Material Excerpts: Business Education
BIZ WIZ® Universal
and
Business Basics Bestseller #1
Sampler
Welcome!
You came to this page looking for materials used to provide basic business education and you will be glad you did! The material in the section is available either as part of the BIZ WIZ® Universal in-house business education program, or as a separate book called Business Basics Bestseller #1. The two different formats provide a convenient choice for you depending upon how you or your organization will use the materials.
BIZ WIZ® Universal is a business education program that combines self-study reading materials, classroom discussions, exercises, and a dynamic simulation (game) to teach the essentials of business to anyone without a business degree. Business Basics Bestseller #1 is a book that includes the same information found in the BIZ WIZ® Universal self-study reading materials. It also has a separate companion BBB #1 Workbook with questions related to each chapter in the book.
Please click on the "Books" link on this page for more information about both the BBB#1 book and the BIZ WIZ® Universal self-study materials.
The next few headings introduce you to some ideas about business education before you sample the material itself (you can skip ahead if you wish). Thanks for visiting our site!
This material is reproduced from BIZ WIZ® Universal, Copyright © 2006, Donald F. Barkman, The Business Center, Oak Ridge, TN, All Rights Reserved. Similar material is published in the book, Business Basics Bestseller #1, Copyright © 2007, The Business Center, Oak Ridge, TN, All Rights reserved. This web site material may be copied and reproduced by persons interested in learning about and promoting BIZ WIZ® and BBB#1. "The Business Center, Oak Ridge, TN, 888-988-2275" must be acknowledged as the source of the material.
This Sample
This is a sampler of the reading material from the outstanding business education program called "BIZ WIZ®." It contains examples and material from the six chapters covered during the BIZ WIZ® Universal seminar. You're invited to browse through this material and see how easy it is to become a BIZ WIZ! We think you'll like it so much that you'll order the book Business Basics Bestseller #1 that contains all this material. Before you get started, however, let's consider why it is so essential to learn more about business.
The Rationale
A for-profit business is driven by its numbers. If you don't understand the numbers, you're not really in the game. Unfortunately, most of us didn't go to business school. That means we must educate ourselves about the business we work in. We need to know its terminology and how to keep score.
A business succeeds when everyone in that business understands how it works and how to contribute to its success. People make the difference! Being "business literate" helps each of us do better as individuals and it helps our company prosper. How?
Every day each of us makes decisions at work. Some are big, some are small, but altogether it's those decisions that create company performance. Machines can't decide, only people can. Every decision is ultimately a business decision because it affects the business. How we respond to a customer, how we make a product, how we check quality, how we process a bill -- all these are really business activities. The more we know about business, the better we can do our jobs and the better our decisions will be. Work is more interesting when we know more about our business and can relate our actions to the bigger picture.
There are even more reasons to increase our knowledge of business! Organizations are linked through communications. To communicate, we must share the same language. We must understand the terms we are using. What does it mean when someone says, "Our Cost of Sales is down 2% this quarter," or "Our ROE increased for the fiscal year." This is part of the language of business. Knowing this business vocabulary helps us understand how we are doing and why we must take certain actions. If we can't communicate because we don't understand these business terms, then we can't reach our full potential for working together. What we don't know can hurt us! BIZ WIZ® will help you and others in your organization reach their full business potential!
BIZ WIZ® Universal — The Program
BIZ WIZ® U has reading material that helps you learn the essentials of business. Each chapter covers a specific aspect of business. Key terms, financial reports, and performance measures are all explained in an easy-to-understand manner. Here's what you get in BIZ WIZ® U. (For additional information click on BIZ WIZ® Universal at the beginning of this section.)
1. Introduction to Business
Why companies are in business and how individuals are like miniature businesses.
2. Serving Our Customers
Where sales come from and what affects them. The force of competition.
3. Operating the Business
Sales minus costs equal profits. Types of costs and measures of profits. The Income Statement.
4. Financing the Business
What we own, what we owe, and what is ours as a company. The Balance Sheet.
5. Measuring the Business
The different ways we measure the financial results of the firm.
6. Managing Our Resources
How we track our critical numbers and decide which investments to make.
OPERATING A COMPANY
This section, "Operating a Company" is from BIZ WIZ® Chapter #1, "Introduction to Business."
Let's look at how a company works financially. Financial operations involve selling products and services and paying bills. Nothing too hard about that idea! Each of us does it every month. We sell our labor and get a paycheck. We use our paycheck to pay our expenses. We try to save some of that paycheck for our future.
What we save, we invest so that it earns more money for us. The company does the same things on a bigger scale.
If you wrote down how much money you made, and how much you paid for living expenses, you would be making a statement about your income (and outgo!). The company reports the money it makes from selling its products and services and the money it spends to pay its bills. It does this on a report called an "Income Statement."
The company sells products and services. Companies are very different in what they sell. Many firms sell products. Some products, like shovels, require very little service. For these firms, service is usually limited to taking orders, making timely shipments, and answering a few questions about their products. Other firms sell products that require lots of service, like computer software.
There are also companies that sell mostly services, not physical goods. Banks and insurance companies are good examples. Their products are loans, investments, or insurance policies. They provide a lot of advice and help to customers who borrow or invest money with them.
Your company will have its own special blend of products and services it provides. Generally speaking, the more product-driven a company is, the more it spends for materials, energy, buildings, and equipment. The more service-driven a company is, the more it spends for labor and administrative costs.
Companies also keep track of the things they own (buildings, equipment, etc.) and the obligations they have (bills, loans, etc.) Because a company is a business, it must keep detailed records of what it owns and what it owes. The report a company uses to summarize those detailed records is called the "Balance Sheet." You probably keep an informal "balance sheet" of your personal property and debts in your head. You might want to put it on paper. Why? If a disaster struck, and you lost your home, a list of everything you own would be very helpful in filing an insurance claim. (Just don't keep the list in the house!)
CUSTOMERS
This section, Customers, is from BIZ WIZ® Chapter #2, "Serving Our Customers."
Whatever mix of product or service it sells, a company gets its income from its customers. Customers are very, very important. Making customers delighted, not just satisfied, keeps a business going. We must find out what our customers need. We must also know how well we are meeting those needs. Customers can always find competitors who will try to satisfy them.
While customers want many things, they usually focus on these four:
Price
Quality
Features
Service
These four items are how we provide "value" to our customers. Lower prices and higher quality mean our customers get more for their money. Personally, that's what we want when we buy things. We also look at the features a product offers and the service that support it. Features are only meaningful if the customer can use them. Service must be customer friendly and timely. The better we do on all four items, the more we "add value," and the better we attract customers.
SALES
This section, Sales, is from BIZ WIZ® Chapter #3, "Operating the Business."
By this point in BIZ WIZ® (not this Sampler), we've learned about customers, markets, products, and competitors. These four things affect how much we sell. We've got to sell products and services to customers to survive!
The money we receive from customers is called "Sales Income," or, just plain "Sales." We must get more sales income coming in than we pay out as expenses -- otherwise, we go out of business!
Sales Income is driven by two things:
Price
Quantity
The prices we charge, and the quantity (volume) we sell, determine how many dollars of sales income we receive from customers. Price and quantity are related to each other. Generally, a higher price means a lower quantity sold. A lower price means a higher quantity sold. The better our quality, features, and service, the higher the price we may be able to charge. Keeping our prices lower than our competition can help us increase the quantity we sell.
Notice we didn't say that we would sell more. Sales are driven not only by what we do, but also by what our customers do, what our competitors do, and by the general economy. When the economy is booming and demand for products is high, prices often go up for many products. The "market" into which we sell our goods and services is a very powerful driver of our sales. Our market is the group of customers we supply who buy similar products and services. Within that market, we must do everything we can to be the most desirable supplier.
Notice too, that making more products only counts if we sell them. We can't fool ourselves into thinking business is good by making lots of products and putting them into inventory in the warehouse. They must get sold to a customer!
Let's summarize:
Price times Quantity Equals Sales Income
P x Q = Sales
COSTS AND EXPENSES
This section, Sales, is from BIZ WIZ® Chapter #3, "Operating the Business."
There are many expenses for operating a business. Controlling how much money is spent is a key to staying in business. Companies pay close attention to tracking and reporting costs. We'll see the major categories of costs tracked.
The Big 3
Up to this point, we treated costs as though they were one big category. Now it's time to see how companies divide their costs into different categories. They do this to track what they spend money for and to control that spending. For example, spending a dollar to make a product is very different from spending a dollar to advertise it.
Most companies use three big categories for their costs. They are:
Cost of Sales (Production)
Selling, General, and Administrative
Interest
(Further explanation of each cost category is provided in Booklet #2 of BIZ WIZ® U.)
ASSETS
This section, "Assets" is from BIZ WIZ® Chapter #4, "Financing the Business."
So far in Financing the Business, we've seen that a company raises the money (capital) it needs to begin business by selling stock and borrowing. Originally the capital is in the form of cash. The company turns that cash into the things that it will own: equipment, buildings, etc.
The things the company owns are called "assets."
In a manufacturing company, the cash is mostly used to buy:
- Property
- Buildings
- Equipment
- Raw Materials
You own assets as an individual. These include items such as checking account, savings account, stocks, home, car, furniture, jewelry, etc.
Putting Assets to Work
As a company begins operations, it owns some cash, raw materials, land, buildings, and equipment. This gets the company started. The raw material will be turned into finished products. Raw material is one type of "inventory." As it is being made into finished products it becomes "work in process inventory." When it is completed, it becomes "finished goods inventory." The word inventory covers all these types of materials and products. Inventory has value and can be sold. That makes it an asset.
The company uses its equipment to begin operations. Before it started, it had already identified potential customers who would buy its products and services. It makes and sells products and delivers services to those customers. The company buys materials, energy, and labor. It turns raw materials into work-in-process, then into finished goods waiting for sale or shipment. It sells finished products.
Customers agree to pay for those products. The company sends the customers bills called "invoices." Customers send the company checks that the company cashes and uses to buy more supplies and pay expenses.
SIZING UP THE FIRM
This section, "Sizing Up the Firm" is from BIZ WIZ® Chapter #5, "Measuring the Business."
How does a company know how well it is doing financially? There are simple ways to measure financial results. And, there are more complicated ones!
Let's tackle some simple ones first.
- How much did the company sell? The actual amount of sales dollars shown on the Income Statement says something about a company's size.
- How much does the company own? The value of its assets shown on the Balance Sheet is another measure of a company's size.
- Firms also do simple comparisons such as, how much have sales risen from last year to this year? The company may have planned for sales to grow by a certain amount. Growing sales are a good thing. Similarly, companies can compare profits from one year to the next. If profits are rising, that's good too.
- Changes from year-to-year are often shown as graphs or bar charts in a company's annual report. Most annual reports have a table listing results for important measures for the last 5 - 10 years.
- While the size of net income (profits) is interesting, it immediately points out a problem. The amount of profit a company makes is only meaningful when we compare it to another number. If two companies both earned $100,000 in profits, did both perform equally well? The answer -- it depends. Were they the same size in terms of sales and assets? If not, one probably did better than the other. We'll see how to find this out.
Financial numbers tell us more when we compare them with each other. When we compare a company's profits to its sales, we measure its financial efficiency. We see how well it squeezes pennies of profit from each dollar of sales. When we compare a company's profits to its assets, we see how efficiently it uses its tools to create profits. When we compare a company's profits to the equity the shareholders have invested in the company, we see how efficient an investment the company is for its owners.
Companies do all these comparisons and more.
CASH FLOW
This section, "Cash Flow" is from BIZ WIZ® Chapter #6, "Managing Our Resources."
We've seen there is a lot of money flowing into and out of the company. Managing the flow is just as important as managing how much there is. It's not enough to make a profit or have stable financing. It all must come together at the right time. That's what cash flow is all about.
"Cash flow" refers to the actual dollars of cash coming into and leaving the company each day. Controlling cash flow means having enough payments from customers arriving on time to pay the bills when they are due. It's one thing to make a sale and deliver the product. It's something else to get paid for it.
How about those projects the company wants to do? The money to pay for them has to come in at the right time so it can go out at the right time. Some of that money may be profits, some may be borrowed capital, and some may be raised by selling stock. Balancing all that activity is part of cash flow.
(Further explanation of cash flow is provided in Booklet #6 of BIZ WIZ® U.)
HELPER REVIEW
Each chapter has a "Helper Review" that summarizes the key points for the chapter. This sample review contain small excerpts from several chapters.
Competition and change make it necessary for everyone to know more about business. By managing your personal finances you already act like a business.
Customers are the source of sales. Customers are very important. Keeping them happy is essential to survival. Everyone contributes to customer service in some way. Four things determine the "value" the customer receives from us.
| Price |
Quality |
| Features |
Service |
Sales Income or "Sales" is money we make from selling products and services to customers. The amount of money we receive as Sales Income depends on two things:
Sales Income = Price Charged x Quantity Sold
A company has a variety of costs to pay:
- Cost of Sales -- Costs of making the product
- SG&A -- Expenses of administration and selling
- Interest -- Expenses of borrowing
Assets are what the company owns:
- Cash, inventory, and amounts customers owe us
- Buildings, equipment, and property
The size of a company is often measured in terms of its total Sales or total Assets. Size is not a measure of efficiency or profitability. Changes in performance from year to year show trends. Sales and Net Income should go up.
Cash flow is the management of the flow of actual cash payments into and out of the company. A company can be making a profit on paper, but still have cash flow problems if its customers are slow to pay the company's invoices.
HELPER REVIEW
OPERATING A COMPANY
1. Match the following two financial statements with their items.
| A. Income Statement |
___ Amounts for sales income and expenses paid. |
| B. Balance Sheet |
___ Amounts for the property owned and debts owed. |
CUSTOMERS
2. Which item adds value ("A") for customers and which lowers value ("L")?
| ___ Missing a Delivery Date |
___ Providing "User Friendly" Features |
SALES
3. Where does Sales Income come from? ____________________________
COSTS AND EXPENSES
4. Which cost category is a major one used by most companies?
| ___ Office Supplies |
___ Cost of Sales |
ASSETS
5. What are some assets you own? _________________________________
SIZING UP THE FIRM
6. Two companies with the same dollar amount of profit are performing equally well.
| ___True |
___False |
___Maybe |
CASH FLOW
7. A company usually gets paid on the same day it delivers a product to the customer.
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