Business Principles
There are three levels of business principles.
The first level is actually a set of tenets for business. These tenets are applicable to every business, every transaction and every decision made by the management team. Tenets are universal and unbreakable.
The second level reflects fundamentals of business. These rules, guidance and thoughts are not necessarily true and applicable to every economic sector and to every industry within that sector. In effect, business fundamentals are not universal; whereas, tenets are universally applicable.
As an example, a common misconception is that the business principle of ‘Economy of Scale’ is applicable across the board. This is not true. To illustrate, think of an artist painting custom portraits as a business. The artist gets paid for their time. There is no economy of scale related to the artist’s time. How does one create more hours or have the artist produce more portraits within the artist’s labor hour? This is also true with professionals. It is difficult to achieve economy of scale with many of the licensed professions. To counter this lack of economy of scale, professionals simply charge more per hour. Not all business principles are universally applicable.
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At the final level, entrepreneurs find standards. Typically, standards are industry based and are driven by governmental regulation, association guidance and historical culture of that industry. Standards exist for systems, production, sales and financial results. About two-thirds of all business rules are really standards. This website has a entire section devoted to standards for respective industries.
The entire spectrum of business principles starts with the few universally applicable tenets, then the few hundred fundamentals and then the tens of thousands of standards. Only tenets exist with all forms of business.
This part of the website is not divided by the respective three areas of principles, but more by practical application of fundamentals and standards. Throughout, the few tenets are discussed and explained as appropriate. However, the focus is on the various areas of fundamentals and how business is conducted.
Below, click on the principle group you seek information about and it will take you to a page of different articles related to that subject matter. Please understand that these are business related articles; they’re in-depth and educational in nature. The primary goal of each article is to educate and provide insight, guidance and knowledge to the small business entrepreneur.
Business principles and standards are a fundamental part of evaluating companies and their ability to generate profits. This site’s Value Investment Fund and its Club utilize industry standards and their respective principles to determine intrinsic value. It is one of the four core principles of value investing, financial analysis. If you want to learn more about value investing and how financial analysis is conducted, then click here: Membership Program.
BASIC BUSINESS PRINCIPLE GROUPS:
BUSINESS TERMINOLOGY – To fully understand business, you must recognize the respective terms and how they should be used in the proper context. Most business terms have more than one meaning and it is further complicated by the Internal Revenue Service definition.
START-UP – Decide what you want to do, develop a plan, review your resources and get going! This section covers these and much more.
LEGAL – THERE IS NO SUBSTITUTE FOR GOOD LEGAL ADVICE AND COUNSEL. With that said, learn as much as possible about the legal issues before talking to an attorney, ask questions, learn even more and then seek the help of an accountant before talking with a lawyer.
ACCOUNTING – Understand the basic reason for accounting, determine the best model and software to use, find a good accountant, and implement a great system for your business. Accounting is divided into five subsections: 1) Bookkeeping, 2) Accounting Concepts and Principles, 3) Accounting Systems & Technology, 4) Finance and 5) Report Analysis (Understanding the Financial Statements).
MARKETING – There is no substitute for a warm and friendly handshake, don’t forget to smile. Learn what works and what’s effective.
OPERATIONS – You can have the greatest documentation process, front office management and marketing program, but if you can’t produce a great product in a timely fashion and within budget, game over! This is the heart of business and this is the one area you have to give priority attention to while managing your business. This section is divided into three subsections: 1) Human Resources Department, 2) Production, and 3) Office Management.
INSURANCE – Actuarial science is the basis of insurance. A group of individuals pool their funds and mutually agree to help each other in times of need due to an accident or an act of God.
SMALL BUSINESS MODEL SERIES – This entry is part of a series of entries exemplifying the steps an entrepreneur takes from starting a business to selling the operation. It is a step by step process addressing the multitude of business concepts every small business owner must face. This is a 6 year example from Day 1 to the day the owner receives a check for selling his business. Read this series as if it you were experiencing all of the trials, tribulations and joy of owning and operating a business.
Small Business Model Series
MARGINAL VALUE – This concept of business explores the significant increase in value related to marginal gains over competition. In effect, the company that is number one within a respective industry is only marginally better than numbers two through 7. This marginal difference creates huge marginal value in stock price or business performance. Articles in this section explore and explain this business concept.