long-term investments are worthwhile or not.

We talked about Nigel and his video store earlier, Nigel became so wrapped up in his video store, looking at what he wanted to do and so on, he did not notice that DVD was becoming more and more popular and would eventually overtake video.  When we are inspired by something, it can become the sole focus of our attention, until we do not notice other factors that could impact on this business – for example DVDs in Nigel’s case.  When running any business, you need to be aware of possible changes in the market.

The market can change due to:

• Changes in consumer tastes.
• New products becoming available.
• New legislation and regulations changing how products must be made.
• An increase in visibility of the product.

Changing Tastes are Unavoidable
People are becoming more and more sophisticated. They want more choice.  A particular product may be very popular for a time, but products can go out of fashion (the same as anything else).  A product might be the “thing you must have” in December, but by April, no one is really interested in them. This is particularly the case when dealing with items such as children’s toys.  The toy everyone wants for Christmas can be discarded and out of fashion before the end of January. So try to be aware that a product is becoming less popular – slowing of sales in January for example can be attributed to an after Christmas lull. However if sales have not bounced back by February then you will need to consider what you will do:

• Just keep the stock until it might become popular again? This is a courageous decision to make as the product may never be popular again.
• Sell it off at a discount to get rid of the stock? At least this way you continue to have cash flow.
  These actions hold a risk:
  With the first approach– you may be left with a lot of unwanted stock and therefore loss of turnover but also a loss of your original investment.

With the second course of action you may sell off at a loss so you also crystalize your losses with no hope of recouping this loss once the goods are sold.
Sell just above cost to cover your initial outlay for the goods and your administration and selling costs – you cover losses and get your money back – however the goods may not be cheap enough to attract customer’s attention.

Although all these actions hold a risk – the first one (no action) is the riskiest. The others have less risk. However you must be in the best position to decide which action you take and how much risk you are willing to take. Experience, understanding your market and analyzing your sales, will all help in minimizing your exposure to risk. This will also help you to make better decisions when faced with these types of situations.