In business organization structure means the relationship between positions and people who hold the positions. It provides an efficient work system as well as a system of communication. The three forms of the organization structure are 1) line organization structure, 2) line-and-staff organization structure, 3) matrix organization structure.
A line organization structure is the one in which there is a direct two-way line of responsibility, authority and communication running from the top to the bottom of the organization. The main idea of such organization structure is to provide direct vertical relationship between the position and tasks of each level, and the positions and tasks above and below each level. However, a line organization structure may have some disadvantages like certain inflexibility, too long chain of command and communication, few specialists or experts to advise people along the line.
Other business organization structure is line-and-staff organization structure. Line personnel perform functions that directly fulfill the main goals of the organization, which are making the product, distributing it, and selling it. Staff employees conduct marketing research, provide legal advising, hire personnel, and arrange for credit or advertising. Staff people usually serve advisory function. Todays economy is dominated by new kinds of organizations in high-tech industries such as biotechnology, robotics and aerospace. All these factors caused the appearance of a new type of organization structure- a matrix organization structure. A matrix structure is the one in which specialists from different parts of the organization are brought together to work on specific projects but still remain part of the line-and-staff structure. This organization structure is now widely used in high-tech industries as well as in banking, management consulting firms, accounting firms, advertising agencies.
Business financing
An important function of business is financing, that is the way business raises and monitors funds. Most organizations have finance departments or a manager in charge of financial operations.
Most of the money used by business comes from the sale of its products and services. As these funds come from within the firm they are described as internal funds. The rest must come from outside and is described as external funds.
As a firm sells its products or services it receives money, which it uses to meet its expenses. One of these expenses is depreciation, which represents the cost of replacing assets (like tools, machinery, and buildings) that wear out. Typically business uses internal funds to cover the cost of depreciation.
Business can raise external funds in two ways: it can issue shares (stock) in exchange for money or property (equity funding), or by borrowing in exchange for bonds (notes), that is debt funding. Both stocks and bonds are negotiable, that is one can buy and sell them at the security exchange (Stock Exchange).
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Banks make loans to corporations, organizations, to small companies and individuals. For this service banks always charge interest. To decide whether a business should receive a loan the bank examines its financial statement. If the company is eligible for a loan, it may choose a long-term loan or a short-term loan.
For short-term loans the principal (the amount borrowed) must be repaid within a year. Long-term loans mature (come due) in more than a year. Short-term loans are used to finance the everyday costs of doing business such as wages and salaries, raw materials, etc. Long-term loans are used to buy equipment, buildings and other expensive items.
The amount of money that company can borrow from a bank is a line of credit. This top amount of customers credit is based on the profits and earnings of a business.
Two of the most important pieces of financial information on business are the balance sheet and the income statement. The balance sheet summarizes the firms assets (what it owns), the firms liabilities (what it owes) and its net worth (the difference between the two sums) at a given time. The income statement summarizes the firms revenues, costs and the difference between the two (the profit or loss) over a period of time.
Accounting
Accounting is recording, classifying, summarizing and interpreting financial transactions to provide management and other interested parties with information they need to make correct financial decisions. Accounting process consists of two parts: bookkeeping, that is, mechanical process of recording, classifying and posting financial entries into the ledger, and accounting itself, that is, interpreting of financial data, making financial statements, designing accounting information system within a business and advising management on financial matters. Accounting deals with accounts, that is, financial entries grouped together by common characteristics.
Assets are everything that a business owns. Buildings, equipment, machinery, land are fixed assets; money, cash, accounts receivable are current assets.
Liabilities are obligations, debts of a business, what it owes to creditors, banks, suppliers, investors, customers and so on.
Owners equity is the capital which the owner will receive if he sells all assets and pays all his liabilities. Owners equity is assets minus liabilities.
Revenues are incoming money or gross income or profit before taxes.
Expenses mean outgoing money including salaries and wages, rent, traveling and entertainment expenses.
The final products of accounting are financial statements: Balance Sheet that shows financial position of a business at a definite point of time, and Income Statement (G.B. - Profit and Loss Account) that shows financial position of a business over a definite period of time: month, quarter, year.
The system of bookkeeping is based on the principle of the double entry, which means that each transaction is entered twice, as a credit in one account and as a debit in another account. If we deposit $ 100 US with a bank, for example, the bank enters a debit for the receiver and a credit for the giver. The former represents an asset to the bank, since it is a sum of money at the banks disposal, as well as a liability, since one day it will have to be repaid.
Accounting is done by accountants. Highly qualified accountants (in the USA certified public accountant - CPA, in Great Britain chartered accountant - CA) can perform audit.
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Auditing
Auditing is an accounting function that involves the review and evaluation of financial records and financial position of a company. Audits are performed by highly qualified accountants (auditors) ordered by the management of the company or by some state authorities (revision and control). Not so many years ago audits suggested that a company had financial difficulties or some irregularities in the records. At present audit is a normal and regular part of business practice.
There are two types of auditing: internal and independent.
Internal audit is a system of internal control against errors and misappropriations. Many companies employ their own accountants to maintain an internal audit. They continuously review operating procedures and financial records and report to management on the current state of the companys fiscal affairs. They check the accounting records in regard to completeness and accuracy, making sure that all irregularities are corrected.
Independent auditing is done by certified accountants who are not employees of the organization whose books they examine. Independent auditors review the business operating activities; they examine financial statements, the accounting records and other business papers to determine the accuracy and completeness of the records. It is called fairness in the accounting terminology.
The accountants judgment or opinion on the fairness of the records is written in a document sent to the client upon completion of the audit. It consists of a letter addressed to the client that includes a scope paragraph (list of documents that he has examined and the standards that have been used for the audit), and the opinion paragraph (the auditors conclusions).
Auditors can help the business to set up a reliable accounting system; they can also discover whether non-existent transactions have been entered into the books. Even in a small business mistakes in the books of accounts can lead to a business failure.
Audit and control is a controlling function of some state authorities (e.g. State Treasury, Control and Revision Administration) that involves the review and evaluation of financial records and financial position of the business, as well as managerial skills of the management and financial health of the organization.
International Business
Business can take many different forms and can be conducted at different levels. Based on the level of business activity business may be defined as either domestic, international or multinational. If business acquires all its resources and sells all its products within a single country it is considered a domestic business. Although international business is also based in a single country it acquires a meaningful share of its resources and revenues from other countries. A multinational business operates on the world-wide scale regardless of national borders.
More and more domestic businesses decide to enter international markets and become international, while international companies expand and become multinational (transnational). This phenomenon is called globalization the evolution of economy that comprises interrelated markets. The decision to adopt a global or nationally focused strategy depends upon both markets and technological considerations.
There are three primary motivations for firms to engage in international business: 1) to expand sales; 2) to acquire resources; 3) to diversify sources of sales and supplies. When a business decides to expand internationally, i.e. adopts a global strategy, it may choose among several options, including importing or exporting merchandise (visibles), service exports and imports (invisibles), foreign investment in the form of either direct or portfolio investments, setting up joint ventures or subsidiaries.
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Although many mechanisms exist for promoting the growth of international business, there are also many barriers to doing business abroad. The major factors causing changes in world trade and investment patterns are economic conditions, technology and political relations.
The economic factor that influences the decision to engage in business beyond national borders includes the level of economic development in various countries, the presence of adequate infrastructure, a countrys balance of payments and monetary exchange rates. The political element is associated with the degree of political risk concerning a particular country, trade barriers erected by governments, legislation encouraging foreign business investments. The technological factor includes various methods of technology transfer.
A considerable amount of international business is conducted by multinational corporations though midsize and even small companies may also engage, especially when they offer a unique product and/or good value.
