In basic terms a business can be defined as an entity that provides merchandise and services to others who wish for or require them.
When starting a new business, the first thing that must be considered is the ownership structure. Will the business be a corporation, a partnership, a sole proprietorship or a limited liability company? Which one of these types of ownership will suit the business depends on the type of trade and the needs of the venture.
The success or failure of a business largely depends on the governance and operational methodology of the owners, stakeholders, managers and employees. These methodologies are fundamentally influenced by key factors such as economic impact, governmental manipulation and legal aspect.
The purpose of this memo is to look at the types of businesses and key influences that affect the way business is conducted at Riordan Manufacturing, Haffman Trucking, Kudler Fine Foods, McBride Financial Services, The Elias Group, and Smith Systems Consulting.
Riordan Manufacturing, Inc. is in the business of plastic injection molding. Some of their products are plastic bottles, fans, heart valves, medical stents and custom plastic parts. The company is entirely owned by Riordan Industries, Inc. and has facilities in San Jose, California, Albany, Georgia, Pontiac, Michigan and Hangzhou, China. Riordan Manufacturing employs 550 people and has projected annual earnings of $46 million. (University of Phoenix, 2006)
The name Riordan Manufacturing, Inc. indicates that the company is a corporation, and the balance sheets and income statements provide the clarification that the company is a C corporation since it has paid and is liable to pay corporate taxes. (University of Phoenix, 2006) According to Pratt (2001), “To the IRS, a C corporation is a separate taxpayer.” (p. 50)
Riordan Manufacturing is impacted by all three key influences as mentioned in the table. Below are the explanations of the influences.
Economic Influence. Under the economic influence, Riordan Manufacturing is affected by GNP and GDP growth rate. Raymond (2004) explains, “The GNP and GDP are fairly close, differing mainly in whether non-U.S. residents in the United States or U.S. residents outside the United States are included in this calculation. GNP includes the value of goods and services produced by nonresidents located within the United States but excludes the value of those services and goods produced by U.S. residents working abroad. GNP excludes the former but includes the latter.” (para. 6) Since Riordan Manufacturing is producing goods inside and outside of the United States, both GDP and GNP would directly be affected by the growth of the company. “Maximum production signifies economic growth, or increasing the total amount of goods and services produced by the American economy.” (Raymond, 2004, para. 6)
The second factor is the inflation Rate. Inflation rate is the rise in percentage in prices of goods and services. This phenomenon usually occurs when the demand for goods and services is higher and the supply is weak. If the supply of the raw material required by Riordan Manufacturing is feeble, it would have serious impact on the production which in turn would have unconstructive bearing on the relationship with their clients. Another view is that if the cost of the raw material is high it would have a direct negative bearing on the profit of the corporation.
Since Riordan Manufacturing is a manufacturer and supplier, inventory levels play a significant roll in the business practices of the corporation. The company needs to have a certain amount of inventory in stock so that the customer orders are not negatively affected due to any delay in production. This leads to the next influence which is consumer confidence.
For any business consumer belief is the most important and essential aspect of the trade. If the customers are not satisfied with the products, the consequence would be dreadful for the business. The scenario is no different for Riordan Manufacturing who works hard to exceed the ISO 9000 standards. ISO 9000 standard according to International Organization for Standardization (2009) website is the standard for quality management system.
The last economic influence is currency exchange rate. Since Riordan Manufacturing also has a facility in China that produces fan blades and fan housing, the currency exchange rate could have a good or bad affect in terms of expenses and profits in US dollars.
Government Influence. A few government influences also affect the trade practices at Riordan Manufacturing. The US government regulates almost every aspect of the manufacturing industry which impacts the production at Riordan Manufacturing. From the disposal of waste and bi-products to the emission of gases from the manufacturing facilities; everything is directed by laws and standards. These parameters affect the operational cost of the corporation since it has to monitor constantly and maintain the equipment and machinery at the factories and also take measures to abide by the regulatory procedures.
Since Riordan Manufacturing is a C corporation, it has to pay income taxes on the profits gained. Higher tax rates mean more taxes have to be paid and would affect the overall profit.
Legal Influence. The current federal minimum wage for non-exempt employees is $6.55 per hour. (United States Department of Labor, 2009) Riordan Manufacturing has 550 employees and it has to make sure all the employees are paid at least the minimum wage as stated by the federal and state laws.
University of Phoenix (2006) states, “there have been no attempts by any union to organize the facility; however, there are rumors that an organizing drive may be focused on the plant during the next 12 months. While the company has officially agreed to remain neutral if there is an organizing campaign (as required in its vendor agreement), unofficially, company officials are opposed to unionization and would prefer to stay union-free.” (para. 10) If a union is organized at Riordan Manufacturing, the company will have to abide by all the union regulations which could mean higher pay rates and benefits for the employees; that could affect the profits gained.
Environmental protection laws are designed to protect the environment and public health. (Environmental Protection Agency, 2009) These laws regulate emissions and waste disposal methods that directly affect Riordan Manufacturing because during the production of its products, gases and waste is generated,
Huffman trucking is a national transportation company that employs 1,400 employees, and has logistical hubs located in Los Angeles, California, St. Louis, Missouri and Bayonne, New Jersey. Huffman trucking has its central maintenance facility in Cleveland, Ohio. The company’s expected revenues for fiscal year 2004 is more than $6 million. (University of Phoenix, 2005)
University of Phoenix (2005) states, “Huffman Trucking continued to grow from internal sales and the acquisition of five Eastern regional carriers. This growth has enabled Huffman Trucking to continue to be privately held.” (Para. 3) As per the balance sheet and income statement, the company has not paid any income tax or is not liable to pay any income tax. (University of Phoenix, 2005) These facts show that the company is a sole proprietorship.
The business practices of Huffman trucking are shaped by all the key influences that are explained below.
Economic Influence. Under the economic influence factor, Huffman Trucking is affected by inflation rate. University of Phoenix (2005) states, “Fuel and labor are significant elements of cost that impact profits. The challenge to Huffman is to determine when fuel and labor costs have risen to the point that they should pass them on to the customers.” (para. 10) Apparently from their own words, it can be confirmed that inflation rates have direct impact on the profit of the company.
Government Influence. Even though the transportation industry is practically deregulated today, there are still some states that have strict regulations governing the trucking business. “Federal law still requires new carriers to apply for certificates of public convenience and necessity. All tariffs must be filed with the commission. Most states continue to enforce strict entry and price controls on intrastate carriers. These controls cause inefficiency. One result is that in some cases, shipping products from overseas is cheaper than shipping the same goods within the United States. Shipping blue jeans from El Paso, Texas, to Dallas, for example, costs about 40 percent more than shipping the identical jeans from Taiwan to Dallas.” (Moore, 1993, para. 20)
Legal Influence. The transportation industry is usually prone to unions and Huffman Trucking is no different. Since there is an organized drivers union at the company, it has to abide by the union laws and regulations.
Kudler Fine Foods
Located in San Diego, metropolitan area, Kudler Fine Foods is an upscale specialty food retail store that sells domestic and imported food items. The company has a store in Del Mar, California and Encinitas, California. (University of Phoenix, 2007)
From looking at the company’s financial statements and balance sheets, it is pretty clear that there is only one owner and the company doesn’t pay any income tax. This fact proves that Kudler Fine Foods is a sole proprietorship. A Sole Proprietorship is a legal entity where the business is the same as the owner. (University of Phoenix, 2008)
Economic, governmental and legal key influences that concern the business routine of Kudler Fine Foods are described below.
Economic Influence. Since Kudler Fine Foods is in the retail business, inflation rate plays a major role in its business model. With a high inflation rate the cost of purchasing a product for retail would go up which means that the cost would eventually have to be passed down to the customers. This chain of events would drive the customers away from the stores, affecting the profits.
The inventory levels have to be strictly monitored. Since the business is related to food that can only be stocked for so long after which it has to be discarded. So, to keep the wastage low only a limited amount of inventory needs to be purchased.
The quality, cleanliness and service have to be top class in any food business. This implies that for customer confidence and satisfaction, the quality and service needs to be constantly scrutinized.
Government Influence. Food businesses are closely monitored and strictly regulated by the US Department of Health and Human Services. The Food and Drug Administration branch of the US Department of Health and Human Services strictly controls the businesses that are related to foods and drugs. “The FDA is responsible for protecting the public health by assuring the safety, efficacy, and security of human and veterinary drugs, biological products, medical devices, our nation’s food supply, cosmetics, and products that emit radiation.” (United States Food and Drug Administration, 2009, para. 1)
Along with domestic products, Kudler Fine Foods also retails imported food products. This subjects the company to import tariffs and quotas.
Legal Influence. Kudler Fine Foods has to regularly monitor the federal and state minimum wages law since it has employees working on minimum wages. This fact also drives down the profit as the minimum wages are increased by the government.
McBride Financial Services
McBride Financial Services is a fairly young regional mortgage lender based in Boise, Idaho. The company plans to spread out its venture to Wyoming, Montana, North Dakota and South Dakota. It caters to professionals, retirees, families and individuals looking to purchase either a primary or secondary residence or recreational properties. (University of Phoenix, 2005)
Though not much information is provided about the formation of the company, it is apparent from the name that the company is owned by a single individual. In addition, there is no mention of the tax expenses in the Pro Forma Budget. Hence, McBride Financial Services is a sole proprietorship.
McBride Financial Services is impacted by all three key influences that are explained below.
Economic Influence. Since McBride Financial Services is in the financial business that lends money, it is hugely affected by the interest rate. The profit margins are solely dependent on the interest rate that a property is financed at. Higher interest rates mean higher profit margins.
The other key economic influence is the monetary policies. The regulation of interest rates and the supply of money to control inflation and stabilize the currency is termed monetary policy. (InvestorGuide, 2009) This policy has direct affect on the financial institution and McBride Financial Services being in the financial services business is precisely influenced by it.
Government Influence. Although monitored by the SEC, Until 2009 the banking and finance industries were very vaguely regulated. This allowed the financial institutions the freedom to practice their own business methodology. But, due to the current economic situation fueled by the unethical practices of the finance industry, the government has set forth new regulatory laws which McBride Financial Services has to adhere to.
Legal Influence. McBride Financial Services has to abide by the antidiscrimination and fair credit reporting act based on the services that the company is providing.
The Elias Group
The Elias Group is a non-profit organization that provides consultation services and assists businesses that desire to contract with the United States government. The organization also provides grants to support academic and professional research. (University of Phoenix, 2004)
Since The Elias Group is a nonprofit organization and there is not too much information available regarding the company’s finances, I would guess that it is an S corporation since this is the best way to incorporate a nonprofit company in terms of the tax exemption laws. (University of Phoenix, 2008)
Being a nonprofit organization, The Elias Group is not concerned by most of the key influences. Explained below are the ones that do influence the company.
Economic Influence. The expenses and operational costs are paid by contributions from businesses and individuals. If the unemployment rate is too high, the amount of contribution drops, affecting the operations of the organization.
Government Influence. Grants from the government is another major source of revenue required to run the organization. Government debt and budget deficit could shrink the grants from the government which would have adverse results on the functions of The Elias Group.
Smith Systems Consulting
Smith Systems Consulting is an IT consulting firm that specializes in software and website designing, developing, hosting and maintaining. It also offers database and IT support services. (University of Phoenix, 2004)
As the name SSC, Inc. implies, Smith Systems Consulting is a corporation. Since no information is provided regarding the company’s finances, it is hard to determine what type of corporation it is. Since it is specified in University of Phoenix (2004) that there are 5 partners, it gives an impression that the firm is an S corporation because an S corporation has more tax benefits as oppose to a C corporation. (University of Phoenix, 2008)
Consulting firms providing IT services are usually not subjected to too many key influences. A few are specified below.
Economic Influence. Since Smith Systems Consulting is in the services business, the factor of utmost importance affecting their business practices is consumer confidence. The firm has to work diligently to provide the best quality service to its clients in order to gain customer confidence and keep the consumers satisfied.
Legal Influence. In IT development and programming business, copyright and patent laws play a crucial role in how the business is conducted. Smith Systems Consulting has to make a conscious effort not to use source code from any other software company or programmer.
In conclusion, there are a few key influences such as payroll taxes, political climate, political stability and discrimination laws that apply to the business practices of all types of organizations. Any firm that employs at least 1 employee has to deal with payroll taxes. The political climate and stability is important because if the conditions in the country are not suitable no business can thrive. Lastly, today no firm is exempt from discrimination laws due to the diversity in the workforce and variety in the customer base.