Business Basics - The 3 Fundamental Functions of Every Business Explained

No matter what type of business, or organization for that matter, you can rest assured that there are three fundamental functions that run that business and dictate how that business behaves.

This post explains the 3 basic functions of every business. These functions are Finance, Marketing, and Operations.


The 3 Basic Business Functions

Finance

The finance function of a business is responsible for securing and distributing funds for operations.

This function also is typically in charge of purchasing goods, supplies, and services that are necessary to carry out marketing and operational activities.

Budgeting and forecasting expenses, revenue, profits, costs, losses, and debt are crucial tasks that the finance function of any business must be able to perform successfully.

Managing cash flow and the financial assets of a company is no easy task. To stay competitive a business must be able to manage their money effectively. This could mean developing investment strategies that produce a significant short-term yield without taking on excess risk.

Some businesses owe their success in large part to their finance department. For instance, Amazon.com originally made their money not by selling books but by simply investing sales revenues for the short term between the time of purchase and the time of payment to the seller. During that period which was a time frame of 30 - 60 days for any given transaction Amazon.com invested the money for the short term and "made their living" off the investments resulting return or yield.

Most people don't know that.

Marketing

The marketing function of a business is ultimately responsible for ensuring the business has customers. The marketing activities and efforts of a company must focus on ensuring that the products and or services of the business are able to meet the needs and wants of the customer. Perhaps just as important, the marketing department must ensure that the target market is aware that the companies goods and services, and further, are aware that the products are able to meet their needs and wants. This "awareness" must be strong enough to convince an acceptable portion of the target market to purchase the goods or services as a means to meet their needs and wants.

The marketing side of a business must focus on developing strategies and plans that effectively create this awareness. For instance how a company advertises their products and services is developed and executed by the marketing department. Much of the customer experience is a focus of marketing. Whether it be designing a strategy to cross-sell candy and other tasty treats to customers at a video rental store such as BlockBuster or creating an overwhelmingly positive emotional experience for those touring a time share resort the marketing function of a business attempts to create a consumer experience that is optimized for selling the products and services of a business.

Just as the finance department will create forecasts and budgets a marketing department will prepare a marketing plan which forecasts sales and more importantly acts as the blueprint of how a company will entice customers to purchase a firm's products and services.


Operations

Operations is the function of a business that is responsible for creating the goods and services of a business. Operations are responsible for producing what the company sells within the boundaries of the budgets and forecasts supplied by the finance department as well as the supply and demand forecasts of determined by the marketing department. Operations must produce products and services in line with what the marketing department has dictated is necessary to meet the needs and wants of the consumer.

Operations is also the biggest player in running and managing the supply chain. Supply chain management is a crucial aspect of any business and the proper operations management approach can make or break a business. For instance despite Block Buster having multiple times the amounts of revenue as Red Box, Red Box stock is selling for extremely high multiples of their earnings per share while Block Buster is in bankruptcy trying to restructure their debt. This is because Red Box has a lean and mean well-managed supply chain and Block Buster is still working on optimizing a clunky retail cross-selling approach.

Just as a side note Red Box is owned and managed by the same folks who manage coin star.

So there you have it, the three basic functions of any business explained. If you like reading about this kind of stuff I have decided to do another post directly relating to this topic. As a way to better explain and see the concepts at work I am going to post how each of these fundamental business operations relates to this very finance blog. This should give folks a practical application of the fundamentals at work by using Young Finance Guy as an example.

Whether you are managing a small local business or a global corporation listed on the Dow Jones Index you can be sure that these three business functions will be the core of the company.