Business Studies Prelim Notes
Table Of Contents
TOPIC 1: Nature Of Business
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TOPIC 1: Nature Of Business
Role Of Business
STUDENTS LEARN ABOUT
NOTES
• The nature of a business
- Producing goods and services
- Profit, employment, incomes,
choice, innovation,
entrepreneurship and risk,
wealth and quality of life
Business can be defined as: the organised effort of individuals to produce and sell, for a profit, products that
satisfied consumers’ needs and wants.
Businesses are what keep the economy running
They sell different products which can be categorised into two groups
1. Goods
- Are tangible → Can be touched and seen
- E.g. woolworths sells fruits and vegetables
2. Services
- Are intangible → Things done for us: an experience
- E.g. when we go to the hairdresser or go in a taxi
CASE STUDY EXAMPLES
POSSIBLE QUESTIONS
There are 7 other roles of businesses...
1. Profit: Money left over after all expenses have been deducted from the revenue
- Revenue → Money you get from selling the products
- Expenses → All the costs
2. Employment: Businesses employ people to work for them
3. Income: In return they get paid money for providing their time to make products
4. Choice: Businesses allow consumers to be able to choose the difference beaches quality and price of
the products they want
5. Innovation: Businesses allow for new ideas
6. Entrepreneurship and risk: People can start and operate their own business
7. Wealth and quality of life: When we buy products we generally use them to make our lives easier and
improve them
Types Of Businesses
STUDENTS LEARN ABOUT
NOTES
CASE STUDY EXAMPLES
POSSIBLE QUESTIONS
• Classification of business
One of the ways businesses can be classified is by their size:
- Size: small to medium
1. Micro
enterprises (SMEs), large
2. Small
- Local, national, global
3. Medium
- Industry: primary, secondary,
4. Large
tertiary, quaternary, quinary
- Legal structure: sole trader,
Businesses can also be classified by geographical spread: How big the area is that they sell to ?
partnership, private company,
1. Local area
public company, government
- E.g a corner store
enterprise
2. National area
- E.g David Jones
3. Global area
- E.g McDonalds
Industry: A group of businesses that are involved in similar types of productions
- E.g Fast food industry includes businesses such as KFC, McDonalds etc.
All industries can be classified into 5 different categories
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1. Primary industry: Production involves natural resources
- E.g farming and mining
- This industry is important because all materials used in other industries are sourced here
2. Secondary industry: Involves taking raw materials and turning them into products
- E.g bakery takes flour from the primary industry which is used to make bread
3. Tertiary industry: Involves performing services for other people
- E.g Retailers like grocery stores
4. Quaternary industry: Services that involve transferring and processing information and knowledge
- E.g schools and banks
5. Quinary industry: Services that are performed in home
- E.g childcare and hairdressing
All businesses are one of the following two things:
1. Public business enterprises: Is owned by the government
- Australia post
- Railcorp transport
2. Private business enterprises: Is owned by private individuals
- Local restaurants
- Large businesses such as fast foods
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There are four types of private business enterprises classified by legal structure:
a. Sole trader: Owned and operated by one person
- Make all decisions
- Receive all profit
- Have unlimited liability
b. Partnership: Owned and operated by between 2-20 people
- Shared workload
- Unlimited liability
c. Private company: Invite 2-50 people to be private shareholders
- Private shareholder: Specific people that put money into a business in return for
owning part of it
- Limited liability
- Easier to get finance
d. Public company: Shares are offered to member of the public to purchase on exchanges
- Limited liability
- Easier to get finance
- Have to publish financial reports for the public to see
Liability = legal responsibility
- Two different types of liability
1. Unlimited liability (unlimited responsibility): The business and owner are the same legal entity (they
are not separate)
- This means that the owner has full responsibility for all the debts of the business
- If a business has unlimited liability, it is said that they are ‘unincorporated’
2. Limited liability (limited responsibility): The business is legally separate from the owner
- This means that the corporation itself is fully responsibility for the business debts
- If a business has limited liability, it is said that they are ‘incorporated’
- Become a cooperation through the process of incorporation
• Factors influencing choice of legal
structure
- Size, ownership, finance
One of the choices that businesses have to make is what legal structure they should choose.
Three factors influence this decision including:
1. Size of the business
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As the business grows the type of legal structure the owner will choose changes
Small business
> The most ideal legal structures for small businesses are a sole trader or partnership
Medium business
> As the business gains popularity and production increases, it will become a medium business
> Will require more money however more owners bring in extra money
> They can be a partnership or private company
Large business
> As a range of stores open up in different areas, they will now be considered a large business
> Will require more money
> Will become a public company
> To raise money from thousands of different shareholders = this is possible if the business
decides to ‘float’ which means raising money through the sale of shares to the public on the
ASX
When businesses grow they require injections of money to fund the expansion. A way of gaining
more money is getting more owners on board, which involves changing the legal structure.
2. The level of ownership they want
- The legal structure can change depending on the level of control they want over the business
> Complete control = sole trader
> Shared control = choice between partnership or private company
> Little control (control divided amongst thousands of shareholders - level control a person has
is related to how many shares they own; if control is wanted to be kept, a person would have to
own more than 50% of shares ) = public company
3. Source of finance
- The type of finance a person gets can influence the type of legal structure they choose:
- Sole Traders and partnership have unlimited liability which can be viewed as high risk for
investors and banks
- Since private companies and public companies have limited liability, this makes it easier to get
finance form larger investors and banks - or they can raise money by selling shares
> So majority of their finance is limited to their own savings and or small loans
More importantly managers need to know when to change the legal structure
Influences In The Business Environment
STUDENTS LEARN ABOUT
NOTES
CASE STUDY EXAMPLES
POSSIBLE QUESTIONS
• External influences
- Economic, financial,
geographic, social, legal,
political, institutional,
technological, competitive
situation, markets
• Internal influences
- Products, location, resources,
management and business
culture
• Stakeholders
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Business Growth & Decline
STUDENTS LEARN ABOUT
NOTES
CASE STUDY EXAMPLES
POSSIBLE QUESTIONS
• Stages of the business life cycle
- Establishment
- Growth
- Maturity
- Post-maturity
• Responding to challenges at each
stage of the business life cycle
• Factors that can contribute to
business decline
• Voluntary and involuntary
cessation: liquidation
TOPIC 2: Business Management
The Nature Of Management
STUDENTS LEARN ABOUT
• Features of effective
• Skills of management
- Interpersonal,
communication, strategic
thinking, vision,
problem-solving,
decision-making, flexibility,
adaptability to change,
reconciling the conflicting
interests of stakeholders
NOTES
CASE STUDY EXAMPLES
POSSIBLE QUESTIONS
● A manager is someone who coordinates the business’ limited resources in order to achieve goals
- Most important aspect of being a manager: coordinating what the business owns to achieve
what they want
● This involves working with employees and using resources efficiently and effectively
● To achieve the above a manager needs to possess various skills
Interpersonal skills
Work and communicate with other people to understand their needs
Communication
Effectively expressing what you mean and listening to others
- Verbal communication
● Emails, phone calls, conversations
- Non-verbal communication
● Body language
Strategic thinking
● The ability of the manager to see the broader picture
Vision
● The shared sense of direction that allows people to achieve a common goal
Problem solving
● Searching for different ways to solve an issue
Decision making
● Choosing a solution
Flexibility
● _______________________________________
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• Achieving business goals
- Profits, market share, growth,
share price, social,
environmental
- Achieving a mix of the above
goals
- Staff involvement innovation, motivation,
mentoring, training
Adaptability to change
● Being able to anticipate and adjust to change
Reconciling the
conflicting interests of
stakeholders
● Stakeholder: anyone who is interesting or is affected by business activities
● Managers need to satisfy the both the stakeholders interest
- Achieved through compromise and problem solving
- One way to reconcile interests is through the process of
‘stakeholder engagement’: sharing information with stakeholders
and asking for their opinions
● Goal: a desired outcome to be achieved within a certain time period
● Goals need to be ‘SMART’
- S: Specific
- M: Measurable
- A: Achievable
- R: Realistic
- T: Time bound
● Managers use these outlines to set financial, social and environmental goals
MOST PREVALENT GOALS
Financial
● Maximise profits
● Increase market share (percentage of the total sales in a market earned by a
business)
● Maximize Growth (includes internal e.g. hire people and external e.g.
merging or acquiring businesses)
● Improve share price
- Business aim to increase the share price of the business and pay
back healthy dividends to shareholders to show that the business is
doing well - this also encourages people to invest in the business
Social
● Community service
- Businesses can support community events, education and welfare
activities
● Providing employment
- Hirer people from the local area to support the business
Environmental
● Acting sustainably
- Managers set goals allowing them to operate sustainably where they
can meet the needs of people today without affecting future
generations
ACHIEVING A MIX OF GOALS
● Businesses attempt to achieve a mix of these goals because this will improve the overall success of the
business
- E.g. McDonald’s
● Use sustainable supply chains
● Sponsor athletic clubs
● Provide employment for people with disabilities
STAFF INVOLVEMENT
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Management Approaches
STUDENTS LEARN ABOUT
NOTES
CASE STUDY EXAMPLES
POSSIBLE QUESTIONS
• Classical approach
- Management as planning,
organising and controlling
- Hierarchical organisational
structure
- Autocratic leadership style
• Behavioural approach
- Management as leading,
motivating, communicating
- Teams
- Participative/democratic
leadership style
• Contingency approach
- Adapting to changing
circumstances
Management Process
STUDENTS LEARN ABOUT
NOTES
CASE STUDY EXAMPLES
POSSIBLE QUESTIONS
• Coordinating key business
functions and resources
• Operations
- Goods and/or services
- The production process
- Quality management
• Marketing
- Identification of the target
market
- Marketing mix
• Finance
- Cash flow statement
- Income statement
- Balance sheet
• Human resources
- Recruitment
- Training
- Employment contracts
- Separation voluntary/involuntary
• Ethical business behaviour
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Management And Change
STUDENTS LEARN ABOUT
NOTES
CASE STUDY EXAMPLES
POSSIBLE QUESTIONS
• Responding to internal and
external influences
• Managing change effectively
- Identifying the need for
change
● Business information
systems
- Setting achievable goals
- Resistance to change
- Management consultants
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