INTRODUCTION

TO BUSINESS
SESSION 1-1: Introduction

Where Tomorrow’s Leader

Come Together
Presented by
Hanif Widyanto
 INTRODUCTION
HANIF Widyanto, B.Sc., M.M.
+ President University 2008
International Business Major
+ University of Indonesia 2014
Masters in Management (Finance)
PROFESSIONAL BACKGROUND

+ Financial/Economics Consultant hanif@president.ac.id

0813-1502-7000
Bappenas, UNDP, ADB, Timor-Leste Gov’t @followhan / @hanif87
+ Senior Program Officer
Global Entrepreneurship Program Indonesia
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 INTRODUCE YOURSELF!

NAME ORIGIN
GOALS IN LIFE HOBBIES
EXPECTATIONS
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 GROUND RULES
1) YOU are GROWN-UPS.
ACT LIKE ONE.
2) RESPECT others.
3) Be CURIOUS,
not JUDGMENTAL.
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 PARTICIPANT-CENTERED LEARNING

Developed by Harvard Business School (HBS)

“ Encourage students to be
active in class by assuming
a lead role in their own and
each other’s learning
”
Problem-solving + Critical Thinking + Reflective Thinking

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 KEEP
CALM
AND
CREATE
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 INTRODUCTION
TO BUSINESS
SESSION 1-2: Motives and
Functions of a Business

Where Tomorrow’s Leader

Come Together
Presented by
Hanif Widyanto
 TOPIC OUTLINE
• Explain the goal of a business
• Identify the resources a business uses to produce a
product or service
• Identify the key stakeholders that are involved in a
business
• Describe the business environment to which a firm
is exposed
• Describe the key types of business decisions

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 WHAT IS BUSINESS?

“ A business (or firm) is an

enterprise that provides
products and services
desired by customers. ”
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 THE GOAL OF A BUSINESS
• Businesses are created to serve consumers’ needs
by owners who seek profits
• Key Business Decisions:
1) Product;
2) Production;
3) Promotion;
4) Financing

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 THE GOAL OF A BUSINESS
Where the Profits Come From?
• A business receives revenue when it sells its
products and services
• It incurs expenses from paying its employees and
when it purchases machinery or facilities
• The difference between the revenue and the
expenses is the profit (or earnings) generated by the
business

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 THE GOAL OF A BUSINESS
Where the Profits Come From?
+ REVENUE Increase profit by:
- EXPENSES - Increasing revenue
- Reducing expenses
-------------------- THREE CONDITIONS!
= PROFIT/LOSS 1. Demand
2. Customer
3. Expenses

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 THE GOAL OF A BUSINESS
How the Profit Motive is Influenced by Government
• Governments of free-market economies recognize the
advantages of allowing business ownership
• Without the prospect of earning a profit, most people
could not afford to create a business and had to find some
alternative form of work to earn an income
• Without a profit motive, businesses had no incentive to
produce products that satisfy consumers’ needs

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 RESOURCES USED TO PRODUCE
PRODUCTS AND SERVICES

To produce a product or service, firms rely on the

following factors of production:

Natural Human
Capital Entrepreneurship
Resources Resources

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 KEY STAKEHOLDERS IN A BUSINESS
Stakeholders: People who have an interest in the business

Every business involves transactions with

people affected by the business:

Owners Creditors Employees Suppliers Customers

- Entrepreneurs - Managers
- Co-owners
- Stockholders

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 SUMMARY OF KEY STAKEHOLDERS

Interaction among Owners, Employees, Customers, Suppliers, and Creditors

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 THE BUSINESS ENVIRONMENT

The business environment can be segmented

into the following parts:

Social Industry Economic Global

Environment Environment Environment Environment

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 KEY TYPES OF BUSINESS DECISION
- Management: Means by which employees and other
resources are used by the firm
- Marketing: Means by which products and services are
developed, priced, distributed, and promoted to customers
- Finance: Means by which firms obtain and use funds for
their business operations
- Accounting: Summary and analysis of the firm’s financial
condition
- Information Systems: Information technology, people, and
procedures that provide appropriate information to make
effective decisions
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 HOW BUSINESS DECISIONS AFFECT
A FIRM’S EARNINGS

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 INTRODUCTION
TO BUSINESS
SESSION 1-3: Form of
Business Ownership

Where Tomorrow’s Leader

Come Together
Presented by
Hanif Widyanto
 TOPIC OUTLINE
• Describe the advantages and disadvantages of a sole
proprietorship
• Describe the advantages and disadvantages of a
partnership
• Describe the advantages and disadvantages of a
corporation
• Explain how the potential return and risk of a business are
affected by its form of ownership
• Describe the methods of owning existing businesses

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 SELECTING A FORM OF BUSINESS OWNERSHIP

Business Access
to Funding

Form of Business Control of Value

Ownership Decisions Business of the Firm

Taxes Paid
by Business

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 1. SOLE PROPRIETORSHIP
• Sole Proprietorship (“Usaha Dagang”) is a business
owned by a single owner
• May obtain loans from creditors, but do not
represent ownership  pay back loans + interests
but do not share profits
• E.g. local restaurant, barber shop, laundry service,
local clothing store
• Earnings are subject to personal income taxes

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 1. SOLE PROPRIETORSHIP
Advantages
• All earnings go to the Sole Proprietor (owner)
• Easy organization  minimal legal requirement
• Complete control  eliminates chance of
conflict
• Lower taxes  considered to be personal
income

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 1. SOLE PROPRIETORSHIP
Disadvantages
• The sole proprietor incurs all losses
• Unlimited liability  no limits on debts
• Limited funds
• Limited skills

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 2. PARTNERSHIP
• A business that is co-owned by two or more
people is referred to as a partnership (“Firma”)
• General partnership: all partners have unlimited
liability
• Limited partnership (CV): partners whose liability
is limited to the cash/property they contributed
• Has general partners who manage the business,
receive salary, share the profits/losses, have
unlimited liability
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 2. PARTNERSHIP
Advantages
• Additional funding
• Losses are shared  each owner absorbs a
portion of the loss
• More specialization

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 2. PARTNERSHIP
Disadvantages
• Control is shared
• Unlimited liability  general partners are
subject to unlimited liability
• Profits are shared

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 LIMITED LIABILITY COMPANY
• LLC is a firm that has all the favorable
features of a typical general partnership
but also offers limited liability for the
partners
• Protects a partner’s personal assets from
the negligence of other partners in the firm
• US-specific term; NOT a corporation
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 3. CORPORATION
• Corporation is a state-chartered entity that pays
taxes and is legally distinct from its owners
• Must adopt a corporate charter, or a document used
to incorporate a business, and file it with the
government
• Name of the firm, the stock issued, and the firm’s
operations
• Limited liability – the most that stockholders can
lose is their investment

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 3. CORPORATION
• The stockholders  elect the board of directors  elect
the president and other key officers
• Stockholders can earn a return on investment through:
• Dividends from the firm (portion of the firm’s recent earnings)
• Stock they hold may increase in value
• Private (PT) v. Public (PT Tbk) Corporations
• The act of initially issuing stock to the public is called going
public (IPO)
• Publicly held corporations can obtain additional funds by issuing
new common stock

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 3. CORPORATION
Advantages
• Limited Liability
• Access to Funds  flexibility to grow and to
engage in new business ventures
• Transfer of Ownership

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 3. CORPORATION
Disadvantages
• High organizational expense
• Financial disclosure
• Agency problems  when managers do not act
as responsible agents for the shareholders who
own the busines
• High taxes

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 3. CORPORATION
Double Taxation
• Corporations are
subject to double
taxation
• First, corporate
taxes
• Second, personal
income taxes from
dividends

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 3. CORPORATION
Comparison of Tax Effects

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 3. CORPORATION
• A corporation can reduce taxes by reinvesting
its earnings (“retained earnings”) rather than
pay the earnings out as dividends
• When stockholders sell their shares of stock for
more than they paid, they earn a capital gain
• Equal to the price received from the sale of stock
minus the price they paid for the stock.

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 HOW OWNERSHIP CAN AFFECT
RETURN AND RISK
• The return on investment in a firm is derived from the
firm’s profits (also called “earnings” or “income”)
• Equity is the total investment by the firm’s stockholders
• Return on Equity: earnings as a proportion of the firm’s
equity
𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑎𝑓𝑡𝑒𝑟 𝑇𝑎𝑥
• 𝑅𝑂𝐸 =
𝐸𝑞𝑢𝑖𝑡𝑦
• The risk of a firm represents the degree of uncertainty
about the firm’s future earnings, which reflects an
uncertain return to the owners.

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 DISCUSSION
1. What are the key differences among a sole
proprietorship, a partnership, and a corporation?
2. Identify and explain the differences between privately
held and publicly held corporations!
3. Explain why stockholders are concerned that managers
may not always act in their best interests!
4. Explain the difference between the corporate tax rate
and the personal tax rate!

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 NEXT SESSION
Learn about:
 Managing Effectively (Madura Chapter 7)
 Organizational Structure (Madura
Chapter 8)
Case Study:
 Maggie Wiltz (Madura Page 270)
 Janet Shugarts (Madura Page 307-308)
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