a short description of the business...

Grade 10 Module 4 – Business Functions

Unit 1 A short description of the 8 business functions: Introduction: There are eight main functions in most businesses. In smaller businesses, these management functions may be combined. Larger businesses will have at least one person and often a whole department taking care of each of these. The functions in a business are as follows:

General Management

Production (wholesalers and retailers may not have a production department);

Marketing;

Personnel/Human Resources;

Administrative function;

Finance;

Purchasing; and

Public Relations. 1. General Management The basic task of management (using the POLC acronym) is to:

Plan the future of the business;

Organise it in order to get all staff and resources needed in the business;

Lead workers to make sure they are working to help the business to make a good profit; and

Control all activities in the business to make sure things are going according to plan.

In order to plan for the future of the business the manager must formulate a vision, mission, goals, objectives and strategies for the business. 2. Production – (gr 11) Production is the combination of the factors of production (natural resources, labour, capital and entrepreneurial skill) in order to provide the right product to satisfy the needs of the consumer and for which he is prepared to pay.

NOTE: Some academic sources now include KNOWLEDGE as a fifth factor of production.

The entrepreneur must make sure he combines the other three factors of production in the best possible manner to maximise the profit of the business. It is important to keep manufacturing cost (INPUT i.e. the factors of production) as low as possible, without sacrificing quality of the product (OUTPUT).


3. Marketing Function – (gr 11) Marketing entails all the activities related to getting the product or service from the producer to the consumer. The following DIAGRAM illustrates the four policy instruments and the relevant sub-sections to be covered by the Marketing function. A product must satisfy the needs of consumers. This product must be sold at a price that the consumer is prepared to pay. Goods must be distributed to a place that is convenient for the consumer and the consumer must be informed (marketing communication) about the availability of the product. In order to determine what product or service is in demand, what price consumers are prepared to pay, where (place) the product/service must be sold and what the best method is to communicate with the target market, market research has to be undertaken. Market research helps the marketing function to identify the target market based on characteristics such as:

Age;

Income;

Gender;

Marital status;

Hobbies/interests; and

Occupation. Some academic sources include Public Relations as a sub-function or Marketing while others consider it to be a management function on its own. The Public Relations (PR) department creates a favourable image of the business with the people working in the business (staff) but also with people outside the business (the media, customers, suppliers, bank etc). 4 Personnel/Human Resources (HR) – (Gr 12) The HR department has to determine how many workers and what levels of skills are required in the business. The personnel department must recognise and reward hard work to keep employees motivated. It is also important that the HR department creates a positive environment for staff to ensure workers are working well and to make sure the business achieves its goals. 5. Administrative Function – (discussed later) 6. Financial Function – (discussed later) 7. Purchasing function – (discussed later) 8. Public Relations – (discussed later)


The interdependence of business functions

Consider a manufacturer of motorcars: it consists of departments of every management function.

The total planning, organisation, leadership and control it is done by general management.

The financial department is responsible for recording all transactions, compiling financial statements and budgets and allocating funds to the different departments.

The purchasing department is responsible for the buying of parts and other resources that are used by the production department.

The marketing department decides on the appropriate media and clever advertisements to introduce the newly manufactured cars.

The administrative function deals with correspondence and gathers and organises information in order to provide management with the information they need to help them make their decisions.

The Human Resources department is responsible for the recruitment and training of staff, as well as specifying conditions of service and other related business.

The public relations department ensures that a positive image is created.

It is clear that in order for the business to function as one unit, every department must be well-informed about the product and the goals of the business. You should be able to identify the relationship between the business functions e.g.

Purchasing and production functions

Financial and administrative functions

Marketing and public relations functions and apply these for Small/Medium/ Micro and large corporations


Unit 2

General Management: Introduction Management (to administer or run something) is a generic term and can be used to both manage your own life (self management) and to manage others in various situations: for example', a sports coach and captain will manage their teams. Every aspect of business also needs to be managed in order for it to run effectively. Management Management is the planning, organising, activating and control which a manager undertakes when managing the enterprise. The aim of management is to achieve the objectives of the business and to make a profit. Manage is the verb used to describe what the manager must do in order to achieve the aims of the business. The elements of' the management tasks include: Main Management Elements (POLC):

Planning

Organising

Activating/leading

Control Additional Management Elements (CCDDDM):

Coordination Strategic

Communication

Delegating Decision making tactical

Disciplinary action

Motivation operational Levels of management:

1. Top management: e. g. CEO, director or general manager

Top management makes strategic decisions concerning the future of the business. These decisions are long term and non-routine by nature. Objectives must be defined and long-term decisions are taken to map out the direction of the undertaking as a whole.

2. Middle management: e. g. branch manager or departmental head

At this level management makes tactical decisions aimed at the execution of the strategic decisions made by top management. These decisions are turned into actions/operations/production with the help of lower level managers. Middle management/functional managers must use the resources of the enterprise in such a way that the maximum result is obtained. The nature of planning and control that are undertaken focuses on the medium term.

3. Lower management: e.g. supervisors and foremen.

These managers, who are at the front-line make operating management decisions, aimed at the operations of the undertaking. These are usually routine decisions in accordance with prescribed rules and regulations and are


short term by nature. Lower management supervises the execution of specific tasks performed in an effort to reach the objectives of the enterprise.

Management functions (also known as business functions): The function of general management coordinates the activities of the following seven auxiliary business functions:

Purchasing function;

Production function:

Marketing function;

Financial function;

Administrative function;

Personnel/human resource function; and

Public relations function.

General management must seek a balance between the conflicting aims of these functions. The general manager must keep the influence of all internal and external factors in mind, as this will determine what the business can do, must do and must avoid. The following variables influence the performance of the enterprise:

Stakeholders of the enterprise, e.g. shareholders, staff, customers;

Resources of the enterprise, e.g. capital, fixed assets, market share; and

Environment - both internal and external - in which the enterprise operates.


The general manager:

A good general manager will have the following qualities and requirements: The necessary educational and managerial qualifications to do the job, but

(almost more importantly) also the practical understanding of the activities of the enterprise.

The ability to coordinate the activities of the seven auxiliary management functions.

The ability to think, plan and act creatively and originally.

The ability to understand people and maintain good human relationships.

Flexibility, accessibility, friendliness and graciousness.

The ability to give guidance and make decisions.

Management tasks:

1. Planning: Description: The manager looks at the future and plans to tackle certain issues successfully. Different plans must always be considered and the best one chosen. It is important always to have a contingency plan (plan B, or back-up plan). In order to develop an action plan that will help you to get from where you are now to where you would like to be in future, consider the following: Critical questions during planning: (5W and 1H Method)

Why must the plan be executed?

What activities are required?

Where must the planned activities take place?

When will the activities commence?

Who will participate in these activities?

How is the plan to be executed?

Steps during the planning process:

1. Understand the problem. 2. Get all the relevant information. 3. Analyse the information and look at all possible eventualities as well as

the assumptions on which the information is based (e. g. assuming that it will not rain when you are planning an outdoor function).

4. Define the plan of action. 5. Define alternative plans (contingency plans). 6. Implement the plan carefully. 7. Follow up to ensure the plan is successful.

Requirements/principles of effective planning:

The plan is aimed at setting up objectives; however, it should always be flexible and adaptable to change in order to be useful.

Plans should be accurate and objective: all factors and alternatives must be considered before the plan is finalised.


Planning takes place on different levels and must be arranged in a hierarchy of importance. Managers responsible for planning and implementation are accountable for planning but should be given guidance and support from managers on higher levels.

Planning must be realistic and economical.

There should be an effective method of communication to inform supervisors and workers of plans.

Planning should be aimed at the future, i.e. done in advance to ensure overall objectives will be achieved when all plans are combined.

Timing is important when planning but also when executing the plan. It is also important to have contingency plans.

KISS- keep it straight and simple.

Plans must be in writing.

Planning is a management tool. It is a means to achieve an end and not the end in itself.

Problems which can complicate planning:

Sometimes not all problems and risks are taken into account when planning.

If workers feel the plan is too prescriptive they will oppose the plan.

If the plan is uneconomical in execution.

Human error during planning can upset the execution (implementation) of the plan.

Issues occur without warning which' require crisis management.

Need for a planning policy:

Every business needs a planning policy.

The policy should be drawn up with the aim of achieving the goals and objectives of the business.

All plans must be endorsed (approved) by the senior managers of the business.

The planning policy should be flexible and adaptable according to circumstances.

Activity 1

Imagine you are responsible for a Teen Beauty Competition at your school. Plan the event and write down your plans. Then check whether you follow the correct steps and whether your planning satisfies the conditions applicable to planning the event.

Activity 2

Elmarie Barnato is the general manager of the Grey Duck Hotel, a small business situated on the coast of northern KwaZulu-Natal. The hotel is close to the beach and to Drake's Green, a newly-developed golf course. Elmarie has spent many years in the hotel and catering industry. She has worked her way up through various levels of management before joining the Grey Duck Hotel. She started working as a reservations clerk for a large hotel group. Later she moved to reception where she had supervisory authority over the hotel porters. A few years later, she was promoted to the position of front


office manager in charge of staff (such as porters, reservations clerks and receptionists) who deals directly with hotel guests.

Making plans for the Grey Duck Hotel

1. Elmarie Barnato would like to increase the number of visitors to the Grey Duck Hotel during the winter months. Discuss and write down three different plans that Elmarie might implement to achieve this goal.

2. Choose the suggestion that you think stands the best chance of success. Why did you choose this particular plan and not one of the others?

2. Organisation: Introduction: To organise means to arrange information in such a way that all components will work together to form a systematic whole. Organisation as a component of management means to combine the other factors of production in such a way that the objectives of the business are met. Concepts:

Range of control: This refers to the number of workers under the supervision of someone who is in a managerial position. The number of workers under a supervisor will depend largely on the nature of the task. If it is routine, the span of control can be increased.

Delegation: This means transfer of authority. It takes place when a manager gives tasks to workers at lowers levels.

Authority: This is the right given to a person to make decisions and perform certain tasks. The level of authority will depend on position, qualifications, experience and abilities. When managers are appointed, they are granted authority over the workers to enable them to make sure the work is properly done.

Responsibility: The duty people have to carry out the task to the best of their ability.

Accountability: This is the expectation of a worker/manager to give reasons why decisions or actions were taken.

Organisational Structures:

Line organisational structures: Line organisation is a simple structure of authority where every employee in the organisation is a subordinate (reports to) to one superior only. .


Activity 3

1. What is the Production Manager’s span of control? 2. Give two examples of the type of things the Purchasing Manager will have

control over. 3. Who delegates TO the administrative Manager? 4. Who is the Production Manager accountable to?

The basic principles on which the line organisation is based:

Instructions to subordinates are given only by the immediate superior.

When a lower level subordinate would like to give feedback to a superior OR a superior would like to give an instruction to a worker reporting to her, no link in the channel of command may be overlooked.

Only one person gives instructions - there is unity of command. The authority and responsibility of everyone are clearly defined.

The precise number of subordinates that report to a superior may need to be limited as too many subordinates could be difficult to control in certain jobs. This would then require the structure to be broken down into further levels of superiors and subordinates.

Activity 4 Formulate:

a. Advantages of the Line Organisational Structure:

b. Disadvantages of the Line Organisational Structure: Functional organisational structure: The functional organisation is based on division of labour, where each manager is an expert in a particular field. Managers give instructions to any workers regarding their area of expertise. In the case of functional authority, the workers can receive instructions from various supervisors. There is no unity of


instruction and this may be confusing. Hint: Think about yourself as a worker and the educators as supervisors. They all give you homework and assignments and expect theirs to be done, regardless of instructions you may have received from other subject educators, or your sports coach or ... Keeping in mind that the reason your educators/coaches expect this from you is that they only want what is best for you, would you be able to come up with a solution to this problem?

Line &Staff organisational structure: A line & staff organisation is really a combination of the line and the functional organisation. These two are combined to use the advantages of both. There is only one person giving orders. The advisors (known as staff personnel) do not give orders, but only advice to line personnel. This still allows for the businesses to reap the advantages of division of labour (each advisor is a specialist) while maintaining unity of command. Advantages:

It is easily understood by everyone in the organisation;

Only one person gives orders to a group of workers — unity of control;

The span of control is limited;

The advisors assist the top and middle level managers in decision making;

Greater division of labour, with all the associated advantages; and

The system lends itself to quicker decision making. Disadvantages:

Advisors sometimes feel unhappy, because they have no say in the execution of orders that have arisen from their advice;


Advisors sometimes exceed their authority by giving orders to workers, which can lead to confusion;

Advisors, as a result of their limited contact with the workers, can become too theoretical;

Advisory services can, in the course of time, become too expensive for the actual needs of the business; salaries to consultants may be a large item of expense;

In a large undertaking, the organisation can sometimes become very complicated; and

Managers may become too lazy to think for themselves, i.e. too dependent on the advisors.

Project organisational structure:

The organisation of this business is centred around project teams that are working on specific projects.

The teams consist of specialists from different departments and are managed by a project manager.

As soon as the project is completed, the team is dissolved and workers return to their departments.

One of the disadvantages of the project organisational structure is that the same team members are seldom on the same projects. It is thus difficult for them to get to know one another and to work as a team.


Matrix organisational structure: In the matrix organisation projects move between specialist departments. Staff members are thus not transferred back to original departments as soon as a project is completed and get to know one another well (which improves productivity).


Activity 5

Draw a business structure and describe the relationship between all the business functions for the following:

Your home

The school tuck shop

The school

3. Activating/leading Description: Leading is the third step of business management. Plans will be carried out and objectives achieved (i.e. work will be done) through effective leadership and guidance. Managers must ensure workers achieve personal goals while at the same time work towards achieving overall goals of the business. A good leader will never just be task orientated, but will always keep in mind that he is leading people and that people should be treated with dignity and respect. Concepts:


Activating: Workers are convinced to take action to perform their tasks, using their skills and equipment provided, in order to achieve objectives.

Directing: To give instructions to staff and to then make sure the instructions are carried out according to plan.

Guidance: Workers are shown how they can use their own abilities to achieve personal aims and how this will benefit both them and the business.

Leading: People are influenced in a manner that will motivate them to work towards the achievement of the business's objectives. The manager must have leadership qualities and ethics which will be recognised by the workers

Motivation: Each worker is encouraged to work to the best of his ability. Different motivational tools can be used. e. g. Remuneration, recognition of good work etc.

Communication: To transfer information about the business objectives, strategies, policies etc. to the workers in such a way that the relationship between employers/management and workers is improved.

Different types of leaders: Autocratic leader:

Only one person makes decisions.

This is sometimes necessary to restore discipline in an organisation.

Democratic leader:

Workers are involved in the decision-making process.

If workers feel they can give input, it could improve worker morale, motivation levels and job satisfaction.

Laissez-faire leader:

'Laissez-faire' means a refusal to interfere in other people's affairs, or letting people do as they please.

These managers inform workers WHAT must be achieved, but do not get involved in telling workers HOW these objectives should be achieved. In other words, they are very laid-back bosses and this form of management often leads to chaos and a lack of discipline.

Rules for good leadership:

Workers must always be given a clear understanding of what must be achieved, i.e. objectives. Employees should be given the opportunity AND encouraged to give input.

It is very important that staff members know management as well as respect and support them.

Leaders must, in turn, recognise good work - in public if necessary.

BUT criticism should always be in private. Criticism should be constructive in order to help the employee to correct the MISTAKE. It should never be personal.

Workers should always be informed of new developments and changes in the organisation.


4. Control: Definition: The process of comparing actual results with the standards set during the planning stage. Control is important because it gives feedback to management on the performance of the business. Deviations and reasons for deviations are assessed and if needed, remedial action is taken. Importance of control:

To make sure the business is heading in the right direction to achieve objectives.

To make sure all departments are running smoothly.

To ensure the workers are motivated to achieve not only personal goals but also the goals of the business.

Implementing control: Inspections, observation and testing should be undertaken at strategic points.

Auditing financial statements, worksheets and production cost statements are also possible methods of control. Budgets can be used to keep expenses within limits.

Manuals containing rules, regulations and standards must be available to enable all members of staff to know what is expected of them.

Disciplinary action should be taken when required.

Activity 6 How is the quality of work controlled in...

a. The classroom? b. A factory making snacks? c. A car factory?

Management Tasks at different levels of Management

Level of

Management

Planning Organising Leading Control

Top

Management

28% 36% 22% 14%

Middle

Management

18% 33% 36% 13%

Lower

Management

15% 24% 51% 10%


Additional/other elements of the management task: 5. Coordination:

Coordination is the management task performed by top management to combine all the activities of individual departments. This is done to ensure all departments act together in an efficient manner to achieve the business's objectives. Facts to be considered for a well-coordinated undertaking:

All departments must work together.

All functions must be clearly informed about what is expected of them (good communication).

There must be synergy between work schedules of departments.

An effective way to get proper coordination is to hold regular meetings with the departmental managers and supervisors.

6. Communication: Definition: The transfer and receiving of ideas and attitudes between workers. Importance of communication:

It ensures good relationships between management and workers.

Communication ensures coordination of activities in the' business.

Workers know exactly what is expected of them.

It enables workers to inform management about problems and ideas.

It improves the overall efficiency of the business because the correct information reaches the correct people at the correct time.

Methods of communication:

Verbal orders (can lead to misunderstandings).

Written communication, e. g. newsletters, circulars, emails, SMSs.

Announcements on a notice board.

Social functions.

7. Delegating: Definition: The allocation of powers (duties, authority and responsibilities) to subordinates. This is done in order to reduce the burden on superiors and to make possible a more meaningful distribution and execution if possible. Important aspects when delegating: Certain duties must be allocated to subordinates. Authority must be allocated with the responsibility, but the manager and worker are accountable for performance. This means the subordinate must do the task to the best of his ability, but it remains the responsibility of the supervisor to check to see whether the task was carried out successfully.


8. Discipline: Principles:

Everybody must know what would be regarded as misconduct and what the consequences of actions will be.

Offenders should be dealt with in a consistent manner.

When disciplinary action is taken employees must be given the opportunity to state their side of the story.

Offenders must be given a fair hearing.

Staff members must be given an opportunity to appeal against the outcome of the hearing.

The purpose of a disciplinary action is not only to deal with transgressions but also to improve future behaviour.

Procedure:

A verbal warning is given for a minor or first offence.

For a serious offence or a second offence, a formal written warning is given.

If the employee continues to misbehave, the employee can be suspended for a period of time.

Instant dismissal is only for a very serious offence, and in very specific cases.

The employee must have the opportunity to appeal against disciplinary action.

9. Decision making: A decision can only be made after all facts have been considered. A choice is made between different alternatives. The level and intensity of decisions made will differ at the various management levels.

10. Motivation: Motivation is the impetus to 'get up and go' - the reason we do things. Different people are motivated by different things, and motivational factors can be either internal (things within a person such as wanting to achieve) or external (things outside a person such as money). Factors which can influence motivational levels:

Job security.

Remuneration.

Appreciation of good work.

Interest in the worker as a person and his family.

Good human relations.

Dignified treatment.

Communication between management and workers.

Reasonable instructions.

Opportunities for self-realisation.


Management in the private and public sectors Considering that the Assessment Standard refers to management in a private and public enterprise, we need to remind ourselves of the difference between the private and public sector. The private sector consists of businesses started by entrepreneurs to make a profit, while businesses in the public sector are started by government to render services to the citizens of the country. . The principles of management remain the same for businesses in both the private and public sectors. Regardless of the sector, the manager has to formulate a plan that will enable the business to achieve predetermined goals and objectives. In the private sector this will be profit-related, while in the public sector this will probably be related to creating infrastructure by providing services such as public health services or education. In order to achieve the goals, the manager will have to organise resources, make decisions and communicate with employees, while leading and motivating them, controlling their performance and taking disciplinary action where and when necessary. One of the biggest pitfalls of management is the inability or unwillingness to delegate. Managers have to realise and accept that doing all of the above alone is impossible and therefore delegate tasks to ensure that coordination amongst departments makes the performance of the business a team effort.


Unit 3

Administration as a business function in attaining the business objectives The Administrative Function The administrative function is responsible for collecting all data in the business and the business environment. The data will then be processed into information, the information stored and made available to management as and when needed. In short the administrative function handles all the paperwork and record-keeping in the business.

Definition: Administration: The management of the business where the focus is on the technical and financial aspects. e.g. correspondence, control of all office activities and the keeping of financial and accounting records.

Activities of the administrative function: 1. Collecting of data:

Data is the raw information that should be processed in order to create information.

Different sources of data include: sales figures, advertising results, market surveys, questionnaires, minutes of meetings, company records, information recorded in trade journals and catalogues.

Primary data is original data and is collected for the first time (i.e. has not been published yet), e. g. market research, while secondary data has been published before, e. g. sales records.

2. Processing of data:

Data should be recorded according to systems that work well for the business.

Data is processed in three steps, namely input (recording of data), processing (analysing, sorting and classification of data) and output (where the information is now presented in a suitable form).

Information or statistics should link past and present performance and help the business to make reliable projections of future developments and trends.

Information should meet the following criteria: It must be accurate and correct. Information must be available at the time when it is needed. It must be meaningful and in such a format (figures and diagrams)

that management can interpret it easily, i.e. it must suit the needs of management and help with decision-making.

Information (statistics) must reflect conditions in each department as well as in the business as a whole.


It must give a reliable indication of the performance of the business in comparison with competitors in the same industry (past and present).

Cost effectiveness is very important. It is important to keep collection, storage and management costs as low as possible but not to compromise the quality of the information.

3. Storing and updating information:

Most businesses use computers to record data and to process the data into meaningful information.

The computer is a very handy tool to store the information. The information does not have to be retyped every time.

Data should be updated on a regular basis to ensure correct information is given to management.

It is important to note that a computer cannot recognise incorrect data but will use this incorrect data to prepare incorrect information (garbage in; garbage out = GIGO).

The law requires certain documents be kept (stored) for prescribed periods of time (e. g. cheques and bank records are kept for at least five years). The Income Tax Act also requires tax and VAT details to be kept. The Companies Act 61 of 1973, the Unemployment Act and the Workmen's Compensation Act also require accurate records to be kept for prescribed periods of time.

4. Presenting processed data/information:

Information should be presented in a form that makes it easy to understand and interpret.

Information must always be correct and up to date to help management with good decision-making.

In order to improve decision-making the information can be presented in a number of ways, for example:

Activity 7 Draw a ...

a. Pie chart b. Line chart c. Bar chart for the

percentage by population groups in S.A. for 2004


5. Interpreting information:

The business needs to look at information in order to help management identify trends (patterns).

These trends can be used to base future decisions on.

If an unfavourable trend is noted, it is important that the business is pro-active and takes corrective measures.

Activity 8 8.1 You work for a construction company and need to order 100 litres of blue paint from a company that supplies building materials. Prepare a fax for this order 8.2 Role-play the telephone conversation between an administrator for a company and a customer who wants to speak to your manager. Your manager is in a meeting and will not be available until later in the afternoon. 8.3 Design a message form for all incoming telephone calls for your

construction company Activity 9 The administrative function is responsible for keeping accounting records for prescribed periods of time. Give one reason why each of the following people may want to examine the accounting records at a future date:

1. Receiver of Revenue 2. Bank manager 3. Shareholders 4. General Manager

Statistics Statistics are a useful way to present and interpret numerical data. There are different types of calculations that can be used: 1. Calculating the arithmetic mean / average - the different elements are added up and divided by the number of elements:

E. g. John is 18, Mary is 12, Sue is 18, Peter is 23 and Chris is 18. 18 + 12 + 18 + 23 +18 = 89 89/5 = 17,8 So their average age is 17,8 years.

2. The frequency distribution refers to the number of times a certain element appears in a range of data:

E. g. John is 18, Mary is 12, Sue is 18, Peter is 23 and Chris is 18. The frequency distribution of "12" is once, but "18" appears three times. This means the frequency distribution of "12" is 1 but the frequency distribution of "18" is 3 times.


3. The mode is the item that appears most often in a set of data, i.e. the one with the highest frequency distribution.

In the above e.g. it will be 18. 4. The median is the item that appears in the middle of a set of data when the elements are arranged from high to low:

E. g. John is 18, Mary is 12, Sue is 18, Peter is 23 and Chris is 18. When arranged from high to low: 23, 18, 18, 18, 12. 18 appears in the middle and is thus the median.

5. The range refers to the difference between the highest value and the lowest value:

E. g. John is 18, Mary is 12, Sue is 18, Peter is 23 and Chris is 18. Peter is the oldest at 23 and Mary is the youngest at 12. This means the range is 23 - 12 = 11 years.

Activity 10 DO THE FOLLOWING STATISTICAL CALCULATIONS:

10.1 19, 7, 15, 10, 15, 10, 13, 10, 12 10.2 172, 148, 167, 153, 159, 155 10.3 1895, 1157, 1755, 1264, 1372 10.4 62, 32, 60, 43, 60, 59, 45, 58, 47, 55

10.5

ABC LTD Daily sales for the week starting 7 December 2___

Date: Sales

Dec 7 Dec 8 Dec 9 Dec 10 Dec 11

R4 427.00 R4 168.00 R3 904.00 R3 807.00 R3 619.00 R19 925.00

Arithmetic mean = total sales = R3 985.00 Number of items Range = difference between highest and lowest entries = R808.00 No frequency distribution since each entry appears only once No mode since each entry appears only once.


Unit 4 Financing as a business function

Financial Function What is the role of the financial function? In order to start a business, the entrepreneur (and thus the business) needs capital, which is the money used to start a business. However, capital also includes capital goods such as machinery and equipment used in the business. To calculate how much capital is required, the entrepreneur will work out how much money is needed to start the business (start-up costs such as acquiring premises, buying machinery and raw materials etc.). It is also important to make a calculated forecast as to how long it will take before the business will start making a profit. The financial function has to make sure there is enough capital in the business and that it is used in the best possible manner.

Capital In order to start a business, the business needs capital. There are two basic possible sources of capital: Own capital vs. borrowed capital: Own capital: The investment made by the owner (sole trader, partner, shareholders) in the business. Borrowed capital: Also called foreign capital. The business can borrow money from the bank or buy on credit (buy now, pay later). Using borrowed capital increases the risk of the business as it has to be paid back with interest. When looking at the purpose of capital, we can distinguish between long-term (fixed capital) and short-term capital (working capital): Fixed capital: Fixed capital is tied up in fixed assets such as land and buildings, vehicles and equipment. Fixed assets remain permanently in the business with the purpose of earning income. Working capital: Working capital is used to purchase stock or finance debtors (people or businesses that owe us money). When the stock is sold or the debtor pays his account the money can then be used to buy more stock. In short it can be said that working capital is used to cover the day-to day running of the business and can therefore also be used to pay expenses.


Task of the financial manager/chief financial officer (CFO): The financial manager draws up the cash budget (for the short term) as

well as a capital budget to plan the long-term financial needs of the business.

The financial manager helps the general manager to interpret the financial statements (income statement, balance sheet and cash flow statement).

In addition to the above, the financial manager will make sure the different departments stay within their budgets.

The objectives of the financial function: 1. To maximise profit by keeping expenses as low as possible Sales - Cost of Sales = Gross profit - Expenses = Net profit 2. To increase profitability (this will only be possible if profits are maximised) Profitability = net profit x 100 capital 1 3. To make sure the business has enough cash to cover expenses (liquidity) Two liquidity ratios:

a Current capital ratio Current assets : Current liabilities Stock + debtors + cash : Creditors + bank overdraft Ideally is should be 2 : 1 (i.e. Twice as many short term assets as short term debts.) b Acid test ratio Current assets - stock : Current liabilities

Debtors + cash : Creditors + bank overdraft Ideally it should be 1 : 1

4. To maintain a good ratio between own and borrowed capital: (This is known as the gearing ratio and should ideally be at least 2:1.]

Financial statements:

1. Income statement: An income statement for a retailer (business selling goods) will show the sales and cost-of-sales figures and will be used to calculate the net profit of the business. Note that the income statement reflects transactions for a period of time, i.e. a summary of what happened during the financial year.


Tarika's Dealers Income statement for the year ending 31 December 2009

Sales 150 000 00

Cost of sales (80 000) 00

Gross profit 70 000 00

Other operating income 4 200 00

Rent income 4 200 00

Gross operating income 74 200 00

Operating expenses (21 002) 00

Telephone 4 100 00

Fuel 2 222 00

Insurance 1 236 00

Rates 2 332 00

Wages 8 965 00

Water and electricity 2 147 00

Net profit 53 198 00 2. Balance sheet: The balance sheet reflects the financial position of the business on a specific date, i.e. the last day of the financial year. A balance sheet shows how money (capital) was raised (own or borrowed) and how it was applied (spent) on assets.

Balance sheet of Tarika's Dealers on 31 December 2009

ASSETS:

Non-current assets

Property, plant and equipment (Tangible/ fixed assets) 188 680

Current assets 134 500

Inventories 88 500

Trade and other receivables 13 300

Cash and cash equivalents 32 700

TOTAL ASSETS 323 180

EQUITY AND LIABILITIES

Capital and reserves 243 800

Equity capital 243 800

Non-current liabilities 10 380

Long-term loan - Standard Bank 10 380

Current liabilities 69 000

Trade and other payables 69 000

TOTAL EQUITY AND LIABILITIES 323 180


On the asset (things we own) side of the balance sheet: We include all non-current assets (long term) and current assets (short-term) here. Non-current assets such as property, plant and equipment refer to land and buildings, vehicles and equipment. These are also known as fixed assets. Financial assets such as fixed deposits are also included. We also include current assets, i.e. stock (inventory), debtors and cash equivalents. This includes money in the bank, petty cash and cash float. On the equity and liability (what we owe) side of the balance sheet. Equity refers to money contributed by the owner(s). Current liability refer to liabilities that hace to be repaid within one year, i.e. trade creditors and bank overdraft. This is also known as trade and other payables. Long-term liabilities include long-term loans, mortgage bonds and debentures.

Type of Asset:

Examples

.

Fixed Assets

. Land and buildings • Machines, tools, furniture (desks, chairs) and fittings (shelves, counters) • Vehicles such as delivery vans, cars, trailers, motorcycles, trucks, etc • Equipment such as computers, printers, scanners, photocopiers, fax machines, telephones, cash register, fridges, trolleys, etc.

Current Assets

• Stock (goods/products) for trading purposes (to sell)

• Raw materials for manufacturing or providing of a service • Cash (money in the bank) • Debtors (customers that owe you money)

Activity 11 Study the following extract from the balance sheet and answer the questions: Fixed assets 288 800 Land and buildings 120 800 Vehicles 120 000 Furniture 48 000 Current assets 115 000 Stock 75 000 Debtors 23 100 Cash 16 900 Current liabilities 46 000 Creditors 38 000

Bank overdraft 8 000

1. Calculate the two liquidity ratios and comment on the results. [12] 2. Explain the importance of a capital AND cash budget.


Activity 12

1. On your own, draw up a personal budget for acquiring and spending pocket money for the next month.

Income

Less: Expenses

Surplus/Deficit

2. A family of four who are planning a holiday have to budget for transport,

accommodation and meals, as well as spending on entertainment. The amount of money available will determine the length of their holiday. Money set aside = R 10 000. Help them to set up a budget for their holiday.

Income

Less: Expenses

Surplus/Deficit


Sources of capital: 1. Fixed capital:

Sell debentures (borrowed capital).

Long-term loans with a mortgage bond as security - registered over a fixed property (borrowed Capital).

Reserve funds, i.e. profit not paid out as dividends (own capital).

Issue shares (own capital).

JSE Ltd – The South African Stock Exchange (Previously known as the JSE Securities Exchange South Africa): Introduction:

Shares in listed public companies are bought and sold on the JSE LTD – there are currently over 660 public companies listed on the JSE Ltd.

There are fixed rules on how to trade in shares e.g. transactions may only be conducted through registered stock brokers.

The trading system used is a computerised system known as JET (Johannesburg Equity Trading). This system was implemented on 10 June 1996 and replaced the ―open outcry system‖ on the trading floor. The Namibian Stock Exchange also uses JET, which means South African stockbrokers can keep an eye on trade on the Namibian bourse, even though they cannot buy and sell shares in Namibia (this can only be done through Namibian stockbrokers).

A further new innovation is STRATE: Share Transactions Totally Electronic. This means that all transactions will be settled (paid for) electronically.

Share prices: a. Factors influencing share prices:

Demand and supply for the particular share.

Yield i.e. dividends paid.

General economic climate (shares are often used as an investment during times of inflation).

Political stability (unrest will result in prices dropping)

Other factors: Changes in interest rate. Labour unrest e.g. strikes; and Death of a statesman/new government.

b. Bull market vs. bear market:

BULL MARKET – People are optimistic that share prices are going to increase


BEAR MARKET – People believe that share prices are going to drop. A lack of confidence is reflected by uncertainty in the market c. Investing or speculating:

Investing refers to a long-term situation where people buy shares in order to receive dividends.

A speculator buys shares in the hope that share prices will increase in the short term and that a profit will be made when these shares are sold. Services of the JSE Ltd:

Attracts capital to commerce and industry i.e. links investors (shareholders) and businesses. People buy shares either as an investment – i.e. to receive dividends – OR to speculate – buying shares hoping the price will increase and the shares can then be sold at a profit.

Small investors’ money can be used to build the country’s economy because they are now involved in commerce and industry.

Financial institutions can invest money to achieve bigger growth, e.g. pension schemes and insurance companies can get a much higher ROI (return on investment) on the JSE Ltd (if carefully managed) than if money was deposited in the bank.

Investors are protected, because a company can only be listed on the JSE Ltd if it conforms to strict rules e.g. publishes financial statements and names of directors etc.

Share prices on the JSE Ltd are published daily, i.e. investors can study the value of their investments and base decisions on this information.

2 Working capital (these are all sources for borrowing working capital):

Trade credit: Credit allowed by manufacturers and traders to other members in the distribution channel (they help the manufacturer with functions such as advertising, transport and storage). Trade credit is also known as suppliers' credit or credit on an open account. The supplier gives credit based on the creditworthiness or the buyer and seldom asks for security.

Overdraft facilities at a commercial bank: An overdraft is only given on a current (cheque) account. It is flexible because it can be settled at any time. The disadvantage is that the bank can ask for repayment at any stage (especially in difficult economic times). The overdraft is used as and when the money is needed, but interest is charged on the amount used.


Short-term loans from a commercial bank: This is a loan with a repayment period of less than one year. A fixed interest rate is charged and the buyer must usually provide some form of security.

Bills of exchange: Goods are bought on credit. The supplier draws a bill of exchange on the buyer. The buyer then signs (accepts) the bill of exchange and promises to pay at a specific date. The supplier can discount (sell) the bill of exchange if he needs additional working capital.

Factoring of debtors: If a business sells on instalment sale and then urgently need cash, he can sell instalment sale contracts to a bank. This will improve his cash flow (more working capital) and reduces his risk of bad debts. The bank will not pay the full value of the contract (to make a profit and to cover its risk of bad debt).

Loans on the security of warehouse receipts: When storing goods in a warehouse a receipt is issued as proof that goods are stored in the warehouse. This receipt is negotiable (can be sold) or can be used as security when borrowing money from the bank.

Lease accounts: A business pays a monthly instalment for the use of a machine, but ownership is never transferred to the business. Leasing holds tax advantages for the business.

Instalment sale transactions: Instalment sale contracts are usually used to buy machines/ equipment or vehicles. A monthly instalment is made, which includes repayment of the capital amount and interest (finance charges). Should the account fall into arrears, the seller has the right to have the article (e. g. machine/vehicle] repossessed. Ownership is only transferred on settlement of the account. The Credit Agreement Act stipulates the percentage deposit that has to be paid and the maximum repayment period.


Unit 5 Purchasing as a business function / what purchasing entail.

Purchasing Function The purchasing function buys goods and services that are needed by all the other departments in the business. Goods and services will be bought from different suppliers and it is important to choose the supplier carefully in order to make sure the business has a reliable supply of goods. One of the most important goals of the purchasing function is to help the business to buy good quality products at the lowest possible price. The quality of the product sold will be determined by looking at the needs of the target markets. A business could for example sell a slightly lower quality product at a lower price if the target market is in the lower income group. The purchasing function is responsible for:

ordering the correct quantity

buying the correct quality

buying at the right time

buying at the right price

buying from the best source (supplier)

delivery at the correct place

ensuring the maximum profit.

Factors which contribute to the importance of the purchasing department:

The purchasing department has to know what products are in demand - both internal to the business and by the target market. These products must then be bought at the lowest possible price without sacrificing quality.

Inflation means the value of money keeps decreasing because of a continuous increase in prices of products. The purchasing department has to therefore look for suppliers with reasonable prices. This will ensure the business can sell its products at a competitive price and maximise profits.

Stock shortages must be prevented as far as possible. If the business runs out of stock, it will give its competitors an advantage. It is the purchasing department's responsibility to make sure correct stock levels are maintained.

Technological developments make it important for the purchasing function to always keep up to date with the latest products available on the market.


Political risks such as strikes can be problematic to the purchasing department. The purchasing department must make sure there is sufficient stock in the business to overcome any such problems.

The changes in exchange rates complicate the task of the purchasing function, especially where goods are imported from abroad. A weaker exchange rate means the purchasing price of goods is increased.

Stock-holding costs (e. g. storage cost and insurance premiums) must be kept as low as possible. This can be achieved by balancing the amount of stock held against the cost of reordering.

It is also important that the purchasing department looks at opportunity costs. This means that should too much working capital be invested in stock, the business will not be able to use opportunities that may arise.

Types of stock:

Raw materials: Products from the primary sector, e. g. maize from agriculture, gold from mining, wood from forestry.

Semi-finished goods: Bought with the aim of manufacturing a finished product, e. g. buy a roll of material to make dresses.

Finished goods: Also called manufactured goods. Ready to be sold to the consumer to satisfy his needs, e.g. a T-shirt or guitar.

Perishable stock: Keep in cold storage, e. g. milk and meat.

Dangerous material: Must be stored according to prescribed rules and regulations, e. g. toxic, flammable material. There must be a notice to warn people about the danger. Maintenance stock: Used/consumed within the business, e. g. stationery, tea, cleaning materials.

Capital goods: Machines, equipment and tools used in the manufacturing process. These goods are subject to wear-and-tear and the value thus depreciates over time.

The ordering and receiving of the goods:

The purchasing department is responsible for placing an order for the correct quantity and quality of goods needed by the business.

The department must have expert knowledge of the goods needed in the business, the products in demand by the target market, potential suppliers and the market conditions, i.e. substitute goods available and competitors selling the same products.

Note: A substitute product is a DIFFERENT product that satisfies the same needs as the original product. Activity 13 List THREE original products, with an example of a substitute product for each one.


The buyer will collect information on tastes, needs and purchasing power of customers/target market from the marketing department after they have done market research.

The buyer will also collect information on the products available and the sources of supply by studying the following:

Suppliers' catalogues: The supplier describes the goods he is offering at a specified price. The catalogue often includes illustrations. Prices are sometimes on a separate price list attached to the catalogue so that only the price list needs to be reprinted if prices change.

A trade journal provides information about suppliers in a specific industry, e. g. Aviation Week would be useful for an aircraft enterprise.

Computerised information: For example the Internet, this is cost effective and easy to update regularly.

Sales people/sales reps can be valuable sources of information about different products and services offered by suppliers. Sales reps can make presentations to the purchasing department.

Exhibitions: e. g. the Rand Easter Show or agricultural shows give the purchaser an opportunity to get information on existing products, new innovations, to get new ideas and to compare products with those of competitors.

The Yellow pages can be used as a starting point when looking for suppliers, but the problem is that it is difficult to determine the size and reliability of the supplier as only the most basic information is included in the advertisement.

An order can be placed by completing a pre-printed order form, by phoning an order through to the supplier or by faxing/writing a letter to the supplier. Other methods of placing orders include using sales reps or electronic orders such as by email or the Internet.

As soon as the manufacturer or wholesaler receives the order, he will have the goods packed and despatched (sent] to the buyer. The supplier/seller will complete the following documents:

The invoice: A delivery note that is sent with the order and will be signed by the

buyer when the goods are received. This will specify that the correct goods were received in good condition.

As soon as the buyer receives the goods and the invoice, the store man/warehouse clerk must check the following:

Quantity; Quality; and The price on the order must be compared with the

price on the order form.

The first step of stock management is to keep a record of stock on hand. EPOSSE (Electronic Point of Sale Scanning Equipment) is a very popular method of computerised stock control.


The management of stock: Purpose of electronic stock control as part of stock management:

To be able to establish how much stock is on hand without having to do a stock-take (stock count).

To make sure the business does not risk stock-outs (sufficient stock levels). In order to improve stock control and to minimise costs, a large number of businesses have introduced the JIT [Just in Time) stock ordering system. Goods are only bought when they are needed in order to reduce stock-holding costs (e.g. storage and insurance) as far as possible.

To control purchasing and selling prices (prevent losses).

To determine theft, obsolete stock when actual stock on hand is compared with stock records.

Quality control Quality control is an important aspect of overall stock control. Different methods that can be used to evaluate quality of goods purchased (or goods to be purchased) include: A Trade marks:

A trademark is a picture or symbol that a manufacturer uses to distinguish his product from those of competitors. The brand is the name of the product.

A trademark is used in combination with a brand name to promote the product.

Trademarks can be used by departments in the business to indicate to the purchasing department the quality of product that must be bought. There are often similar products available under other brands that could all be suitable. The purchasing department will then look at the price of different brands before they choose a specific product.

The purchasing requisition should indicate which brand is required or preferred.

B Commercial standards:

Commercial standards are very important when a business uses mass production.

A commercial standard is a detailed quality description used to manufacture standardised products.

An example of a commercial standard is the SABS mark.


The SABS is concerned with the standardisation of manufactured products in commerce and industry. Standardisation is important to ensure good quality products.

C Market grades:

Marketing grades are used to describe the quality of agricultural products.

Grading is a type of quality description, e. g. first class and second class. D Samples:

A sample of an item can be given to the supplier to indicate the quality required by the purchaser, e. g. give a sample of the exact shade of blue paint required.

Unit 6 Public relations as a business function

Public Relations (PR) Introduction Public relations include all the efforts to build relationships with institutions outside the business, e. g. manufacturers, suppliers, wholesalers, retailers, government departments, consumers and the media. The ten groups/stakeholders concerned with the enterprise and its climate and environment are the following:

FROM WITHIN/internal OUTWARDS/external

Suppliers of capital: owner/partners/members (CC) shareholders

Customers/Clients

Employees Merchants Suppliers ~ raw material Suppliers ~ ancillary services

Government ~ taxation/legislature

Community Competitors

An enterprise which can afford to do so will establish its own public relations section to ensure that the correct climate and environment are created. Experts in the field of public relations can also be approached for assistance.


Aims of PR:

The main aim of the PR department is to improve the image of the enterprise by continually sending positive messages to the outside world. The creation of a good name is very important to any institution.

As a result of this good reputation the sales and therefore profitability of the business could increase.

It is important, however, that PR is not aimed only at the target market but at all people and businesses in the external business environment.

PR tools:

The most important PR tool is the press release. There are certain pointers to keep in mind when doing a press release, however, to make sure it does not end up in the editor's "file thirteen":

Keep the press release short and to the point.

A press release is NOT an advert. It should contain information that is interesting, for example a new break-through innovation or an award the business has won for extraordinary service rendered.

In a crisis situation the business should be extremely careful to have the correct people dealing with the media as they will have to think on their feet as recordings could be used against the business later.

Negative PR: Make no mistake - PR exercises can also attract negative comments from the media. A business may for example get involved in sponsoring a trip for an orphanage to the local zoo and then be criticised by an organisation such as Green Peace that supports the notion that wild animals should not be kept in zoos but rehabilitated and released into the wild. But PR is not about pleasing everybody all the time! Sometimes the public relations department also has to deal with negative publicity after something has gone wrong. An example could be a serious accident at a mine. How should this be dealt with?

If it was an error on the business's side, accept responsibility.

Apologise and if possible explain what caused the problem.

Explain what the business will do to correct the problem or assist those who suffered.

Follow through on promises: this could actually help the business to improve its image.

Possible opportunities for public relations:

Management changes which influence the shareholders, the customers, the workers or the public directly and/or indirectly.

The issue of shares or the announcement of the company's profitability.

The launching of a new product, new price tariffs, a new customer.

The business can announce a programme to solve social problems: e.g. unemployment, housing problems.


Conclusion This chapter has introduced the basic Business Functions and will help you to understand how businesses function. In SME's (Small and Medium Enterprises) there are often one or two people that do multiple functions, whereas large corporations can have huge departments doing one function. Activity 14

Bright Spark (Pty)Ltd, a company which manufactures a range of electrical components, received a telephone call from the Purchasing Manager of Friendly Electrical Retailers, who urgently needed a quotation for supplying his store with 1000 fluorescent lights (worth R50 000 - R60 000). The telephonist transferred the call to the Sales Manager, who was unfortunately at a meeting. Her secretary was out to lunch. The Purchasing Manager of Friendly Electrical Retailers, Mr Smith, was left hanging on for 10 minutes before being told that there was no one available to take the call. Mr Smith then left a message with the telephonist asking the Sales Manager to return his call urgently. Unfortunately, it was not until the following morning that the Sales Manager received the message, and then it was only given verbally. By the time the Sales Manager of Bright Spark (Pty) Ltd got through to Mr Smith, the Purchasing Manager of Friendly Electrical Retailers, it was too late. Mr Smith had already received a faxed quotation from a rival electrical manufacturer, and had placed his order with them.

Answer the following questions: 1. Identify the mistakes in public relations made by Bright Spark

(Pty) Ltd. 2. Suggest how the matter should have been handled, starting with

the initial telephone call. 3. What was the consequence of this matter to Bright Spark (Pty) Ltd

a short description of the business...

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