BUSINESS STUDIES Nature of business A business is the organised effort of individuals to produce and sell products that satisfy the needs and wants of people Role of business The role of a business is to produce and sell goods and services in order to satisfy the needs and wants of individuals, with the aim of making a profit. Businesses provide employment, pay taxes, and improve quality of life - Nature of a business Producing goods and services Product – good or service that can be sold or bought Goods – items that can be seen or touched Services – things done for you by others To create a finished product which is bought, production is required. This is done through the use of inputs (resources like wood) to create outputs (good/service produced). - Profit, employment, income, choice, innovation, entrepreneurship and risk, wealth, quality of life Profit: - Profit is what is remaining after all deductions have been made (profit = revenue – costs). It is the reward/return for the business owners (revenue is all money earned before profit) If revenue is greater than expenses, the business has earned profit Return on investment – level of profit based on amount invested. (profit divided by investment amount x 100) Employment: - Employment is a key role of a business because to purchase goods and services, consumers need money. This money is generally earned by employees working at jobs provided by businesses The four types of employment are full time, casual, part time and self employed Employment helps the government because they get tax and don’t have to pay welfare payment to those working The SME sector is a major job provider to individuals, employing 8 million people Income: - Providing income is an important function of a business. Employee gets paid for the labour they do A businesses income is the amount returned after all expenses are covered which is their profit An employee can earn a wage (on a weekly basis) or a salary (fortnightly/monthly to permanent employees) A business which is a private or public company will have shareholders who earn a dividend BUSINESS STUDIES Choice: - The act of selecting within alternatives Freedom of choice - when consumers can shop around and select from a range of competitors products – the more competition, the greater the choice Choice encourages businesses to provide goods/services at a low price with the highest quality and encourages businesses to be innovative and different from their competitors Innovation: - - Process of improving features of a product. Invention is creating something new Innovation may be present in products with improved/advanced features. Eg. Nokia brick phones where in and then apple innovated the idea and created smartphones and to compete, Nokia came up with smartphones Innovation helps maintain is competitive advantage (features providing advantage) Continuous innovation is important for a business as it makes it better than competitors Entrepreneurship and risk: - The ability to start, operate and assume the risk of a business project in the hopes of making a profit Risk - possibility of loss which entrepreneurs may face Include the risk of not being paid, no profit, loss of money Entrepreneurs take risks by developing strategies for their ideas to come to life Wealth: - Increasing sales increases the value of a business Business generate increased wealth for the community through the tax they pay A business must fulfil operating costs, pay employees, pay tax More sale → greater profit Quality of life: - The overall wellbeing of an individual Business improve quality of life by: Improving product quality Providing employment Using environmentally friendly products Satisfying needs and wants Types of businesses Classification of businesses Size – SME’s, large The three different sizes of a business are small, medium and large. Size can be determined by: Number of employees Number of owners Market share Legal structure (sole trader, partnership etc.) BUSINESS STUDIES Small: Less than 20 employees Independently owned, operated by 1-2 people Sole trader/partnership Owner makes decisions Finance either debt or equity Market share small - Medium: 20-199 employees Owned/operated by a few people or private shareholders Partnership/private company Owner responsible for decisions which are harder Debt or equity finance – easier to get loans Market share medium Large: 200 or more employees Owned by thousands of public shareholders Public company Complex decision making made by directors Sources of income are profit, loans and overseas institutes Market share is large SME’s: - Less than 200 fulltime employees Less than $10mil turnover (total sales) Micro businesses: Less than 5 employees Work from home SOHO (small office home office) Represents 88% of the population Local national global Local . Operates in one area . Small medium size . Eg. Newsagent/corner shop National . Operates in one country but in several states . Medium to large size . Eg. Coles/Woolworths Industry – primary, secondary, tertiary, quaternary, quinary Global (multinational) . Large business with home base in one count. And franchises . Includes TNC’s . Eg. Maccas, Toyota BUSINESS STUDIES Primary: - Involved in the acquisition of raw materials such as wheat and iron ore Eg. Farming, mining, fishing 60% of exports come from these industries Secondary: - Businesses that use raw materials combined with labour to create outputs All manufactures are part of this Eg. Iron ore is turned into steel. Manufacturers and construction Tertiary: - Businesses that provide services Eg. Dentists, doctors and hairdressers This is broken down into quinary and quaternary Quaternary: - Services that involve the transfer, processing info and knowledge Eg. Telecommunications, finance and education Quinary: Services that were originally performed at home Improve quality of life Eg. Tourism, hospitality, childcare Legal structure – sole trader, partnership, private company, public company, govt. enterprise Incorporated: process companies go through to become a separate legal entity from owners Sole trader: - Operated and by one person May hire people but they make decisions and provide finance as Unincorporated: businesses that are not companies because they haven’t gone through incorporation BUSINESS STUDIES - well as take responsibility for operations Money from debt finance (money from a financial institute) or equity finance (owners money) Unincorporated business Business and owner are regarded the same eg. If a business is sued, so is the owner Unlimited liability – owner is responsible for all debts and losses Advantages – low entry cost, complete control, owner keeps all profit Disadvantages – unlimited liability, need to carry all losses, difficult to expand due to less funds Partnership: - Unincorporated business with more than one owner, generally 2-20 Partnership Act (1892) says operations are subject to each industry Unlimited liability, business and owners are regarded the same There must be a partnership agreement but a contract isn’t compulsory Agreement involves name and address, percentage owned by each, distribution of profit, process of selling shares, conflict resolution Unlimited liability Advantages – low start-up costs, shared workload, no taxes on profits Disadvantages – personal unlimited liability disputes may arise, divided authority Private company: - Most common type of company in Australia with 2-50 shareholders Usually SME and family owned businesses. Eg. 7-11 Only has shares who the company wants to have as a part-owner Shareholders can only sell their share through directors approval It has ‘pty LTD’ in the name Limited liability – shareholders are not responsible for debt Decision making and responsibility is shared Advantages – growth potential, easier to attract public finance, limited liability Disadvantages – double tax (company and personal), annual report must be published, personal liability Public company: - A business listed on Australian Securities Exchange. They must have at least 5 shareholders Ownership is open to members of the public Shareholders buy shares and receive a dividend Most companies are large in size. Eg. Woolworths, Westfield, Telstra It has limited or LTD in its name Shareholders elect directors for management Same adv./disadv as private company A business must submit a prospectus (describes nature of business, financial performance. And possible risks) to the ASX to be registered Government enterprise: - Govt. owned and operated (aka GBE’s) Approximately 5000 in Australia BUSINESS STUDIES Owned and operated by local, state and federal government. Eg. Aus post, NSW trains Referred to as public sector businesses providing services like health and edu. Privatisation – selling of a GBE to a private investor. Eg. Qantas, Commonwealth bank When privatised, it becomes a public company Factors influencing choice of legal structure Size, ownership, finance Size: - Legal structure of a business may need to change due to higher customer demand. Sole traders, moving to private structure Many go from small/micro to medium sized Due to higher demand, partnership/private Company may be formed. Shareholders/partners bring extra skill/expertise/money In order to be safe and seek limited liability, private companies are the best resort Businesses may move to public structures for easier access to funds Ownership: - People who do not want to interact with others may choose sole trading If they lack money or want divided responsibility, they may choose a partnership or private company The process of organisations that offer shares to members is known as demutualisation Finance: - Amount of money influences the legal structure Businesses starting out have low money and are sole traders however they have unlimited liability which makes choosing partnerships safer Finance is used to undertake research, fund employees, buy inventory To overcome financial difficulty, shares may be bought This makes them incorporated and have security as they are private companies Influences on the business environment External influences Influences outside the control of the business controls and operations (business has little control). Economic: - Determined by consumer buying and spending Economic cycle shows fluctuation (rise and fall) of consumer/biz spending Boom time: more spending, demand, shares, investments, profit Downswing: low profit, low amount of goods/services produced Increased consumer demand increases economy as more people want to buy BUSINESS STUDIES - - Economic activity is influenced by: → Fiscal policy: governments actions (expenditure) operating through commonwealth budget. Influences level of taxes to be paid. 30% income tax is from this → Monetary policy: RBA’s actions. As interest rates increase, the biz’s profit will decrease → Microeconomic reform: policies developed by govt. to promote competition within an industry. The aim is to provide customers with low prices and more choice Influences business because low consumer spending means low amount of purchases meaning low profit Financial: - Two main sources of finance are debt finance (borrowed money) and equity finance (owners money or money through selling of shares) Higher interest rates reduces amount of debt finance acquired Higher interest rates reduces equity finance as it involves selling shares Due to globalisation, funds can come from worldwide sources Deregulation is the govt.’s removal of control over a particular industry or economy sector to achieve competition Geographic: - Geographic influences on Australia are location, population shifts, average age, etc. Australia trades with Asian countries Because other countries are cheaper, people buy from them and leave Aus biz’s suffering Rapid economic growth of Asian countries has left Aus’s economy behind Social: - Biz’s contribute to society buy keeping up with its growing needs such as healthier food They may contribute to society by making donations, taking care of environment, sponsoring events They should behave ethically and keep in mind environment If business keeps in mind of these things, there will be higher demand for their products Eg; maccas has a healthier food option, ALDI used UTZ certified chocolate, stores have started using reusable bags, and no animal cruelty by ‘Nude By Nature’ Legal: - Regulations like equal pay, fair conduct and emergency evacuation plans effect businesses Some industries have gone through deregulation for more efficiency like the airline and banking industry These laws provide guidelines for businesses Political: - The party in action’s policies may influence a business’s actions Eg; company tax has been decreased from 36% to 30% allowing for more interest Businesses must be aware of these changes and act accordingly by adjusting business plans Eg; the greens advocate environmental policies so if they are in play, businesses must act accordingly BUSINESS STUDIES Institutional: - External associations influence businesses: → Environment protection authority: enforces govt. laws regarding environment protection → Australian taxation office: enforces taxation laws including company tax → Australian securities and investments commission: regulates financial conduct and monitors operations of financial institutions. Companies must release reports to them → NSW fair trading: protects consumer rights. Regulates registration of business names Technological: - Technology developments increase efficiency Create opportunities for innovating/inventing products It provides increased awareness of what overseas businesses are doing Online shopping providing ease to customer, faster working speed These may be expensive, lead to redundancy Competitive situation: - - Influenced by market concentration and ease of entry into market The more competition, the more pressure to develop competitive advantage: → Monopoly: concentration by one firm in the industry. Eg; AusPost → Oligopoly: small number of large firms dominating the market. Eg; banks and airlines → Monopolistic: large number of buyers/sellers with goods and services differentiated through package and quality. Eg; Starbucks → Perfect competition: large number of small businesses selling same/similar products. Eg; paper mate vs. bic Ease of entry includes cost of starting business and access to materials Markets: Australia is a part of the global marketplace meaning more GAS are imported/exported Australian biz’s struggle because people prefer to buy from overseas rather than them Biz’s have started outsourcing services of support (cleaning, advertising) Due to demographic changes, preferences for goods have also changed Internal influences Internal influences are factors that are from within the business. They occur because the business wants to develop and change ways of doing things Products: - Quality of GAS impacts the way it is acquired When selling a product, a business must consider distance form supplier, if storage facilities are needed, cost effective methods of maintaining quality etc. Providers of services must consider; distance from customer, training and development, size of customer base BUSINESS STUDIES Location: - Location depends on visibility, cost of renting, proximity to competition and support services Retailers would be located where target markets are (main streets, malls), wholesalers don’t need to be visible, and manufacturers are where resources needed are available. Farmers will generally be where geographic climates are suitable for crops Cost of place is essential. Renting/leasing is cheaper than buying a place. Other costs are bills, inventory, and construction. Purchasing a franchise is more expensive than starting from scratch Proximity to competition is important as some businesses work better that way. Proximity to services is important. Services like IT and maintenance are better when they are close to the business for easy access Resources: → Financial: funds required to access other resources. These are either equity or debt finance → Input: resources that are combined to make a good or service. This includes labour and raw materials → Staff: employee or human resources. They are the most important type. They provide human effort that transforms inputs into outputs through skills and expertise Management and business culture: Culture refers to values and beliefs within a business impacting management and employee relationship Good culture makes it easier to work and leads to more efficiency Companies now encourage employees to think like owners in order to fulfil goals. Stakeholders A group or individual who has interest in or is affected by business activities Shareholders: - Purchase shares in companies (partial owners) They receive a dividend They are affected by the business because they invest their money in order to receive profit and if the business isn’t performing well, they won’t get value for their investment Managers: - Managers make business decisions They introduce policies and procedures that affect the workplace Their approach/leadership style influences productivity of employees. This affects business culture and employee confidence Employees: - They manufacture or produce the product organisations sell Quality of product is based on their skills If they are treated well, they will show more efficiency. If not, they will be demotivated If a business isn’t performing, their pay will get impacted BUSINESS STUDIES Customers: - They are the people that purchase a business’s products A business must produce what makes customers happy They are affected because they are the ones who buy from a business. If the business doesn’t reach the needs of customers, they will be in loss They are affected when a business releases new products. They have more choice Society: - Members of the community If a business uses unethical acts, society will be impacted whether it be by pollution or future welfare Ethical acts attract customers allowing for more profit Environment: - No environment care can lead to pollution and other affects There may be an increase of unsustainability Business growth and decline Business lifecycle stages It refers to the stages of growth and development a business experiences Establishment: - - When the business first enters the market Owner decides of location, products, staff and legal structure Starting a business is very risky. Finance is from debt/equity finance There is a slow growth in sales and biz may not receive sufficient revenue Challenges include generating sufficient revenue, choosing suitable location, developing appropriate marketing strategies, following govt. regulations, positive cashflow (money going in and out) Features are; goals, sales, marketing, profit, cash flow Growth: - When the business is experiencing increased sales Increased revenue, profit and market share (number of customers compared to competitors) Business begins to develop budgets to have enough cash for daily operations (liquidity) Staff will change with better management Business understands customers needs Go through page 97 in jacaranda Managers may decide to outsource services book for integration Partnerships may be formed to sustain growth Challenges are more production costs, less failure rate increased profit Maturity: BUSINESS STUDIES - Market share begins to slow down Increased competition Due to reasonable profits, biz may stop innovating Challenges include developing strategies, motivating employees, ensuring financial position Requires professionalism/formal structure Post-maturity: - Final stage when decisions will impact survival → Steady state: business maintains position. Market share is maintained and loyal customers developed → Decline: business isn’t able to successfully cope with challenges. It loses competitive advantage, sales fall and decline in market share. It determines survival. Factors that can contribute to decline are competition, low sales and failure in keeping up with consumer demands → Renewal: business develops new marketing strategies or releases new products. Growth in sales. Market share and profitability increase due to new products/innovations → Cessation: business closes down (voluntary or involuntary) Business responds to challenges by cessation or innovation Voluntary and involuntary cessetion – liquidation Cessation refers to the closure of a business. It may be done by choice or by being forced Voluntary: - Owner decides to cease operations Not forced by other parties Reasons may be no enthusiasm, retirement, declining profits, need for rest Involuntary: - Closure is forced on the business Reasons include death of owner, lack of demand, bad economic situations, competition, liquidation (assets are sold to pay debts) Business management Nature of management Features of effective management - Effective management is achieving goals and objectives of a biz by making the right decisions at the right time - An effective manager must be good at planning, motivate staff, control biz and have skills - Features of management include: → Planning: decide on orgaisational goals and use/allocate resources to achieve goals → Organising: establishes the rules and reporting relationship that allows to reach organisational goals → Leading: encourage and coordinate individuals and groups so they work together → Controlling: evaluate how well the organisation is achieving goals BUSINESS STUDIES Skills of management Interpersonal/communication: - Referred to people skills Needed in order to listen, communicate and understand others An effective manager adjusts their manner to suit different types of people Motivating employees and allowing them to make decisions provides maximum labour output Strategic thinking: - Strategic plan is longterm planning Senior managers determin strategic plans by looking at the overall business They must understand marketing functions, operations, finance and human resources Managers need to recognise how decisions will affect departments and know where the biz fits in the industry Vision: - clear, shared sense of direction that allows to attain a common goal Without a vision, there is no sense of direction Vision is communicated to employees through leadership Employees play a part in achieving visions Problem-solving: - Searching for, identifying and implementing a course of action to correct an unworkable situation Identify problem and cause, gather relevant information, develop alternate solutions, analyse alternatives, chose one alternative and implement it, evaluate situation Decision-making: - Identifying available options and choosing a strategy to solve problems Involves making decisions in a time frame Managers need to develop effective decision making environment Senior managers make ovevrall biz decisions Middle managers make specific decisions Flexibility and adaptability to change: - Flexibility is being responsive to change and adjusting to situations Plans must be flexible to keep up with biz environment Biz’s must be proactive by predicting the changes and acting upon them Reconciling conflicting interest of stakeholders: Community will want to avoid pollution, employees will want more pay, shareholders will want biz to have more profit for more dividend Management must have a solution to keep up with all stakeholders needs Achieving business goals BUSINESS STUDIES S – specific M – measurable A – achievable R – realistic T – timebound Profits, market share, growth, share price, social, environmental Profit: - Difference between cost and revenue Business with inconsistent profit will fail in the market Profit maximisation – max difference between total revenue and total costs (foxed/variable) Income statement determines profit made An exception is non-profit organisations Market share: - Number of customers a biz has. Biz share of the total industry sales of a particular industry Increased MS (by promotion) leads to more sales, revenue and profit Growth: - Internal growth: employing new people, more sales, purchasing new equipment, innovation, franchises External growth: merging or acquiring other businesses Share price: - Share is part ownership of a company Share price determines business value Biz can sustain share price by being well-managed, earning consistent profit etc. Social goals: - Benefit community within which the biz operates. These impact quality of life Include recyclable bags, promoting human rights, Biz’s that act socially responsible receive long-term support from society Environmental goals: - Protecting environment and not wasting natural resources Sustainable pratices can give competitive advantage and good publicity There may be conflict with profit as money is required to do these things Startegies for increased market share will support profitability. Human resource strategies will improve skills and employee productivity. Social/ecological goals support reputation and lead to increased market share and sales. Mix of goals reflects interdependance between business functions - Staff involvement Many businesses achieve goals through staff Staff make decisions to feel included and give more value to business They are the source of innovation that can solve problems/give competitive advantage Being involved motivates employees and allows them to work more efficiently BUSINESS STUDIES - Less experienced emloyees get mentored providing individual training and advice. Reduces mistakes Training makes employees better at their job showing more efficiency Management approaches (Explains the relationship employee/employer and how the leader deals with issues) Classical approach Planning, organising and controlling In this approach, manager has complete control. Employees must follow manager’s instructions. The harder the employee worked, the better the output and result. It is appropriate for the assembly line. Henri Fayol discovered management functions: Planning: Involves direction of business to achieve business goals.it must establish strategies that help achieve goals/objectives. Plans must be made for different time frames: → Strategic: long term planning encompassing biz vision. It determines where the biz wants to be in the future → Tactical: medium-long term planning (1-2 yrs). Devised by middle management. They are pathways to achieving long-term goals. Allocate resources and managers/employees → Operational: short-term planning (yearly, monthly, daily). They are detailed involving objectives and marketing - Organising: creating a framework for implementing business plans including; what will be done, who will do it and how it will be done. It transfers plans into reality - Controlling: this is comparing results with plans. Biz performance is compared to its goals and short-term objectives. If results are different to plans, the issue must be fixed Hierarchical organisational structure - Hierarchy structure is longer - Orders must go through a lot of people/filters - Employees find it harder to ask questions and cannot interact straight with management - Level of authority is based on their place on the chain of command Autocratic leadership - Strong centralised control, working team must follow orders, top down communication, external motivation - Often effective within sole traders and partnerships as they require quick response to change Behavioural approach Leading, motivating, communicating - Employees are important. Management works with employees for complete efficiency. It emphasises teamwork to increase satisfaction and output. The business should recognise social, economic and noneconomic needs. The hierarchal structure is flatter for easier communication. There is shorter command chin and better control. Interpersonal and communication skills are important → Leading: leadership motivates employee. Effective leaders understand the workplace, listen to employees, technological, communicative, understanding employees, flexible, motivator → Motivating: monetary and non-monetary needs should be recognised. Praise should be unique to an individual. Rewards may also be employee of the month awards. BUSINESS STUDIES → Communicating: this includes the exchange of info between people. It requires listening and informing people. Two-way flow allows for better understanding of tasks. Teams - Adv: accuracy, efficiency, faster work, flexible, enthusiasm - Dis: conflict of interest, low individual recognition, free riders Democratic leadership style - Decentralised power/authority - Employee empowerment - Self-directed and motivated people - Adapted by professional organisations - Employee input is considered whilst making decisions - It has a collaborative nature Contingency approach Adapting to changing circumstances - Stresses the need of flexibility and adaptation of management practices to suit changing circumstances - No two situations are identical Management process Operations - Business processes that involve transformation or production. It applies to manufacturing and services sector - Establish level of quality, business capital/human expenses and determines whether there is sufficient products or not Goods/services - Goods: tangible, little or no control for consumers, can be used over and over - Services: intangible, customer must be present (there is control) Production process Steps used to transform inputs into outputs - Three production methods are: 1. Job: adapting and customising products to customer liking. Eg. designer dress 2. Batch: outputs are made in groups or small amounts. Eg. batch of bread 3. Flow: continuous flow of inputs that are transformed into outputs Quality management - Quality is concerned with goods services and operations. Quality can change in any stage of production - Steps are quality control and total quality management - Quality control involves establishing standards and measuring outputs against them. Quality can be reached by planning production - Total quality management focuses on continuous improvement in all areas and not only products. (kaizen) Human resources Effective management of formal relationship between employer and employees. - Acquisition: recruitment/selection - Develop: growth - Maintain: monetary and non monetary benefits - Separation: voluntary or involuntary BUSINESS STUDIES Recruitment Identifying staff needs, seeking applications and selection Business can find staff internally (existing staff) or externally (outside the business) Employees may be selected through a process (interviews etc) Training Activities aimed at improving an employee’s performance in the workforce Results to increased skill Current employees may be sent for training to improve skills New employees must train to find out where they fit into the workplace Employment contracts A contract highlighting what is expected from an employee The types are casual, fulltime, part time and subcontracting Separation – voluntary and involuntary Ending of the employment relationship It may be instigated by employee or employer It is the termination of contract Voluntary: retirement, resignation or voluntary redundancy Involuntary: involuntary redundancy, summary dismissal, dismissal after warnings Marketing Marketing is the process of advertising the businesses product and developing the product to suit the needs and wants of customers by deciding on product, price, place and promotion - - Identification of the target market Market segmentation is the division of the total market into small segments based on small factors, eg. geographic, demographic, personality and lifestyle, behaviour (willingness to do something) Target market is the focus of the firms marketing strategy. It is the people that the business believes will be the buyers and users of its products Market research gathers information from the target group to gain information on whether the customers will like the product or not Market research also investigates existing competitors, researches changes in govt. regulations, researches advancements in technology, identifies trends and determines customer buying patterns Mass marketing: large demand for a standard product Niche market: a small segment of the total market Marketing mix - The process of developing a product that meets the needs of consumers, and implementing promotional, pricing and distributing strategies that encourage consumers to purchase the product - The four p’s are discussed: → Product: good or service that can be exchanged. This includes positioning (how product is viewed compared to competitors), brand (name or symbol that differentiates is from society), trademark (symbol or name a biz has registered to represent its products) and packaging (catches customers eye) BUSINESS STUDIES → Price: price is a balance of what the customer is willing to pay and what the biz is willing to take. The price should generate revenue for the business. The methods of setting price are cost-of-production (profit added to cost of production), demand pricing (prices are based on what customers want to pay), competition based (competitors prices are used as a guide), prestige pricing (products image) and loss leader pricing (product is sold for less than its production cost). → Promotion: process of creating and maintaining consumer awareness and interest. It influences consumers to buy certain products. Strategies are sales promotion (special offers), advertising, direct selling (email, phone, and text), publicity and product placement (used by actors). → Place: how the product is distributed to its target market. It includes transport methods, storage of the goods, and the locations which will sell the product. Finance This organises the financial resoures of the business to pay for all aspects. All movements of money must be recorded in financial statements. Without finance, a business cannot function, therefore, many businesses hire accountants - Management accounting: internal accounting process. Management uses its information reports to make business decisions Financial accounting: produces reports about the overall position of the biz for extenral stakeholders to use Cash flow statement It summarises cash transactions that have occurred over a period of time, involving cash inflow and outflow It provides management with sufficient information for budgeting, managing expenses and liabilities It provides info about cash flow of receipts and cash payments Cash inflows include money that flows into the business. Cash outflows include money that flows out of the business Inflows include revenue, shares and selling of unnecessary equipment. Outflows include purchasing stock, wages and operating expenses The three main areas of a CFS are: → Cash flow from normal operations (sales receipts and payment for expenses) → Cash flow from business investments (dividends received from shares in other biz’s or dividends given to shareholders) → Cash flow relating to finance such as interest received or paid on loans (Page 121) - Income statement Profit and loss statement, revenue statement or the statement of earnings. It is a summary of all the revenue generated and expenses incurred to earn revenue The difference between total revenue and total expenses is profit (revenue – expenses = profit) A loss is written in brackets Revenue includes all funds flowing into the business such as cash or credit sales, payment of fees for services, rent or interest from investments, discounts from suppliers and dividends Expenses are all costs incurred in earning revenue including COGS, administrative selling and financial costs BUSINESS STUDIES - Internal use by managers as a monitoring tool and whether the biz is profitable. It reports bottom line (net profit from biz operations after all costs are paid off) A bank may use IS when a loan is acquired Management can calculate level of gross profit, net profit and return on investments The five main sections of an IS are: → Revenue or income → COGS → Gross profit → Expenses → Net profit Gross profit: revenue after paying COGS Net profit: money after all expenses are calculated GP = sales revenue - COGS NP = GP - expenses COGS: cost of goods sold Page 123 - - - COGS = opening stock + purchases – closing stock Balance sheet Shows the businesses financial stability at a particular time It shows what the business owns, owes and the owners investment in the business It is based on assets = liabilities + owners’ equity Assets include resources owned by and under the control of a business. They are used to generate. Current assets are those that earn revenue for a biz short term including cash, accounts receivable, inventory or stock. Non-current assets earn revenue over a long period of time including lands/buildings/factories, plant/equipment/machinery, fixtures/display cabinets, intangibles (trademarks/patents), motor vehicles Liabilities include all the money or debts that a biz owes and needs to repay. Current liabilities are debts to be paid short time including bank overdraft, accounts payable, commercial bills, prepaid expenses. Non-current liabilities are debts paid overtime including long term loans, mortgage and debenture Owners’ equity is the money a business owes its owners including capital, undistributed profits, drawings Business planning Small to medium enterprises Definition - A small business is one that employs less than 20 people, inluding non-employing businesses and micro businesses - A medium business employs more than 20 people but less than 200 people - An SME is independantly owned/operated. Owners make decisions. Owner or manager contributes to capital for startup. SME’s employ 75% of Australians Role - They provide job opportunities BUSINESS STUDIES - Provide goods and services - Produce goods/services for bigger businesses who outsource services - Import/export goods specific to the biz - Engage in r&d to development to benefit their biz - 99.7% of businesses are SME’s Economic contribution - In 2006 they contributed to 46% of GDP. In 2013 it rose to 57% - Small biz’s employ 5.1m people. Medium biz’s employ 2.2m people - They provide consumers with choice and tailor products to customers needs - They contribute to GDP, govt. revenue, exports, satisfy needs and wants, increase choice, increase competiton Influences in establishing an SME Personal qualities - Qualifications: qualifications include tafe and uni. Courses improve business skills of an owner. Formal education lowers the failure rate of a biz - Skills: skills include marketing, HRM, administration accounting and IT skills - Motivation: motivation can be profit, freedom or creativity - Entrepreneurship: expertise in running a business. An entrepreneur will take risk to turn an idea into a biz operation. This quality allows for the biz to be successful - Cultural background: biz’s with cultural style are far greater accepted. Shared experience amongst migrants establishing a biz in a new country can lead to more supportive business environments - Gender: women can form better business networks and they perform deeper reasearch. Women are found to work in retail, property services and biz services. Men are found more likely to work in construction, manufacturing and transport Sources of information - For a successful biz, the ower needs to gather information including; legal issues, financial issues, management assistance, suppliers, technology, govt. assistance and local govt. regulations - Sources of information for biz owners are; govt. assitance programs, small biz associations, ABS, universities, internet, solicitors and accountants The business idea - All businesses have an idea of what they want to sell. It can be original or an innovation of something existing - Sources of a new idea are inventions, innovations, changes in laws, collapse of competitors Competition: amount of competition will determine if a business can be established or not. This depends on number of competitors in the market. Establishment options New: starting a biz from scratch. This may be done if the owner has a unique idea. The advantages are; free to make decisions, less expensive, can choose ideal location, no goodwill to fay for, no hidden problems. The disadvantages are; harder to get loans, takes time to train staff, no customer base Existing: an existing biz is already set up and is just waiting to be purchased. The advantages are; existing customer base, previous owners provide help, it is porbably at the growth stage, total cost is BUSINESS STUDIES known, easier to obtain loans. The disadvantages are; higher costs, bad reputation can be hard to change, restrictions in location size and name, past success may be based on owners relations Franchise: an agreement between a franchisee and franchisor. Franchisee’s pay for the right to use an established business’s name and formula. Franchisee pays money and part of profit to franchisor. Advantages are; supply chains provided, established name, proen management, support from frachisor, easier to obtain finance, marketing support, lower risk. Disadvantages are; unable to expand, stock purchase restrictions, expensive to buy, ongoing fee to franchisor, loss of idependance Market Goods/services: a good or service will fail if there is no market for it. businesses undertake market analysis to determine what people want to buy. Price: price has a major impact on a business. High prices may drive customers away. Low prices may eat away profits. Influences in establishing price are; cost of production, competitors price, what customers are willing to pay Location: location must be appropriate. Retailers must be visible, wholesalers don’t have to be visible. Finance Source: debt finance is money that is borrowed (loans, credit, commecial bills). Equity finance is owners initial contribution known as start-up captial Cost: costs of finance include interest which is the price of money and ownership which is when investors buy a share in the business. Legal - Business name: it is a legal requirement to register your name unless you are a sole trader using your first and last name. most biz’s operate with a trading name - Zoning: local govts. Have the power to tell biz’s where they can be located. Businesses cannot be located in residential areas and factories are resrticted to industrial areas. - Health: protect consumers from any disease. the food industry must work with complete hygiene. The building industry deals with chemicals and toxic substances. If health isnt considered, the business may be sued and face large fines - Other regulations: other regulations are in regards to warantees, safe products and misleading conduct Critical issues in business success and failure Importance of business plan - A business plan includes executive summary, business description, products and services, situational - analysis, organisation and management, strategies to implement for OMEA, meausre of performance, and evaluation. - It assists when dealing with financial institutions, allows managers to asses strengths and weaknesses, forces managers to plan for possible changes and helps allocae finacial resources properly Management - Management uses resources available to achieve the most effetive outcome and achieve the strategic goals of a business Staffing and teams BUSINESS STUDIES Staffing is a process involving recruitment Teamwork allows employees to be more open, develop trust in colleagues, provides equal opportunity - Employees are provided with some benefits to motivate them and encourage them to keep working with the business Trend analysis - It looks at changes over a period of time - It looks at market trends and what people like so that the business can fulfill customers wants Identifying and sustaining competitive advantage - Competitive advantage is important. If a business doesn’t have CA, they will be the same as their competitors and therefore, fail as a business - This can be done through cost leadership and differentiation leadership Ovoiding over-extension of finance and other resources - Financial resources, assets and labour resources must not be over extended - Overexteded; when a business uses debt finance larger than what it can pay over its prescribed period of time - Using technology - Leading edge technology allows for better proudcts - When products are better, customers will be attracted, allowing for success - Poor technology may negatively impact constancy of products, leading to faults in the product Economic conditions - If a countries economic condition is poor, the business will suffer. - Recession and boom times will influence consumer buying and spending Strategies for success in business - Make a detailed plan - Buy a franchise - Start in a partnership for support - Do market research to identify biz opportunities - Manage cash flow and decreae outflow buy leasing long-term assets - Buy an established biz after investigating it
