Business Studies Preliminary Notes
Rayman Singh
TABLE OF CONTENTS
1.
THE ROLE OF BUSINESS .......................................................................................................................................................... 4
1.1.
PRODUCING GOODS AND SERVICES ..................................................................................................................................... 4
1.2.
PROFIT, EMPLOYMENT , INCOMES, CHOICE, INNOVATION, ENTREPRENEURSHIP AND RISK, WEALTH AND QUALITY OF LIFE .................... 4
2.
2.1.
TYPES OF BUSINESS .............................................................................................................................................................. 5
CLASSIFICATION OF BUSINESS ........................................................................................................................................... 5
2.1.1.
SIZE (SMALL TO MEDIUM ENTERPRISES , LARGE) ............................................................................................................. 5
2.1.2.
MARKET SHARE (LOCAL, NATIONAL AND GLOBAL ) ............................................................................................................ 5
2.1.3.
I NDUSTRY ................................................................................................................................................................. 5
2.1.4.
LEGAL STRUCTURE ..................................................................................................................................................... 6
2.2.
FACTORS INFLUENCING CHOICE OF LEGAL STRUCTURE – SIZE, OWNERSHIP, FINANCE .................................................................... 6
2.2.1.
SIZE OF THE BUSINESS ................................................................................................................................................ 6
2.2.2.
OWNERSHIP ............................................................................................................................................................. 6
2.2.3.
FINANCE .................................................................................................................................................................. 7
3.
I NFLUENCES IN THE BUSINESS ENVIRONMENT ............................................................................................................................ 8
3.1.
EXTERNAL INFLUENCES ..................................................................................................................................................... 8
3.2.
I NTERNAL I NFLUENCES ................................................................................................................................................... 13
3.3.
STAKEHOLDERS ............................................................................................................................................................. 13
3.3.1.
SHAREHOLDERS ....................................................................................................................................................... 13
3.3.2.
MANAGERS ............................................................................................................................................................ 14
3.3.3.
EMPLOYEES ............................................................................................................................................................ 14
3.3.4.
CUSTOMERS ........................................................................................................................................................... 14
3.3.5.
SOCIETY ................................................................................................................................................................. 14
3.3.6.
E NVIRONMENT ........................................................................................................................................................ 14
4.
BUSINESS GROWTH AND DECLINE ......................................................................................................................................... 14
4.1.
STAGES OF THE BUSINESS LIFE CYCLE ................................................................................................................................ 15
4.2.
RESPONDING TO CHALLENGES AT EACH STAGE OF THE BUSINESS LIFE CYCLE ............................................................................. 15
4.3.
FACTORS THAT CAN CONTRIBUTE TO BUSINESS DECLINE ....................................................................................................... 15
4.4.
VOLUNTARY AND INVOLUNTARY CESSATION - LIQUIDATION ................................................................................................... 15
5.
NATURE OF MANAGEMENT .................................................................................................................................................. 16
5.1.
FEATURES OF EFFECTIVE MANAGEMENT ............................................................................................................................ 16
5.2.
SKILLS OF MANAGEMENT ................................................................................................................................................ 17
6.
ACHIEVING BUSINESS GOALS ............................................................................................................................................... 17
6.1.
BUSINESS GOALS .......................................................................................................................................................... 17
6.2.
STAFF I NVOLVEMENT ..................................................................................................................................................... 17
6.2.1.
I NNOVATION ........................................................................................................................................................... 18
6.2.2.
MOTIVATION .......................................................................................................................................................... 18
Business Studies Preliminary Notes
Rayman Singh
6.2.3.
MENTORING ........................................................................................................................................................... 18
6.2.4.
TRAINING ............................................................................................................................................................... 18
7.
MANAGEMENT APPROACHES ............................................................................................................................................... 18
7.1.
CLASSICAL APPROACH TO MANAGEMENT .......................................................................................................................... 18
7.1.1.
MANAGEMENT AS PLANNING, ORGANISING AND CONTROLLING ........................................................................................ 19
HIERARCHICAL ORGANISATION STRUCTURE ........................................................................................................................................ 19
7.1.2.
AUTOCRATIC LEADERSHIP STYLES ................................................................................................................................ 19
7.2.
BEHAVIOURAL APPROACH ............................................................................................................................................... 20
7.2.1.
MANAGEMENT AS LEADING , MOTIVATING AND COMMUNICATING ..................................................................................... 20
7.2.2.
TEAMS .................................................................................................................................................................. 20
7.2.3.
PARTICIPATIVE / DEMOCRATIC LEADERSHIP STYLE .......................................................................................................... 21
7.3.
CONTINGENCY APPROACH .............................................................................................................................................. 21
7.3.1.
8.
ADAPTING TO CHANGING CIRCUMSTANCES ................................................................................................................... 22
MANAGEMENT PROCESS ..................................................................................................................................................... 22
8.1.
COORDINATING KEY BUSINESS FEATURES AND RESOURCES .................................................................................................... 22
8.2.
OPERATIONS ................................................................................................................................................................ 22
8.2.1.
GOOD AND/OR SERVICE ............................................................................................................................................ 22
8.2.2.
THE PRODUCTION PROCESS ....................................................................................................................................... 22
8.2.3.
QUALITY MANAGEMENT ............................................................................................................................................ 25
8.2.3.1.
QUALITY CONTROL ............................................................................................................................................. 25
8.2.3.2.
QUALITY ASSURANCE .......................................................................................................................................... 26
8.2.3.3.
TOTAL QUALITY MANAGEMENT / IMPROVEMENT ...................................................................................................... 26
8.3.
MARKETING ................................................................................................................................................................. 26
8.3.1.
IDENTIFICATION OF THE TARGET MARKET ..................................................................................................................... 27
8.3.2.
MARKETING MIX ..................................................................................................................................................... 27
8.4.
FINANCE ..................................................................................................................................................................... 28
8.4.1.
CASH FLOW STATEMENT ........................................................................................................................................... 28
8.4.2.
I NCOME STATEMENT ................................................................................................................................................ 29
8.4.3.
BALANCE SHEET ...................................................................................................................................................... 30
8.5.
HUMAN RESOURCES...................................................................................................................................................... 30
8.5.1.
RECRUITMENT / ACQUISITION ................................................................................................................................... 30
8.5.2.
TRAINING / DEVELOPMENT ....................................................................................................................................... 31
8.5.3.
EMPLOYMENT CONTRACTS / MAINTENANCE ................................................................................................................. 31
8.5.4.
SEPARATION – VOLUNTARY
8.6.
9.
/ INVOLUNTARY .................................................................................................................. 32
ETHICAL BUSINESS BEHAVIOUR ........................................................................................................................................ 33
MANAGEMENT AND CHANGE ............................................................................................................................................... 33
9.1.
RESPONDING TO INTERNAL AND EXTERNAL INFLUENCE ......................................................................................................... 33
9.2.
MANAGING CHANGE EFFECTIVELY OPERATIONS .................................................................................................................. 33
9.2.1.
IDENTIFYING THE NEED FOR A CHANGE......................................................................................................................... 33
9.2.2.
SETTING ACHIEVABLE GOALS ...................................................................................................................................... 33
9.2.3.
RESISTANCE TO CHANGE ........................................................................................................................................... 33
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9.2.4.
10.
Rayman Singh
MANAGEMENT CONSULTANTS.................................................................................................................................... 34
SMALL TO MEDIUM E NTERPRISES (SMES) ........................................................................................................................ 34
10.1.
DEFINITION OF SMES .............................................................................................................................................. 34
10.2.
ROLE OF THE SME’S ................................................................................................................................................ 34
10.3.
ECONOMIC CONTRIBUTION OF SMES ......................................................................................................................... 34
10.4.
SUCCESS AND / OR FAILURE ......................................................................................................................................... 34
11.
I NFLUENCES IN ESTABLISHING A SMALL TO MEDIUM ENTERPRISE ............................................................................................ 35
11.1.
PERSONAL QUALITIES ............................................................................................................................................... 35
11.2.
SOURCES OF INFORMATION ....................................................................................................................................... 35
11.3.
THE BUSINESS IDEA ................................................................................................................................................. 35
11.4.
ESTABLISHMENT OPTIONS ......................................................................................................................................... 36
11.5.
MARKET CONSIDERATION ......................................................................................................................................... 36
11.5.1.
GOODS AND/OR SERVICES ......................................................................................................................................... 36
11.5.2.
PRICE .................................................................................................................................................................... 36
11.5.3.
LOCATION .............................................................................................................................................................. 37
11.6.
FINANCE ................................................................................................................................................................ 37
11.6.1.
DEBT FINANCE ........................................................................................................................................................ 37
11.6.2.
EQUITY FINANCE ..................................................................................................................................................... 37
11.6.3.
COST OF FINANCE.................................................................................................................................................... 37
11.7.
LEGAL CONSIDERATIONS AND INFLUENCE OF GOVERNMENT ON SMES ............................................................................... 38
11.7.1.
BUSINESS NAME ...................................................................................................................................................... 38
11.7.2.
Z ONING ................................................................................................................................................................. 38
11.7.3.
HEALTH REGULATIONS ............................................................................................................................................. 38
11.7.4.
OTHER REGULATIONS ............................................................................................................................................... 38
11.8.
HUMAN RESOURCES ................................................................................................................................................. 38
11.8.1.
SKILLS ................................................................................................................................................................... 38
11.8.2.
COSTS – WAGE AND NON-WAGE ................................................................................................................................ 38
11.9.
TAXATION .............................................................................................................................................................. 39
11.9.1.
FEDERAL AND STATE TAXES ........................................................................................................................................ 39
11.9.2.
LOCAL GOVERNMENT RATES AND CHARGES ................................................................................................................... 39
12.
THE BUSINESS PLANNING PROCESS .................................................................................................................................. 40
12.1.
SOURCES OF PLANNING IDEAS ................................................................................................................................... 40
12.1.1.
SITUATIONAL (SWOT) ANALYSIS ............................................................................................................................... 40
12.2.
VISION, GOALS AND /OR OBJECTIVES ........................................................................................................................... 40
12.2.1.
VISION .................................................................................................................................................................. 40
12.2.2.
GOALS AND /OR OBJECTIVES ....................................................................................................................................... 40
12.2.3.
LONG TERM GROWTH ............................................................................................................................................... 40
12.3.
ORGANISING RESOURCES .......................................................................................................................................... 40
12.4.
F ORECASTING ......................................................................................................................................................... 41
12.4.1.
TOTAL REVENUE AND TOTAL COST .............................................................................................................................. 41
12.4.2.
BREAK – EVEN ANALYSIS ........................................................................................................................................... 41
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Business Studies Preliminary Notes
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12.4.3.
CASH FLOW PROJECTIONS ......................................................................................................................................... 41
12.5.
MONITORING AND EVALUATING ................................................................................................................................. 41
12.5.1.
SALES .................................................................................................................................................................... 42
12.5.2.
BUDGET ................................................................................................................................................................. 42
12.5.3.
PROFITS ................................................................................................................................................................. 42
12.6.
TAKING CORRECTIVE ACTION – MODIFICATION .............................................................................................................. 42
13.
CRITICAL ISSUES IN BUSINESS SUCCESS AND FAILURE ............................................................................................................ 42
13.1.
IMPORTANCE OF A BUSINESS PLAN .............................................................................................................................. 42
13.2.
MANAGEMENT (STAFFING AND TEAMS ) ....................................................................................................................... 42
13.3.
TREND ANALYSIS ...................................................................................................................................................... 43
13.4.
IDENTIFYING AND SUSTAINING COMPETITIVE ADVANTAGE ................................................................................................ 43
13.5.
AVOIDING OVEREXTENSION OF FINANCE AND OTHER RESOURCES ...................................................................................... 43
13.5.1.
OVEREXTENSION OF OTHER RESOURCES ........................................................................................................................ 43
13.6.
USING TECHNOLOGY ................................................................................................................................................ 43
13.7.
ECONOMIC CONDITIONS ........................................................................................................................................... 44
13.7.1.
ECONOMIC CONDITIONS THAT PROMOTE BUSINESS SUCCESS ............................................................................................ 44
13.7.2.
ECONOMIC CONDITIONS THAT PROMOTE BUSINESS FAILURE ............................................................................................ 44
1. THE ROLE OF BUSINESS
1.1. PRODUCING GOODS AND SERVICES
Production: refers to activities undertaken by the business that combines the resources to create products that
satisfy customers’ needs and wants
1.2. PROFIT, EMPLOYMENT, INCOMES, CHOICE, INNOVATION, ENTREPRENEURSHIP AND RISK, WEALTH AND QUALITY
OF LIFE

Wealth  Wealth measures the value of all the assets of worth owned by a person, community,
company or country. Wealth is determined by taking the total market value of all physical and
intangible assets owned, then subtracting all debts. Essentially, wealth is the accumulation of
resources. Business activity results in higher levels of economic growth and wealth

Quality of life  Quality of life refers to the overall wellbeing of an individual and is a combination of
both material and non-material benefits. businesses offer a vast array of products that improve our
standard of living

Profit  Profit is what remains after all business expenses have been deducted from the business’s
sales revenue. this is the return, or reward, that business owners receive for producing products that
consumers need and want

Employment  An individual who works part-time or full-time under a contract of employment.
businesses provide about 80% of a private sector jobs

Incomes For an individual income is the amount of money received for providing his or her labour.
Businesses provide income to business owners / shareholders and employees
wage: money received by workers, usually on an hourly or daily basis, for
services they provide to an employer
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• salary: a fixed regular payment, usually paid on a fortnightly or monthly basis but
often expressed as an annual sum, made to a permanent employee of a business

Choice  Choice is the act of selecting among alternatives. Consumers have freedom of choice and the
opportunity to purchase products at competitive rates

Innovation  Innovation is either creating a new product, service or process, or significantly improving
an existing one. through research and development, existing products are improved, and new products
are created

Entrepreneurship and risk  Entrepreneurship is the ability and willingness to start, operate and
assume the risk of a business venture in the hope of making a profit. businesses provide individuals
with the opportunity to turn their ideas and passions into a livelihood
2. TYPES OF BUSINESS
2.1. CLASSIFICATION OF BUSINESS
2.1.1. SIZE (SMALL TO MEDIUM ENTERPRISES , LARGE)
o
Size is determined by:
 The number of employees
 Mirco: 1 - 5
 Small: 5 -19
 Medium: 20 - 199
 Large: 200 +
 The number of owners
 Market share
 Legal structure
2.1.2. MARKET SHARE (LOCAL, NATIONAL AND GLOBAL )
Local


Very limited geographical spread
Majority tend to be small to
medium
(eg) newsagent, corner store
National
 Operates within one country
(eg) coles, sportsgirl, david jones,
woolworths
Global (multinational corporation)

Has branches in many different
countries
 TNC (transnational corporation)
(eg) Coca - cola, McDonalds,
2.1.3.INDUSTRY
INDUSTRY
Primary
Secondary
Tertiary
Quaternary
Quinary
ROLE
Involved in the collection of natural resources
Industries that take the output of firms in the primary
sector and process it into finished or semi-finished
products
Provide a service
Services that involve the transfer and processing of
information and knowledge
Services that have traditionally be performed in the home
EXAMPLE
Farming, mining, fishing and forestry
Steel or car manufacturers
Retailers, transport, dentists, solicitors, banks,
museums and health workers
Telecommunications, property, computing, finance
and education
Hospitality, childcare
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2.1.4.LEGAL
2.1.5. STRUCTURE
Structure
Sole Trader
Role



Unincorporated company
Only 1 person providing finance
Legal entity  an individual, company or organisation that has legal rights and obligations
A: - low cost of entry / complete control
D: - personal liability for business debts
Partnership

Unincorporated company
A: - shared responsibility and workload
D: - personal unlimited liability / liabilities for all debts (including partner’s debts) even before
the partnership has begun
Private companies


Limited liability  shareholder’s liability is limited to only the business assets
Proprietary limited  ‘Pty Ltd’
A: - get to choose shareholders / unlimited liability
D: - process of incorporation  money and time / tax on company & personal
Public companies



Shares listed on the ASX
Manged by Board of Directors who appoint a CEO
A public company has:
o at least one shareholder, with no max number
o has ‘limited’ or ‘Ltd’ in its name
A: - limited liability  separate legal ability
D: - tax on company & personal
Government
Enterprises



Government – owned and operated (also known as GBEs)
GBEs can be local, state or federal
Privatisation: the selling of government controlled businesses to private investors
o 1990s  Qantas, Commonwealth Bank, Telstra
2.2. FACTORS INFLUENCING CHOICE OF LEGAL STRUCTURE – SIZE, OWNERSHIP, FINANCE
2.2.1. SIZE OF THE BUSINESS
o
Measurements which can be used to determine the size of a business include:
 The number of employees – those who are hired to do work for the business
 The number of owners
 Market share – the proportion of total market sales the business has compared to
competitors
 The legal structure – sale trader, partnership or company
2.2.2.OWNERSHIP
o
o
If a business owner wishes to have complete control and ownership of a business, then
becoming a sole trader is the only realistic option.
Once a company floats and sells shares to the public, ownership will be divided among
thousands of small, individual shareholders and a few institutional shareholders
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The degree of ownership, then, is directly related to the number of shares owned: more
shares, more ownership
Therefore, if the original owner/s wished to retain ownership and control of the business, they
would need to hold more than 50% of all the shares sold.
2.2.3. FINANCE
o
o
o
Sole traders and partnerships, because of their exposure to risk (unlimited liability) with few
business assets, can sometimes find it difficult to obtain adequate finance, especially for
research and development (R&D).
One possible source of finance for R&D is venture capital.
Venture capital is money that is invested in small and sometimes struggling businesses that
have the potential to become very successful. The investors take an equity position in the
business (own part of it) and provide supplementary finance.
All companies are incorporated enterprises or have gone through the process of incorporation. This means that the company has
become a separate legal entity from its owners (shareholders). The idea of a separate legal entity is referred to as
the ‘veil of incorporation’. This separate legal entity means that the company can sue and be sued; it can lease, sell or own
property; and it has perpetual succession (this means it will continue to exist even when the owners change). The process of
incorporation is governed by the Commonwealth Corporations Act 2001 and is administered by the Australian Securities and
Investments Commission (ASIC). For a business to become incorporated, a company name must be registered with ASIC, who will
issue a certificate of incorporation and an Australian Company Number (ACN). Directors must be appointed to run the company
on behalf of the owners. Once incorporated, the company has a separate legal entity to its owners, who are known as
shareholders (referred to in the Corporations Act as ‘members’). Incorporation also brings to the shareholders the benefits of
limited liability.
A proprietary (private) company is the most common type of company structure
in Australia, and usually has between two and 50 private shareholders. Private
companies often tend to be small to medium-sized, family-owned businesses.
Shares in a proprietary company are only offered to those people the business
wishes to have as part-owners. Shareholders can only sell their shares to people
approved of by the other directors. This is why such a company is called a ‘private’
company. It is not listed on, and its shares are not sold through a stock exchange.
A private company must have the words ‘proprietary limited’, abbreviated to ‘Pty
Ltd’, after its name. The main advantage of a private company is that shareholders
have limited liability protection.
One of the most difficult decisions a business owner must make is what type of
legal structure to select. This will depend on a number of particular circumstances
influencing the business at certain times. These factors will change as the business
expands. Therefore, the legal structure may need to be altered to reflect these
changing circumstances.
Of all the factors that influence the business owner when deciding upon the
most appropriate legal structure, the three most important are the:
1. size of the business
2. ownership
3. finances.
In reality, these three factors will all be interrelated and act together in influencing
the choice made by the business owner.
A float is the raising of capital in a company through the sale of shares to the public.
A prospectus is a document giving details of a company and inviting the public to buy shares in it.
If a business owner wishes to have complete control and ownership of a business,
then becoming a sole trader is the only realistic option. On the other hand, if
the owner wishes to share the ownership with other people, then a partnership
is the ideal legal structure. Of course, a private company would also allow the
owner to maintain a high degree of control and it would also offer the protection
of limited liability. This is because a private company structure provides the
owner with a large degree of control over who can become a shareholder of
the business. As well, in most cases the maximum number of shareholders is
restricted to 50.
Once a company floats and sells shares to the public, ownership will be divided
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Business Studies Preliminary Notes
Rayman Singh
among thousands of small, individual shareholders and a few institutional shareholders.
The degree of ownership, then, is directly related to the number of shares
owned: more shares, more ownership. Therefore, if the original owner/s wished to
retain ownership and control of the business, they would need to hold more than
50 per cent of all the shares sold.
3. INFLUENCES IN THE BUSINESS ENVIRONMENT
3.1. EXTERNAL INFLUENCES
Economic



refers to the national system that produces all goods and services
‘booms and busts’ / ‘peaks and troughs’
Economic cycles  the natural fluctuation of the economy between periods of expansion (growth) and
contraction (recession). Factors such as gross domestic product (GDP), interest rates, levels of
employment and consumer spending can help to determine the current stage of the economic cycle
Financial


There have been enormous changes in global financial markets over the past 30 years
Deregulation began in 1983
Geographic


Australia’s location in the Asia Pacific Region
o Especially in the growth of China
Changes in demographics
o Particularly the aging of the population
Impact of globalisation

Ability to respond to changes in tastes, fashions and culture.

Social
Rapid identification and response to changes in tastes, fashions and culture can lead to sales and profit opportunities,
and business growth. Failure to respond to social changes can threaten business stability and viability
e.g environmental awareness from customers / workplace diversity
Legal

Businesses must comply with regulations
o e.g taxation / workplace health and safety
Political

Government policies have an impact on a business:
o Free trade and removal of tariffs
o Deregulation and Privatisation
Institutional
Federal



Payment of taxes for
employees & for businesses
with company tax and GST
Provision of employee
superannuation
State



Workers compensation
Work health and safety
requirements
Payment of payroll taxes
Local



Approving new
development and
alterations
Fire regulations
Parking regulations
Regulatory Bodies
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o A regulatory body is one that is set up to monitor and review the actions of businesses
and consumers in relation to certain issues (such as advertising) and the appropriate
legislation.
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Business Studies Preliminary Notes
Technology



Rayman Singh
With appropriate technology, businesses can increase efficiency and productivity, create new
products and improve the quality and range of products and services.
Particularly important developments are:
o Robotics
o Telecommunication
o Internet and ecommerce
Rapid advances in information technology (IT) have reduced communications delays and allows
suppliers and customers to interact over great distances.
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Competitive situation
Rivalry in which every seller tries to get what other sellers are seeking at the same time: sales, profit, and
market share by offering the best practicable combination of price, quality, and service.
Factors influencing a business’s competitiveness
 Local and foreign competition
 Marketing strategies employed by competitors
 Number of competitors
 Easy of entry into a market for a new
business
Sustainable competitive
advantage
Each business aims to achieve a sustainable competitive advantage over its competition in order to capture
a larger portion of the market
 Sustainable competitive advantage
1. Number of The number of competitors refers to the size and number of firms that exist within an
competitors
industry.
1. Monopoly – complete concentration by one firm in the industry (e.g) Australia
Post
2. Oligopoly – where a small number of larger firms have a greater control over a
market (e.g) car manufacturers
3. Monopolistic competition – where there is a large number of buyers and
sellers in a particular market (e.g) retail shops, clothing
4. Perfect competition – where there is a large number of small firms that sell
similar products  must use price to differentiate (e.g) fruit and vegetable
growers / sellers
2. Easy of
The ability of a person (or persons) to establish a business within a particular industry.
entry
The ease of entry will be determined by the type of market concentration.
 When there are many small firms (perfect competition and monopolistic
competition), entry is not difficult as businesses are small and it is more
affordable for the business owner to gain some part of the market.
 When a few large firms dominate an industry (oligopolies), entry is difficult
 When only one firm (monopoly) dominates an industry, no competitors are
able to enter the market because the one firm has control over all resources
that are being sold
3. Local and
foreign
competitors
Markets
A business will be influenced by competition:
 Local - Produce or sell a good or service in the same market. Local competitors
must deal with the same variables as each other.
 Foreign - Located overseas or offshore. They sell their goods and services in
Australia and compete with local businesses.
Differentiating factors between local and foreign
 Labour costs
 Transport costs
 Cost of stoke / raw materials
4. Marketing A business will be influenced by the type of marketing measures taken by a competitor.
Strategies
(e.g) the business that uses television advertising extensively will have greater
exposure to the market than a business that relies on flyers or word of mouth.
The type and extent of marketing will depend on:
 The size of the market
 The size of the business
 Number of competitors
 The nature of the products
1. Changes in financial / capital markets
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2.
3.
Rayman Singh
Changes in labour markets
Changes in consumer markets
3.2. INTERNAL INFLUENCES
1. The type of goods and services produced will affect the internal operations of business
2. Product influence will be reflected in the type of business (service, manufacturer or retailer)
3. The size of the business, as previously mentioned, will be based on the range and type of goods and services
produced, the level of technology utilised, and the volume of goods and services produced
Location can make the difference between success and failure
 A good location is an asset and will lead to high levels of sales and profits
 A bad location is a liability to adversely affects sales and profit
Locating next to complementary businesses (one that sells a similar range of goods and services) may be beneficial
because more customers may be attracted to the single site
Location factors:
 Visibility
 Cost
 Proximity to suppliers / customers
Product
Location
Management
Resources
Business culture

Human Resources

Information Resources

Physical Resources

Financial Resources

These are the employees of the business and are generally its most important
asset
o Players
o Equipment managers
These resources include the knowledge and data required by the business such
as market research, sales reports, economic forecasts, technical material and
legal advice
o Musical scores
Include equipment, machinery, buildings and raw materials
o Musical instruments
Are the funds the business uses to meet its obligations to various creditors
o Budget from the school
Business culture can be seen in the unwritten or informal rules that guide how people in the organisation
behave
1. Values - (e.g) honesty, hard work, teamwork, quality customer, innovation
2. Symbols - These consist of events or objects that are used to represent something
3. Rituals, Rites and Celebrations - These are the routine behaviour patterns in a business’s everyday life
4. Heroes - Heroes are the business’s successful employees
3.3. STAKEHOLDERS
3.3.1. SHAREHOLDERS
Shareholders purchases shares in companies so they are partial owners
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A stakeholder is any group or individual who has an interest in or is affected by the activities of a business.
3.3.2. MANAGERS
Management has the responsibility of running a profitable or successful organisation
3.3.3. EMPLOYEES
Employees are vital to an organisation as they manufacture or produce the product the organisation sells
Employees will influence businesses since the quality of the product depends on their skill and commitment to
the process
3.3.4. CUSTOMERS
They are increasingly prepared to seek compensation if they believe they have either been unfairly treated or
purchased a product that did not perform as promised.
Consumer groups are also prepared to mount publicity campaigns aimed at embarrassing those businesses that
do not act ethically or responsibly.
o
Customers are responsible for the success or failure of businesses
3.3.5. SOCIETY
Customers care about social issues such as exploitation of workers
Members of the community increasingly expect organisations to show concern for the environment. Businesses
will participate in a range of community projects and activities
o (e.g) the body shop organises for its employees to assist with a local charity of their choice
3.3.6.
ENVIRONMENT
Growing pressure for businesses to adopt ecological sustainable operating practices
4. BUSINESS GROWTH AND DECLINE
Establishment


Growth


Maturity
Post - Maturity

To get the business on a solid foundation by generating enough
sales to create a positive cash flow
Small business, such as a sole trader or partnership, have
unlimited liability: that is, the business owner is personally
responsible for all the debts of his or her business
Accelerating growth
o Sales increase and the cash flow is normally positive
Growth and expansion can occur either through a merger or
acquisition (takeover)
o A merger occurs when the owners of two separate
businesses agree to combine their resources and
form a new organisation
o An acquisition occurs when one business takes
control of another business by purchasing a
controlling interest in it
In the maturity stage, the rate of growth slows and eventually
flattens out; an early warning sign of possible decline
1. Steady stage - the business continues to operate at the
level it has been during the maturity phase, business is
neither declining or expanding. It displays some of the
characteristics of a business in the maturity stage. One
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4.1. STAGES OF THE BUSINESS LIFE
CYCLE
2.
3.
significant difference, however, is that it does not
continue expenditure on research and development. The
owner is more content to produce what it has in the past
and rely on marketing replacement products.
Decline - Falling sales and profits ultimately resulting in
business failure
Renewal - increasing sales and profits due to
4.2. RESPONDING TO CHALLENGES AT EACH STAGE OF THE BUSINESS LIFE
CYCLE
4.3. FACTORS THAT CAN CONTRIBUTE TO BUSINESS DECLINE
Main two causes:







Lack of management expertise
Lack of sufficient money (undercapitalisation; occurs when there is a lack of sufficient funds to operate a
business normally)
Ignorance of existing competition
Failure to plan
Poor location
Failure to price product correctly
Failure to adapt to changes in the externa environment.
Other causes:



Uncontrolled growth:
Lack of management skills
Poor location
4.4.
VOLUNTARY
AND
CESSATION - LIQUIDATION
INVOLUNTARY
Concept
Bankruptcy
Voluntary
Administration
Liquidation
What type of legal
structure does it apply to?
Sole trader
Partnership
Private
Public
Private
Public
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What is it?
Declaration that a business or
person is unable to pay his or
her debts
Employ experts to
manage business
more effectively
Sell everything to turn into cash. Turning assets into
cash.
The result of this action
All assets sold to pay debt. If
debt isn’t paid - go to personal
assets
Better management
and financial
examination
Trying to pay debts in cash from assets
Becomes insolvent: occurs when a company is not
able to pay its debts
Voluntary & Involuntary cessation
Voluntary - when the owner ceases to operate the business on their own terms.
E.g retirement of owner, inability to make a profit
Involuntary - When the owner is forced to cease the business by the creditors
E.g death of owner, bankruptcy
*Creditors are people/businesses who are owed money by a business*
LIQUIDATION - when a qualified person (liquidator) is appointed to take control of the business
with the intention of selling all company assets in a fair way to pay back creditors. Any surplus
after goes to the original owner.
BANKRUPTCY CAN BE EITHER VOLUNTARY OR INVOLUNTARY , WITH EITHER THE BUSINESS OWNER OR A CREDITOR APPLYING TO
A COURT FOR A BANKRUPTCY ORDER TO BE MADE . THE COURT THEN APPOINTS A REPRESENTATIVE TO COLLECT ANY MONEY
OWED TO THE BUSINESS . THIS MONEY , ALONG WITH MONEY RAISED FROM THE SALE OF ANY ASSETS OF THE BUSINESS (AS
WELL AS SOME PERSONAL ASSETS OF THE OWNER), IS THEN DIVIDED BETWEEN THE CREDITORS . THE PROCESS OF CONVERTING
THE ASSETS OF A BUSINESS INTO CASH IS CALLED REALISATION .
A company in liquidation can also be in receivership. Receivership is where a
business has a receiver appointed by creditors or the Courts to take charge of the
affairs of the business. Unlike liquidation, though, the business may not necessarily
be wound up.
The main features of liquidation are that it:
• can be regarded as the equivalent of bankruptcy for a company (corporation)
• results in the life of a company coming to an end
• normally occurs because the company is unable to pay its debts as and when
they fall due – it has become insolvent.
(2) BUSINESS MANAGEMENT
5. NATURE OF MANAGEMENT
5.1. FEATURES OF EFFECTIVE MANAGEMENT

An effective manager needs to be good at:
o Planning: the preparation of a predetermined course of action for a business  refers to the
process of setting objectives and deciding on the methods to achieve them
o Organising: the structuring of the organisation to translate plans and goals into action
o Leading: the process of influencing or motivating people to work towards the achievement of the
organisation’s objectives
o Controlling: compares what we intended to happen with what has actually occurred
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5.2. SKILLS OF MANAGEMENT

Effective managers are those who:
(1) Possess a range of specific management skills
(2) Are able to use these skills in a number of different situation
(3) Require a wide range of technical, conceptual (thinking) and people skills
Skills
Interpersonal (people)
Communication
Strategic Thinking
Vision
Problem – Solving
Decision – making
Flexibility and
adaptability to change
Reconciling the conflict
interests of
stakeholders
Definition
Interpersonal skills centre on the ability to relate to people, being aware of and
appreciating their needs, and showing genuine understanding
Managers who are effective communicators and who are able to share their
thoughts and plans will find it easy to influence others
Miscommunication is to be avoided because it can lead to serious harm to the
business
Strategic thinking involves thinking about a business’s future direction and what
future goals the business wants to achieve
Managers must be able to provide a vision as to where the business is headed and
what it is trying to achieve
Managers must be able to solve problems → finding and then implementing a
course of action to correct an unworkable situation
Managers must be able to make decisions → identifying the options available and
then choosing a specific course of action to solve the specific problem
Managers must be flexible, adaptable and proactive rather than reactive
The triple bottom line refers to the economic, social and environmental
performance of a business
Reconciling the conflicting interests of stakeholders requires competent, informed,
ethical and socially responsible managers
6. ACHIEVING BUSINESS GOALS
6.1. BUSINESS GOALS
Goals
Profits
Definition

Profit maximisation occurs when there is a maximum difference between
total revenue (TR) and total costs (TC)
TOTAL SALES X PRICE = TOTAL REVENUE (TR)
TOTAL EXPENSES INCURRED IN OPERATING THE BUSINESS = TOTAL COSTS (TC)
PROFIT = TR - TC
MAXIMUM PROFIT = TR AT MAXIMUM DIFFERENCE FROM TC
Market Share
Growth
Share Price
Social
Environment
Market share refers to the business’s share of the total industry sales for a
particular product
A business can maximise growth either internally (organically) or externally
Companies need to satisfy their shareholders by improving the share price and
paying healthy dividends
Many businesses develop social and environmental goals and adopt strategies that
will benefit the community
There are three main social goals a business attempts to achieve:
 Community service
 Provision of employment
 Social justice
Enlightened businesses are adopting sustainable development practises
Most business goals are interdependent, that is, they all help the business
achieve its prime function. Some goals are compatible in the sense that certain
strategies implemented by the business in pursuit of a particular goal will actually
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assist in achieving multiple goals. For example, strategies employed by a business
to achieve the goal of maximising growth may simultaneously help that business
achieve the goals of maximising profits and increasing market share.
6.2. STAFF INVOLVEMENT
One important goal that all businesses should give a high priority to achieving is
that of staff involvement. Sometimes referred to as employee empowerment or
employee participation, staff involvement means involving employees in the
decision-making process and giving them the necessary skills and rewards.
Employees are a business’s most important resource. It is important to recruit
and select appropriate employees. It is then vital to provide a work environment
that maximises employee involvement and satisfaction because this results in high
levels of output. Therefore, managers should pursue workplace practices that
increase labour productivity. Policies that recognise the involvement, knowledge,
skills and creativity of the employees will lead to increased productivity and long term
business success.
6.2.1.
o
o
INNOVATION
Businesses should encourage an innovative business culture by recognising and encouraging
one of the most important sources of innovative ideas: employees
An intrapreneur is an innovation employee who takes on the entrepreneurial roles within a
business
6.2.2. MOTIVATION
o
6.2.3.
o
6.2.4.
o
Motivation refers to the individual, internal process that directs, energises and sustains a
person’s behaviour
MENTORING
Teaching new employees what the business expects of them helps strengthen their dedication
and commitment to the business
TRAINING
Employee training generally refers to the process if teaching staff how to perform their job
more efficiently and effective by boosting their knowledge and skills
7. MANAGEMENT APPROACHES
CLASSICAL APPROACH TO MANAGEMENT
The classical approach to management stresses how best to manage and organise workers to improve
productivity (output).


The classical - scientific approach led to the development of assembly line, mass - production
techniques
A classical - bureaucratic approach to management, pioneered by Max Weber and Henri Fayol,
advocated:
Classical Theory- Summary
Theory/Theorists
Management Functions
Organisational Structure
Leadership Styles
Strengths and weaknesses of the
approach
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-
Includes, planning a
predetermined
course of action.
Organising: a range
of activities that
translate goals into
reality
Controlling: compare
what was intended to
happen with what
has actually
happened.
Fedrick taylor
and the Classical
Approach.
-
Rayman Singh
-
-
-
-
-
-
Strict hierarchical
organisational
structure
Clear lines of
communication and
responsibility
Jobs broken down
into simple tasks
(specialisation)
Cleary define jobs
Rules and procedures
Discipline as a feature
of leadership
Organisational goals
should take precedent
over an employee’s
individual interests.
Rewards for effort
should be fair
Security of
employment is
essential
Teamwork should be
encouraged
No biased in
workplace
-
-
A chain of command
that shows who is
responsible for whom.
Centralised control with
all strategic decisions
made by senior
management.
STREGNTHS
Shorter time to make
decisions
Could lead to improved
efficiency
Increased productivity
Clear chain of command
Autocratic,
WEAKNESSESS
Specialisation and
repetitive tasks could
lead to employee
boredom
Less job satisfaction,
which could lead to
increased turnover
Can discourage
creativity and
innovation
Organisation becomes
inflexible and less able
to adapt to changing
conditions
7.1.1. MANAGEMENT AS PLANNING, ORGANISING AND CONTROLLING
Functions
Planning
Definition
Strategic planning (long - term): following 3 - 5 years → assist in determining where
in the market the business wants to be, and what the business wants to achieve in
relation to its competitors
Tactical planning (medium - term): flexible, adaptable planning, usually over 1 - 2
years, that assists in implementing the strategic plan → allows business to respond
quickly to change
Organising
Controlling
Operational planning (short - term): provides specific details about the way in which
the business will operate in the short term. Management controls the day - to - day
operations that contribute to achieving short - term actions and goals
a range of activities that translate goals into reality
compares what was intended to happen with what has actually occurred
HIERARCHICAL ORGANISATION STRUCTURE

The traditional hierarchical organisational structure has people grouped according to the specialised
functions they perform

Specialisation of labour: degree to
which tasks are divided into
separate jobs
Chain of command: is a system
that determines responsibility,
supervision and accountability of
members of the organisation

7.1.2.
AUTOCRATIC
LEADERSHIP STYLES
Motivates through threats and disciplinary action
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e.g; army officer  would adopt this management skill during military exercises
Advantages
Disadvantages
Directions and procedures are clearly defined and
there is less chance of uncertainty
Employees’ role and expectations are set out plainly,
so management can monitor their performance
No employee input allows, so ideas are not
encouraged or shares
It ignores the importance of employee morale and
motivation
7.2. BEHAVIOURAL APPROACH
Stresses that people (employees) should be the main focus of the way in which the business is organised
Behavioural theory summary
Theory/Theorists
Management Functions
Harvard professor Elton
Mayo (1880-1949) was the
founder of the Behavioural
Approach to management
-
-
-
Behavioural
approach to
management
stresses’ that
people
(employees)
should be the
main focus of the
way in which the
business is
organised.
Believe that
successful
management
depends largely
on the managers
ability to
understand and
work with diverse
backgrounds,
desires, hopes
and expectations.
-
Management as
leading. Having a
influential role in the
organisation.
Management as
motivating.
Management
motivated the staff to
do better.
Management as
communicating.
Workers respond
positively to being
provide with relevant
information.
Organisational Structure
Teams
Teamwork involves people who
interact regularly and coordinate their
works towards a common goal.\this
allows them to have a flatter
organisational structure.
Leadership Styles
Participative or
democratic
leadership style
Laisse fiacre
Strengths and weaknesses
of the approach
STREGNTHS
Worker
recognition and
appreciation
should lead to
increased
motivations
Improved
relationship
between
managers and
staff
Increased
empowerment
of employees –
can take
ownership of
their work
WEAKNESSESS
Lack of control
Powerful
people can
disrupt the
process
It’s difficult to
accurately
predict
employee
behaviour
Communication
can often be so
large that
confusion may
arise
Humanistic approach –
employees are the most
important resource
Economic and social needs
of employees should be
satisfied
Employees participation in
decision making
Team based structure
7.2.1. MANAGEMENT AS LEADING , MOTIVATING AND COMMUNICATING
o
o
o
7.2.2.
o
o
o
Leading: having a vision of where the business should be in the long and short term
Motivating: energising and encouraging employees to achieve the business’s goals
Communicating: exchanging information between people; the sending & receiving of
messages
TEAMS
Well-functioning teams can produce superior performance
Managers require a good understanding of team / group dynamics
The development of work teams has resulted in flatter organisational structures
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7.2.3. PARTICIPATIVE / DEMOCRATIC LEADERSHIP STYLE
7.3. CONTINGENCY APPROACH
The contingency management approach stresses the need for flexibility and adaptation of management
practises and ideas to suit a particular situation. Contingency stresses the need for flexibility and adaptations to
situation
Continually evolving and it frequently produces new ideas and theories.
Fiedler’s contingency approach. There is no single correct way to manage an organisation Identify best
management approach and the one is compatible with the business’s goals. Good relations between
management and employees are important – team approach.
Employee effectiveness is linked closely to those situations where the work task is clearly defined by
management and there is clear direction given to employees.
10 commandments for the modern manager
1.
Share your vision with all relevant stakeholders
2.
Manage the relationships and the coalitions, not the employees
3.
Manage our emotions and help others in the business to maintain and emotional balance.
4.
Lead rather than simply managing, by inspiring trust and motivation
5.
Leave to thrive on diversity, not conformity
6.
Cultivate the ability to changing circumstances
7.
Learn how to access and use appropriate and manage this knowledge effectively
8.
Be aware of how developments in technology can improve your effectiveness and efficiency.
9.
Recognise and use the experiences and expertise of all employees
10.
Encourage ethical behaviour in order to promote pride and commitment in employees.
Advantages
• Acknowledges the impact of changes in the business environment and enables businesses to be more flexible
in reacting to change
• Recognises that there are multiple approaches to management and there is not one best way
• Recognises that different situations demand different approaches
Disadvantages
• Adapting to constant changes in the business environment can be challenging for management
• The process of selecting alternative courses of action depending on the situation can be costly in terms of
time and money
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ADAPTING TO CHANGING CIRCUMSTANCES
o
Due to the unstable business environment, managers need to be flexible and borrow and
blend from wide range of management approaches
8. MANAGEMENT PROCESS
Strategies are a series of actions undertaken to achieve specific goals.
The four key business function include operations, marketing, finance, and human resources
The key business functions are interdependent – each relies on the other to perform effectively.
All business functions should:
Work towards the fulfilment of the business goals
Be coordinated so they have a common purpose.
8.1. COORDINATING KEY BUSINESS FEATURES AND RESOURCES
The key business functions are interdependent → each relies on the other to perform effectively
 In large businesses, the key business functions are often separated into divisions or departments
 In small businesses, the key business functions are not separated but often overlap
8.2. OPERATIONS
Operations processes refers to the business processes that involve transformation or, more generally
‘’production’’. Operations focus on strategies to improve production processes and to create the ideal factory or
office layout
Operations management consists of all the activities in which managers engage to produce a good or service. It
is concerned with creating, operating and controlling a transformational process that takes inputs from a variety
of resources, and produces outputs of goods and services that are needed by customers


Price: the price you sell it for
Cost: How much it costs to produce
8.2.1. GOOD AND /OR SERVICE
A manufacturer will transform inputs into goods: tangible products. Tangibles are physical products that can
be handled and stored before they are sold to the consumer, such as bread, clothing or a car. The production
process and consumption are not linked; that is, there is little customer involvement in production. A service
organisation will transform inputs into services. Services are intangible, which means that they cannot be
touched. For example, if you attend a training course, you cannot physically touch it, but you hopefully benefit
from gaining knowledge and learning new skills. Services cannot be stored and the customer may actually
need to be present when the service is being delivered. For example, the customer must be present when
receiving a haircut. In reality, many businesses today produce a combination of both manufactured goods and
services. When you purchase a product such as a car or electronic equipment it often comes with a warranty
and other services. When a customer enters a contract with an internet provider, for example, they will
receive a service (their broadband connection), plus the modem and other goods necessary to enable the
connection.
1.1.1. THE PRODUCTION PROCESS
Process steps
Description
Inputs are the resources used in the transformation (production) process.
Inputs
Some resources are already owned by the business, while others come
from suppliers. Inputs differ between manufacturing businesses and
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service businesses. Inputs may be divided into those that are
transformed and those that are transforming

resources.

Transformed resource: those inputs that are changed or converted in
the operations process; they are transformed by the operations process
o
o
o

Transforming resource are those inputs that carry out the
transformation process. They enable the change and value adding to
occur
o
o
Transformatio
n


Materials: the basic elements used in the production process
Information: the knowledge gained from research,
investigation and instruction, which results in an increased
understanding
Customers: customers become transformed resources when
their choices shape inputs
Human resources: the people that are employed by the
business
Facilities: the pant (factory or office) and machinery used in the
operations process
The conversion of inputs (resources) into outputs (good and/or services)
A transformation process is any activity or group of activities that takes
and uses one or more inputs and adds value to them and provides
outputs for customers or clients.
Transformation process in manufacturing business
In manufacturing industries, the transformation process is applied to products with physical
dimensions. The process is tangible in that a physical transformation takes place to produce
a product such as in mining and manufacturing or in related industries such as oil refining
and petrochemicals.
Transformation process in service-based industries
In service-based industries the transformation process is less straightforward and tangible.
For example, in hospital services, retail services, haircutting salons and mechanical repair
shops or garages, there is not a significant amount of transformation of the product, but
there is a significant level of value adding. Large numbers of customers value these services
and therefore prepared to pay high prices for them to be performed for their benefit.
(Transformation, work-in-progress, value adding)
• Provision of advice/labour/expertise/experience/time
Transformed vs transforming resources
Some inputs are consumed in producing goods and services and are known as transformed
resources (such as raw materials, information or knowledge, and customers whose needs
are being satisfied).
Other inputs have a role in the transformation process but are not consumed and are
referred to as transforming resources such as people or human resources and the facilities
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of the business operation. The main characteristics of transformed vs transforming
resources are shown in the table below.
1
Transforming is what you are doing
Transformed is what will be changed
Outputs

Outputs refer to the end result of a business’s efforts
Outputs of the service business cannot be physically held in stock. A bank, for example,
cannot perform transactions on behalf of customers in advance and store these in
anticipation of use at a future date.
Service businesses rely heavily on interaction with the customer in determining the
output. Before an output is generated, the bank, in the example, needs the customer to
indicate whether he or she requires a car loan, a deposit, a withdrawal or any other
particular service.
Service businesses are more labour-intensive. Having skilled employees is crucial


as this will impact on the quality of the service provided.
Issues of quality, efficiency and flexibility must be balanced against the
resources and strategic plan of the business
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1.1.2. QUALITY MANAGEMENT
Quality management is the strategy which a business uses to make sure that its product meets
customer expectations. The quality approaches are quality control, quality assurance and total
quality management.
Quality refers to the degree of excellence of good or services and their fitness for a stated purpose.

A quality product should be reliable, easy to use, durable, well designed, delivered on time,
include after-sales services, and have a agreeable appearance.
o
o
Strategy which a business uses to make sure that its product meets customer expectations
Strategy to make sure that its product meets customer expectations. Three quality
approaches are quality control, quality assurance and total quality management.
The benefits of quality management practises
The benefits of implanting quality management practises include:






Reduce waste and defects
Reduced variance in final output
Strengthen competitive position
Improved reputation and customer satisfaction
Reduce costs
Increased productivity and profits
Operations managers use a variety of approaches to maintain or improve quality. Some of the main quality
management strategies include quality control, quality assurance and quality improvement.
1.1.2.1.
QUALITY CONTROL




Quality control Involves the use of inspections at various points in the production
process to check for problems and defects.
Many businesses have minimised errors and waste by ensuring that standards are
met
Specifications or benchmarks are set before the physical checks are completed.
Actual performance is then compared to the established criteria
In a service business, an inspection of employee performance can be used as a
means of quality control. A bank might teller accuracy, speed or courtesy.
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Business Studies Preliminary Notes
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Rayman Singh
QUALITY ASSURANCE






Quality assurance Involves the use of a system so that a business achieves set
standards in production. This is a proactive approach to quality management that
aims to prevent defects or problems from occurring
The ISO 9000 series of quality certification is a widely used international standard.
‘ISO’ stands for internatio nal organisation for standardisation. Meeting these
international standards is voluntary, but many businesses comply with their
requirements to remain competitive locally and international.
An effective quality management system gives assurance to customers that a
business is able to provide safe and reliable products.
This is a proactive approach to quality management that aims to prevent problems
from occurring.
External guideline
The system is usually set out by an external organisation; for example; ISO 9001
1.1.2.3.
QUALITY I MPROVEMENT : TOTAL QUALITY MANAGEMENT AND CONTINUOUS
IMPROVEMENT




Total quality management (TQM) is a commitment to excellence that emphasises
continuous improvement in all aspect of a business’s operation by sharing
responsibility among all the members of the business.
The aim of TQM to create defect-free production process, and maintain a customer
focus in a operations.
The adoption of TQM can improve product quality, allowing the business to attain
competitive advantage
Example: Many business use quality circles as means of achieve employee
empowerment. Under this approach, teams of up to 10 workers meet regularly to
solve problems related to process, design or quality.
Continuous improvement
Continuous improvement is a process that involves a constant evaluation of, and improvement in, the way
things are done.
Kaizen (Japanese for improvement) emphasis continuous improvement in all facets of a business, from the way
the CEO manages to the way assembly line workers perform their jobs
Although perfection is practically impossible to achieve, it is ‘striving’ that is important to business culture.
Use Toyota as an example
1.2. MARKETING
Marketing is a total system of interacting activities designed plan, price, promote and distribute products to
present and potential customers. All businesses, regardless of type, market.
Role of marketing
Contemporary marketing refers to those strategies that stress the importance of customer orientation
Businesses that adopt a customer-oriented approach base their marketing decisions and practises on the
needs and wants of their customers
Businesses should also focus on relationship marketing, i.e. developing long term, cost-effective relationship
with customers. Businesses using this approach will continuously strive to not simply meet but exceed
customer expectations beyond the sale.
Marketing determine the appropriate markets for the business’s products, and decide on pricing, product,
promotion, placement
 Marketing is a total system of interacting activities designed to plan, price, promote and distribute
products to present and potential customers.
 Successful marketing involves bringing the buyer and seller together and making a sale.
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1.2.1. IDENTIFICATION OF THE TARGET MARKET
Target market is a group of
customers with similar
characterises who presently, or
may in the future, purchase the
product.
Approaches
Description

Mass Marketing
Approach

Market Segmentation
Approach

The seller mass-produces, mass-distributes and mass-promotes
one product to all buyers
Seeks a large range of customers
Market segmentation occurs when the total market is
subdivided into groups of people who share one or more
common characteristics

Niche Marketing
Approach

Narrowly selected target market segment
1.2.2. MARKETING MIX
o
Marketing strategies are actions undertaken to achieve the business’s marketing goals
through the marketing mix. Marketing mix refers to the combination of the four elements of
marketing, the four ps – that make up the marketing strategies.
Product, price, promotion, place, (people, physical evidence, process) -> service.
Look at worksheet. This does not cover all.
Mix
Product
Price
Promotion
Description

Products are goods or services, and consist of both tangible and intangible
features
 Packaging helps preserve, inform, protect and promote the product
 Business owner needs to determine t he products:
o Quality
o Design / packaging / labelling
o Brand / logo / name
 Business can choose one of 3 methods for calculating price:
o Cost - based: a pricing method derived from calculating the total
cost of producing or purchasing a product and then adding a
mark-up for profit
o Market - based: a method of setting prices according to the
interaction between the levels of supply and demand →
whatever the market is prepared to pay
o Competition - based pricing: choosing a price that is either below,
equal to or above that of the competitors
Refers to the methods used by a business to inform, persuade and remind
customers about its products
 The main forms of promotion are as follows:
o Personal selling and relationship marketing: involves the activity of
a sales representative directed to a customer in an attempt to
make a sale
o Sales promotion: activities or materials used by the business to
attract interest and support for the goods and services; for
example; free samples
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o
Place
Publicity and public relations: publicity refers to any free news
story about a business’s products / public relations are activities
aimed to creating and maintaining favourable relations between
a business and its customers
o Advertising: print or electronic mass media are used to
communicate a message about the product. SMA – Social media
advertising
Refers to the distribution channels used to move finished products or supply
services to the final customer
 3 main types of distribution channels:
1. Producer to customer: simplest channel and involves no
intermediaries → virtually all services, from tax advice to car
repairs, use this method
2. Producer to retailer to customer: a retailer is an intermediary who
buys from the producer and resells to customers → this channel
is often used for bulky or perishable products such as furniture or
fruit
3. Producer to wholesaler to retailer to customer: most common
method used for the distribution of consumer goods → a
wholesaler is an intermediary who buys in bulk from a producer,
then sells in smaller quantities to retailers
1.3. FINANCE
Management of business finance is a crucial aspect of business success. Management of finance starts with
sourcing — where will the funding come from? Once a business has secured funding, it then needs to ensure
that it is applied appropriately. All financial managers would be aware of the need to manage the cash flow of
the business. Cash flow is sometimes described as the ‘lifeblood’ of business. The management of cash flow
involves anticipating cash expenditure and ensuring that enough of the income earned comes in the form of
cash. A further challenge is to ensure that enough money is saved in the event of unexpected challenges.
Some money for contingencies needs to be put aside. Contingencies are unanticipated events that can lead to
financial difficulty. For a business to be well managed, it needs to have saved money for such events because
they can place the business under unexpected financial pressure.
Finance are responsible for the financial requirements, budget allocations and financial record keeping.1
 Accounting is a managerial and administrative tool that involves the recording of financial transactions,
so that a clear summary of what has happened to the money coming in and going out can be traced
over time.
 Every financial transaction, from the ordering of stock to the sale of an old stock item, is recorded.
These records are entered into accounts that may be either computerised or manual.
 The information in these accounts is then summarised into financial reports and statements that
provide very valuable information about the trading period. The statements are set out in a standard
format so that they are easy to read and understand. A well-trained manager can use these statements
to get a very accurate picture of the financial status of the business.
1.3.1. CASH FLOW STATEMENT
o
A cash flow statement shows the movement of cash receipts (inflows) (e.g) cash sales, interest
from investments and cash payments (outflows) (e.g) payment for stocks, payment for
expenses over a period of time
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

o
o
o
o
Current Assets (CA): things the business owns that will be used within 12 months
Non - current Assets (NCA): things the business owns that will be used for more than
12 months
NB:- a cash flow statement does not show if a business is profitable
Cash flow is not profit
The term liquidity is often used to describe whether a business has a good or adequate cash
flow
 Liquidity: used to describe whether a business has a good or adequate cash flow
Cash flow reports are vital for the information they give on the timing of payments and
receipts of income
Cash flow statements are divided into 3 categories:
Cash flows from
Cash inflows and outflows relating to the main activity of the business
operating
activities
Cash from
Cash flows related to the purchase and sale of non-current assets and
investigating
investments
activities
Cash from
cash flows related to the acquisition and repayment of both debt and
financing
equity finance
activities
 Relate to finance → borrowing, lending, issuing shares
 Inflows when receiving money from others and
outflows when paying money to others
1.3.2. INCOME STATEMENT
Cash from operating activities – these are cash flows related to the main trading operations
and prime function.
Cash from investing activities – cash flows related to the sale & purchases of non-current
assets (Noncurrent assets are a company long-term investments or assets that have a
useful life of more than one year) such as land, building and equipment.
Cash flow from financing activities – cash flows related to the acquisition of & repayment of
both debt (what you owe e.g. payments for borrowing which will be - cash flow) & equity
(your ownership in property or shares which is + cash flow) finance.
o
o
o
o
Also called:
 Profit and Loss statement
 Statement of financial performance
Income earned minus the expenses incurred over a trading period. The amount left over is
profit
Expenses can be broken down into selling, administrative or financial
Formulas:
Gross Profit
Sales – cost of goods sold (COGS)
COGS (costs of goods sold) Opening stock +purchases – closing stock
Net profit
Gross profit - expenses
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1.3.3.
BALANCE SHEET
o Balance sheets represent a business’s assets and liabilities
at a particular point in time, expressed in money terms  it
presents the net worth of the business
o Sets out as a summary of:
(1) Value of resources the business owns (assets)
(2) Money the business owes (liabilities)
(3) Value of the owner’s share of the business (owners’
equity)
o Assets (A) = Labilities (L) = Owners’ Equity (OE)
o Shows the overall financial stability of the business
Liabilities
Assets
Owners’ equity
Debts or business borrowings and can either be current or non-current
Current: debt is expected to be repaid in the short term (12 months or less)
 Credit card debs, accounts payable
Non-Current: debt that is expected to be repaid in the long term (greater
than 12 months)
 Mortgages, leases
Value to the business and can be either current or non-current
Current: (used within a 12-month period)
 Cash / inventories (stock)
Non-Current: (used over a period greater than 12 months)
 Land / machinery / furniture
Refers to the owner’s claims and is considered a liability from the point of
view of the business
 Owners ‘stake’ in the business
1.4. HUMAN RESOURCES
Human resources are concerned with the recruiting, training, employment contracts and separation of the
employees who are required to run the business successfully.
1.4.1. RECRUITMENT / ACQUISITION
the first stage of the human resource cycle is acquisition.
Acquisition refers to the process of attracting and recruiting the right staff for roles
in a business.
Prior to recruitment, a business must undertake a job analysis. There is no sense
in hiring people unless the business is clear about what it is hiring them to do. In
other words, the business must determine the exact nature of a job before it can
recruit the right person to do it. Job analysis is a systematic study of each employee’s
duties, tasks and work environment.
A job analysis examines:
• actual job activities
• equipment used on the job
• specific job behaviours required
• working conditions
o • degree of supervision necessary. Process of finding and attracting the right quantity and
o
quality of staff to apply for employment vacancies or anticipated vacancies
Two types of recruitment include:
 Internal recruitment: involves filling job vacancies with present employees, rather than
looking outside for business
 External recruitment: involves filling job vacancies with people from outside the business
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1.4.2. TRAINING / DEVELOPMENT
Training provides employees with the right knowledge and skills to perform their job effectively
and efficiently
Development focuses on preparing the employees to take on more responsibilities within the
business in the future
Two types of recruitment include:
Training and development are aimed at improving employees’ skills and abilities — they are
necessary for both personal and business growth.
Training generally refers to the process of teaching staff how to perform their job more efficiently and
effectively by boosting their knowledge and skills. Development refers to activities that prepare staff to take
greater responsibility in the future.
An effective training and development program is planned and perceived as integral to the business’s strategy,
as well as to maintaining or developing a business’s sustainable competitive advantage.
Technology creates a need for ongoing training. Whilst it may be expensive it cannot be ignored. HR managers
must constantly consider the skills required by the workforce in the future.
1.4.3. EMPLOYMENT CONTRACTS / MAINTENANCE
o
o
o
An employment contract is a legally binding, formal agreement between an employer and an
employee
Under common law, both employers and employees have basic rights and obligations in any
employment relationships
Employees are entitled to 10 minimum employment conditions, known as the National
Employment Standards
 Hours of work
 Parental leave
 Flexible work for parents
 Annual leave
 Community service leave
 Public holidays
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o
Rayman Singh
An award is a legally binding agreement that sets out minimum wages and conditions for a group
of employees
Enterprise agreements are collective agreements made at a workplace level between an employer
and a union, acting on behalf of its employees, or between the employer and a group of
employees, about terms and conditions of employment
1.4.4. SEPARATION – VOLUNTARY / INVOLUNTARY
The final stage in the employment cycle is the ‘separation stage’, in which employees leave the
workplace on a voluntary or involuntary basis
o
o
Voluntary
 occurs when an employee decides to give up full - time or part time work and includes:
 Retirement → occurs when an employee decides to give up full - time or part time work and no longer be part of the labour force
 Resignation → the voluntary ending of employment by the employee ‘quitting’
their job
 Redundancy → occurs when a person's job no longer exists, usually due to
technological changes, an organisational restructure or a merger or acquisition
Involuntary
 occurs when an employee is asked to leave the business against their will and includes:
 Retrenchment → when a business dismisses an employee because there is not
enough work to justify paying him or her
 Dismissal → when behaviour of an employee is unacceptable and it then
becomes necessary for a business to terminate the employee’s employment
contract
 Redundancy → occurs when a person's job no longer exists, usually due to
technological changes, an organisational restructure or a merger or acquisition
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Rayman Singh
Unfair dismissal:
 Occurs when an employer dismisses an employee for discriminatory reasons include:
 Race, colour, sex, age, disability, marital status, family responsibilities and religion
1.5. ETHICAL BUSINESS BEHAVIOUR



Business ethics is the application of moral standards to business behaviour
The triple bottom line refers to the economic, environmental and social performance of a business
o This means businesses are no longer simply focused on making a profit at all costs; but rather, they
recognise that environmental and social performance are also important
Business ethics is the application of moral standards to business behaviour such as:
o Fair and honest business practices
o Decent workplace relations
o Conflict of interest situations
o Accurate financial management
o Truthful communication
2. MANAGEMENT AND CHANGE
2.1. RESPONDING TO INTERNAL AND EXTERNAL INFLUENCE
When a business responds to the influence of change, businesses often undergo changes in their organisation
structure, business culture and human resources and operations function
 Transformational change: results in a complete restructure throughout the whole organisation 
Complete restructure of the business
 Incremental change: results in minor changes, usually involving only a few employees  May involve only a
few employees at a time, undertaking new operational procedures
2.2. MANAGING CHANGE EFFECTIVELY OPERATIONS
2.2.1. IDENTIFYING THE NEED FOR A CHANGE
Achieving such a vision requires a holistic view of the outside world and awareness of the potential
impact on the business of a variety of factors
Holistic: looks at the whole picture
2.2.2. SETTING ACHIEVABLE GOALS
A vision statement states the purpose of the business → It indicates what the firm does and states its
key goals
2.2.3. RESISTANCE TO CHANGE
The main reasons for resistance to change include:
 Financial costs → the cost of implementing major changes can be substantial
 Purchasing new equipment → this can also be expensive
 Redundancy payments → if employees lose their jobs as a result of change, they are
entitled to financial compensation
 Retraining → when changes are introduced, some employees will require training
 Reorganising plant layout → the layout of the plant may need to be reorganised if new
equipment or technology is introduced
 Inertia → some managers and employees resist change due to a fear of the unknown
Two strategies for overcoming resistance to change include:
 Creating a culture of change (encouraging teamwork)
 Providing positive leadership (sharing the vision)
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2.2.4. MANAGEMENT CONSULTANTS
The main role of management consultants is to help businesses improve their performance and assist
the change management
 A management consultants is someone who has specialised knowledge and skills within
an area of business
(3) BUSINESS PLANNING
3.
SMALL TO MEDIUM ENTERPRISES (SMES)
3.1. DEFINITION OF SMES

Determine whether a business is small or medium sized:
o Number of ownership
o Type of finance
o Source of finance
o Legal structure
o Market share
o Management structure
3.2. ROLE OF THE SME’S

In recent years, SMEs have created many jobs, become more innovative and are increasingly entering
overseas markets
3.3. ECONOMIC CONTRIBUTION OF SMES
1.
2.
3.
They provide considerable employment opportunities within local communities, which generates
income that can be spent in the local area, thereby stimulating the level of economic activity within the
area.
SMEs contribute to the revenue raised through taxation. Not only do they pay tax, their employees
also pay income tax. Taxation is used to provide goods and services that may benefit the whole
community, such as a better education system.
Gross Domestic Product (GDP) is the total money value of all goods and services produced in a country
in a one-year period. In Australia, it is estimated that SMEs contribute about 50 percent of the nation’s
GDP ($560 Billion).
3.4. SUCCESS AND/OR FAILURE
Success





Thorough and constant PLANNING, based on
a complete understanding and appreciation
for all the risks involved.
Successful market analysis, determining a
profitable product with a particular market
niche
Obtaining and implementing external
professional advice
A successful location
Employing the ‘right’ people
Failure




Lack of understanding:
o The market and the need for
product PROMOTION
o The importance of technological
change
o INVENTORY management
Industrial problems involving staff and
unions
Failure to seek external advice
Failure to compete, and to gain and
maintain a competitive edge
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4. INFLUENCES IN ESTABLISHING A SMALL TO MEDIUM ENTERPRISE
4.1. PERSONAL QUALITIES
Qualities
Description
Qualifications /
skills
Motivation

Entrepreneurship




Cultural
background



Gender

Business qualifications and skills can be attained through experience, education
and/or training
Personal drive, determination and desire to achieve a goal or objective
Desire to become your own boss → freedom to choose when and where they
work, with whom they work and whether to work from home
Someone who starts, operates and assumes the risk of a business venture in the
hope of making a profit
Must have a range of skills and characteristics to own and operate a business
successfully
Community's traditions and beliefs, such as work ethic
Determination to come to Aus and improve their life
Arise from centuries of experience in certain trades or services, enabling a
person to use this knowledge to achieve business success
Policies are being created specifically to assist small business in contributing to
the national economy.
4.2. SOURCES OF INFORMATION



Professional advisers
(2) Accountants – highly important – provide advice on all financial management issues and
taxation obligations
(3) Solicitors – medium importance – produce information concerning business formation and
structures, registration, contracts, leases, partnership
(4) Bank managers – medium importance – provide information and sources of finance
(5) Management consultants – low importance – deals with business management issues  able
to provide more objective and view problems in an unbiased manner
Government agencies
o Agencies that help businesses start and grow
Other sources
Chamber of Commerce
Small businesses of AUS & NZ
Trade associations
Libraries & reference material
Australian Bureau of statistics
Provide legal and financial help, taxation advice, an explanation of
legislation, industrial relations information
Membership based lobby groups
Offer specific industry information and assistance
Access to vast amounts of reference material
Provides data on social, economic and demographic trends
4.3. THE BUSINESS IDEA



Describes the core activities of the business, and the specific features and value of the goods or
services it provides
Three key categories of business ideas
(1) Completely new product / service
(2) Improvement on an existing product / service
(3) Graphical sector that does not have access to an existing product / service
Competition:
o Competition is rivalry among businesses that seek to satisfy a market
o The entrepreneur must decide what type of market they wish to enter
(1) Mass market: broad and large (e.g) clothes, cars, electronics, fast food
(2) Niche market: specialised and small (e.g) record players, remote control sailing boats,
expensive art pencils
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4.4. ESTABLISHMENT OPTIONS
Goodwill: intangible value of business (e.g) reputation, customer value
Setting up a
(1) A person has treated a product or A:new business
service that is unique

from scratch
(2) When a person recognises a gap in
the market, where customers’

needs are not satisfied
(3) When the market has grown and
existing businesses cannot supply all D:customers



Purchasing an
existing
business
Purchasing a
franchise
The business is already operating an
everything associated with the
business is included in the purchase
(1) Determine why the business is
being sold
(2) Examine the financial performance
of the business
(3) Determine a realistic value for
‘goodwill’
A:-

A:-
A person buys the rights to use the
business name and distribute the
products or services of an existing
business.
 The business that grants the rights
is known as a franchisor, while the
business that buys the rights is
known as a franchisee.
The franchisor supplies:
(1) Established product and business
model
(2) Training and staff development
(3) Materials and expertise


The owner is able to determine
the pace of growth and change
There is no goodwill for which the
owner has to pay
There is a high risk and a measure
of uncertainty
Time is needed to set up the
business, create procedures,
develop a customer base, employ
and train staff, and develop lines
of credit
Sales to existing customers will
generate instant income
A good business history increases
the likelihood of business
D:
The existing image and policies of
the business may be difficult to
change, especially if the business
had a poor reputation

Immediate benefit is derived
from the franchisor’s goodwill
because the name is established
The franchisor often provides
training and management backup

D:

The franchisee is often required
to purchase stock from the
franchisor and cannot shop
around for cheaper supplies
The franchisor often charges
additional service fees for advice
4.5. MARKET CONSIDERATION
4.5.1. GOODS AND/OR SERVICES
o
When starting a business, it is very important that the owner possess the knowledge and
experience required regarding their good or service
Market analysis: involves collecting, summarising and analysing information about the state of the
market, customers, the threats and opportunities that the market presents, and any advantages or
disadvantages that the business is likely to have over its competitors
4.5.2. PRICE
(1) Cost-based: derived from calculating the total cost of producing or purchasing a product and then
adding a mark-up for profit
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(2) Market-based: setting prices according to the interaction between the levels of supply and
demand
(3) Competition-based: choosing a price that is either below, equal to or above than of the
competitors
4.5.3. LOCATION
Different types of businesses will be suited to different locations, and the business owner must
consider a number of factors when determining the most appropriate location for their particular
business
o
Suitable location might be a shopping centre or retail shopping strip, or the business owner
may choose an online presence or prefer a home – based business.
Zoning: means by which local councils allocate land for different uses, such as residential, commercial,
recreational and industrial
4.6. FINANCE
4.6.1. DEBT FINANCE
Debt finance: relates to the short-term and long-term
borrowing from external sources by a business
Short term borrowing:
 Paid back within a year
 Main types of finance:
o Overdraft
o Commercial bills
o factoring
Overdraft: the bank allows a business to overdraw their account up to an agreed limit for a specified
time, to overcome a temporary cash shortfall
Long term borrowing:
 Paid back over multiple years
 Main types of finance:
o Mortgages
o Debentures
o Unsecured notes
4.6.2. EQUITY FINANCE
Equity finance: the funds contributed by the business owner(s) to start and then expand the business
Funds contributed by the owner/s to start the business
→ Advantage
 Does not have to be repaid (because it is the owners money)
→ Disadvantage
 Owner may be able to get better returns elsewhere
4.6.3. COST OF FINANCE


The cost of the finance will depend on:
o Type of finance (overdraft vs mortgage)
o Source (debt vs equity)
o Term (short term vs long term)
Interest rates will increase or decrease
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4.7. LEGAL CONSIDERATIONS AND INFLUENCE OF GOVERNMENT ON SMES
4.7.1. BUSINESS NAME
o
The Australian Securities and Investments Commission (ASIC) is now responsible for a
national business name registration services
4.7.2. ZONING
o
o
o
Local government controls zoning regulations and have the authority to restrict where
certain businesses can locate
Zoning creates areas where land can be used only for particular purposes
Examples of zoning include:
 Residential
 Commercial
 Recreational
4.7.3. HEALTH REGULATIONS
o
Local Governments also controls health regulations for businesses providing food. They
supply regulations around:
 Temperature for food storage
 Employee clothing requirements
 Correct food handling
4.7.4. OTHER REGULATIONS
o
Competition and Consumer Act 2010 (Cwth)
 This act protects both consumer and businesses. It aims to:
(1) Promote fair trade and competition in the marketplace
(2) Protect both consumers and businesses from deceptive or misleading
practices
4.8. HUMAN RESOURCES
4.8.1. SKILLS

If the skills level of employees is not adequate enough for them to fulfil their jobs effectively, then
the business owner has two options:
o Provide training to improve skills level of existing employees
o Recruit people who have the required skills
4.8.2. COSTS – WAGE AND NON-WAGE


A business will only employ someone if the return is greater than the cost
The employer is responsible for other employee expenses, referred to as on-costs, which account
for around 30 - 40 % of the total remuneration package
On-costs: are payments for non-wage benefits (e.g) superannuation, annual leave, public holidays, sick leave
 Superannuation
o A scheme set up by the federal government. It requires all employers to make a financial
contribution to a fund that employees can access when they leave or retire from a job →
9.5%
 Annual leave loading
o An extra amount (presently 17.5%) is added to an employees’ holiday pay. The amount is
calculated on the 4 weeks’ annual leave to which each full time, permanent employee is
entitled
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4.9. TAXATION
A compulsory payment of a proportion of earnings to the government
4.9.1. FEDERAL AND STATE TAXES
Tax
Income tax (pay – as – you – go):



Imposed on the employee
Taken from the employee’s salary or wage directly
More you earn, more tax
Goods and services tax (GST)


Fed Gov
A broad-based tax of 10 percent on the supply of most goods and services
consumed in Australia
One of the state’s purposes for the introduction of the GST was to make it more
difficult for businesses and individuals operating in the ‘cash economy’ to avoid
tax
Land tax
 A tax on land owned by individuals or businesses over a certain value (in 2013 it was
$412,000 or more)
 Land used for primary production or an individual’s primary residence are exempt
from land tax
Payroll tax

Levied by:
Fed Gov
NSW Gov
NSW Gov
Payable on wages paid by an employer to their employees on payrolls that exceed
$750,000 at a rate of 5.45 percent (2013)
Input tax credit: is an allowable tax deduction that a business can claim for any GST included in the price of
business inputs
Business activity statement (BAS): records a business’s claim for input tax credits and accounts for GST payable

Australian Business Number (ABN)
o A single identifying number that a business uses when dealing with government departments
and agencies
o Allows businesses to participate in the GST system
4.9.2. LOCAL GOVERNMENT RATES AND CHARGES
Property rates is the main local government charge a business will face
Other taxes include:
o
o
o
o
Water and sewerage
Waste management services
Development and building approval fees
Parking permits
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5. THE BUSINESS PLANNING PROCESS
5.1. SOURCES OF PLANNING IDEAS
5.1.1. SITUATIONAL (SWOT) ANALYSIS
(1) The internal business environment → covers the factors within
the direct control of the owners. It represents what occurs
within the business → S & W
(2) The external business environment → this is the larger
environment within which the business operates. It consists
of factors over which the business has little control and
represents what occurs on a larger scale outside the business
→O&T
5.2. VISION, GOALS AND/OR OBJECTIVES
5.2.1. VISION
o
The vision statement broadly states what the business aspires to become
5.2.2. GOALS AND/OR OBJECTIVES
o
o
o
Objectives are specific statements detailing
what a business needs to do to accomplish
its vision
Many businesses strive to achieve goals
relating to profits, market share, growth
and share price as well as social and
environmental goals
Strategic goals, tactical and operational
objectives are determined by different
levels of management
5.2.3. LONG TERM GROWTH
o
Longer term growth depends on a
business’s ability to develop and use its
asset structure to increase sales, profits and
market share
5.3. ORGANISING RESOURCES
Operations
(Machining,
Designing,
Quality
control)

Marketing
(Advertising,
Pricing, Sales)



Finance
(Accounts,
Debt control,
Loans)



The operations function of a business involves transforming different types of
inputs (raw materials, labour, equipment) into finished goods and services
The following questions will need to be asked:
o What type of equipment and raw materials are needed?
o Which suppliers will be used to purchase the equipment and raw
materials?
The marketing plan needs to become integrated into all aspects of the business
Adequate resources, therefore, must be devoted to the marketing plan
The following questions will need to be asked:
o Who is our target market?
o What type of market research will we conduct?
Where will we obtain our finance?
o Debt
o Equity
Grants - there are various government grants available to small businesses
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

Human
Resources
(Recruiting,
Compensation)
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Rayman Singh
Grants are usually available for:
o expanding a business / innovation / exporting
SME owners need to use good recruitment and selection processes to find
employees who will be invaluable assets as the business grows and expands
Must provide training and development for new staff
5.4. FORECASTING
5.4.1. TOTAL REVENUE AND TOTAL COST
Total Revenue (TR)
o
o
o
Total amount received from the sales of goods or services
Calculated by: P x Q
It is possible to forecast total revenue by estimating how many units are expected to be sold
Total Cost (TC)
o The total costs (TC) involved in operating a business can be broadly classified as either Fixed
Costs (FC) or Variable Costs (VC)
o The total cost of producing a certain number of goods or services is the sum of the fixed and
variable costs for those units
o Fixed costs (FC): are costs that do not vary regardless of how many units of a good or service
are produced
o Variable costs (VC): are costs that depend on the number of goods or services produced
o Calculated by: FC + VC = TC
5.4.2. BREAK – EVEN ANALYSIS
o
o
o
Used to determine the level of sales the
needs to be generated to cover the total cost
of production
Important planning tool because management can determine the level of sales required to
obtain a profit
Sales above the break-even point will mean a profit; sales below the break-even point will
mean a loss
5.4.3. CASH FLOW PROJECTIONS
o
o
o
Provides info concerning the business’s expected cash receipts (cash inflows) and cash
payments (cash outflows) over an accounting period, usually 12 months
Cash flow projection: shows the cash that is expected to be made or spent over a period of
time into the future
Cash flow statement: indicated how cash has flowed into and it of the business in the past
period of time
5.5. MONITORING AND EVALUATING
A business has to monitor and evaluate its environment and take corrective action


Monitoring
o The process of measuring actual performance against planned performance
o Performance standard: is a forecast level of performance against which actual performance
can be compared
Evaluating
o The process of accessing whether or not the business has achieved its stated goals
Three areas that need constant monitoring and evaluating are:
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Rayman Singh
Sales / budget / profit
5.5.1. SALES
o
o
Sales management control involves comparing budgeted sales against actual sales, and
making changes where necessary (e.g) if a new selling technique is introduced, the level of
sales will need to be closely monitored to determine whether actual sales are above or what
was forecast
Sales regenerate revenue for the business, so it is important that the sales management
control function be regularly scrutinised
5.5.2. BUDGET
o
o
o
A budget is the business’s financial plan for the future
It outlines how the business will use its resources to meet its goals
The budget contains projections of incomes and expenses over a set period of time
5.5.3. PROFITS
o
There are five main reasons why a business’s profit levels must be carefully monitored and
evaluated
(1) Profit as reward → ‘the return or reward’ (e.g) chapter 1
(2) Profit maximisation → main goals of a business is to maximise its profits in the
long term (e.g) chapter 6
(3) Profit as a source of finance → important source of finance for businesses is
profit that have been ploughed back (e.g) chapter 11
(4) Profit as a performance indicator → The profit level also acts as the main
indicator of a business's performance
(5) Profit as a dividend payment → For incorporated businesses a proportion of the
profit is allocated to shareholders as dividends
5.6. TAKING CORRECTIVE ACTION – MODIFICATION
o
o
The process of changing existing plans, using updated information to shape future plans
Corrective action may involve changes to:
 Materials
 Costs of turning raw materials into products
 Management practises
6. CRITICAL ISSUES IN BUSINESS SUCCESS AND FAILURE
6.1. IMPORTANCE OF A BUSINESS PLAN
The business plan is the ‘blueprint’ for future growth and development within a business



It sets out the desired goals and direction of the business
Essential to long term success and necessary for all businesses
If prospective business owners neglect to develop a business plan or make profit projections, business
failure is distinctly possible because there is no clear understanding of the business’s future.
6.2. MANAGEMENT (STAFFING AND TEAMS )

A manager’s skill is the most critical factor in determining a business’s success or failure
o (e.g) business may have the most up – to – date equipment and best location, but without a
manager who can effective and efficient make use of these resources then often the business
will not succeed
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6.3. TREND ANALYSIS
Trend analysis is a process of investigating changes over time and looking for a pattern (trend) in order to
predict the future
 Powerful tool which assists SME owners achieve business success by helping with forecasts such
factors:
o Potential sales
o Total revenue / Total operating costs
o Gross and net profits
6.4. IDENTIFYING AND SUSTAINING COMPETITIVE ADVANTAGE


Business success and failure is linked (in the long term) to a business’s ability to develop a strategy that
allows it to gain a competitive advantage over other competitors in the market
A competitive advantage is achieved through:
o Price / cost strategy → this is best accomplished by achieving the lowest production costs,
which in term allow it to reduce the product price
o Differentiation strategy → the concept behind this strategy is to offer customers something
that is not already offered by business rivals
o Ensuring long - term success → this is assured if a business sustains its competitive edge by
limiting the advances of competitors
6.5. AVOIDING OVEREXTENSION OF FINANCE AND OTHER RESOURCES


A business can overextend financially by:
o Hiring, purchasing or leasing over commitments
o Purchasing excess stock
o Employing too many staff for the business’s current needs
To avoid overextending financially, a business should:
o Undertake thorough planning
o Avoid overdependence on debt financing
6.5.1. OVEREXTENSION OF OTHER RESOURCES
o
o
Stock

Staff

Invested too much money in goods or raw materials
 This may occur if the business anticipates customer demand incorrectly, or
purchases a ‘bargain’ from a supplier without establishing whether it is
saleable among its own customers
Overextension of staff results in employing too many staff
6.6. USING TECHNOLOGY



The integration of technology into the business is essential to
succeed in contemporary society
E – business (electronic business) is using the internet to conduct
business
o (e.g) uses email to communicate with customers and
suppliers.
o (e.g ) uses the internet to research market conditions,
industry trends and economic forecasts
E - commerce (electronic commerce) is the buying and selling of
goods and services via the internet
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6.7. ECONOMIC CONDITIONS
A nation’s economy will experience periods of boom and recession
6.7.1. ECONOMIC CONDITIONS THAT PROMOTE BUSINESS SUCCESS
o
In periods of strong economic activity, consumer spending, sales of goods and services,
production and profits are rising
6.7.2. ECONOMIC CONDITIONS THAT PROMOTE BUSINESS FAILURE
o
In periods of weak economic activity, consumer spending, sales of gods and services,
production and profits are failing
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