Functions of a Business

1. Production Production is the making of a good and or

service. The term production can be used to mean/include:

Land: The physical space in which the product will be produced/sold

Labour: The workforce that will make the product

Capital: The money/equipment/machinery used for production

Information: the information and tracking necessary for production

Costs of production

For this project your production costs will include:

1. Bill of materials costs (provided)

2. Equipment list (researched)

1. Production

Land

Labour

Capital

Information

Explain below how you will use each of these factors of production for your project:

2. Human resources The people involved in the business

Can be internal Permanent employees for your company

Can be external People brought in and paid to work on specific

projects

Cost of Human Reources Since you are the owner of your business,

you will be the only employee Questions for you to answer about your

business:- What skills for this business do you have?- What skills for this business do you need to

improve?- In what ways will you have to be flexible?

3. Marketing The activities a business does in order to convince people to

sell a product. In this project this could include: Personal selling: one on one communication to promote or sell

a product In your opinion, what are two advantages to selling things to one

customer at a time? In your opinion, what are two disadvantages to selling things to one

customer at a time? Advertising

Mass advertising through the use of a medium (such as posters, t.v. adds, the internet, magazines, newspapers, radio, outdoor advertising)

In your opinion, what are two advantages to selling things this way? In your opinion, what are two disadvantages to selling things this

way?

Costs of marketingYour marketing will have four components:- Creation of a name for your business (to be included on

the reports that follow)- Creation of a prototype- Creation of a sign- Creation of business cards to hand out to friends/family- Using the website www.staplescopyandprint.ca,

come up with and print off estimates for the cost of a colour sign for your business (size 24 X 36), as well as the cost of 100 one sided black & white business cards

Costs of marketingName for business:

Cost for poster (include link in box to the right)

Cost for business cards (include link in box to the right)

4. Financing Obtaining money to start and continue to

operate the business Initially done through either debt or equity

financing If successful, business can continue to operate

using operating revenue (revenue from sales of goods/services)

There are two general ways of finding the financing to start up a business

Debt Financing Debt Financing occurs when a person is

loaned money to complete a task (or assist in a business). The person lending the money is then given the money back either over time or at the end of a period with interest

Interest is extra money paid for the use of money (the cost of borrowing)

Debt Financing Example

Todd wants to buy a car He borrows $10,000 from the bank to buy the car The bank charges a yearly interest rate of 5% At the end of the year, how much will he have to pay back

to the bank? Answer below In this case, the principal is the amount originally loaned

out ($10,000)

Answer:

Debt Financing Advantages

You do not give up ownership in your business You can do whatever you want with the money

Disadvantages You must pay back the loan with interest

Equity Financing Equity Financing occurs when a business

allows investors to become co-owners in a business

The new owner may or may not have say in what happens to the business, but MUST have a share of the profits and/or losses of the business

Equity Financing Advantages

You do not have to pay back the new owner’s investment

You don’t have to pay any interest

Disadvantages You are giving up some ownership and say in

the business You are giving up a share of the profits

Potential Financing Costs There are two options for this business:

The bank will offer you a loan (debt financing) Anywhere between $500 and $5000 You choose amount loaned Interest rate is 8% annual (8% / 12 for each month) Principal is due at

the end of August.

A friend, Dave Smith, has offered to be a partner (equity financing) Will give you $2000 to become a 50% partner in the business The friend does not want to work for the business at all, but must share

50-50 in projected profit

Financing advtanges and disadvantages Complete the chart to analyze the two options for

financing

Option Advantage Disadvantage

Debt financing from the bank

Equity financing from a friend