An accurate definition of controlled business would be one that is classified as manageable, where tangible and intangible assets can be identified and the company has the ability to use its resources in the most efficient way possible. A company’s performance is being reported through key indicators that are not manipulated by external forces or factors. In other words, a controlled business has a clear view at how their assets are performing and how best to manage them in order for profit to occur.
This is not always easy for every industry, but many companies have managed this successfully in recent years. An example of a controlled business is one where operational procedures and management techniques have been implemented that can be measured and improved upon as performance takes place.
The definition of controlled business has changed over time, but it is also subject to debate. For example, in the past this term was applied to certain businesses operating out of different countries where there were no real restrictions on operations, but in recent years the term has been more widely used in a different context. In particular, “controlled business” is used as a counter-cyclical indicator to measure an economy’s health and assess its current level of spending and production capacity. The “controlled business” index captures information from various financial statements of corporations with comparable operating characteristics.
Characteristics of a controlled business :
1. Potential profit is known and certain –
This point is critical to understand the concept of a controlled business. There must exist potential for profit, not merely potential for work. If a business cannot produce money, no one will be interested in employing its services or resources. There must be a potential for profit.
2. The business conducts business activities in an orderly manner to maximize potential profits –
If the resources of the business are not being used efficiently, the potential for profit is diminished. There must be a systematic approach to operations that benefits the company while providing better and more efficient services to customers. This is done by measuring, observing and evaluating sales levels, production quotas, resource allocation and any other factors that could affect profits. This will help to eliminate waste or areas of inefficient use of resources during production and improve profitability overall by providing optimal performance at all times.
3. The business has the ability to deploy its resources in the most optimal manner using operational techniques, management techniques and other factors –
If production processes are not being run efficiently, resources are not being allocated effectively or opportunities for growth are not taken advantage of, then the potential for profit will be decreased. There must be an established system of measuring performance that is reviewed regularly to determine what changes are needed. This involves analyzing opportunities and possibilities that exist and how best to utilize them in order to increase overall profits by gaining more sales or reducing costs while using fewer resources.
4. The business is operating as a unit with a predetermined and stable capital structure that has a certain level of working capital –
The capital structure of the business consists of its assets and liabilities, including their current value. It is important to understand that the capital used by the business for daily operations must be required over time, i.e., no short-term loans are made or long-term financial commitments are put into play. Resources must be consistent and available at all times. There must also be sufficient working capital to keep production up and running at all times, assuming there is no downtime during production or delays in shipments to customers.
5. The business is operating within the guidelines of a predetermined and stable price system that is similarly stable –
Prices can also be controlled through the setting of a controlled price system, which involves the pricing of goods or services that are priced within a range, but not necessarily fixed on any specific price. In other words, prices can be regulated if they are set at a particular rate and not fluctuate outside of this range.
Prices can be manipulated to varying degrees depending on the industry being examined, but adjustments must be made from time to time if needed in order to maintain consistency among customers and certain levels of production for profit over time.
6. The business has a carefully designed structure for internal distribution of the company’s resources –
The guidelines for internal distribution are critical to establishing the controlled business definition. There must be a controlled mechanism that defines how to allocate resources, including machinery and other assets. A production process must ensure they are used in an efficient manner while maintaining the highest level of effectiveness possible.
Other factors that determine how resources are being used by the company include customers, contracts, market share and inventory levels. These types of arrangements should be made within the guidelines of the controlled business definition in order to ensure efficiency and success in all areas where profits are generated by the sale of goods or services based on price premiums or quotas set by government officials or groups.