AY Honors/Business/Answer Key

Business

Skill Level

2

Year

2015

Version

28.11.2024

Approval authority

North American Division

1

Define the following terms:

1a

Break Even

the point where the business is not making or losing money

1b

Business

any activity designed to create a profit

1c

Business Plan

a detailed, hopefully written, plan of how the business will be organized, what will be produced and sold, and at what cost. Usually includes a budget

1d

Capital

the money used to finance the business. Can include investment by the owners, borrowed money, and retained earnings.

1e

Distribution

several meanings including 1. The amount of money paid on the owners shares from profits. 2. The system or method of getting goods or services to market

1f

Interest

the rent on borrowed money.

1g

Micro business

an organization with less than five employees, small enough to require little capital ($35,000 or less) to get started. Microbusiness owners are the '...people who refer to themselves as soloists, independents, consultants, craftsmen, artists, musicians, freelancers, free agents, and self-employed people. The majority of these companies are one-person enterprises ...operate out of their homes=== and many ...have part-time help from a family member or friends.' (Courtesy of Lloyd Lemons in his Microbusiness Defined article).

1h

Price

the amount charged to the buyer for the product or service offered by the business

1i

Product

the good or service the business sells

1j

Production

the action of making or manufacturing from components or raw materials, or the process of being so manufactured.

1k

Profit

the positive amount left after the business pays all expenses.

1l

Promotion

activity that is designed to increase sales or general awareness of the business, its products and/or services.

1m

Service

a product that is not a physical item.

1n

Target market

the group of potential buyers the business is attempting to attract. A given target market is very product and business specific can be defined by some combination of geography, income level, and often other demographic characteristics like gender, age, marital status, faith, buying habits, interests, amd more. Most businesses will attract the occasional buyer from outside the target market as well, but if too many buyers are from outside the target market it is time to refine the target market.

2

Describe three ways in which a business may be conceived.

The best business ideas are found at the intersection of 6 considerations, which we can remember as the 6 C's.

1. Customers

Your business will need customers and you must determine who the customers are and discover what the customers really want. The bankruptcy rolls are filled with former businesses which were based on what the business person THINKS the potential customers want. Do not assume that other people want what you want. You must do market research with real potential customers. Do not assume that your friends and family will tell you the truth about your idea because few people are willing to give honest negative feedback to someone close to them.

Also, a business with only one customer is more like a subcontractor or type of employee. If you rely on only one customer that customer controls you and can easily put you out of business. Figure out how you will diversify your customer base.

2. Compelling

A great business idea has to be something you care about. You will be spending a lot of time on your business, selling others on your business and its products and investing your money in the business. If you don't have a passion for the business your chance of failure is very high, even if all the other C's are covered. Equally important, your product must be compelling to the potential customers. Unless you offer something they absolutely have to buy (basic utilities for example) customers who think the product is just interesting are useless - you need people who will make the purchase.

3. Competency

If the business does not fit your skills and abilities you should not do the business until you acquire the appropriate skills. There might be a great potential business for a dentist in your town but if you have not graduated dental school it is not the business for you. Other cases might not be so obvious. Think about the technical, legal, sales, and other aspects of the business. If you can't do everything, and most of us can't, you will need to hire other people. Can you afford and competently supervise these specialists?

4. Capital

The business must be financially feasible. Every business has setup costs, equipment costs, cost of space. You will need enough capital to get your business set up, and to expand it over time.

5. Cashflow

Beyond the required capital, most business lose money during start up. You will need working capital (money to cover short term differences between cash inflows and outflows). Many businesses fail by running out of money because the management misjudged the cashflow situation. This problem plagues businesses that grow slower than anticipated and those that grow faster than planned for. Fast growth requires investment in people, equipment, receivables, inventory etc and this can run even an otherwise highly successful business out of money.

6. Competition

Every business has direct and indirect competition. You must evaluate your competition carefully to understand if and how you can differentiate your business from the competition successfully.

A Pathfinder Club as a Business Idea

Discuss with your Pathfinders a business they are familiar with - which could be large or small, then consider stretching their minds by analysing their Pathfinder Club as a business.

In many ways, your Pathfinder Club is a (non-profit) business. The club needs customers (children between the ages of 10-15). The most obvious potential customers are children and teens within your local church, but children in the wider community are also welcome to participate, as are children from nearby churches. If the Pathfinder Club is the business, the Pathfinders are the customers.

We know that many kids like Pathfinders, but do they really want it? There would be no demand for Pathfinders at 9 AM Tuesday morning because the kids are in school. We also need to craft the Pathfinder program to be exciting and appealing to potential customers. Too much book work without enough hands on activities will not make happy customers.

If you were thinking about leading a Pathfinder Club you'd better find it compelling because you are signing up for a big job. You also need to be able to make it compelling to your customers and their parents.

Obviously a potential leader needs to have leadership skills, and be willing and able to acquire lots of skills, just like in a business.

A new Pathfinder Club needs capital for uniforms, flags, tents, gear, and so on. It also needs cashflow from the sponsoring church, dues, fundraising etc. Without capital and cashflow your club will not have the things it needs to run, or deliver the product (club experience and fun) to the customers.

Just like any business, a Pathfinder Club has direct and indirect competition. Nearby Pathfinder Clubs (within driving distance) are direct competition because a Pathfinder might move over to a bigger/most successful/better lead/more fun Pathfinder Club. Scouts/Girl Guides are also direct competitors offering similar (though not spiritual) programs. Indirect competitors include competitive sports teams, non-competitive recreational activities, or anything else that can use up a Pathfinder's free time, even video games.

There are far more ways you should NOT come up with a business idea. Lots of businesses are started because the 'businessperson' if you can call them that, wants to do something interesting but refuses to figure out a good plan or do the market research.

3

Explain the benefits of having a management team in a business (note that one person might adopt all these roles in a small/micro business).

Each business, no matter how small needs people to perform the important functions. Someone needs to take care of the finances, production, sales, purchasing, personal management, and general management. In a very small business the proprietor might cover all these areas, while perhaps contracting out functions like accounting. In a large company there maybe departments of people to do each function. Unless the key business functions are covered, the business will not be able to function for long.

4

List ways that a business’s product/service may be promoted.

Promotion, sales, marketing and advertising (all parts of promotion) is the most important function in a business. Without sales, and the promotional efforts that drive sales, the business quickly fails. The correct type of promotion depends on the type, location, size, and development stage of the business. There is no fool proof answer to successful promotion. Successful businesses carefully measure the return on their promotional efforts. They regularly try new methods of promotion and discard unsuccessful ones. They split test promotions to discover which advertisements and other promotions work better than others.

If you pursue a business degree in University you can expect to take entire courses that just introduce fields like Advertising, Marketing, and Sales Management. You might even specialize an entire 4 year degrees in one of these closely related fields, so we can only give a very light overview here.

Promotion includes:

Advertising - usually paid efforts to get a specific message out

• TV and Radio (mass media)
• Magazine and Newspaper (print media)
• Web and New Media (online, social media) including Google Adwords, Facebook Ads, YouTube ads etc
• Direct mail and flyer services
• Billboards, bus benches, on transit vehicles (outdoor)
• Signs on the outside of the business

Sponsorships - paid efforts to get the business or brand name more famous, but not with a specific call to action

• Sporting events, cultural events etc
• Buying naming rights to buildings (parks, sports stadiums, cultural centers etc)
• Promotion of charities (banks in Canada like to raise money for charities)

Online Strategy

• Websites
• Facebook, Twitter etc profiles and pages
• YouTube channels
• Putting out content like videos and images that the business hopes will be shared and go viral
• email campaigns
• Online contests (almost all contests have an online component today)

Direct Sales

• Door to door sales strategy
• Telephone sales or lead generation
• Multi-level marketing (Amway etc)
• Promotion through schools and other groups where the group becomes the sales force to raise money
• Booth at a craft market, community event etc that does direct sales

Coupons and Special Offers

• Offering money off via a coupon
• Point of Purchase (POP) displays or in-store signage
• Attaching a rider product as a bonus on another product (product bundling)
• Service bundling (get a discount for buying your TV, phone and internet together)
• Loyalty programs and point or sticker collection programs
• Affiliate marketing (Amazon uses this in a big way, as does the insurance industry)

Can you think of more promotional strategies within these categories, or even other categories?

5

Show how you determine:

5a

Price of the product

Price is a function primarily of what the target market is willing to pay (market price). You must first determine the market price and then determine if the business can profitably meet the market price after covering all expenses. If you can't make money, you need to find a new product, find ways to lower the cost, or find a different target market that will pay enough for the product.

5b

Break-even point

The break-even point (BEP) in economics, business, and specifically cost accounting, is the point at which total cost and total revenue are equal: there is no net loss or gain, and one has "broken even." A profit or a loss has not been made, although opportunity costs have been "paid", and capital has received the risk-adjusted, expected return. In short, all costs that needs to be paid are paid by the firm but the profit is equal to 0.

For planning, you will need to figure out three numbers and then graph or spreadsheet them. These are:

• Expected average revenue per unit
• Fixed costs - those costs that stay the same regardless of how many or few units you sell. Rent, basic staff, and utilities are usually fixed costs.
• Variable costs, expressed per unit at various sales levels.

There are actually two break even points. The first is a theoretical calculation of what level of sales in an accounting period (like a month or quarter) that results in the business no longer losing money. The second to occur is where the business has enough cumulative sales over time to offset all the expenses to date. It is also called getting out of the red and into the black because negative numbers in accounting reports are often printed in red ink while positive numbers are printed in black ink.

5c

Profit/loss

A budget showing the difference between all expected revenue and all expected expenses will show the projected profit or loss. An income statement shows actual income and expenses for an accounting period with the difference being the profit or loss.

6

Discuss ways in which the profits of a company can be used.

Profits are used in one or a combination of these ways depending on the objectives of the company:

• dividends to shareholders
• to increase the working capital (cash on hand)
• to buy assets or otherwise invest in growing the business, including increases in receivables
• to retire debt

If the business is not structured as a company, the profits go to the single owner or partners who may reinvest if they wish.

7

Brainstorm at least 4 ideas for small business that can be conducted by Pathfinders in your club or youth in your church. Evaluate the strengths, weaknesses, opportunities, and threats associated with each of them.

This requirement introduces the business concept of a SWOT analysis. SWOT is a popular way to evaluate business ideas and the business itself. While not a perfect tool, it is widely used in organizational decision making and can be very helpful.

When doing SWOT, you make lists of internal and external factors influencing the plan or organization. Strengths and Weaknesses are internal while Opportunities and Threats are external.

Every Pathfinder Club needs to bring in money, and every plan to bring in money is essentially a business plan. So let's run an example your own Club can expand on.

Step 1: Generate ideas for a business. Write down even seemingly crazy ideas because they may prove practical or lead to a great idea. You might also combine ideas as you move through the process.

Example ideas: flea market, car wash, making and selling quilts, building and selling bird houses.

Step 2: Take the first idea - a flea market day at your gym to make money. The Club would go into the business of renting space and tables, as well as offering ancillary services. Is this a good idea? Let's do a SWOT Analysis to find out.

Step 3: Start by everyone brainstorming points for the list of factors. Write them on a sheet of paper or a white board for all to see (which reduces duplication and encourages related ideas). Don't worry about classifying the points during the brainstorming but be thinking about Internal Strengths, and Weaknesses as well as External Opportunities and Threats. Here are some possible SWOT items.

Strengths (internal):

• The club has 10 Pathfinders and 5 adults to advertise and run the sale
• Not a lot of skill needed
• Pathfinders have time (nothing else to do on Sunday)
• Earning this honor is motivational
• Might make $1000 dollars based on rough budget

Weaknesses (internal):

• No one has any experience at this business
• Some Pathfinders are too young to help without a parent to help
• Takes up time that could be used for archery or camping or whatever

Opportunities (external):

• People like to support a good cause and Pathfinders (framed as a "youth program") is considered by everyone to be a good cause
• We can use the school gym, tables and chairs for free
• Facebook groups and walls are a good place to advertise free
• We can advertise with fliers while can collecting
• We promote the Pathfinder Club and possibly attract new members
• We introduce people to the Adventist School and adjoining church

Threats (external):

• People might leave a lot of garbage
• If it snows, few will show up
• The public school two blocks away has a similar event the week before, so people might sell their stuff there instead
• The city might require a permit and might not approve it.

Step 4: Categorize your list and weight it. While categorizing, you should see some things you missed, so add them. Don't just count up the S's and O's vs the W's and T's, you need to assign importance to them. Some threats are only remote or even not real for example. A big opportunity might be worth doing if there is limited threats and the weaknesses can be overcome. However a major weakness in an otherwise great idea can sink it.

Step 5: Can you eliminate threats and fix weaknesses? Perhaps teaming up with another group or finding a donor is the answer.

Step 6: Either make a decision (Yes or No), or compare to your SWOT on several other business ideas before making a decision.

In this example, we also did a SWOT on the car wash, quilts and birdhouses. We decided that we could earn the Woodworking honor while building the birdhouses and than sell them at our flea market event. We also decided to sell veggie tacos at the event and have a display about our Pathfinder club.

We decided that since we want to do the business in January, our Canadian location (a Weakness for the car wash idea) meant cold weather (a threat in the car wash idea) and that these two factors could lead to frozen Pathfinders which trumped all the Strengths and Opportunities for the car wash business idea.

8

Develop a business plan for at least one of your ideas from #7 above. Include the following in the plan:

8a

Description of business

both a concise two or three sentences plus a more detailed analysis of how you plan to run the business

8b

Capital needed and the source of the capital

will you use money on hand, borrow, or get investors?

8c

Price of the product/service

determined through market research and your budgeted costs plus markup. 

8d

Target market

who do you expect to buy your product or service? Define the target market as carefully as you can as this will help in everything from pricing to promotion strategy.

8e

Promotional method

this will be based on your product, where to best connect with your target market, and especially the resources available to you

8f

Sales location

this could be a specific place, a range of places (different retailers, door to door, or online)

8g

Expected gains

your budgeted profit - expected income less expected expenses including contingency for unexpected expenses. If you are not confident in a profit don't to the business!

8h

Dissemination of profit

what will you do with the expected profits. Will money go to the club? Do you need to share with your investors? Will you reinvest to build the business bigger?

This is a good outline for any business plan. Every good business plan is written down and checked carefully. Are your assumptioms correct? Have you covered all your expected costs? As you execute your plan, check back to be sure you are following the plan.

Business Plans are not meant to be written and then thrown in a drawer to be forgotten. Treat it as a living plan always subject to improvement. You may need to adjust the plan if circumstances turn out to be different than you planned, or if things change. Regualrly evaluate your business plan to see what assumptions need to be adjusted and to see how you did so you can improve the plan going forward.

9

Execute the plan.

9a

Build the management team

For your Pathfinder Club business you will want to assign different roles to the participants in the business. Someone should be the President/General Manager too to coordinate the other's work, hold people accountable for performance and help make difficult decisions

9b

Create the product

The product could be a service or a physical product.

9c

Advertise the product/service

Look back at your promotion plans. You will likely want to try several promotion methods and test which work best

9d

Sell the product or perform the service

This means getting money from real customers

9e

Report on profit/loss

The report should be to your team, Pathfinder Club Director and to any investors or financial backers

9f

Report on use of profits

You need to be accountable to the stakeholders. This might include reporting to your church (which likely includes many customers) and show them what you did with the profits. This will help with your next fundraiser.

9g

Suggestions for improvements

Evaluation of a business plan is really important because it helps you do even better next time. Where there any failures? What could be improved? Can you add in something that will make the project more profitable? Look at each part of the business and assess for improvement.

10

Discuss ethical issues and Christian values involved in conducting a business.

10a

To God

Everything belongs to God, including your business. Remember to treat God's business right and God will treat you right. Discuss what this means in the context of your plans.

10b

To the government

Some discussion starters. Do you have the appropriate licenses and permits? Does your business meet the zoning bylaws? Are you collecting and remitting taxes correctly (or are you exempt and why)? How can you be a good witness to government officials?

10c

To the customer

Discussion starters include: How can you provide a quality product at a fair price to your customer? Can you find ways to witness and model Christ to your clients?

10d

To the employee

The Christian businessperson should treat everyone around the business as they would like to be treated. Treat all employees honestly and fairly, and expect them to treat you honestly as well.

11

Recount the story of Joseph as a shrewd manager and businessman (Genesis 41:39-57), the parable of the talents (Luke 19:11-26) or other similar bible passage. Identify three lessons from the story that can be applied to your business.

Genesis 41:39-57 Luke 19:11-26

Other stories to look at:

Jacob's success while working for Laban. He used some kind of business plan for his farm that is hard to understand, but it worked Genesis 30.

As far as we can tell, Jesus called no synagogue preachers to be his closest disciples. Instead Jesus called at least 6 fishermen who owned boats and sold fish. He called Matthew, a businessman contracted to the Romans as a local tax collector. Even Judas seems to be a finance person for he was tasked with keeping the money.

Jesus himself was a businessperson, part of a family business (though in English we read Jesus was a carpenter, the Greek word “tekton” actually describes a craftsman, one who constructs; a versatile builder and stone worker.) Perhaps this is why in His ministry Jesus demonstrated such a broad knowledge of business and why about 34 of his approximately 50 recorded parables dealt with business, finance or workplace content for the illustration. Jesus told parables about many businesses including farming (sower, shepherds, etc), fishing, investing (parable of the talents) buying land (man found treasure, sold everything and bought the field), trading (pearl of great price), and more.

Many of Jesus' public ministry appearances appear to have occurred in the marketplace and workplace.

Paul, Priscilla and Aquila, operated a tent making business, so that none of them appear to have needed others to donate so they could preach. Lydia, a leader in the Philippian Church, was a textile dealer.

James White sold Bibles, Bible Commentaries and other reference books in the frontier to support his and Ellen White's ministry. The Whites also invested in real estate and in preparing their own books for sale. Some were critical of the White's relative financial success, but an investigation into the White's finances found that they legitimately had been supporting themselves plus the infant church from their business endeavors.

Other early Adventists often used businesses to support themselves. For example, Hiram Edson farmed during the summer to support himself while preaching. The Review and Herald and Pacific Press took in outside printing work to subsidize and support the religious work. The Kelloggs created breakfast cereal and built a famous company. Adventists also build a hospital system, book publishing empire, and ran many industries to support the school system.

The SDA Church owns and operates many publishing houses, book centers, schools, hospitals, nursing homes, food factories (most famously Sanitarium Health Foods based in the South Pacific). The Church also owns substantial real estate around the world. Church administration (theologians) has proven to usually be poorly equipped to run businesses owned by the church, which is why professional well trained business people are vital to ensure that the businesses the church does own and operate are run accordingly to good business principles.

References