Prelim Business Studies Study Notes
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Prelim Business Studies Study Notes By Andrew Newbound © Andrew Newbound 2013 The Nature of Business Topic 1 © Andrew Newbound 2013 Role of Business Topic 1.1 © Andrew Newbound 2013 What is A Business A collection of activities that are performed to design, produce, market, deliver and support its goods and services. Its owners do this to receive benefits © Andrew Newbound 2013 The Nature of a Business - Produce goods and services Goods Tangable object The clothes we wear, foods we eat, television sets we watch and cars we drive Services Coles, Woolworths, Aldi Intangible Increase in services, decrease in goods © Andrew Newbound 2013 Profit Difference between the price at which a good or service is sold and the costs of getting the good or service to market Gross profit 𝑠𝑎𝑙𝑒 𝑝𝑟𝑖𝑐𝑒 − 𝑠𝑎𝑙𝑒 𝑝𝑟𝑖𝑐𝑒 Net profit 𝑔𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡 − 𝑒𝑥𝑝𝑒𝑛𝑠𝑒𝑠 𝑎𝑛𝑑 𝑡𝑎𝑥𝑒𝑠 © Andrew Newbound 2013 Employment Workforce had changed Skilled jobs Young people in education and training Aging Increase in female participation 10,000 fewer people employed in manufacturing than 5 years ago Businesses moving to low cost countries © Andrew Newbound 2013 Incomes Employee’s business reward for working in a © Andrew Newbound 2013 Choice Market economy Regulation to protect consumers Customer demand determines what products will be sold in the market Dangerous products False claims Regulation Government affected by a free market lobby Restrict the market © Andrew Newbound 2013 Innovation A new idea that relates to a better product, a service or a way of doing something Niche market Buyers with specific, unmet needs © Andrew Newbound 2013 Entrepreneurship and Risk Risks associated with marketing new ideas for products or new ways of marketing or distributing better and cheaper products © Andrew Newbound 2013 Wealth Wealth creation People invest in business Want time to grow the value of their wealth over Dividend Payment of a share of profits Businesses retain 50% to fund future growth 50% in form of dividend © Andrew Newbound 2013 Quality of Life Providing appropriate rewards for work Challenging and interesting work A safe working environment Effective training Enable employees to do work well © Andrew Newbound 2013 Influences in the Business Environment Topic 1.3 © Andrew Newbound 2013 The Business Environment Anything business that affects the operation of a © Andrew Newbound 2013 Efficient Managers Constantly monitoring the business environment to pick up any change that may impact upon their business © Andrew Newbound 2013 External Influences on Business Outside the control of a business’s managers © Andrew Newbound 2013 External Influences Economic Financial Geographic Social Legal Political Institutional Technological Competitive Situation Markets © Andrew Newbound 2013 Economic Attributed to the economic cycles Predictable long-term pattern of changes in the national income © Andrew Newbound 2013 Economic Cycle © Andrew Newbound 2013 Economic Cycle Upswing • Confidence increases • Employment rises Boom • Low unemployment Downswing • Loss of confidence • Unemployment rises Trough • Confidence rock bottom • High unemployment © Andrew Newbound 2013 Economic Cycle Australia Sustained growth in spending for ~17yrs following 1992 recession Loss in confidence 2008/09 GFC Rapid decrease in spending Monetary policy Determined by RBA Stabilise economic activity © Andrew Newbound 2013 Economic Cycle Recession Unemployment rises Spending falls 2 consecutive quarters of negative growth Inflation Demand begins to outstrip supply RBA decreases interest rates © Andrew Newbound 2013 Reserve Bank of Australia Stability of Australia’s currency Maintenance of full employment Economic prosperity of people of Australia Welfare of people of Australia © Andrew Newbound 2013 2009 GFC US householders defaulting on mortgages Those reliant on such funds could not be payed Economic stimulus Minimise impact of downswing $53 billion by Rudd Labor Government $900 per household © Andrew Newbound 2013 Recessionary Cycle Rising unemployment Cost cutting Consumers more cautious Reduced spending © Andrew Newbound 2013 Boom Cycle Falling unemployment Increased production Consumers confidence returns Increased spending © Andrew Newbound 2013 Financial More significant with deregulation and globalisation Important Business inputs must be financed Raw materials Equipment © Andrew Newbound 2013 Financial – Derivatives Financial securities E.g. contract Enable businesses to manage risk more efficiently Contract between apple growers and apple pie manufacturers Ensure price doesn’t change Bad for either if price changes © Andrew Newbound 2013 Financial – Derivatives Qantas – Hedging Transferred risk of fuel prices to hedge fund Business specialising in risk management Competitive advantage over Virgin when fuel prices rose © Andrew Newbound 2013 Geographic Location of a business Australia in Asia Pacific region Access to rapidly growing markets China India Lower Mines transport costs in regional Australia Difficult to get skilled labour Fly-in-fly-out workforce © Andrew Newbound 2013 International Trade All economic transactions that take place between consumers, businesses and governments in different countries Businesses specialise in goods and services that are produced more efficiently © Andrew Newbound 2013 Social Attitudes, values and beliefs of a society Changes in fashion Make companies involved very susceptible Aging population Opportunities Leisure and travel needs Heath and medical needs © Andrew Newbound 2013 Social 2 income families More women working full time Opportunities Prepared Healthy and takeaway meals lifestyle Rejecting soft drinks for bottled water Immigration Diverse Australian population © Andrew Newbound 2013 Legal Framework of laws and regulations that governs the operations of a business Fair Work Act 2009 Smaller number of awards and minimum conditions for employers © Andrew Newbound 2013 Political Ideas that come from the political parties E.g. Resources rent tax Carbon tax/emissions trading scheme Not possible to insure against © Andrew Newbound 2013 Political Federal Government State Government Local Government •Taxes •Superannuation •Customs •Employee entitlements •Approving new development •Fire regulations •Parking regulations •Size, location and shape of business signs © Andrew Newbound 2013 Political Labour market reforms Social reforms Environment management Taxation © Andrew Newbound 2013 Institutional Not only established organisations Unions Trade associations More importantly Established practices/customs in a business Change = essential Make change more difficult © Andrew Newbound 2013 Technological Important because of rate of change How things are done in business E.g. US car making process = completely automated Woolworths Minimise component in distribution Saved over $4.5 billion with new system © Andrew Newbound 2013 Competitive Situation Market where other businesses are providing products to meet the same consumer need © Andrew Newbound 2013 Competitive Situation Ease of entry into market for a new business Local and foreign competition Marketing strategies employed by competitors Number of competitors © Andrew Newbound 2013 Types Of Market Concentration Monopoly 1 firm No competitors E.g. Australia post Railcorp Oligopoly Consists of a small number of larger firms that dominate the market E.g. Banks Oil companies Car manufacturers © Andrew Newbound 2013 Types Of Market Concentration Monopolistic Competition Large number of buyers and sellers Differentiated goods E.g. Clothing manufacturers Local retailing Perfect Competition Large number of small businesses that sell products that are the same or similar E.g. Fruit & vegetable growers © Andrew Newbound 2013 Markets Market Place in the commercial world where goods and services are sold © Andrew Newbound 2013 Internal Influences Things managers can influence © Andrew Newbound 2013 Products Businesses competing to produce a product that better meets the needs of the competitors © Andrew Newbound 2013 Location Visibility Cost •How well •How often •Rent/lease Proximity to suppliers •How close to suppliers Proximity to customers •How close Support services •e.g. accountants, lawyers © Andrew Newbound 2013 Resources Finance Employees Equipment Raw materials © Andrew Newbound 2013 Resources Way are acquired Affect Quality value © Andrew Newbound 2013 Management Attitudes Manager Employees ‘Best and values practice’ Way the competitive businesses in the industry do things and clearly involves ideas Efficiency Quality production High levels of customer services © Andrew Newbound 2013 Management – Flight Centre Family, village, tribe Business teams Area leadership National leadership Regional leadership Global©board Andrew Newbound 2013 Stakeholders Any group/individual on whom the decisions/ actions have an impact ∴ have an interest in things a business does Shareholders People who have a ‘share’ in the ownership of a company © Andrew Newbound 2013 Stakeholders Internal Stakeholders Shareholders External Stakeholders Investors Customers Suppliers Employees Competitors Unions Managers Government The community © Andrew Newbound 2013 Types of Businesses Topic: 1.2 © Andrew Newbound 2013 Size Micro: <5 Small: <20 Medium: 50-200 Large: >200 © Andrew Newbound 2013 Local, National, Global Local area National Global • Immediate market • E.g. Mike’s seafood, Inner Vision Surf N Skate • Throughout Australia • E.g. Woolworths, QR National • Portion of business outside of Australian borders • E.g. BHP Billiton, McDonalds , Westpac © Andrew Newbound 2013 Global: Advantages Most efficient production resources Distribute risk Geographic Currency fluctuations © Andrew Newbound 2013 Industry Primary Extraction of natural resources E.g. Farmers, Rio Tinto, BHP Billiton, Xtrata, Fortesque Secondary Converts natural resources to finished & semi-finished goods E.g. General Motors, Alchoa, Bluescope Steel, Bago Woodworks, Dorvic Steel Tertiary Selling and distributing goods and services E.g. Inner Vision, Jim Pearson transport, Country Energy e.g. teachers, hotels, motels, restaurateurs © Andrew Newbound 2013 Industry Quaternary Information processing services E.g. Real estate, banks, media, insurance Quinary Consumer focused services e.g. teachers, hotels, motels, restaurateurs © Andrew Newbound 2013 Industry Shifts away from primary industry into the services sector Developed nation Primary sector < tertiary sector Feeds into other aspects of the economy © Andrew Newbound 2013 Legal Structure Sole Trader 1 Owner Unlimited liability Owner’s income is taxed Name must be registered if different from sole trader’s name ABN (Australian Business Number) Partnership 2-50 partners Up to 200 for accountancies and solicitors Unlimited liability Owners’ income taxed Each partner has the power to buy, sell, employ and borrow © Andrew Newbound 2013 Legal Structure Limited Partnership For business venture with more risk of failure Allows some partners to have limited liability Public Company (Ltd.) Normally silent partners Investment purely for financial reasons Unlimited owners (shareholders) Limited liability Separate legal entity from owners General public can buy shares Financial records must be inspected by ASIC (Australian Securities and Investment Commission © Andrew Newbound 2013 Legal Structure Private Company (Proprietary) (Pty. Ltd.) 1-50 people Know each other Limited liability Cannot ask general public for funds Not listed on stock exchange Transfer/sale of shares is restricted ‘Dividends’ Percentage of profits payed to shareholders © Andrew Newbound 2013 Legal Structure Cooperatives Group of people with a common interest Members invest in co-op which carries out their buying/selling for them Often used in agricultural industries ≥ 7 members Not required to pay tax on profits Limited liability © Andrew Newbound 2013 Legal Structure Trusts Trustee Person responsible for management of assets Manage investments and minimise tax Not a separate legal entity Government Enterprises Businesses owned/operated by state or federal government © Andrew Newbound 2013 Types of Businesses for Legal Structures Not all legal structures suitable for all businesses If the shoe fits Sole trader All decisions = direct actions of manager Name does not make a separate legal enterprise © Andrew Newbound 2013 Types of Businesses for Legal Structures Partnership agreement Reduce likelihood of disputes Profit distribution Working arrangements Structure changes What happens if money is owed to creditors © Andrew Newbound 2013 Types of Businesses for Legal Structures Medium Large business = company High amount of finances needed Specialist managers Large enough to avoid downside of limited liability © Andrew Newbound 2013 Sole Trader Advantages Low cost of entry Simplest form Complete control Less costly to operate No partner disputes Owner’s right to keep all profits Les government regulation No tax on profits, only on personal income Disadvantages Unlimited liability for debts End of business when owner dies Difficult to operate if sick Need to carry all losses Burden of management Need to perform a variety of tasks Difficulty in raising finance for expansion © Andrew Newbound 2013 Partnership Advantages Low start up costs Less costly to operate Shared responsibilities and workload Pooled funds Minimum gov regulation No taxes on business profits Business can keep going upon death of 1 partner Disadvantages Unlimited liability For all debts Disputes Difficulty in finding a suitable partner Divided loyalty and authority © Andrew Newbound 2013 Company Advantages Public finance Limited liability Can transfer ownership Perpetual succession Disadvantages Long life Experienced management Greater spread of risk Lower company tax rate Growth potential Only need 1 shareholder and 1 director Cost of formation Double taxation Personal liability for debts if directors knew that business was unable to pay debts Yearly report of audited accounts Public disclosure Inefficiencies from becoming too large © Andrew Newbound 2013 Franchise Arrangement - Franchisor Advantages Fast and selective product distribution Avoids costs of construction Does not have to operate outlets Agreement ensures some control Motivated franchisees Disadvantages Unsuitable franchisee Disagreement over conditions and terms of contract © Andrew Newbound 2013 Franchise Arrangement - Franchisee Advantages Limited finances needed Guaranteed customer base Established name Management back-up Proven methods of business Disadvantages Franchisor retains great deal of control Limited individuality Disagreements over conditions and terms in the contract If too successful, franchisor may open own outlet © Andrew Newbound 2013 Boost Juice Case Study 80% of businesses fail in first 3 years of operation 20% of franchises fail in first 3 years of operation © Andrew Newbound 2013 Business Growth & Decline Topic 1.4 © Andrew Newbound 2013 The Business Life Cycle Series of predictable phases businesses experience as they develop Establishment Growth Maturity Post Maturity © Andrew Newbound 2013 Establishment Characteristics Customers not familiar with product Retailers reluctant to put on shelves Takes time to establish product Expenses higher than sales revenue Negative profits Businesses lose money in establishment stage Strategies Adequate savings to address cash problems Effective marketing strategies Undertake business courses to develop management skills Research government regulations © Andrew Newbound 2013 Growth Characteristics Rapid increase in sales Pressure on resources, particularly cash and labour Cash problems develop Competitors attracted by increasing sales Strategies Prepare to work even harder Effective credit policy to collect debts Consider factoring Select time to employ professional managers © Andrew Newbound 2013 Maturity Characteristics Sales level off Market is saturated Time to employ professional managers Focus on remaining competitive Strategies Focus on cutting costs Examine all aspects of value chain to cut costs Diversify into new products Find new ways to grow value of business © Andrew Newbound 2013 Post-maturity Characteristics Final stage of life cycle Falling sales and loss of market share Cash flow problems emerge Business starts to decline Strategies Improve the competitive position of the business through cost cutting Renewal may be a possibility with new products New managers with new ideas Manage the closure effectively and ethically © Andrew Newbound 2013 Integration © Andrew Newbound 2013 Factors Contributing to Business Decline Failure to embrace change Products Technology Production techniques Lack of finance Business culture Environmental influences E.g. economic recessions © Andrew Newbound 2013 Voluntary Cessation Owner decides to end business E.g. Retire Business purchased by another and customers, employees etc. are incorporated All stakeholders interests are considered © Andrew Newbound 2013 Involuntary Cessation Forced ending of a business Creditors take legal action to wind up business © Andrew Newbound 2013 Liquidation Turning assets into cash Distributed to secured creditors Remaining distributed to unsecured creditors Sometimes at a proportionate amount E.g. 50c in $1 © Andrew Newbound 2013 Sole Trader Cessation Voluntary Pay bills and stop trading Involuntary Court orders trading to cease Debts paid Bankruptcy may be declared Death of owner Business may die too OR succession © Andrew Newbound 2013 Partnership Cessation ‘Dissolved’ Arrangements set out in Partnership Agreement If not – Partnership Act honoured Can occur A partner dies A partner is declared bankrupt A partner committed fraud By court order due to creditors not being paid © Andrew Newbound 2013 Company Cessation ‘Wound up’ Voluntary Acquire solvency declaration so can pay bills Profits divided amongst owners Trading ceases 1. 2. 3. Involuntary Courts order a liquidator 1. 2. 3. Assets turned into cash Creditors paid in order of priority Owners, shareholders liable to value of ownership © Andrew Newbound 2013 Problems Arising From Liquidation Company directors •Possible loss of directorship position •And/or disqualified as a director •Could lose personal assets to pay for company’s debts •Possibility of a fine and/or imprisonment © Andrew Newbound 2013 Problems Arising From Liquidation Creditors (unsecured) • May not receive any money owed • May only receive proportion of money owed Employees • Loss of jobs • Right to have outstanding wages and superannuation payed if money left over after liquidator’s fees © Andrew Newbound 2013 Problems Arising From Liquidation Shareholders • Unlikely to receive any payment • Rank behind creditors • Liquidator can request that holders of unpaid/partly paid shares in the company pay outstanding amount on those shares Society/economy • Loss of production • Social and personal difficulties associated with job losses • Loss of economy confidence © Andrew Newbound 2013 Business Management Topic 2 © Andrew Newbound 2013 Nature of Management Topic 2.1 © Andrew Newbound 2013 Management Business activities Planning Leading Organising Controlling Process of working with and through other people to achieve business goals © Andrew Newbound 2013 Features of Effective Management - Orica Maintain business culture Safety, health and the environment Trust Commercial ownership Own something to make money out of it © Andrew Newbound 2013 Features of Effective Management - Orica Maintain Creative customer solutions Good business culture customer service Working together Collective knowledge Increase sales Effectively use limited resources © Andrew Newbound 2013 Skills of Management Reconciling Interests of Stakeholders Strategic thinking Vision Problem solving Decision Making Adaptability to change Flexibility Interpersonal Communication © Andrew Newbound 2013 Skills of Management Communicate effectively Lead Delegate Motivate Negotiate © Andrew Newbound 2013 Richard Branson Interpersonal Negotiation ACCC Motivation Communicating Media © Andrew Newbound 2013 Communication Transmission of ideas and information throughout a business Conveying meaning Correct translations if necessary Avoiding ambiguity Analogies don’t add confusion © Andrew Newbound 2013 Communication Listening Ideas of others taken into consideration Efficient use of technology Employees can quickly grasp concepts © Andrew Newbound 2013 Strategic Thinking Achieve future goals in uncertain business environment Fluctuations in economic cycle Strain on credit Maybe cut unnecessary spending Maybe put future projects on halt © Andrew Newbound 2013 Vision Manager imagines what business would be like in a period of time Business as a whole strive towards common goals Without Unable to best manage a business © Andrew Newbound 2013 Problem Solving Address business problems as they arise within a © Andrew Newbound 2013 Problem Solving Identify the problem and causes Gather relevant information Develop alternative solutions Analyse the alternatives Choose one alternative and implement it © Andrew Newbound 2013 Decision Making Choose between alternatives Best make positive decisions for the business Acquire and analyse information Anticipate competitor’s moves Resource allocation Without Competitors gain advantage © Andrew Newbound 2013 Flexibility Tackle challenges in dynamic business environment 2009 GFC Reduced customer demand Tackled incorrectly Inadequate resources upon market return © Andrew Newbound 2013 Adaptability to Change Adapt to changes in consumer demand McDonalds Consumers wanted healthy lifestyle New, healthier products Healthier means of manufacture Kmart Consumers wanted cheaper products Removing underperforming and expensive items Everyday Low Prices © Andrew Newbound 2013 Reconciling the Conflicting Interests of Stakeholders Stakeholders have different goals Customers: Max benefits Shareholders: Min costs Employees: Max benefits Shareholders: Min costs Business: Max benefits Suppliers: Min costs Community: Max benefits from Shareholders: Min costs things like low pollution levels © Andrew Newbound 2013 Reconciling the Conflicting Interests of Stakeholders Mining company caused high lead levels in children Decide on stance on issue Problem solving Decide on alternative Decision making Reduce dividends to shareholders Decision making Pay out annual compensation Interpersonal (how much) Pay out 50% of all medical fees immediately Interpersonal (how much) Reduce corporate bonuses Interpersonal (howNewbound much)2013 © Andrew Demonstrate out objective Communication Achieving Business Goals What a business’s stakeholders want it to achieve Profit Dividends Difference between revenue and cost incurred Portion of profit distributed to shareholders Retained profits Portion of business profit kept by business to sustain future growth © Andrew Newbound 2013 Market Share Percentage of the market a particular business’s products has Reducing price of products Able to increase revenue Increase Less profit per individual product If overall profits cost of production is constant Less innovation Other mechanism of increasing market share © Andrew Newbound 2013 Growth Increase in business revenues from year to year Opening additional stores Selling more existing products at higher prices BHP Billiton Luring clientele JB Hi Fi Better than competitors Offering something that competitor can’t Increasing value © Andrew Newbound 2013 Growth JB Hi Fi Rapid growth Harvey Norman Maturity stage Constant growth Low in comparison © Andrew Newbound 2013 Share Price Price at which shares are bought and sold on the secondary market JB Hi Fi 1000% growth from 2003-2010 (since listing) Increase in market share reflective 40% profit returns in half year period © Andrew Newbound 2013 Social Providing employment Specific initiatives such as mentoring indigenous people to get full time work © Andrew Newbound 2013 Environmental Concerned with sustainability Walmart Sell products that sustain resources and the environment Throughout whole supply chain Cannot sell products without Meaningful contribution © Andrew Newbound 2013 Achieving a mix of the above goals Walmart Specific goals across supply chain Barcode tracking technology Reduce staffing levels Cut costs Environmental Reduce greenhouse gas emissions © Andrew Newbound 2013 Staff Involvement – Innovation Kmart Mt Druitt Dressing up as characters of products they sell Boost sales Entice customers into the stores Excitement for less profitable products © Andrew Newbound 2013 Staff Involvement – Motivation Make staff enjoy the workplace more Boost sales, effectiveness Staff recognise their contribution to business success Kmart Rewarding good performance Kmart gift cards Bonus pool Every 1% of sales above budgeted amount © Andrew Newbound 2013 Staff Involvement – Training Employees well Kmart are able to perform their role Induction Continuous training Particularly in customer service Main competitive advantage © Andrew Newbound 2013 Staff Involvement - Mentoring Experienced person trains and counsels another employee Expensive Highly effective Highly effective and proficient members Difficult aspects of the role © Andrew Newbound 2013 Management Approaches Topic 2.2 © Andrew Newbound 2013 Planning Setting of targets and goals Setting time frames Prioritise activities Suggest resource/financial allocation Defines parameters © Andrew Newbound 2013 Organising Allocates the actual resources and money Determines organisational design Assigns work to employees Sets the channels of communications © Andrew Newbound 2013 Controlling Reviews actions undertaken Creates performance reports Accounts for variance between planned and actual performances Suggests new parameters © Andrew Newbound 2013 Hierarchical organisational structure Small spans of command Managers only in charge of a small group of people 4-14 Division of labour Job divided into small, usually unskilled tasks Rigid subordinates chain of command Strict line of authority from top to bottom © Andrew Newbound 2013 Autocratic Leadership Style High level of direction Little/no participation of subordinates © Andrew Newbound 2013 Taylor Taylor’s four principles of management Develop Select Divide Cooperate Eliminate wasted movements Best qualified workers for a job Incentive systems © Andrew Newbound 2013 Henri Fayol More Taylor focussed to all managers than Lowest level Universal set of functions Widely followed by managers today © Andrew Newbound 2013 Fayol’s 14 Principles Division of work Authority Discipline Remuneration Subordination Esprit de corps •Fair wage •Of individual interests to general interests •Team spirit Initiative Order Unit of command Unity of direction Equity Scalar chain Centralisation •Kind and fair Stability of tenure of personnel © Andrew Newbound 2013 Behavioural approach Leading Motivating • Change & conflicts dealt with • Maximum productivity Communicating • Managers employ their strategies effictively © Andrew Newbound 2013 Teams Self managing teams Don’t need close supervision Wider Flat span of control organisational structure © Andrew Newbound 2013 Participative/democratic leadership style Open communication channels Gain feedback Better business decisions More motivated employees Loyalty Productivity © Andrew Newbound 2013 Theorists Elton Mayo Douglas McGregor Abraham Maslow © Andrew Newbound 2013 The Hawthorne Studies Western Electric Company 1924-1932 Productivity increased when the lighting was turned up OR down Being accepted by the group © Andrew Newbound 2013 The human relations movement Importance of employee satisfaction © Andrew Newbound 2013 Douglas McGregor Theory X Theory Y • Workers • Little ambition • Dislike work • Avoid responsibility • Need to be closely directed to work effectively • Workers • Exercise selfdirection • Accept responsibility • Consider work as natural as rest and play © Andrew Newbound 2013 Abraham Maslow – 5 Needs Physiological Esteem Safety Social Selfactualisation © Andrew Newbound 2013 Comparative Traditional Organisations • Less fluid • Division of labour • Rigid structure • Hierarchical • Autocratic, didactic management style • Delegation • Top-down New and emerging organisations • More fluid • People centred • Multi-task, multi-skilled • Inclusive • By consensus © Andrew Newbound 2013 Classical-scientific approach Major strengths • Easy to understand • Planning • Actual performance • Division of labour • Specialisation • Straightforward organisational structure • Rigid chain of command Major weaknesses • Too simple • Workers treated as machines • Excessive supervision • Over-specialisation • Leadership is rigid and controlling • No input © Andrew Newbound 2013 Behavioural approaches Major strengths •Flexible and adaptable •People’s needs •People = important •Motivation •Satisfy business goals •Individual needs •Employees are valued •Communications = 2 way •More informed decisions Major weaknesses •Developed before globalisation, technological advances •Uncertainty in task designs, expectations •Difficult to gauge link between productivity and human motivation •Different motivational needs •Difficult to adjust to •Decision making is time consuming © Andrew Newbound 2013 Contingency approach Uncertain future Competitors react to changes more quickly Business can meet customer needs more effectively than competitors Market share increases Important to react quickly © Andrew Newbound 2013 Management Process Topic 2.3 Volume 1 © Andrew Newbound 2013 Business Functions Interdependence The different functions of the business working together in order to achieve something Synergy The whole is greater than the sum of the individual parts © Andrew Newbound 2013 Business Functions Operations Human resources • Manufacturing • Provision of services • Other value adding • Domestic/global • Industrial relations (HR) • Human resources management (HRM) • Personnel Marketing Accounting and finance • Product • Price • Promotion • Placement • Administration • Financial management • Financial planning • Management and change © Andrew Newbound 2013 Coordination Ensuring that the different parts in a business work together effectively Incitec Pivot Goals in all 4 functions Communicate goal Improve employee productivity $530 million net profit © Andrew Newbound 2013 Operations Transforming inputs into outputs Quality Repeat business Word-of-mouth new business Above competitors © Andrew Newbound 2013 The Production Process Series of stages a product progresses through to be transformed Adds value to product Inputs Processes/ Transformations Outputs © Andrew Newbound 2013 Quality Management Quality Manufacture of services to meet predefined standards/specifications Customers switch if don’t Coca Cola Contain advertised amount Taste like Coke Be carbonated © Andrew Newbound 2013 Quality Management Minimisation of variation to defined limits Building systems and procedures to ensure © Andrew Newbound 2013 Standards Australia Develops and maintains expectations of certain products Safety Performance Reliability Works with international standards agencies Positive contribution to Australia © Andrew Newbound 2013 Purchasing/supply chain management Supply Range of suppliers from which the business purchases materials and resources Lead chain time Length of time it takes for the business to actually meet the needs of the customer through provision of the good or service the customer/client seeks © Andrew Newbound 2013 Purchasing/supply chain management Supplier rationalisation Process a business goes through when it reviews and reduces the number of suppliers it purchases from Best value for money © Andrew Newbound 2013 Quality assurance Systems and procedures to ensure error/fault will not occur Incitec Pivot Computerised bag loading Exact quantity in each bag Much growth in recent years © Andrew Newbound 2013 Total Quality Management (TQM) Japanese concept Constantly striving to improve all aspects of the business Kmart Highest possible level of customer service Assist customers who require assistance immediately ‘Kansei’ 24hr trading to improve convenience © Andrew Newbound 2013 Management Process Topic 2.3 Volume 2 © Andrew Newbound 2013 Role of Marketing Find out what customers want and develop products that will meet what they want © Andrew Newbound 2013 Target Market The component of the total market which the business will focus its marketing © Andrew Newbound 2013 Identification of the Target Market Market segmentation Breaking down market into small, manageable bits Coca Cola’s lack of products for infants Differentiated marketing Focusing marketing on a number of segments Ford’s range of products © Andrew Newbound 2013 Customer Characteristics Geographics Where consumer lives Demographics Features of the population Psychographics Characteristics of the target market © Andrew Newbound 2013 Marketing Mix Combination of the 4Ps to achieve business objectives © Andrew Newbound 2013 Product Differentiation Adding features not offered by others Brand Positioning in market Associating logo/name/symbol with characteristics Reliability/syling/value for money © Andrew Newbound 2013 Pricing Penetration pricing Setting prices below competitors Woolworths and Coles price wars Suited for markets with competitors Skimming pricing High prices only attracting top end of market Maximise profits Quickly recoup production costs Few competitors © Andrew Newbound 2013 Promotion Personal selling • Activities of a sales representative in helping a customer explain benefits of product Advertising • Paid communication • Directly to customers • E.g. • Television • Newspapers • Radio © Andrew Newbound 2013 Promotion Below-the-line promotions • Competitions • Free samples • Coupons • E.g. Coca Cola’s win a beach house Public relations • Product mentioned in magazine/newspaper • Associating with positive marketing © Andrew Newbound 2013 Place Intensive distribution • As many outlets as possible Selective distribution • Wide, yet more specific than intensive Exclusive distribution • Only available at very specific outlets • Luxury items • Customers go to great lengths to purchase © Andrew Newbound 2013 Management Process Topic 2.3 Volume 3 © Andrew Newbound 2013 Cash Flow Statements What basis is going in and going out on a daily © Andrew Newbound 2013 Expenditure Capital expenditure Money a business invests in assets E.g. property, equipment, computers Revenue expenditure Cash a business spends to generate revenue E.g. advertising, stock © Andrew Newbound 2013 Credit Bank loan Overdraft Allows a business access to large amounts of funds paid back over an extended period of time with interest A good source of short-term finance with a preapproved credit limit Trade credit Extended trading terms offered to encourage higher sales © Andrew Newbound 2013 Reduce sales price to improve cash flow Able to pay creditors on time Prevent wastage Generate cash Increase volume of sales © Andrew Newbound 2013 Cash Flow Statement Jan Feb Mar Opening Balance $2000 $4000 $0 Cash Inflow $5000 $2000 $3000 Cash Outflow $3000 $6000 $5000 Closing Balance $4000 $0 -$2000 𝐶𝐵 = 𝑂𝐵 + 𝐶𝐼 − 𝐶𝑂 © Andrew Newbound 2013 Definitions Liquidity Ability to pay short term debts Profitability Measure of the effectiveness of using resources available to a business © Andrew Newbound 2013 Resources Sales revenue Assets Owner’s investment © Andrew Newbound 2013 Assessment of business performance Benchmarks Budgets Previous periods © Andrew Newbound 2013 Income Statement Measures the performance of a business AKA Profit and loss statement (P&L) Revenue statement Statement of earnings Brackets ≡ deduction © Andrew Newbound 2013 Formulae Gross profit=Revenue – COGS COGS=OS+Purchases−OS 𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡 = 𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡 − 𝑒𝑥𝑝𝑒𝑛𝑠𝑒𝑠 © Andrew Newbound 2013 Revenue Statement of PMQ Motor Supplies for year ending 30 June 2006 $ $ 300,000 Revenue (Sales) Opening Stock 50,000 Purchases 40,000 Closing Stock 35,000 Total COGS 55,000 Gross Profit 245,000 Expenses Wages 105,000 Electricity 15,000 Advertising 25,000 Total Expenses Net Profit 145,000 © Andrew Newbound 2013 100,000 Gross Profit Ratio 𝐺𝑃 𝐺𝑃𝑅 = × 100% 𝑅 Reflects margins between the business’ purchasing costs and its selling costs © Andrew Newbound 2013 Gross Profit Ratio Solving a change Cheaper supplier Buy in bulk Hold less stock Buy local Absolute last alternative Alternative warehousing Increase mark-up on good/service © Andrew Newbound 2013 Gross Profit Ratio Low • High supply costs • Low prices charged for products High • Low supply costs • High prices charged for products © Andrew Newbound 2013 Net Profit Ratio 𝑁𝑃 𝑁𝑃𝑅 = × 100% 𝑅 Reflects operating costs/expenses of the business Improve Decrease expenses faster than sales Increase stock turnover © Andrew Newbound 2013 Net Profit Ratio Low* • Excessive costs High* • Low costs/expenses • Sound financial management © Andrew Newbound 2013 * Especially if compared to GPR Expense to Sales Ratio 𝐸 𝐸𝑆𝑅 = × 100% 𝑅 Necessary Higher expenses create less profitability Should not rise faster than sales © Andrew Newbound 2013 Ratio Answer Process Put it in plain English Identify trends Compare to the norm © Andrew Newbound 2013 Revenue Statement Strategies Increase Revenue Decrease Expenses • Sales Promotion • e.g. advertise special deal • Product rejuvenation • Give product a fresh look • Developing cost centres • Department within business that reviews all costs • Expense minimisation • Keeping expenses as low as possible © Andrew Newbound 2013 Assets 𝐴 = 𝐿 + 𝑂𝐸 Anything the business owns that has financial value and will provide future economic benefit to the business © Andrew Newbound 2013 Assets Current assets • Bank savings • Cash on hand • Accounts receivable (debtors) • Prepaid expenses • Inventories (stock) Non-current assets • Property • Plant and equipment • Motor vehicles Intangible assets • Goodwill • Trademarks • Copyrights • Patents © Andrew Newbound 2013 Liabilities 𝐿 = 𝐴 − 𝑂𝐸 Any monetary amounts owed as the result of past events Current liabilities • Account payable (creditors) • Overdrafts • Credit card debts Non-current liabilities • Mortgages • Long term loan • Lease © Andrew Newbound 2013 𝑂𝐸 = 𝐴 − 𝐿 Owner’s Equity The money the business is worth to the owners Capital • Money that the owners have put into the business Retained profits • Profits which have been earned by the business but have not been paid out as dividends © Andrew Newbound 2013 Balance Sheet Definitions Liquidity • Whether the business has enough cash in and short term assets to cover debt Solvency • Ability of the business to repay debts as they fall due Working capital • The finance available for the day-to-day running of the business © Andrew Newbound 2013 Liquidity Whether the business has enough cash in and short term assets to cover debt Highly liquid assets Can be changed into cash quickly Expressed as a ratio _:1 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 𝐶𝐴 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑟𝑎𝑡𝑖𝑜 = = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 𝐶𝐿 Safe working ratio = 2:1 © Andrew Newbound 2013 Solvency AKA Debt to equity AKA Gearing Ability of the business to repay debts as they fall due Insolvent Cannot pay debts on time Indicates long term stability Relationship between debt and equity funding © Andrew Newbound 2013 Solvency Expressed as a ratio _:1 𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 𝐿 𝐺𝑒𝑎𝑟𝑖𝑛𝑔 𝑟𝑎𝑡𝑖𝑜 = = ′ 𝑂𝑤𝑛𝑒𝑟 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦 𝑂𝐸 High > 1.5:1 © Andrew Newbound 2013 Solvency Too high Too low • Relies too much on borrowed funds • Vulnerable to insolvency • Missing out on investment opportunities • Low risk creditors are happy © Andrew Newbound 2013 Improve working capital and liquidity Leasing Decreasing liabilities Factoring Sale and leaseback Creating greater cash flow •Instead of purchasing JIT (Just-In-Time) inventory control Invoice discounting •Discounts for early payment of accounts receivable © Andrew Newbound 2013 Improving the solvency Decrease liabilities Controlling loans • Using available finance to pay off liabilities Increase equity Issue new shares to finance purchases • If a public company © Andrew Newbound 2013 Management Process Topic 2.3 Volume 4 © Andrew Newbound 2013 Human Resources Process Business plan Job analysis Recruitment Selection © Andrew Newbound 2013 Recruitment Pool of potential applicants is developed for jobs Internally Transferring between roles Externally External means Best possible candidate to apply © Andrew Newbound 2013 Selection Choosing 1. 2. right person for job Candidates apply for job Series of interviews/employment tests Eliminated at each stage See if employee is adequate for the task © Andrew Newbound 2013 Training and development Training Providing skills required to do job well Development Employee is made more valuable resource to company Up skilling Prepare employees for FUTURE jobs, responsibilities © Andrew Newbound 2013 Modern Awards Basis of employment 10 key aspects of employment Ensure fairness for workers in negotiating contracts Wages Leave Dispute resolution © Andrew Newbound 2013 Enterprise Bargaining Employees in a certain enterprise bargain as a collective Higher wages Trade offs E.g. increase in productivity © Andrew Newbound 2013 Separation Voluntary Employee leaves of own choosing E.g. redundancy Agreed by employee Involuntary Employee is dismissed Not of own choosing © Andrew Newbound 2013 Ethical Business Behaviour Lack of trust Between customer and seller E.g. online business arrangements Bribery Acceptable in 1 location, not another © Andrew Newbound 2013 Ethical Business Behaviour Environmental Profitable Negatively Online issues affect environment scams in general Damage a company © Andrew Newbound 2013 Management and Change Topic 2.4 © Andrew Newbound 2013 Internal influences Products Location Resources Management & Business Culture © Andrew Newbound 2013 External Influences Social Legal Economic Political Technological Geographic Financial Competitive Situation Markets Institutional © Andrew Newbound 2013 The Change Process 1. Identifying the need for change 2. Setting achievable goals 3. Resistance to change 4. Management consultants © Andrew Newbound 2013 Business Information Systems Planned system Collect info from internal and external environments Store, process and disseminate date Form managers require © Andrew Newbound 2013 Setting Achievable Goals Preparing the workforce Decide what systems and procedures need to be implemented Break cultural change into manageable bits © Andrew Newbound 2013 Resistance to Change Financial costs Purchasing new equipment Redundancy payments Retraining Reorganising plant layout Inertia of managers/owners © Andrew Newbound 2013 Resistance to Change Cultural incompatibility in mergers and takeovers Staffing Deskilling Acquiring new skills Loss of career prospects © Andrew Newbound 2013 Management Consultants Possess greater understanding of ‘best practices’ within industry Best manage change Set out framework Meet objectives © Andrew Newbound 2013 Business Planning Topic 3 © Andrew Newbound 2013 Small to Medium Enterprises Topic 3.1 © Andrew Newbound 2013 Business Size ATO Micro Small • <5 • e.g. Rainbow’s edge • 5-<20 • Macquarie seafood Medium Large • 20-<200 • Salt Water Wine • 200+ • Coles © Andrew Newbound 2013 Business Size Small business Independent ownership and operations SME A business employing fewer than 15 employees © Andrew Newbound 2013 Role of SMEs Employment 99% of Australian workforce Retain during GFC Part of supply chain Meet needs of community Acutely aware Innovation Risk taking nature © Andrew Newbound 2013 Gross Domestic Product (GDP) Sum total value of goods and services produced in Australia in a year SMEs produce 58% © Andrew Newbound 2013 Success and/or failure of SMEs Fail Impact of economic conditions Lack of business skills Lack of capital Failure to keep proper books © Andrew Newbound 2013 Success and/or failure of SMEs 2009 = higher failure rate than 2008 Decline in consumer confidence GFC Inadequate Retail funds to repay liabilities is most susceptible Cut by consumers in economic weakness © Andrew Newbound 2013 Retained Profits Proportion of business’s profits kept within the business Not distributed to owners Promote growth © Andrew Newbound 2013 Influences in Establishing a Small to Medium Enterprise Topic 3.2 © Andrew Newbound 2013 Qualifications Recommended Certificate IV in small business management Diploma of business Bachelor of Business © Andrew Newbound 2013 Skills Interpersonal skills Vision Communication skills to communicate vision to others © Andrew Newbound 2013 Motivation Desire/willingness to do something Work within the business comes easier Maximise productivity of other co-workers © Andrew Newbound 2013 Entrepreneur Organises and operates a business Prepared to take greater than normal financial risks High risk = high return © Andrew Newbound 2013 Entrepreneurship Sets realistic goals •Attempts to achieve them Confident in own ability Makes decision, carries them out Takes moderate risks Good physical health Motivated by achievement, not money Desires responsibility Emotionally stable High levels of energy Strong drive Basic desire to control and direct Skilled organiser Tolerates failure Works well with people © Andrew Newbound 2013 Entrepreneurship Willingness and ability to turn ideas and capabilities into reality Entrepreneur Identifies a need Develops the idea Takes risks Develops strategies Is motivated © Andrew Newbound 2013 Entrepreneur Persistent Committed Patient Positive Optimistic Works long hours Active Hard working Practical Reliable Helpful Organised Motivated Versatile Flexible Efficient Dependable © Andrew Newbound 2013 Entrepreneur Experienced Realistic Dynamic Responsible Problem Determined solver Punctual Quick thinker Self confident Has integrity Thorough © Andrew Newbound 2013 Cultural Background Ideas, customs may lead down path Expectations of individual within culture © Andrew Newbound 2013 Gender Influence Business women opportunities accessible to Ecommerce Retail Hospitality Health roles Children Hair dressing © Andrew Newbound 2013 Sources of Information Federal • Advice • Grants • Ideas • Raising of finance State • Advice • Registration • Loan finder • Checklists • Grants • ‘Tech Vouchers’ Local • Training • Info about Port Macquarie © Andrew Newbound 2013 Competition Several businesses try to meet customer needs more effectively than rivals Type of market ‘mass’ broad market ‘niche’ specialised market How to make business competitive Develop customer base Gain market share from competitors © Andrew Newbound 2013 Establishment Options – New Advantages •Cheap •Innovation •Flexibility •Grants Disadvantages •Lack of goodwill •Harder to get money •Time to build business © Andrew Newbound 2013 Establishment Options – Existing Advantages • Known practices • Room for innovation • Brand recognition • Client base • Control • Equipment • Knowledge from current owners Disadvantages • Costly • Resistance to change • Staff entitlements • Loyalty to previous owner • Not as competitive © Andrew Newbound 2013 Establishment Options – Franchise Advantages • Support • Brand recognition • Competitive • Supply of equipment Disadvantages • Inflexible • No innovation • Royalties © Andrew Newbound 2013 Goodwill The value of the reputation of a business Difference between total value of assets and the sale price of the business © Andrew Newbound 2013 Existing Business Advice Thoroughly Work in business Finances check operations more likely to lend Access to financial records Goodwill may be associated with owner, not business Intellectual property Any invention/creation of the owner considered to be their property © Andrew Newbound 2013 Franchise Equipment Supplies Training Ongoing management assistance Collective buying power Brand recognition © Andrew Newbound 2013 Competitive advantage Marketing Differentiation of product Unique brand Loyalty © Andrew Newbound 2013 Location – Visibility Attract passing trade Easy to find for customers and suppliers More important for retail than manufacturing © Andrew Newbound 2013 Location – Cost Purchase vs lease premises Areas with higher lease/rend Lease Tax deductable Negative impact on cash flow © Andrew Newbound 2013 Location – Proximity to Suppliers Cost of transport Timing of delivery of stock Proximity to customers Accessible to target market © Andrew Newbound 2013 Location – Proximity to Support Services Activities needed to assist core operations/prime functions of business Outsourcing of various functions Accountant Marketing specialist Access to technology Internet reduces importance of this © Andrew Newbound 2013 Finance Sources Banks, NBFIs Investors Personal savings Family and friends Grants Stock exchange © Andrew Newbound 2013 Cost of Borrowing Interest you pay © Andrew Newbound 2013 Zoning Not all businesses are permitted in all locations Environmental Act Particularly important for home businesses © Andrew Newbound 2013 Training Employees well gain skills needed to do job More productive employees Further profitability Enhancing business’ competitive position © Andrew Newbound 2013 Wage and non-wage outcomes Wage Annual salary Non-wage Other financial benefits Superannuation Annual leave loading Fringe benefits © Andrew Newbound 2013 Taxation – Federal Taxes Company tax PAYE tax ‘Pay as you Earn’ income tax on employees Forwarded by businesses to Fed. Gov. GST 30% tax levied on the business’ profit Imposed on most private consumption (10%) FBT (Fringe Benefits Tax) Applied to non-wage benefits © Andrew Newbound 2013 Taxation – State Taxes Payroll Payed by employers whose payroll >$50k Land tax tax A tax payed of 1.6% of the value of the land of all land owners in NSW © Andrew Newbound 2013 Taxation – State Taxes Superannuation 9% of the salary paid into a complying fund Registered with the Insurance and Superannuation Commission Leave loading 17.5% on top of the employee’s salary for prescribed period of leave © Andrew Newbound 2013 Superannuation Quarterly contribution of 9% Workers <70 years $450+ per month Full time workers © Andrew Newbound 2013 The Business Planning Process Topic 3.3 © Andrew Newbound 2013 SWOT Strengths Weaknesses • What a business is capable of doing • What a competitor does better Opportunities • A set of circumstances that allow something to be improved Threats • The obstacles a business faces in the external environment © Andrew Newbound 2013 Vision Ideal of what a business will look like if all goes to plan 3-5yr period © Andrew Newbound 2013 Long Term Growth High growth • Less market for older investors High dividends • Detrimental to business © Andrew Newbound 2013 Vision & Mission Statements Vision Statement • Business aspires to become • Future orientated Mission statement • Why a business exists • Purpose • Function © Andrew Newbound 2013 Organising Operations What tasks need to be done? What equipment and skills will employees need? Which workers will do these tasks? How will the workers doing particular tasks be grouped? Who will supervise the workers or will we use selfmanaging teams? © Andrew Newbound 2013 Market Analysis Determining whether a business has sufficient potential market in order to succeed without being squeezed out of the market External influences © Andrew Newbound 2013 Sales Forecasting Similar business as guide How much consumers are likely to spend on products or a competitor’s Estimation of daily sales x30 © Andrew Newbound 2013 4P’s Product Price Promotion Place © Andrew Newbound 2013 Market Analysis Market size • Present and potential sales Market growth rate • How much it is growing by Market profitability • Are existing businesses profitable? Industry cost structure • Costs in existing businesses © Andrew Newbound 2013 Market Analysis Distribution channels • The new or existing ways a business can distribute a product to gain a competitive advantage Market trends • How the market is changing both based on industry and region Key success factors • Elements that are necessary in order for a firm to achieve its marketing objectives © Andrew Newbound 2013 Key Success Factors Access to resources Economies of scale Access to distribution channels Technological progress © Andrew Newbound 2013 Forecasting Giving managers the best possible information they need to make the best possible decisions in an uncertain environment 𝑇𝑜𝑡𝑎𝑙 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 = 𝑃𝑟𝑖𝑐𝑒 × 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 = 𝐶𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 × 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 © Andrew Newbound 2013 Break-even Analysis Break-even • A state where 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 = 𝑐𝑜𝑠𝑡𝑠 • No gain, no loss Total revenue • Amount of money brought into a business through the sale of its products Total costs • Amount of money the production consumed for a business © Andrew Newbound 2013 Break-even Analysis Fixed costs • Do not reflect the total level of sales Variable costs • Change proportionately with the quantity of sales made 𝐵𝑟𝑒𝑎𝑘 − 𝑒𝑣𝑒𝑛 𝑝𝑜𝑖𝑛𝑡 𝑇𝑜𝑡𝑎𝑙 𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠 = 𝑢𝑛𝑖𝑡 𝑝𝑟𝑖𝑐𝑒 − 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 © Andrew Newbound 2013 Cash Flow Projections Forecasting of the quantity of finances moving from one aspect of a business to another Set out basic cash requirements © Andrew Newbound 2013 Cash Flow Management Credit policy Generous discounts to customers who pay early Link periods of surplus with large, fixed payments © Andrew Newbound 2013 Sales Reports Sales analysis • Insight into market trends • Create most profitable mix of products Market share analysis • Comparison between businesses based on performance • Meeting needs as good/better than competitors Profitability analysis • Profit performance of various aspects of the busines © Andrew Newbound 2013 Budgets Form of highly effective control Determine how successful a business’ plans are © Andrew Newbound 2013 Taking corrective action Establish goals and objectives Take corrective action Monitor performance • What is happening? Evaluate performance • Is what is happening good or bad? Why is it happening? © Andrew Newbound 2013 Corrective Action Reports Prevent Repeat mistakes Loss of customers Dissatisfied customers Poor quality products Unhappy staff © Andrew Newbound 2013 Corrective Action Reports Better staff morale Reason for new customers © Andrew Newbound 2013 The Business Plan Executive Summary & Overview Operations plan Daily operations Systems & Procedures Physical Layout Organisational structure © Andrew Newbound 2013 The Business Plan Marketing plan Market research and target market Sales Objectives Analysis of competition Marketplace potential Marketing strategy and promotional activities © Andrew Newbound 2013 The Business Plan Financial plan Set-up Cost Cash flow Forecast Record-keeping systems Assets and Liabilities © Andrew Newbound 2013 Critical Issues in Business Success and Failure Topic 3.4 © Andrew Newbound 2013 Business Plan - Components Executive Summary Marketing Financial Human Resources © Andrew Newbound 2013 Business Plan – Types Start-up Growth Strategic Feasibility © Andrew Newbound 2013 Management -Staffing Impact upon costs, costs through profits Overall productivity Teams Employees feel a more significant component of business success © Andrew Newbound 2013 Trend Analysis Effective management Gauge past events Market segmentation Rapid response to issues © Andrew Newbound 2013 Over-extension Holding too much stock Investing too much in plant & machinery Spending heavily on advertising Without results Too many staff © Andrew Newbound 2013 Over-extension Borrowing too much capital Highly geared Failing to collect money owing Excessive drawings © Andrew Newbound 2013 Finance Advice Use personal savings Lack of finances No debt servicing costs Primary reason for failure Under capitalisation Loan requirements 3 years financial statements Tax returns Business plan Sales projections © Andrew Newbound 2013 Finance Advice Budgeting Sufficient income Check industry average Business is vital plan Effective management of savings © Andrew Newbound 2013 Avoid Overextending Financially Business planning Cash flow projections Establishment costs Budgets Financial statements Business goals and objectives Avoiding financing overdependence on debt Avoid problems in weak economy © Andrew Newbound 2013 Avoid Overextending Financially Long term financial planning Anticipates future problems Plan future direction Growth Start and expansion small Expand slowly © Andrew Newbound 2013 E-Business Using internet to conduct business Find information Communicate via email Online working, paying accounts Research market conditions, industry trends, economic forecasts Markets goods and services via its website Lodge forms, apply for licences © Andrew Newbound 2013 E-Commerce Buying and selling of goods and services via the internet © Andrew Newbound 2013
