Unit 1
Business Organization
Definition
Louis Allen defines a business organization as "The process of identifying and grouping work to be performed, defining and delegating responsibility and authority and establishing relationships for the purpose of enabling people to work most effectively together in accomplishing objectives.” In other words, organization is an instrument for achieving organizational goals. The work of each and every person is defined and authority and responsibility is fixed for accomplishing the same.
A Business Organization is an entity which performs commercial activities for the purposes of earning profit and establishing goodwill. A business organization provides goods and services to the customers as per their requirements. All businesses have a well-defined structure which allows efficient functioning of the company. The size of a business organizations depends upon their goals and objectives. It aims at achieving a healthy relationship between employees, tasks, and various resources so that they can work together to attain common goals.
A business organization may be established and run by one or two or more persons. All businesses must follow certain laws and regulations laid down by the governing authorities.
Concept
A business organizes various factors of production such as land, labour, capital, machinery, etc. for channelizing them into productive activities. The product finally reaches consumers through various agencies. Business activities are classified into a number of functions, these functions are assigned to different individuals.
Various individual efforts must result in the achievement of common business goals. Business organization describes the structural framework of responsibilities required of employees and employers in performing various functions with a view to attain business goals through organization. In an organization, the management tries to combine various business activities to accomplish predetermined objectives.
Present business system is very complex. The unit must be run efficiently to remain in the competitive world of business. Various jobs are to be performed by persons best suited for them. Various activities are grouped into various functions and the authority and responsibility is delegated at various levels. All efforts should be made to co-ordinate different activities for running the units efficiently so cost of production is reduced and profitability of the unit could also be increased.
There are two concepts of business organizations:
1. Static Concept:
Under static concept the term ‘organization’ is employed as a structure, an entity or a network of specified relationship. In this sense, organization could be a group of individuals bound together in a formal relationship to attain common objectives. It lays emphasis on position and not on individuals.
2. Dynamic Concept:
Under the dynamic concept of business organization, the term ‘organization’ is used as a process of an on-going activity. In this sense, organization could be a process of organizing work, people and therefore the systems. It is concerned with the process of determining activities that may be necessary for achieving an objective and arranging them in suitable groups so on be assigned to individuals. It considers organization as an open adoptive system and not as a closed system. Dynamic concept lays emphasis on individuals and considers organization as never-ending process.
Characteristics
The numerous characteristics of business organization may be applicable to the various kinds of organization in varying degrees. An entrepreneur will try to find out how far his requirements will be met by a particular form of organization while choosing a particular form of business organization. Below are some fundamental characteristics of business organization:
Ease of formation:
A business formed with the least difficulty can be considered as an ideal form of organization. This implies the formation of the business with the least expenses and legal formalities.
Ease of financing:
The facility of raising the required amount of capital is another important feature of a good form of business organization.
Limited liability:
The entrepreneurs will naturally prefer limited liability if risk is taken into account. In case of insolvency or winding up proprietors must always be in a position to lose not more than the extent of their investments in the business.
Direct relationship between ownership and control of management:
The control should lie where the ownership lies as a general rule of thumb. This is to make sure that the management takes active interest in running the business efficiently and effectively.
The management may not show required interest in maximizing profits through increase in efficiency if the control is not in the hands of the owners.
Flexibility of operations:
The organization should be prepared to change and adjust as per the requirements without much difficulty as and when the need arises. Maximum flexibility and adaptability is always offered by a good form of organization.
Continuity and Stability:
If the organization structure is carefully formulated in a business, it enjoys uninterrupted existence over a long period of time. According to L.H. Haney “The organization must both be able and, when undisturbed to last through a long period of time and also to resist temporary disturbing influences, that is, be stable.”
Common Objectives:
All organizational structure is a means towards the attainment of common business goals. The objectives of various segments lead to the achievement of long-term enterprise goals. Common and clear-cut objectives should be the foundation of the organizational structure. This will lead to their proper accomplishment.
Free from state regulation and control:
Various forms of organization are controlled to varying degrees by the governing authorities. The organization may have to spend more time, money and energy in complying with legal formalities if the regulation is too much. It is crucial to consider that the form of organization selected does not involve or indulge with the law at every step.
Division of Work:
The total work of the business is compartmentalized into activities and functions. Various activities are assigned to different departments or different individuals for their efficient accomplishment. This brings in division of tasks and labour and. One individual may be able to carry out functions but specialization in different activities provides efficiency in various tasks Organization structure helps in delegating the work into interdependent activities so that they are assigned to different employees.
Co-Ordination:
The co-ordination of different activities is as essential as their delegation. It helps in integrating various activities. Co-ordination also avoids duplications of tasks and delays caused due to miscommunication. Since various functions in an organization depend upon one another and the performance of one influences the other it is essential that all of them are properly coordinated, otherwise the performance of all segments may be adversely affected.
Objectives
The business objective is a goal that the business wants to achieve in the near future and the long run. For example, a business wants to set up its franchise in another state within the next 3 years or it wants to extend its workforce in the coming months. Objectives of business organizations are the reasons why that the business is established and operated.
The right choice of objectives is critical for the success of the business. The objectives of a business may be classified into two main categories, which are
- Economic objectives
- Social objectives
Economic Objectives of Business
1] Profit Earning
Business is a set of activities undertaken with the prospect of sale for the primary purpose of earning a profit. Profit is the extra income over the expenses. Acquiring profits is the primary objective of any business.
Profit is critical for growing and expanding business activities. Profit guarantee a uniform stream of capital for the modernization and augmentation of business activities in the future. Profits likewise show the dimensions of stability, efficiency, and advancement of the enterprise.
2] Market Share / Creation of Customers
In the words of Drucker, “There is just one valid definition of business purpose; to make a customer. “Profits are not generated out of thin air. They are the result of the diligence of the businessman to satisfy the requirements of the consumers.
The survival of the business completely depends upon the market share captured by the business in the long run. The creation of markets and satisfaction of the requirements of the customer could be a crucial purpose of the business. So to get profit and demand, the business must supply premium quality and provide value for money products.
3] Innovation & Utilization of Resources
Innovation typically refers to change in processes or to the creation of more effective processes, products and ideas. Nowadays, business is ever-changing and dynamic. To keep up with the growing competition a businessman needs to introduce efficient design, latest trends, upgraded machinery, new techniques, etc.
Large corporations invest a considerable amount of capital in their Research & Development departments to facilitate innovation. Whereas, on the parallel lines, utilization of resources could be a proper use of workforce, staple, capital and technology employed in the business.
4] Increasing Productivity
Productivity can be described as a scale to measure the efficiency of the commercial activity. It is usually the last objective but is as important because productivity is measured by the output given by the activities. It is the end product of any commercial activity. Each business must opt for more prominent productivity – to ensure its survival and development. This goal may be attained by reducing wastages and making proficient utilization of machines and supplies, HR, cash and so forth.
Social Objectives of Business
The essential social objectives of a business are as follows:
1] Providing Goods & Services at Reasonable Prices
Business exists in the first place to satisfy the needs of the society. It’s the primary and main social objective of the business. Products and services must to be of better quality should be provided at reasonable costs. It is additionally the social commitment of business to stay aloof from misbehaviours like boarding, black promoting and manipulative advertising.
2] Employment Generation
One of the major issues today’s generation facing is unemployment. Business generates employment. Therefore, it is the social objective of a business to provide chances to beneficial employment to individuals of the society. In a nation like India, unemployment has become a critical issue.
3] Fair Remuneration to Employees
A business organization does not run on its own but is carried on the shoulders of the employees. Therefore, the people on the inside of the business are more valuable to it then the profit it accumulates. They are an asset to business organizations and make significant contributions to the operation of a business. Hence, they must be rewarded with at least reasonable pay for their work.
Notwithstanding wages and salary, a major piece of profits need to be disbursed among them in acknowledgment of their commitments. Such sharing of benefits will expand the inspiration and proficiency of employees.
4] Community Service
Business organizations must give back something to the society. This is the reason why many organizations build Libraries, dispensaries, educational foundations, hospitals which help in the advancement of society. Business enterprises can build schools, colleges, libraries, hospitals, sports bodies and research institutions. They can help non-government organizations (NGOs) like CRY, Help Age, et al. Which render services to weaker sections of society.
Significance
Below are some reasons why business organization is significant:
1. Production of Goods:
Business organization can be very instrumental for the production process of goods and services. It increases the efficiency of various sectors of the business.
2. Reduces the Cost:
Business organization principles are accustomed to minimize the value of production. Thereby increasing the profits of the business.
3. Distribution:
Business organization also solves the problems associated with marketing and distribution by compartmentalizing roles and responsibilities.
4. Common Link:
It provides an interdependent link between various of the business activities. So effective cooperation among the different factors increases the profit of the enterprise.
5. Saves the Time:
Delegation of authority in a business organization provides effective planning and management and therefore, helps in saving time and expenses.
6. Minimum Wastage:
Business organization reduces the wastage of material and other expenditure.
7. Secretariat Function:
Business organization teaches us the principles of office organization. It tells us the best way of performing the secretarial functions.
8. Finance Management:
Business organization also guides the businessman that how he should meet his financial needs and expand the business.
9. Transportation Use:
It guides the businessman that which kind of transport he should utilize to enhance the sale and profit of his product.
10. Makes the Businessman Efficient:
Business organization has enabled the businessman to conduct the business affairs efficiently. It also provides the solution of many problems.
11. Fixes Responsibility:
It fixes the responsibility of ever individual in a different manner. It also introduces the scheme or internal check with works automatically.
12. Solve the Market Problems:
Business organization solves the issues of buying, selling storage and grading.
13. Technical Development:
It also very helpful for improving the technology in the country. New methods and innovations are used in the production process.
14. Decision Making:
Decision making is very important factor for the success of business. The business organization is very useful in making the decisions in time.
15. Provides Skill:
Business organization provides the skilled people like salesman to satisfy the customers.
16. Supply according the Demand:
It guides the producer that he should produce the goods according the demand of the market. Facts about market are collected and demand is produced accordingly.
Components
Below are the four main components of business organization:
Common Purpose
An organization without a well-defined purpose or mission soon begins to drift and become disorganized. A common purpose unifies employees or members and provides everyone an understanding of the organization’s direction. Ensuring that the common purpose is effectively communicated across organizations (particularly large organizations with many moving parts) could be a central task for managers. Managers communicate this purpose by educating all employees on the overall strategy, mission statement, values, and short- and long-term objectives of the organization.
Coordinated Effort
Coordinating effort involves working together in a specific way that maximizes resources. The common purpose is achieved through the coordinated effort of all individuals and groups within a corporation. The broader group’s diverse skill sets and personalities must be leveraged in a way that adds value. The act of coordinating organizational effort is probably the most important responsibility of managers because it motivates and distributes human resources to capture value.
Division of Labour
Division of labor is also referred to as work specification for greater efficiency. It involves delegating specific parts of a broader task to different people within the organization based upon their particular abilities and skills. Using division of labor, a business can distribute a complex work effort for specialists to perform. By systematically dividing complex tasks into specialized jobs, a business organization uses its human resources more efficiently.
Hierarchy of Authority
Hierarchy of authority is essentially the chain of command—a control mechanism for making sure the right people do the right things at the right time. While there are a large variety of organizational structures—some with more centralization of authority than others—hierarchy in decision making could be a critical factor for achieving success. Knowing who will make decisions under what circumstances enables organizations to be agile, while ambiguity of authority can often slow the decision-making process. Authority enables organizations to set directions and choose strategies, which may in turn enable a common purpose.
Functions
Below are the functions of business organization:
1. Purchase Function:
Materials required for production of commodities should be procured on economic terms and should be utilized in efficient manner to achieve maximum productivity. In this function the finance manager plays a key role in providing finance.
In order to minimize cost and exercise maximum control, various material management techniques such as economic order quantity (EOQ), determination of stock level, perpetual inventory system etc. are applied. The task of the finance manager is to arrange the availability of cash when the bills for purchase become due.
2. Productivity Function:
Production function occupies the dominant position in business activities and it's a continual process. The production cycle depends largely on the marketing function because production is justified once they are resulted in revenues through sales.
Production function involves heavy investment in fixed assets and in flowing capital. Naturally, a tighter control by the finance manager on the investment in productive assets becomes necessary. It must be seen that there is neither over-capitalization nor under-capitalization.
3. Distribution Function:
As goods produced are meant purchasable, distribution function is a crucial commercial activity . It is more important because it provides continuous inflow of cash to meet the outflow thereof. So while choosing different distributing channels, media of advertisement and marketing devices, the cost benefit criterion should be the guiding factor.
If cost reduction in distribution function is affected without compromising efficiency, it may lead to increased benefit to the enterprise in the form of higher profit and to the consumers in the form of lower cost.
As every aspect of distribution function involves cash outflow and each distributing activity is aimed toward bringing about inflow of money, both the functions are closely inter-related and hence should be carried out in close unison.
4. Accounting Function:
All the accounting tools and control devices, necessary for appraisal of finance policy can be correctly formulated if the accounting data are properly recorded.
For example, the price of raising funds, expected returns on the investment of such funds, liquidity position, forecasting of sales, etc. can be effectively administered if the financial data so recorded are reliable. Hence, the connection between accounting and finance is intimate and also the finance manager needs to depend heavily on the accuracy of the data.
5. Personnel Function:
Personnel function has assumed a prominent place within the domain of business management. No business function can be administered efficiently unless there's a sound personnel policy protected by efficient management of personnel. Success or failure of every business activity boils down to the efficiency of otherwise of the men entrusted with the respective function.
A sound personnel policy includes proper wage structure, incentives schemes, promotional opportunity, human resource development and other fringe benefits provided to the employees. All these matters affect finance. But the finance manager should know that organization can afford to pay only what it can bear.
It implies that expenditure incurred on personnel management and also the expected return on such investment through labour productivity should be considered in framing a sound personnel policy. Therefore, the relation between the finance and personnel department should be interdependent.
6. Research and Development:
In the world of innovations and competitiveness, expenditure on research and development could be a productive investment and R and D itself is an aid to survival and growth of the firm. Unless there is a constant endeavour for improvement and sophistication of an existing product and introduction of newer varieties, the firm is bound to be gradually out marketed and out of existence.
However, sometimes expenditure on R and D invovles a heavier amount, disproportionate to the financial capacity of the firm in such a case, it financially cripples the enterprise and the expenditure ultimately ends in a fiasco.
On the other hand, heavily cutting down expenditure of R and D blocks the scope of improvement and diversification of the product. So, there must be a balance between the quantity necessary for continuing R and D work and therefore the funds available for such a purpose. Usually, this balance is struck out by joining efforts of finance manager and the person at the helm of R & D.
7. Financial Management and Economics:
Financial management draws heavily on Economics for its theoretical concepts. The development of the theory of finance began as an offshoot of the study of economics. A finance manager has to be familiar with the two areas of economics, i.e. microeconomics and macroeconomics.
Microeconomics deals with the economic decisions of individuals and firms, whereas macroeconomics looks at the economy as a whole in which a particular business unit is operating.
Ethics is defined as a branch of philosophy concerned with the meaning of all aspects of human behaviour. Business ethics therefore, can be described as principles that govern the behaviour of a person or group in a business environment.
Similar to values, business ethics provide rules on how an individual should act towards other individuals and institutions in such a professional environment. And unlike values, business ethics are, more often than not, a defined set of rules, which a particular group of people use. Meaning all those in a particular group will use the same professional ethics, even though their values may be unique to each person.
Business Ethics and Code of Conduct
The norm system governing and regulating professional behaviour is business ethics. Certain common principles underlie professional codes and bodies, e.g. Medical and Dental Council, Police Service Code of Conduct, Estate Agents Code of Conduct. Codes may not be exhaustive and may not include all the rules and regulations that apply to every situation. The contents therefore have to be viewed within the framework of company policies, procedures and the requirements of the law.
In our society ethical concerns have escalated in the past few years and have been raised at government level. Organisations have hot lines for employees to anonymously report unethical behaviour. In our field of engineering issues of fairness have been legislated and we have a Code of Conduct in place. The question of ethical practice, however, covers broad ground and encompasses everything we do as professionals and the way we behave towards each other and our clients.
Practising businessmen must become aware of their ethical responsibility towards the client as well as being on the lookout for possible areas where ethical concerns could arise.
Businessmen need to understand what values are and examine their own value system which determines their interactions. What pitfalls regarding business and professional ethics face businessmen and what standards of integrity do they need to be aware of and adhere to, i.e. what ideals should they strive towards?
Most codes have common fundamental principles which boil down to four universal fundamental principles:
1. Respect for People’s Dignity and Rights
Respect the client’s personal integrity (privacy, confidentiality)
Be non-judgmental of the intrinsic value of the client irrespective of age, behaviour, culture, gender, race or religion
If you are not competent to undertake a project/ task refer to another engineer
Respect the knowledge skills and experience of your colleagues and other professionals
2. Responsible Practice
The critical focus of this principle is to limit your practice to your field of expertise and competence
You must have the appropriate knowledge and skill before undertaking an activity
Undergo relevant training and adhere to best practice
Keep abreast of new developments in your field
Use a new technique under supervision of a competent and experienced engineer
3. Integrity in Relationships
The power relationship is unbalanced between the client and the businessman as most power rests with the engineer (having the knowledge and skill) which leaves the client vulnerable
Professional codes expect businessmen to act with integrity
For businessmen to be accepted in society and successful in their profession they need to be trusted. There is a fiduciary relationship whereby one person (the client), in a position of vulnerability, justifiably reposes confidence, good faith, reliance and trust in another (the engineer) whose aid, advice or protection is sought in some matter. In such a relationship good conscience requires one to act at all times for the sole benefit and interests of another, with loyalty to those interests.
4. Responsibility
Clients are clearly the businessman’s first responsibility but they also have a responsibility to society
Examples of responsible social actions are to:
- To disperse information that can advance the profession
- To protect the public trust in the business profession by “blowing the whistle” on non-professional conduct
- To assisting in some instances where worthy causes cannot afford professional services to protect society from dangerous practices
Business Etiquettes
Etiquettes are a set of general rules of human behaviour in a respectful society, usually in the form of a code of conduct that specifies the expected and accepted code of conduct that conforms to the meetings and norms of the community, social class, or community group.
Example: Rule of writing a Thank you note.
Different types of Etiquettes:
- Social etiquette.
- Corporate etiquette.
- Bathroom etiquette.
- Wedding etiquette.
- Meeting etiquette.
- Telephone etiquette.
- Eating etiquette.
- Business etiquette.
Business etiquette is an unwritten code of conduct regarding communication between members in a business arrangement. It works in many areas of one's work life including emails, phone calls and business meetings.
Good business ethics are important because they create a positive, respectful climate and improve communication, which helps the office function as a productive environment. People feel better about their jobs when they feel respected, and that translates into better relationships with customers.
Professional Etiquette is required for the career build up like leadership, quality maintaining, business and it refines the skills which are needed for services.
Without Etiquette, a person may limit their potential at work and have risk on their image, and may even damage relationships.
Developing Business Etiquettes
Below are some common techniques to develop business etiquettes useful in professional settings:
Make a Good First impression:
People tend to create impressions about others within seconds they've met, so it's important to make sure you present yourself as an expert. Be aware of your body language and how others can understand it. A good rule of thumb is to stand upright, maintain eye contact, and smile! Make sure you recognize your work code and your policies before time. Arrive on time and get ready for important meetings.
Avoid Gossip:
The way you treat people means a lot to you. Do not make decisions about the importance of people at work or talk negatively about your colleagues, even if you find yourself frustrated with a particular situation. Think about how you interact together with your managers (managers), your peers, and your subordinates.
Communication is important:
Communication is an important part of the etiquette of the profession. Sometimes it's not something you say, but the way you say how important it is be careful how you interact with colleagues at meetings and in one conversation. As for email, make sure your correspondence inside and outside of your workplace is clearly spelled and has no spelling errors. Remember, email may be a permanent record of any conversation so never post anything written that you simply can say on someone's face.
Understand your work environment:
Pricing, policies, and work processes can be difficult to find in the first place. If you are in a large organization with a formal staffing unit, you may reach out to your HR Manager or in-house training to provide you with the information your organization expects.
In a small work setting, some of that information can come from watching others and asking questions when needed. Finally, looking at the atmosphere and the actions of others can help you understand what is right and what is wrong, and how to get better at work while maintaining your expertise.
As the global market grows, the need to understand the international standards of business self-esteem is also growing. If you are taking a job or internship in a foreign country, research the ethics, culture and customs of both that country and the organization you plan to work for.
Be Humane:
Sharing information about your private life is your decision, but be careful when it comes to what you share; some colleagues may be more open than others and may choose to keep their private life private too.
Similarly, you may want to restrict your calls, emails, and other non-work-related work hours after hours. Within your work environment, it's okay to feature a private touch but remember that your colleagues will see the space and consider it as a self-evaluation of your technical ability.
Finally, getting to know you colleagues is a good thing but always respect the respect of others. If you need to discuss something with them, don't just jump in; knock or make your presence known, and you should always schedule a meeting later in the day if they are busy right now.
Significance and Benefits of Etiquettes
Below are some important advantages of having business etiquettes:
As Corporate Customers:
It boosts the company profile among peers in the industry
Provide other marketing tools
Develops professional skills
It promotes cultural awareness
It instils dignity and respect in the workplace
It gives a positive impact on the code of conduct at work
Improves internal and external customer relationships
As Individuals:
It builds confidence and confidence
It highlights the image
Develop skills
It provides a competitive edge for those seeking employment
It has an impact on career progression
It promotes cultural awareness
Creates existing opportunities in a competitive educational environment
As professionals:
Provides strategies and skills to overcome shyness
It builds confidence and confidence
Providing winning strategies for competing educational institutions
Develop analytical skills
It creates new learning opportunities
Develops facial skills
It teaches social interaction skills
A business is a crucial element of the society and it should do its operations and earn money in ways that satisfy the expectations of the society. Social responsibility of a business refers to the obligations to formulate those decisions and perform those actions which are desirable in terms of the objectives and values of society.
It is the concept that companies should balance profit-making activities with activities that benefit society; it involves developing businesses with a positive relationship with the society within which they operate.
The Need for Social Responsibility
- Self-interest: it's within the self-interest of the business to own a social responsibility because it opens opportunities for understanding the issues and problems with society.
- A better environment for Business: In today’s cynical age, social responsibility keeps the companies honest and the markets stable.
- Public image: When a business takes initiative to resolve the issues of the society, it puts the business in the goodwill of the people.
- Social power: A leader is a helper. Helping the society could be a kind of social responsibility. Executing social service helps the business attain social power within the society.
Social Responsibility of Business
Below are the main responsibilities of a business toward society:
Towards Shareholders -
- To ensure safety of their investment regular payment of dividend and Timely payment of loans
- To provide adequate information before investment
- To ensure a good public image
- To make good and profitable decisions to give a good return on investment
- Towards Employees -
- Payment of Fair wages Providing a decent working environment
- Providing proper training and education
- Providing fair performance appraisal and career growth opportunities
- Providing opportunity to participate in management decision making
- Providing adequate grievance handling, recreational and retirement facilities.
Towards Consumers -
- To provide goods and services at an affordable price
- To ensure good quality in products
- To introduce new and innovative products through proper research
- To not mislead the customer
- To provide adequate information about the product
- To provide good after sale services
Towards Society -
- To take measures for maintaining environmental harmony
- To raise the standard of living of the society
- To help in development of backward areas and promote small scale industries
- To help in economic development of the society
- To conserve the natural resources of the country
- To follow the norms and traditions laid down by the society
- To maintain a fairness and equity in recruitment and compensation of manpower
Towards Competitors -
- To have a healthy competitive spirit
- To not use unfair means to succeed in business
- To not harm or defame the competitors
- To not copy competitor’s strategy
Towards Government -
- Timely payment of taxes and duties
- To not involve in corruption
- To follow the norms and guidelines laid down by the government
- To follow the legal system of the country
- To support the government in its public welfare initiatives
Towards Suppliers/Creditors -
- To make regular orders for purchase
- To deal on fair terms and conditions
- To Have a fair credit policy
- Timely payment of dues
Meaning
In business, promotion is any communication that attempts to influence people to shop for products or services. Businesses generally promote their brand, products, and services by identifying a target demographic and finding ways to bring their message to that audience.
Promotion could be a catch-all term that incorporates all the ways a business can decide to enhance the visibility of its products, services, or brand. A poster ad at a bus stop may be a type of promotion. So, could be a sale that discounts the value of a product or service for a set amount of duration.
The words "promotion" and "advertising" may be used interchangeably, but they're not the same thing. Advertising is one specific action one could take to promote a product or service. In other words, it's one kind of promotion.
Promotion is a vital aspect of any business. Without at least some level of promotion, a business can't get customers, and without them, it's only a matter of time before the business will have to be compelled to close its doors.
While all businesses need some kind of promotion, they don't all need the same kinds or the same levels of promotion. No two businesses will have exactly the same promotional needs, and tactics vary significantly between industries. A corner store might just need a sign that can be seen from the sidewalk that lets customers know the establishment exists. Other businesses may need to invest in direct selling efforts or buy ad time on a streaming service, for instance.
New businesses may have to go through a trial-and-error period of experimenting with different promotional styles before they find the one that's best suited for them. Even established businesses experiment with new promotional strategies in addition to continuing their tried-and-true promotions.
Functions
Promotion has its own importance in marketing. Promotion function has crucial role in informing customers about firm's products and motivating them to purchase these goods or services. Therefore, the main functions of promotion include providing information about the products and services, persuading, reminding and reassuring.
Functions and objectives of promotions can be described in detail as follows:
1. Informing
The first objective and function of promotion is to create flow of data about goods and services. Different channels are employed to supply products to the final consumers from producers. Promoters should give information about their goods or services to middlemen, final consumers and industrial users. Similarly, wholesalers should communicate the information to retailers and retailers to final consumers. It is common that the issues of market communication continue increasing because of increase within the prospective customers and geographical diversity of market expansion.
No product in a market can get success if nobody gets any information about it. So, giving information about the merchandise to prospective consumers is one of the important objectives and functions of promotion.
2. Persuading
The other important function of promotion is persuading. Persuading is to motivate customers to buy products. It becomes essential for producers or sellers to create persuasion program under promotion because of intense competition among different industries producing similar kinds of products. Information regarding products and services alone is not very effective. The sellers should give information about the advantages, quality, utility, price etc. of products to make consumers confident that their needs will be satisfied with the goods or services. The sellers should have such ability. For this, persuasion is very important.
3. Reminding
The consumers must be reminded on a regular basis of the availability, satisfaction, utility, benefits etc. of products. Many producers or sellers disseminate thousands of messages and data about their products to draw in new customers, expand and establish markets of their new products.
Even the already established manufacturing firms already holding markets should aggravate their products to the customers. Because of cut-throat competition in production and marketing, every firm must always conduct promotional programs to remind the consumers of their products and exist in markets.
4. Reassuring
After buying a product, the consumers might not be confident in their buying decision. They may feel whether or not they took right or wrong decision to purchase a particular product. So, promotion plays a crucial role to make them confident about the standard, utility and benefits of the products they have bought. This allows them to be free from worry about the brand of the product, increases brand loyalty in them and improves image of the firm. This is called reassuring.
In this way, giving information and messages about firm's products to the consumers, stimulate and persuade them to buy, remind and reassure them are the major functions of promotion.
Stages of Promotions
Following are the main stages of promotion:
1. Discovery of an Idea
2. Detailed Investigation
3. Assembling
4. Financing the Proposition.
Stage 1. Discovery of an Idea:
When a person or persons get an idea that there is the possibility of starting a new business to take advantage of the untapped natural resources or a new invention, discovery of some business opportunities begins.
Such an idea may also be to start a business unit to supply the product at a lower price by breaking the monopoly of existing concern in a particular line of business or to expand an existing concern by converting partnership into private limited company or into public limited company or by combining some going concerns.
But the promoter cannot go ahead immediately after such an idea strikes him. When a person or persons called promoters, understand that there is a possibility of starting some business concern, the idea is said to have been conceived.
Stage 2. Detailed Investigation:
Before money is invested to exploit the idea conceived through a detailed investigation of commercial feasibility of idea with reference to sources of supply, extent of demand, present and potential competition, the amount of capital necessary etc. is absolutely essential. The idea must be put to “the rigid test of cold fact of costs and inflexible law of supply and demand.”
For this purpose, promoters have to acquire the services of experts like engineers, values, accountants, statisticians, marketing experts etc. who prepare a report on the position of the market, present and potential competition, amount required for the fixed assets like land, building, machinery, furniture etc.
The report would also include the survey of supply positions of raw material, labour, transport facilities and other relevant items of expenditure. Such an investigation gives the critical appraisal of the idea conceived and reveals whether the idea is commercially feasible or not.
Stage 3. Assembling:
After a detailed investigation of the proposition has been made, the promoter decides whether he wants to take the risk of promotion and decide upon a plan of capitalization. After this he starts to assemble the proposition.
By assembling we mean projecting the fundamental idea, securing all the property needed by enterprise and making contract with all those who are selected to file the chief management positions.
Stage 4. Financing the Proposition:
The promoter decides about the capital structure of a company. First of all the requirements of finances are estimated and after that the sources from which this money will come are determined. The financial requirements of short period and long period are estimated so that capital figures may be presented in the Memorandum of Association of a company.
Sole Proprietorship
A sole proprietorship is a business that is not separate from its owner and that's income and losses are taxed on the business owner's personal tax return. A sole proprietorship is the most common type of company in existence and accounts for an estimated 73% of all businesses today. It's important to note that sole proprietorship is not a legal entity but is rather a person—the sole proprietor—who operates and takes full responsibility for the business. Sole proprietorships can operate under the name of the business owner or under a fictitious name.
These kinds of businesses are incredibly popular due to the simplicity in which it can be set up and operated. Only a local license and registered name are needed to operate as a sole proprietorship. Most organizations begin as a sole proprietorship and eventually transform to a more sophisticated business types as the company grows.
Features and Characteristics of Sole Proprietorship
Below are the main features and characteristics of a sole proprietorship:
(1) Formation and Closure
- This type of enterprise is created by the owner himself.
- No legal conventions are obliged to begin the sole proprietorship type of organization.
- In some instances, the legal formalities are required or the owner should have a particular license or a certificate to run the business.
- The owner can close the business at his own discretion.
Example: Goldsmith or an individual running a medical shop should have a license to run this kind of business.
(2) Liability
- In the sole proprietorship business, only the owner has unlimited liability.
- In this case, the owner is himself liable to pay all the liabilities. If he takes a loan for its business then he will be liable for all the debts.
- Hence, he's personally accountable for all the debt which may be recovered by his personal assets when funds are insufficient.
Example: A loan taken by the owner of the sweet shop is solely responsible for the repayment of the loan to the bank.
(3) Sole Risk Bearer and Profit Recipient
- A sole proprietor is the only one who bears all risks which are associated with their business.
- All the profits or losses which are earned from the business are to be enjoyed by the enterprise owner.
(4) Control
- As all the rights and responsibilities lie with the sole proprietor that's why he controls all the business activities.
- No one can interfere with the business activities of a sole proprietor.
- Hence, only the owner of the business or the proprietor can modify his plans accordingly.
(5) No Separate Entity
- According to the method of accounting, the owner and the business are considered as two separate entities.
- But the law does not make any distinction between the owner/ trader and its business.
- Hence, without the sole trader, the business has no identity because he's the only individual performs all the business activities.
(6) Lack of Business Continuity
- Death, imprisonment, physical ailment, insanity or bankruptcy of the sole proprietor will directly affect the business or it can also cause shutting down of the business.
- In the case of the beneficiary, successor or legal heir of sole proprietor, he can run the business on behalf of the proprietor.
Formulation of a sole proprietorship
While there are different requirements for a sole proprietorship, the following are the steps that most individuals take to form this type of business:
1. Choose what kind of business required
There are several types of businesses that can benefit from being a sole proprietorship. Most individuals choose to start their businesses as sole proprietorships and then later convert the company into a more complex organization as it expands. Examples of common businesses/individuals that begin as sole proprietorships include:
- Day-cares
- Freelance writers and editors
- Caterers
- Landscaping companies
- Tutors
- Consultants
- Fitness trainers
- Housekeepers
- Pet sitters
- Nannies
- Virtual assistants
2. Determine if a sole proprietorship is right
Once the decision is made on which type of company is required, one can then determine if a sole proprietorship is the best option for their company. One should weigh the pros and cons of the various types of businesses they can have before deciding on which one is right for them. The most common business types include sole proprietorships, limited liability companies (LLCs), partnerships, cooperatives and corporations. Most small businesses begin as either a limited liability company or a sole proprietorship depending on their needs.
3. Determine your state's sole proprietorship requirements
Each state varies as to its requirements for running a sole proprietorship. One should inquire about the steps needed to take to start the company in county, city and state before establishing the business. Most counties and cities have a Small Business Development Centre that will have this information.
4. Choose a name
A sole proprietorship can be run under the owner's name or under a fictitious name (i.e. Cindy's Candies). Before settling on a name, one should ensure that it has not already been trademarked by another company. It can be checked whether the name one wants to use is trademarked by inquiring at the Patent and Trademark Office.
5. File for a business license
Sole proprietorships must register for a business license in order to legally operate. One can register with their city or county to obtain a business license. If one plans to run the business from home, they will also need to obtain the necessary permissions from their locality.
6. Set up a domain
Most small businesses choose to set up a website for their company. A website can help draw traffic to the company and help bring in new customers. Buying a domain is fairly simple and should be done as soon as one determines the name of the company to ensure that no one else purchases a domain with the same name.
7. Open a bank account for your business
The final step for most sole proprietors is to set up a separate bank account for their business. This ensures that business and personal income and spending are kept separate and can provide protection for business cash flow.
Advantages of a sole proprietorship
Choosing to run a sole proprietorship can have many advantages, especially for small businesses. The following are a few of the benefits that choosing to start a sole proprietorship can provide:
Free to start: Unlike other types of businesses, a sole proprietorship is typically completely free to start. This can be beneficial for individuals wishing to turn a side hustle into a more lucrative career or who do not have the funds to set up another type of business.
Full control: Individuals who own sole proprietorships are the sole owners of the company and have the complete and final say as to how it is run.
Control over all revenue: Unlike other businesses that may be required to make pay-outs to lenders, investors and other organizations or individuals, a sole proprietorship does not have any financial obligations besides those incurred by the owner.
Ability to use losses on personal tax returns: Individuals who own sole proprietorships are required to include the income and losses of the business on their personal tax returns. This means that the losses of the sole proprietorship can be used to offset other personal income for a higher tax return.
Disadvantages of a sole proprietorship
While there are certainly advantages that come with starting a sole proprietorship, there are also disadvantages to consider when deciding if a sole proprietorship is right for you. Here are a few potential disadvantages to keep in mind when determining if this type of business is your best choice:
Personal liability for lawsuits: Sole proprietors are personally responsible for all aspects of the company's financial situation. This means that if the company is in debt and unable to pay lenders, the lenders can bring lawsuits against the individual who owns the sole proprietorship. If these lawsuits are settled in favour of the lenders, the business owner will be held personally responsible to pay for the debts.
Limited options for raising capital: Whereas other types of companies can sell an interest in the business to raise capital, a sole proprietorship cannot. This can limit a sole proprietor's ability to bring in capital when it is needed.
Higher taxes: Individuals who own sole proprietorships are responsible for paying the income tax and self-employment tax for the business's income. This can be a hefty fee if the sole proprietorship is successful.
Partnership
A partnership can be described as a quite business where a formal agreement between two or more people is formed and agreed to be the co-owners, distribute responsibilities for running a company and share the income or losses that the business generates.
All the aspects and functions of the partnership are administered under ‘The Indian Partnership Act 1932’ in India. This specific law implies that partnership is a concord between two or more individuals or parties who have accepted to share the profits and losses generated from the business under the supervision or administration of all the members or behalf of a few members.
The enterprise or company is collectively called a “Partnership Firm” and each of the individual members are referred to as “Partners”.
Features of a Partnership
Below are the main features of a partnership business:
1] Formation/Partnership Agreement
A partnership firm is not a separate legal entity. But in keeping with the act, a firm must be formed via a legal agreement between all the partners. So a contract must be entered into the formulation of a partnership firm.
Its commercial activity must be lawful, and the motive should be one of profit. So two people forming an alliance to carry out charity and/or social service can not constitute this type of organization. Similarly, a partnership contract to carry out illegal work, like smuggling, is void in a similar way.
2] Unlimited Liability
In a unique feature, all partners have unlimited liability within the business. The partners are all individually and jointly accountable for the firm and therefore the payment of all debts. This means that even personal assets of a partner may be liquidated to fulfil the debts of the firm.
If the assets are is recovered from one partner, he can, in turn, sue the remaining partners for their share of the debt as per the contract of the partnership.
3] Continuity
A partnership cannot carry out in perpetuity. The death or retirement or bankruptcy or insolvency or insanity of a partner will dissolve the firm. The remaining partners may continue the partnership if they so choose, but a replacement contract must be called for. Also, the partnership of a father can not be inherited by his son. If all the remaining partners agree, he may be added on as a replacement partner.
4] Number of Members
As it is known that there should be a minimum of two members. However, the maximum number will vary consistent with a number of conditions. The Partnership Act itself is silent on this issue, but the companies Act, 2013 provides clarity.
For a banking business, the quantity of partners must not exceed ten. For a business of any other nature, the utmost number is twenty. If the number of partners increases it will become an illegal entity or association.
5] Mutual Agency
In this kind of organization, the business must be administered by all the partners together. Or alternatively, it may be dispensed by any of the partners (one or several) acting for all of them or on behalf of all of them. Therefore, this implies every partner is an agent as well as the principal of the partnership.
Types of Partners
Not all partners of a firm have identical responsibilities and functions. There may be various kinds of partners in a partnership. Given below are the various types of partners and their rights and duties.
- Active Partner: as the name suggests he takes active participation directly in the business of the firm. He contributes to the capital, holds a share in the profit and also participates regularly in the daily activities of the firm. His liability in the firm will be unlimited. And he often will act as an agent for the remaining partners.
2. Dormant Partner: Also known as a sleeping partner, he will not participate in the daily functioning of the business. But he will still need to make his share of contribution to the capital. In return, he will have a share in the losses or profits. His liability will also be unlimited.
3. Secret Partner: Here the partner’s association with the firm isn't public knowledge. He cannot represent the firm to outside agents or parties. Other than this his participation with regard to capital, profits, management and liability will be the same as all the remaining partners.
4. Nominal Partner: This partner is merely a partner for name's sake. He allows the firm to use the name of his firm, and also the attached goodwill. But he in no way contributes to the capital and hence has no share in the losses or profits. He does not involve himself with the firm’s business. But his liability too will be unlimited.
5. Partner by Estoppel: If an individual makes it intent on, through their conduct or behaviour, that they are partners in a firm and the other partners do not question his stance or correct them, then he becomes a partner by estoppel. However, this partner too will have unlimited liability.
