Text 9 - planning in business

Planning entails deciding how the predetermined objectives of a business, or a section or department of it, should be achieved in the most efficient and economical way in accordance with the managerial policy.

However, in other cases considerable thought and research may be necessary before deciding to produce or to provide something not already available or which is likely to be able to compete successfully with similar goods or services existing on the market. Numerous factors - such as finance and resources available or which can be made available, the market potential, facilities which will be required, and so on - may have to be considered before a decision on viable objectives of a business is finally reached.

Hand-by-hand with the decision on the objectives of the business is the necessity to decide in broad terms how and where the set objectives are to be achieved, that is, to lay down the basic policies of the business. Policies, being really the attitudes of the business towards achieving its objectives, are rather more flexible, and can be adjusted to deal with problems, which may arise in attaining those objectives, or as required by the operating position of the enterprise at a particular time.

A farmer, for example, must research the market for the supplies and demands - a business can only continue to exist for as long as there is need for its products or it can create a need for them - and then decide which best sold agricultural products could be cultivated or received on his farm, considering all circumstances and local conditions. He must then decide whether he will sell in bulk, in form of retailing, or a combination of two.

Plans are the predetermined routes to the achievement of objectives, that is, they are the result of decision taken on how the objectives are to be achieved. What is called forecasting is therefore essential if management is to be able to carry out effectively its planning function.

Once the initial objectives and basic policies of an enterprise have been decided upon, the interpretation and implementation of the policies and the achievement of the objectives are the responsibilities of the management team. In business, the board of directors, top management, is involved mainly with what is called ‘strategic planning’, which is concerned primarily with deciding what the objectives and policies should be in years ahead, and such planning covers mainly the enterprise as a whole rather than individual departments or sections. Senior management is involved in ‘tactical planning’, that often entails devising and operating short-term plans, for up to a year to come. Other strata of management, including supervisors, are involved mainly in very short-term ‘operational planning’ involving the day-to-day running of departments and individual assignments.

Text 10 - business financing

Every new business requires capital. Generally that is in the form of money or the potential available money - from savings or a loan or a bank overdraft, for example - although in some cases part of the capital may be in the form of other assets (possessions on which a monetary value can be placed) such as land, buildings, stocks of raw materials or good for sale, etc.

Some expenditure may be of a ‘capital’ nature in which money will be exchanged for other assets of equal or similar value, and which are intended to be retained for some time. Such assets as real estate, plant or equipment are often called ‘fixed assets’ or ‘working assets’. The variety of such items is great and, depending on the type and size of a particular enterprise, may range from office equipment, to factory buildings and plant.

Other expenditure is referred to as ‘revenue’ one, and is incurred to enable the business to carry on the activities for which it is established, and is that which purchases materials for production and/or goods for resale. The commonly used term ‘current assets’ or ‘circulating assets’. Some current assets - such as cash in hand or at bank, investments and monies owed by short-term debtors - may also be called liquid assets because they are readily realizable and available. It should be noted that it is by the ‘turnover’ of its current assets that an enterprise makes its profits, or its losses.

Liabilities are any sums, measured in monetary value, which an enterprise (or ‘debtor’) owes to others (usually called ‘creditors’), that is, they are the debts of the given business. Liabilities can be classified into three groups, which are (a) capital, which is dealt with in detail below; (b) long-term liabilities which extend over lengthy periods, examples being mortgages on land and buildings, bank loans for the purchase of expensive machinery, etc.; (c) current liabilities which, as with current assets, fluctuate in form and value continually - the most common current liabilities in business are sums owed to trade creditors and bank overdrafts.

Capital income comprises the initial capital plus any additional capital invested in an enterprise, and also any long-term loans made to it, in whatever form, any proceeds from the sale of fixed assets and returns (interests) on long-term investments.

Revenue expenditure comprises all expenses which must be paid if an enterprise is to be able to carry on its normal activities, whether they be trading, manufacturing or service-providing. Such expenditure can be further divided into direct expenditure (directly related to the primary activities of the enterprise) and overhead expenditure (e.g. postage, rent, managerial salaries, etc.).