---
author: Akbar Rahman
date: \today
title: MMME2049 // Private Enterprises
tags: [ business ]
uuid: 1b37fd6a-5255-43a5-b19f-a427880b46aa
lecture_slides: ./lecture_slides/P002_Presentation_2023.pdf
---

# What is a Private Enterprise

- fancy word for 'business'
- they are a means to 'create' wealth
- it's often helpful to distinguish between manufacturing and service industries, but not always
  possible

  - manufacturing businesses bring in materials, add value, and sell physical goods at a profit
  - service enterprises are like hairdressers, bank, and taxis where they do something for you

# Business Models

> a plan for the successful operation of a business,
> identifying sources of revenue, the intended customer base, products [or services], and details of
> finance

# Definitions

- sales = financial inflow due to sales
- cost of goods sold (COGS) = input cost + process cost

  where input cost = cost of raw materials; process cost = cost of converting input into sold goods

- gross profit = sales - cogs
- added value = sales - input
- operating profit = gross profit - operating costs

![](./images/vimscrot-2023-02-08T18:02:49,145102193+00:00.png)

# Prices, Costs

$$\text{price} \neq \text{cost}$$

- cost is how much needs to be given up to obtain something
- price is the amount the market is prepared to pay for it and is determined by interaction between
  buyer and seller
- sometimes price and cost are entirely unrelated
- price is not always greater than cost


# This Diagram of 'the financial structure of a business' Doesn't Make Sense to Me

![](./images/vimscrot-2023-02-08T18:02:12,873108922+00:00.png)

# The Value Chain

> A value chain is the set of activities that a business performs with the objective of delivering a
> valuable product, which can be a good, a service, or both, to its customers.

~ Michael Porter

![](./images/vimscrot-2023-02-08T18:04:39,286950278+00:00.png)

# Legal Form

- every business must select a legal structure to follow - this is the legal form of ownership
- this decision is made by the founders before the business operates but it can be changed later
- it determines how resources are structured, management roles are administered, taxes are paid, and
  financial information is reported
- legal forms vary from country to country

## Non-exhaustive List of Types

- sole trader
- partnership
- limited company

  - private limited company
  - public limited company

  - day to day management is separated from ownership
  - liability is limited to the money the owners put in (shareholders are not liable for company debt)

- and more!

## Shares

Limited companies must have at least one owner who owns a fraction of the company called a share.
Collectively, shares are also known as equity.

This normally gives shareholders the ability to vote on important decision which affect the business.

# Businesses as Organisation of People

- every business is also an organisation comprising people to achieve a collective goal (make the
  shareholders richer)
- this perspective of businesses deals with who is and isn't in the organisation and who has authority
- generally as business gets older it gets bigger:

  - micro --- single individual or small group based locally
  - small --- has a small management team working nationally
  - medium --- central organisation with limbs and possibly international
  - large --- global with large, semi-autonomous groups

  - the micro, small, and medium sizes are known a SMEs (<250 people)

# Lines of Reporting

![](./images/vimscrot-2023-02-08T18:16:39,109473929+00:00.png)

Companies may also be organised by product divisions:

![](./images/vimscrot-2023-02-08T18:17:40,633851867+00:00.png)

# What Do Managers DO

Two types of managers are needed:

- Strategists ---- set objectives and overall strategy
- Doers --- manage resources to achieve objects and implement strategy

## Management By Objective (MBO)

MBO is a strategic model in which managers and employees agree to a set of objective.

Peter Drucker proposed the eight criteria:

1. market standing
1. innovation --- there are costs and risks but lack of innovation creates opportunity for competitors
1. productivity --- all assets must contribute to productivity:

   - labour sales productivity = sales revenue / number of employees
   - labour profit productivity = operating profit / number of emloyees

1. physical and financial reserves
1. profitability
1. worker performance and attitude
1. manager performance and attitude
1. public responsibility

## General objectives

- continuous growth
- profits
- gain market share
- show dividend for shareholders

## Market Standing

- a basic measure of this would the market share
- price competitions squeeze small companies out
- small companies win in niches that larger companies overlook
- restrictive regulation
- complacency
- inability to react to technological changes

## Physical and Financial Reserves

- possession of necessary resources


i give up just read the lecture slides lol