BM-Business Management (Before Mid Exam Notes)

Business:
An entity which is entertains by an individual or an organization to earn profit is known as
business.

Management:
The process of planning, organizing, directing and controlling and proper utilization of
organizational resources (physical, technological, Human, and financial) both efficiently and
effectively to achieve organizational goals is known as Management.

Entrepreneurs:
Entrepreneurs are the persons who spot opportunities and organize resources to create new
business. They have the vision, business skills and courage to take risks and possess the
necessary leadership qualities to overcome problems.

Manager:
Manager is a person which performs day-to-day transactions and takes different effective
decisions for the survival of organization. We can say that manager do things right.

Leader:
Leader is a person who leads the organization and for leader we can say leader is the person
who does right things.

Intro World Personality:

When an individual blame his / her-self for bad doings and appreciate his / her-self for good
doings, this type of personality is known as intro world personality.

Extro World Personality:

This personality is opposite to intro world personality in this an individual blame others for
right or wrong doings.

Business Management for Small Businesses:

There are two types of business management which are;
i) Business management for self-employed: When a person deals all things or perform
activities himself or herself and have all expertise this is known as business
management for self-employed.
ii) Business management for employer: When we hire different people for functions of
business or to run business is known as business management for employer.
Small business management is essentially the management of a small business on a day-to-day
basis, which includes activities in functional areas, such as marketing, production, finance and
human resources. The fundamental management activities include the following;
 a. Planning: Adequate planning is needed in the short, long, and medium term.
b. Organizing: This means taking decisions on how to divide up the work that is to be
completed.
c. Leading: This involves the effective super vision and motivation of employees.
d. Control: This includes monitoring performance.
To start a small business manager must focus on market environment.

Consumers:
Those entities who consume the products or services are known as consumers.

Suppliers:
Those persons who supply raw materials to whole sellers are known as suppliers.

Whole sellers:
The one who buys finished products from suppliers and distribute the end products to retailers
are called whole sellers.

Competitors:
Competitors are those individuals or companies who can compete with your products or
services. They are the secondary stakeholders of a company and come in macro environment.

Market Environment:
The market environment has the potential to influence to a large degree how the business is
managed this influence is exerted through the behavior of consumers, suppliers, and
intermediaries, who are all sources of opportunities and threats to the business.
(See figure in Notebook)

Micro Environment:
Micro environment of organization is that in which organization actually operates. It includes customers,
suppliers, competitors, pressure groups, financial institutions, and different types of unions.

Macro Environment:
Macro environment contains all general forces such as Political, economical, social,
technological, physical, and international which effects business both directly and indirectly.
(See Figure in Notebook)

General Management, Business Functions and Principles of Management:

General management of any organization consists of general managers. General Managers are
the people who deal with day-to-day transactions, profit and loss statement (income statement)
and other functions of management. There are different types of managers which are;
 i) CEO (Chief Executive Officer)
ii) CFO (Chief Financial Officer)
iii) COO (Chief Operating Officer)
iv) CMO (Chief Marketing Officer)

General management focuses on the entire business as a whole. General management duties and
responsibilities include

1. Formulating policies

2. Managing daily operations

3. Planning the use of materials

4. And also the use of human resources effectively.

However, general managers are too diverse and broad in scope to be classified in any one
functional area of management or administration such as personnel, purchasing, or
administrative services.

General management include owners and managers who head small-business establishments
with duties that are primarily manager. Most commonly, the term general manager refers to any
executive who has overall responsibility for managing both the revenue and cost elements of a
company's income statement. This means that a general manager usually oversees most or all of
the firm's marketing and sales functions, as well as the day-to-day operations of the business.
Frequently, the general manager is responsible for effective planning, delegating,
coordinating, staffing, organizing, and decision making to attain profitable results for an
organization.

The difference between Functional Manager and General Manager?

While both general and functional management involve similar skills (interpersonal
skills, communication, multitasking, etc.), the critical difference is that a functional manager
often "zooms in" to one particular aspect of a broader operational paradigm. The general
manager must be more of a jack-of-all-trades, understanding enough about various different
gears in the machine to ensure it is running properly.

McDonald's offers an example of ways to understand both types of management. McDonald's

has functional managers at the corporate level who discuss advertising strategies, assess
financials, discuss expansion, and so forth. Meanwhile, general managers run individual stores,
focusing on the quality of service, operational efficiency, local tastes, etc. at their store.

Top Level Management:

Top level management includes;
 i) Middle level management:
ii) First Time Management:

Management principles
Management principles are guidelines for the decisions and actions of managers. They were
derived through observation and analysis of events faced in actual practice. Principles are listed
below:
i) Division of Work / Labor: When employees are specialized, output can increase
because they become increasingly skilled and efficient.
ii) Authority: Managers must have the authority to give orders, but they must also keep
in mind that authority always comes with responsibility.
iii) Discipline: Discipline must be upheld in organizations, but methods for doing so can
vary form organization to organization.
iv) Unity of Command: Employees should have only one direct supervisor.
v) Unity of Direction: Teams with the same objective should be working under the
direction of one manager, using one plan. This will ensure that action is properly
coordinated.
vi) Subordination of Individual Interests to the General Interest: The interests of one
employee should not be allowed to become more important than those of the group.
This even includes managers.
vii) Remuneration: Employee satisfaction depends on fair remuneration for everyone.
This includes financial and non-financial compensation.
viii) Centralization: This principle refers to how close employees are to the decision-
making process. It is important to aim for an appropriate balance.
ix) Scalar Chain: Employees should be aware of where they stand in the organization's
hierarchy, or chain of command.
x) Order: The workplace facilities must be clean, tidy and safe for employees.
Everything should have its place.
xi) Equity: Managers should be fair to staff at all times, both maintaining discipline as
necessary and acting with kindness where appropriate.
xii) Stability of Tenure of Personnel: Managers should strive to minimize employee
turnover. Personnel planning should be a priority.
xiii) Initiative: Employees should be given the necessary level of freedom to create and
carry out plans.
xiv) Esprit de Corps: Organizations should strive to promote team spirit and unity.

Business Functions:
There are two types of business functions which are;
i) Internal Business Functions:
ii) External Business Functions:
Role of Management Functions, & Additional Functions of Management:
Major functions of Management and their roles are given below;
i) Planning:
ii) Organizing:
iii) Directing:
iv) Controlling:

(Read from net or Book)

Besides all of the above functions there are some additional functions of management which are
given below;
i) Staffing:
ii) Coordinating:

Coordinating is the essence of management for the achievement of harmony of

individual efforts towards the accomplishment of group goals.

The manager coordinates internally and externally. In internal coordination the other
managerial functions viz., planning, organizing, actuating and controlling are
coordinated within the constitution. In external coordination the manager coordinates
with outsiders as, government, public, trade unions, other enterprises, politicians etc.

In a business concern, with a large number of persons working at different levels and
performing diverse activities, it became essential to synchronies the work at each
level, and in the organization as a whole.

iii) Communication:
iv) Motivation:
Staffing and coordinating functions lead to organizing while communication and Motivation
functions lead to directing in major functions.

Role of Manager:
There are ten major roles of manager which are classified into three categories and they are;
i) Interpersonal Roles:
a. Figure Head Role:
b. Leader:
c. Liaison:
ii) Informational Role:
a. Monitor:
b. Discriminator:
c. Spokesperson:
iii) Decisional Role:
a. Entrepreneur:
b. Disturbance Handler:
c. Resource Allocator:
d. Negotiator:
Managerial Competencies:
There are different managerial competencies which can help organization to achieve competitive
advantages which are given below;
i) Communication: Manager should be a better communicator. He should have
interpersonal skills, writing skills, and oral communication skills in order to enhance
the performance of organization. Which he can insure by having effective
communication with subordinates.
ii) Planning and Administration: The first and important function of business is
planning. He/She should have both long term and short term plans. His or Her plans
should flexible. There should alternative strategy in order to face different situations.
On the other hand administration means staffing. Staffing means dividing the tasks
among employees. There should full capability utilization i.e. proper staffing should
be there. Also manager should insure that the general interest employees should
match with individual interest.
iii) Teamwork: Teamwork is also important in managerial competencies. Manager
should have teamwork qualities in order to achieve organizational goals effectively
and efficiently.
iv) Global Awareness: Manager should have knowledge about his business world in
which organization operates. He should have knowledge about ethics, culture, norms,
values and customs of people and environment.
v) Strategic Action: The long-term action, strategy or thinking is known as strategic
action. On the basis of consequences manager should take strategic action.
vi) Self Management: There should be an ethical code of conduct in manager. He or she
should have integrity, high skills and should have skills of problem solving. There
should emotions in manager for organization survival.

Leadership Competencies:
Environment in which organization operates is dynamic means that changes day by day. So in
order to meet those changes organization need a leader to manage all operations of organization.
There are different levels of management to achieve organizational goals. These levels can also
explore the leadership competencies which are;
i) Level 1 Managing Self: it consists of the following;
a. Integrity / Honesty: This means that there should integrity and honesty in a leader.
There should no discrimination and there should justice in both procedural and
distributive basis.
b. Interpersonal Skills: The leader should respectful, good listener to tackle different
situations and he or she should co-ordinate employees.
c. Continual Learning: Leader should learn new things and this can be done by
analysis of him-self as well as organization. As we know that a person can learn
from errors or mistakes so leader should also focus on errors and mistake in
organization and should learn new things or new ways of doing things.
 d. Resilience: Leader should deal effectively with pressures or with adversity.
Leader should not be set back, he should keep moving with different situations
such as loss situation.
e. Oral Communication: The convening skills of leader should sharp such as Tahir-
ul-Qadri speech in Pakistan. The presentations, meetings, and other speeches
should clear, precise, and convenceful. The leader should concern with others.
f. Flexibility: Leader should always ready to change with environmental change and
dynamics. Means that leader should adopt new environmental changes. There
should not rigidity in strategies means that the strategies should flexible.
g. Problem Solving: Leader should a good problem solver. This can be done by
proper analysis of organization such as identification of issue, analysis of issue
and solution for the issue.
ii) Level 2 Managing Projects: Leader should have all the below qualities in order to
manage different projects;
a. Team Building: Leader should have skills to build teams and manage those teams
properly. He or She should motivate each member of a team.
b. Customer Service: Leader should fulfill the needs of internal and external
customers and He or She should have knowledge about how to satisfy them.
Customer service quality also means that leader should customer oriented.
c. Accountability: Leader should have self-control and He should also control
others. Leader should determine and sets objectives and He should very
responsible to organization.
d. Technical Creditability: Leader should always technical person. He or she should
expert in every field and should know about applications, operations, and
procedures of organization.
e. Decisiveness: Leader should provide true and pure information. He should fair in
dealing. He should take timely decisions and he should know decisive to others.
f. Persuasive: Leader should persuade others through gestures and he or she should
influence others easily.
iii) Level 3 Managing People: This level includes all intellectual capital of organization
such as human resources. For proper human resource management leader should have
following leadership competencies;
a. Human / Capital Management: Leader should have quality of managing people.
He or she should know that what skills require for organization and how much
employees are require for organization.
b. Leveraging Diversity: Every company or an organization have different types of
employees. So leader should have quality to manage different type of people.
c. Conflict Management: In every organization conflicts always occurs so leader
should have the ability to manage conflicts in organization and he or she should
always focus on building relationships between employees. There are two types of
relationship build by leaders between employees;
i. Constructive Relationship:
ii. Destructive Relationship:
 iv) Level 4 Managing Programs: To create efficiency and effectiveness in organizational
performance leader should have the abilities to manage different programs. Those
abilities or qualities are;
a. Technology Management: Technology is a rapid changing factor nowadays so
leader should have the quality of changing strategies with the passage of time in
order to develop and utilize new technologies in organization.
b. Financial Management: Leader should have the quality to clarify all the check in
balances of organization. He or she should motivate employees to clear all the
transactions of organization.
c. Innovation or Creativity: The leader should creative and initiative. The mind of
the leader should creative and he or she should always focus on creation of new
ideas or new devices in organization.
d. Political Savvy: The leader should know about internal and external politics. He
or she should have good political behavior and he should make his actions true.
v) Level 5 Leading Organization: Leader always try to take organization to success this
is known as leading the organization. So this also needs some qualities or abilities
which are given below;
a. External Awareness: Leader should know about external environment. The threats
and opportunities in external environment and different policies of competitors in
order to gain success.
b. Vision: Leader is the person who has some vision for organization. So there
should the ability to think about future of organization. The leader should always
visionary for organization.
c. Strategic Thinking: The leader should always long-term thinker. He or she should
not think point less. Long-term thinking or strategies can help organization to
survive in environment.
d. Entrepreneurship: Leader should have a quality to adapt new opportunities and
diverse into new environment. Leader should always involve himself in new
things. For example, Engroo start production of food items with chemicals
production.

The Finance Function and Understanding the Financial Statements:

The Finance Function:

The process of acquiring and utilizing funds of a business is known as finance function.
There are four main operational areas of every business such as;
- Production
- Marketing
- Human Resource
- Finance
Out of which finance is crucial area because all other business activities are depends upon funds.
The decisions regarding funds may make or destroy the organization.
Scope of Finance:
The scope of finance includes four decisions;
i) Investment Decision: It is related with selection of assets. There are two types of
assets which are;
a. Fixed Assets: Assets used for long term period are fixed. The decisions regarding
fixed assets are known as capital budgeting decisions.
b. Current Assets: Assets used for short term period are current. The decisions
regarding current assets are come under working capital management.
ii) Financing Decision: It deals with acquiring and deployment (utilization) of funds.
iii) Dividend Policy Decision: Whatever profit company earns, the owners are entitled to
receive that. The dividend policy decisions are related with distribution of dividends
i.e. how much profit we should distribute as dividend and how much should retained
in business.
iv) Assets Management Decision: These decision are used for management of assets i.e.
how much raw material is require for production, how much are receivables etc.

Functions of Finance Department:

There are three main functions of finance department which are given below;
i) Calculating funds requirement of organization: It deals with how much money we
require to run business.
ii) Finding sources of Finance: It means to check from where we can raise money and
out of that which source of finance is suitable for our organization.
iii) Utilization of Funds: It means utilization of profits which a company earns during a
financial year.

Financial Management:
According to Solomon, Financial management is concerned with the efficient use of important
economic resources such as capital funds.
According to Phillioppatus, Financial management is concerned with the managerial decisions
that result in the acquisition and financing of short-term and long-term credits for the firms.
According to Wheeler, Business finance is the business activity which is concerned with the
conservation and acquisition of capital funds in meeting financial needs and overall objectives of
a business enterprise.
It is an activity concerned with planning and controlling of firms financial resources. Financial
management means the funds or money in such a way that by investing optimum capital we can
get maximum output i.e profit. Utilization of less resources and gain maximum output and to
maximize the value of the firm is a basic objective of financial management. The main purpose is
to achieve maximization of share value to the owners (equity shareholders).

Understanding Financial Statements:

Financial statement records a performance of your business. It diagnoses its strengths and
weaknesses by providing written summary of financial activities. There are two primary financial
statements;
 i) The Balance Sheet: The balance sheet provides the picture of the financial health of
a business at given moment. Usually at close of an accounting period. It includes lists
of the following;
a. Assets: Anything that the business owns that has monetary value is called
assets. There are three types of assets which are;
i. Current Assets: Assets which can convert into cash within one year are
called current assets.
ii. Fixed Assets: Assets acquired for long-term use in a business are called
fixed assets.
iii. Other Assets: This includes all intangible assets.
Cash, merchandise inventory, land, buildings, equipments, machinery,
furniture, patents, trademarks, and money due from individuals or
businesses are all assets.
b. Liabilities: These are the claims of creditors against the assets of business or
these are funds acquired for a business through or the sale of property or services
to the business on credit. There are two types of Liabilities;
i. Current Liabilities or Short-term Liabilities: Liabilities with time
period of less than one year are current liabilities such as Accounts
Payable, notes payable, taxes payable etc.
ii. Long-term Liabilities: Liabilities with more than one year time period
are long-term liabilities such as mortgages, Long term bank Loans,
equipment loans etc.
c. Owners Equity (net worth capital): It is money invested into a business by its
owners for use by the business in acquiring assets. It represents the investment
that owners of small businesses have made in the company in the form of capital.
The difference between total assets and total liabilities. Owners equity some time
referred as net worth.
The formula for balance sheet is (Assets = Owners equity + Liabilities). The
categories and format of the balance sheet are established by a system called GAAP
(Generally Accepted Accounting Principles). This system is applied to all companies.
ii) The Income Statement: The second primary report included in business report is the
income statement. It also referred as income and expenditure statement. This is
measurement of companys sales and expenses over a specific period and prepared on
monthly or annually basis. It also follows GAAP system and contains specific
revenue and expenses categories regardless of the nature of the business.

Financial Ratio Analysis:

Financial Ratios are used to know about;
- Success
- Failure
- Progress
- Trends
- Comparing performance with other business
- Comparing ratios with competitors
The main purpose of financial ratio is to compare performance with other businesses which
perform same business.

Different Types of Financial Ratios:

i) Liquidity Ratios: These ratios are ease of turning assets into cash. It consists of;
a. Current Ratio: it shows financial strength does your business have enough current
assets to meet the payment schedule of its current debts. The acceptable ratio in
this is 2:1 and minimum ratio is 1:1. The formula for current ratio is CR = Current
ratio / Current Liabilities.
b. Quick Ratio: In this 1:1 is acceptable ratio and this is also known as turning assets
ratio. The formula for quick ratio is QR = Current assets Inventory / Current
liabilities.
c. Working Capital: Working capital = Total current assets total current liabilities.
It is owner equity of company. Banks always gives loan to those who have
positive results in this.
ii) Profitability Ratio: These are income ratios and the main purpose is to explain
profitability of organization. It consists of the following;
a. Gross profit margin Ratio: This ratio is use for profit and sales margin and is
equal to gross profit / sales. To find out gross profit we have formula net sales
cost of goods sold.
b. Net profit margin: This ratio tells us about what is the return on sales we can find
through this. The formula for this ratio is Profit after tax / sales. To find out profit
after tax we have the formula Sales cost of goods sold All expenses.
c. Return on asset Ratio: This ratio is also use for income and the formula for this is
Profit after tax / total assets.
d. Return on Equity Ratio: This is also income ratio which is equal to profit after
tax / owners equity.
iii) Activity or Turnover Ratios: These ratios are use for inventory and it consist of;
a. Inventory Turnover Ratio: Inventory turnover ratio is equal to cost of sales /
average inventory. It consist of three further types;
i. Accounts Receivable Turnover Ratios: The formula use for this ratio is
Credit sales / Account Receivable. This tells us how well account
receivable is collecting.
ii. Daily Credit Sales: This ratio is calculated by formula Credit sales / 365.
iii. Average collection period: This ratio can be calculated by account
receivable / Daily credit sales.
iv) Solvency Ratios: It consists of;
a. Debt to equity Ratio: it is calculated by Total debt / Total equity.
b. Debt to Total Assets Ratio: It tells us how much you are depended on debt in
terms of assets. It can be calculated by total debt / total assets.
c. Interests Coverage Ratios: It can be calculated by the formula EBIT / Total
interest.

Financial Planning:
Financial Planning consists of;
i) Tools of Financial Planning:
ii) Short-Term Planning:
iii) Long-Term Planning:
(See Figure in Notebook)
Steps of Long-term Planning:
- Determine personal objectives
- Set goals and objectives
- Develop Long-range plans
- Focus on Requirements
- Study methods of Operations and new market securities.

Pro-forma Financial Statement:

This statement is use to predict future balance sheet and income statement.

Ratio Analysis:
There are four types of ratios to analysis. The purpose is to compare own assets, inventory (per-
forma) with the organizational per-forma. Forecasting of this is also important.

Break-Even Analysis:
Forecasting of this is to know about the equality of income and cost.

Pro-Forma Cash Flow Analysis:

Forecasting of this can help us to know how much there is cash inflow and outflow.

Pricing Policies:
Prices are assumed on basis of operation of business.
Marketable Securities:
These are securities with very low maturity time and official document sellout by company to
investors.

Account Receivables:
Account receivables are the assets receive by company on behalf of some services offered.

Long-term Planning and Short-term planning:

When planning for survival is more than one year i.e 3 or more years then this is said to be long
term planning. While short term planning is a planning for less than 1 year.

Marketing:
A process of creating customers value and building strong relations with customers in order to
capture value in return is known as marketing.

Purpose of Marketing:
The main purpose of marketing is;
 - Creating customers value
- Building strong relations
To gain these objectives we have to make marketing strategies.

Marketing Strategy:
Marketing strategy helps in creating customer value and building strong relations. It consists of;
i) Segmentation and Targeting: Who will serve?
ii) Positioning and Differentiation: How it will serve? (see figure in Notebook)

1) Segmentation: Segmentation means division of market. Division may be demographic

such as age, gender etc, Psychological Segmentation like needs, want, and psyche of
customers, labeling and adversity.
2) Targeting: In all segments organization choose one or more target segment and it focus on
targeted population i.e. upper, middle, or lower class etc. To target every segment is very
difficult because organization face many challenges during this process.
3) Positioning: It always starts with differentiation. It is the position of company or
organization. In comparison of competitor organization create image of products in
customers minds.
4) Differentiation: Differentiation is a strategy that overcomes one organization on other
because of some uniqueness in product or services. Any product or characteristics of
product different from competitors is differentiation. For example, Savers foods different
from KFC, so KFC used differentiation Strategy.

Marketing Mix:
Marketing mix consist of four Ps which are product, price, place, promotion.
(See diagram in notebook)
Marketing Management:
It deals with marketing strategies and marketing mix. So managing all these can give us good
outcome.

The End