In Ethiopia, Ethio Lease is the first privately owned equipment leasing company with a license from the National Bank of Ethiopia. Ethio Lease provides its customers with carefully selected equipment on the basis of a lease contract, whereby the customer is the Lessee, who has a conditional right to use the equipment, and Ethio Lease is the Lessor, who buys and owns the equipment. If the equipment needs to be imported, Ethio Lease will buy the equipment abroad, using foreign currency from its parent company, AAFC. Ethio Lease customers can pay the lease fee in Ethiopian Birr. While leasing comes in many forms and shapes, for now the only form of leasing that the NBE will allow is a capital lease (aka “financial lease” or “full pay-out” lease). This Ethio Lease can be an alternative foe very few startups, it cannot be considered as a significant alternative for startups since most of them couldn’t fit it and it couldn’t be accessible enough. In Ethiopia, Ethio Lease is the first privately owned equipment leasing company with a license from the National Bank of Ethiopia. Ethio Lease provides its customers with carefully selected equipment on the basis of a lease contract, whereby the customer is the Lessee, who has a conditional right to use the equipment, and Ethio Lease is the Lessor, who buys and owns the equipment. If the equipment needs to be imported, Ethio Lease will buy the equipment abroad, using foreign currency from its parent company, AAFC. Ethio Lease customers can pay the lease fee in Ethiopian Birr. While leasing comes in many forms and shapes, for now the only form of leasing that the NBE will allow is a capital lease (aka “financial lease” or “full pay-out” lease). This Ethio Lease can be an alternative foe very few startups, it cannot be considered as a significant alternative for startups since most of them couldn’t fit it and it couldn’t be accessible enough. In Ethiopia, Ethio Lease is the first privately owned equipment leasing company with a license from the National Bank of Ethiopia. Ethio Lease provides its customers with carefully selected equipment on the basis of a lease contract, whereby the customer is the Lessee, who has a conditional right to use the equipment, and Ethio Lease is the Lessor, who buys and owns the equipment. If the equipment needs to be imported, Ethio Lease will buy the equipment abroad, using foreign currency from its parent company, AAFC. Ethio Lease customers can pay the lease fee in Ethiopian Birr. While leasing comes in many forms and shapes, for now the only form of leasing that the NBE will allow is a capital lease (aka “financial lease” or “full pay-out” lease). This Ethio Lease can be an alternative foe very few startups, it cannot be considered as a significant alternative for startups since most of them couldn’t fit it and it couldn’t be accessible enough. In Ethiopia, Ethio Lease is the first privately owned equipment leasing company with a license from the National Bank of Ethi.

1. Part I: Organization of a Business
Jeff Madura
Introduction to Business 3e
1
Copyright © 2004 South-Western. All rights reserved.
Planning A Business

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Organization of a Business

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Learning Goals
• Identify key business stakeholders.
• Describe key business functions.
• Explain how to develop a business plan.

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Business Defined
A business is an enterprise that provides
products or services desired by
customers.

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Key Business Decisions
• Product
– What type of product should be produced?
• Production
– How should the product be produced?
• Promotion
– How should the product be promoted?
• Financing
– How should the company obtain funds to
finance the cost of producing the product?

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Business Decisions

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Key Stakeholders
• Owners
– Entrepreneurs
– Co-owners
– Stockholders
• Creditors
• Employees
– Managers
• Suppliers
• Customers

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Interaction among Owners, Employees,
Customers, Suppliers, and Creditors
Exhibit 1.1

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Creating a Business Idea
• Identify a competitive advantage.
• Differentiate the product or service from
competitors.
• Determine necessary resources.
• Assess feasibility of the idea.

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business online
e
e
-
-
business
business

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Success Stories
• Domino’s Pizza
– Managhans bought bankrupt pizza parlor
– Started with little funding
– Now generates sales of $1 billion per year
• Jeremy’s Micro Batch Ice Cream
– Applied microbrewery concept to ice cream
– Makes ice cream in small batches, sold in limited
editions
• Glow Dog, Inc.
– Sells light-reflective clothing for pets
– After two years, average annual sales of $1 million

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Lessons to Remember
• Successful businesses do not require a
great invention.
– Many focus on making life more convenient
for customers.
• Some business ideas will fail—but
entrepreneurs can learn from failures and
make revisions.

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Impact of Technology
• Technology defined
– Knowledge or tools used to produce
products and services
• Information technology
– Represents over 1/3 of the growth in U.S.
output
– Reduces cost of producing products
– Workers in technology industries earn more
than workers in other industries.

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Impact of Technology
• E-business or e-commerce
– Use electronic communications to produce
or sell products and services
 Sales to individual customers
 B2B e-business: transactions between a business
and its suppliers
 Generates $301 billion in revenue and creates 1.2
million jobs each year

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Successful E-Businesses
• Started out small
• Created to sell a product or service that was
not offered by competitors
• Transformed how traditional firms conducted
business
– Improved communication with customers
– Improved information flow
– Improved efficiency
– Complemented traditional business operations

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E-Business Examples
• Amazon
– Online seller of books, music and other products
– Low overhead costs allow price discounting
• Yahoo!
– Internet search engine and the most visited site on
the Web
– Offers variety of services - free email, web page
hosting, custom-designed start-up pages
– Generates revenue by selling advertising
• eBay
– Online auction service

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Key Functions of Business
• Management
– Means by which employees and other resources
are used by the firm
• Marketing
– Means by which products and services are
developed, priced, distributed, and promoted to
customers
• Finance
– Means by which firms obtain and use funds for their
business operations

18. Copyright © 2004 South-Western. All rights reserved. 1–18
Key Functions of Business
• Accounting
– Summary and analysis of the firm’s financial
condition
– Used to make various business decisions
• Information systems
– Information technology, people, and
procedures that provide appropriate
information to make effective decisions

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How Business Decisions
Affect a Firm’s Earnings
Exhibit 1.4

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Common Business Decisions
• Management Decisions
– What equipment is needed?
– How many employees should be hired?
– How can employees be motivated to perform
well?

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Common Business Decisions
• Marketing Decisions
– What price should be charged?
– Should the product be changed to be more
appealing to customers?
– Should the firm use advertising or some
other strategy to promote its product?

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Common Business Decisions
• Finance Decisions
– Should financial support come from the sale
of stock or from borrowing money or some
combination?
– Should the firm attempt to obtain borrowed
funds for a short-term or long-term period?
– Should the firm invest funds in a new
business project?

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A Business Plan
• Detailed description of the proposed
business
– Description of the product or service
– Types of customers the business would
attract
– Competition
– Facilities needed for production

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Developing a Business Plan
• Assess the Business Environment
– Economic environment
– Industry environment
– Global environment
• Develop Management Plan
– Organizational Structure
– Production
– Human Resources

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Developing a Business Plan
• Marketing Plan
– Target Market
– Product Characteristics
– Pricing
– Distribution
– Promotion
• Financial Plan
– Financing
– Feasibility

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Online Resources
• Advice and basic information
– Yahoo’s Small Business site
– American Express
– Small Business Administration
• Financing Options
– Quicken Small Business
– Garage.com
– The Elevator
• Business Planning Software

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Assessing a Business Plan
• Potential revenue
• Potential demand for product or service
• Potential expenses
• Profit potential

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Expected Monthly Expenses of CHC
Exhibit 1.6

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Expected Performance of CHC
in the First Year
Exhibit 1.7