BUSINESS NOTES
NATURE OF BUSINESS
A business can be defined as the organised effort of individuals to produce and sells usually for profit, the product that
satisfy individuals needs and wants
ROLE OF BUSINESS
-
Producing goods and services
Good: a product that you can see and touch (e.g. phone)
Service: intangible things done for you (e.g. hairdressing)
Need: vital to your survival (e.g. food, shelter)
Want: a product that you can desire but is not essential (e.g. jewellery)
-
Profit, employment, incomes, choices, innovation, entrepreneurship and risk, wealth and quality of life
Profit:
- If the businesses sales revenue is greater than its operating expenses, it has earned a profit.
- PROFIT = SALES REVENUE- EXPENSES
Employment:
- To be able to purchase products, consumers need money. They usually earn money by working at jobs
provided by businesses.
Income:
- Income is the amount of money received by and individual for providing their labour.
- A business income is the amount of money it earns after covering all of its expenses.
Choice:
- a primary function of a business is to produce goods and services for consumers to satisfy their needs and
wants
- this provides consumers with choice and stimulates competition
Innovation:
- the development of new products or improvements to existing products
- Research and development
Entrepreneurship:
- People who transform their ideas into a new business
- They start, operate and assume the risk of business venture
Wealth creation:
- By increasing sales and developing strategies to promote brand awareness to increase the value of an
organisation
Quality of life:
- Refers to the overall wellbeing as an individual and as a combination of both material and non-material
benefits.
TYPE OF BUSINESSES
Classification of business
-
Size
Characteristics
# of ee’s
Small
Manufacturing = less
than 100
Service based = less
than 20
Independent 1-2
owners
Medium
Service = 20-199
Large
Service = 200+
A few owners or
private shareholders
Most common legal
structure
Decision making
Sole trader/
partnership
Owner responsible
Private company
Large private company
or public share
ownership
Public company
Source of finance
Owners own funds
Type of Ownership
-
Owner responsible as
it becomes
complicated with
increased
shareholders
Private share holder
investment
Complex decision:
board of directors/
senior management
team
Many sources
- Share sales
- Loans
- Overseas
investment
Geographical spread
Geographical spread is the presence of a business and the range of its products across a suburb, city, state, country or
globe
LOCAL
Restricted geographical spread
Serves the surrounding area ad
does not have the resources to
offer a range of products to
another suburb or town
- Industry
NATIONAL
Operates in one country but
caters for a range of
cities/suburbs within that
country
e.g. David Jones, Coles
GLOBAL
Transnational Corporation
A large business with a home
base in one country that
operates
E.g. Nike, Apple
An industry consists of businesses involved in similar types of production
Industry Sector
Primary
Secondary
Tertiary
Quaternary
Quinary
Definition
Businesses which production is
directly associated with natural
resources
Involves taking raw materials
and making it into a
semi/finished product
Involves performing a service
for other people
Services that involve the
transfer and processing of
information and knowledge
Services that have been
traditionally performed in the
home
Example
Mining, farming
Coal turned to steel used to
manufacture cars
Retailers, dentist, nurses
Telecommunications, finance,
education, internet based sales
Childcare, take away, cleaning,
hotels
-
Legal structure
Sole trader
Partnership
# of owners
One person
Liability
Unlimited
Establishment
Most simple
Major
advantages
Major
disadvantages
Public company (L.td)
2-20 people
Private company (Pty.
Ltd)
2-50 shareholders
(owner has a large
degree of control)
Unlimited
Limited
Limited
Incorporation
Must go through
Australian security
exchange
-shareholders have
limited liability
protection
- continue after death
- owner can chose
shareholder
- no restrictions on
transfer of share money
- limited liability
- continue after death
-closing the business is
extremely complex as
all shareholders must
agree
- publish annual
accounts
-Complicated to set up
- cant chose the share
holders
Recommend a
document with
partnership
agreement
-Low cost of entry -shared
-Complete control- responsibility and
owners right to
workload
keep all profits
-pooled funds and
-no tax on profits
talent
- minimal
government
regulation
-unlimited liability -unlimited liability
-difficult to
-liability for all debts
operate if sick
-divided loyalty and
-need to carry all
authority
loses
- burden of
management
Infinite amount
Factors influencing choice of legal structure
-
Size, ownership, finance
SIZE
-
Most appropriate legal structure for opening business would be sole trader or partnerships
As the business increase, it will require more equipment etc. that requires the injection of more money.
Businesses make the change from unincorporated to incorporated due to wanting limited liability
Forming private companies allows for extra finance, skills and enterprise
For larger companies, limited liability is wanted for the protection of individuals funds
If a company becomes public, a prospectus is issued inviting the public to buys shares which allows for
company expansion
OWNERSHIP
-
If an owner is after complete control they should become a sole trader
Private companies allow the owner to have a large degree of control (over who can become shareholders)
Offers limited liability so that the owner is not at a level of personal financial risk
In public companies, more shares = more ownerships
FINANCE
-
Business expansion requires injections of finance used to purchase new equipment, undertake research and
development and exploit new markets
Sole traders and partnership are at greater financial risk due to unlimited liability
Venture capital = money that is invested in a small businesses with the potential to success
-
To avoid difficulty of raising finance, business owners decide to sell their shares
INFLUENCES IN THE BUSINESS ENVIRONMENT
External influences
-
Economic
Economic influence is experienced through economic cycles of booms and busts
BOOM
RECESSION
Higher level of employment
Unemployment levels rise
Inflation may increase
Inflation may remain stable or fall
Wages increase
Wages are less likely to rise
The level of spending by consumers
The level of spending usually decreases
The state of the economy has a great impact on businesses. The policies implemented by the government are aimed
at keeping the economy growing steadily, without putting pressure on prices and wages. The economy is also affected
by overseas trends:



Changes in trade
Changes in investment
Foreign exchange
-
Financial
Deregulation is the removal of government regulation from industry, with the aim of efficiency and improving
competition. Due to globalisation of the world’s financial markets, it is no longer necessary for many large Australian
businesses to use only domestic financial institution for raising of finance. Increased competition = better products
and services for business
-
Geographic
Globalisation: the process that sees people, goods, money and ideas moving around the world faster and more
cheaply than before
Globalisation has influenced the number of products Australian buys and sells on the world market. National borders
no longer limit the world.
Major effects that have an enormous effect on business activity:
- Australia’s geographical location within the Asia-Pacific region
- The economic growth in a number of Asian nations
- Changing demographics (changes in demand levels and the nature of products and services, biggest issue for
Australia is the ageing population)
-
Social
Changes in taste, fashion and culture can lead to sales and profit opportunities and business growth. Failure to
respond to changes can threaten business stability, sales, profit and viability. Social issues leading to change:
-
Environmental awareness (making sure products are recyclable, waste disposal, fuel efficiency)
Work-life balance (flexible work arrangements)
Workplace diversity (gender equality, cultural diversity)
-
Legal
Legislation has been introduced to cover taxation, industrial relations, work health and safety, equal
employment opportunity, anti-discrimination and protection of the environment. TOO MUCH GOVERNMENT
INTERFERENCE. Small businesses are currently facing levels of regulation similar to larger organisations.
Compliance with regulations is often costly and time consuming, confusing and contradictory
-
Political
There are element of politics in most major issues that affect the business environment.
Dominanat political issues affecting business
- Labour market reforms (free trade policies)
- Social reforms (paid pparental leave)
- Environmental management (emissions trading scheme)
- Taxation (GST)
-
Institutional
Technological
Competitive situations
Markets
Internal influences
-
Products
The main product influences are:
-
-
The type and range of goods and services provided: if goods are physically large the business will
need to structure its operational system differently to a business that provides a service
The type of business: the business structure will be different for retailer, service provider or
manufacturer
The size of the business: the larger the business, the more goods and services produced, the more
complex the operational structure
Location
If a business is not convenient and visible, customers may not make the effort to find the business therefore
optimum customer flow will not be achieve. A complementary business is one that sells a similar range of
goods and services. Locating next to a complementary business may be beneficial, attracting more
customers to a single site e.g. food court
-
Resources
The four main resources available to a business are:
-
Human resources (employees of the business)
-
Information resources (knowledge and data, market research)
-
Physical resources (equipment, machinery, buildings)
-
Financial resources (funds)
-
Management and business culture
Business culture refers to the values, ideas, expectations and beliefs shared by the members of staff of a
business. It covers:
-
Official policies, goals and slogans
Informal rules on how to dress, behave etc.
In order to sustain a god business culture, managers need to be role models for staff in those values their
business considers important
Less fluid organisational structure
- Structure
- Clear rules
- Doesn’t like change
- Strict uniform
- Doesn’t encourage creativity
More fluid organisational structure
- Relaxed
- Adaptable to change
- Promotes individuality
Stakeholders
STAKEHOLDER DESCRIPTION
Shareholders – purchase shares in a company so
they are partial owners
Employees- manufacture or produce the product
that the organisation sells
Managers – responsibility of running a profitable or
successful organisation
Customers- people purchasing products
Society- members of society
Environment- the natural environment surrounding
business
THEIR INTERST IN THE BUSINESS
-purchase shares, partial owners
-voting rights on major business decisions
-able to voice their concerns and ask questions
- ensure the business is profitable as they receive a
proportion of profits
-manufacture or produce the product the
organisation sells
-they want to be values, paid fairly, trained properly
and treated ethically
-responsibility of running a profitable or successful
organisation
-understand legal issues and is their responsibility
to introduce policies
-increase sales
-best value for money, fairly treated, product
performs as promised
-concerns about organisations using valuable land
resources or showing disregard for carbon
emissions
-businesses to adopt ecologically sustainable
operating practices, response to concerns about
climate change and the destruction of natural
environment
BUSINESS GROWTH AND DECLINE
Stages of the business life cycle
Sales
Establishment
- initially low and slow
Growth
-rising customer awareness
- new products
- spending increases
- wider range of
promotion
- new products
- mass marketing
- growing too fast =
pressure on cash flow
-
low budget
inexpensive options
word of mouth
social media
local paper
high out flow
low revenue
Customers
-
small based local
positive relationships
-
Cost
-
very high to start
-
Profit
-
Low if any
Main
Problems
-
Employees
-
Advertising
Cash flow
-
need to monitor
expenses to
maintain cash flow
loyal customers
recruiting new
customers
get more efficient
-
customs may feel
impersonal
-
Grows quickly with
strong sales
-
Competition reduces
growth until it
reaches a steady
amount
Low income
Poor cash flow
-
-
Keep up with
competition
Few employees
Initially informal
-
May grow too fast
Move away from core
business
Recruitment and
training needs to be
formal
-
Work teams
Performance
appraisals
POST MATURITY
Steady state- business isn’t growing but still keeping loyalty of customers
- rarely continues for long periods
- sales will fall due to changing fashion/ trends/ technology
- revenue fall due to competition
- eventually will lead to decline
Decline
-
Maturity
- steady sales
- competition
- brand loyalty
- product quality
cash flow/ revenue declines
banks are reluctant to lend money
suppliers are cautious in selling people inventory
products become obsolete
customers can’t rely on service in the long term
Renewal
- can occur is business can reinvent its product and image
- requires and investment in market research
- requires an investment in research and development
- requires risk and innovations
-
Responding to the challenges at each stage of the business life cycle
ESTABLISHMENT
-
deciding location
types of products sols
finding motivated staff
suitable legal structure
GROWTH
-
increasing sales and revenue
have to increase market share
MATURITY
-
business growth and market share begins to slow
increased competition
Factors that can contribute to business decline
-
cash flow or revenue fails away
banks are reluctant to lend money
suppliers are cautious in selling people inventory
products become obsolete
customers cannot rely on service in long term
Voluntary and involuntary cessation – liquidation
Voluntary cessation: when a business owner chooses to stop operating the business. Due to
-retiring of owner
-change of lifestyle
-sole trader has died
With debts increasing and a negative cash flow, a business owner will realise if their business is underperforming, to
prevent accumulation of debt, the owner will need to cease operating the business
Involuntary cessation: the owner is forced to cease trading by the creditors of the business
Creditors are the people or businesses who are owed money if a business carries on after debt. The creditors worry
about the money they are owed forcing the business to close.
BUSINESS MANAGEMENT
NATURE OF MANAGEMENT
Management is a fundamental activity that makes the business function. Management is the process of (i)
coordinating a business’s resources to achieve its goals, (ii) working with and through other people to achieve
business goals in a changing environment. Whether the goals of the business are achieved largely depends on the
skills and expertise of the management team in coordinating the business’s resources.
Features of effective management
An effective manager needs to be good at many thing. The role of effective management is to make sure the joint
efforts of employees are directed towards achieving the business goals. Effective management is usually the major
factor influencing the success or failure of a business
PLANNING
ORGANISING
LEADING
CONTROLLING
The preparation of a predetermined course of action for
a business
The structuring of the organisation to translate plans
and goals into actions
the process of influencing or motivating people to work
towards the achievement of the organisation’s
objectives
Compares what was intended to happen with what
actually occurred
Skills of management
Skill
Interpersonal
Communication
Strategic Thinking
Vision
Problem Solving
Decision-Making
Flexibility
Adaptability to
Change
Definition
Skills needed to work and communicate
with other people and to understand
their needs.
Exchange of information between
people, the sending and receiving of
messages. Can be verbal & nonverbal
Characteristics
 Ability to relate to other people
 Appreciating needs of others
 Showing genuine understanding
 Motivation and guidance of workers
 Clear communication so employees
understand what is expected of them
 Sharing thoughts and plans
Manager seeing the business as a
 Visualise how work teams &
whole and being able to take the broad,
individuals interrelate
long-term view in managing the
 Seeing the ‘big picture’
business
 Thinking about the direction of the
business
Clear, shared sense of direction that
 Need to know where the business is
allows people to attain a common goal.
heading
 Communication with employees
 Guidance
 Need to think about how current
decisions will affect the business in
the future
Broad set of activities involved in
1. Identify the problem
searching for, identifying and then
2. Gather relevant information
implementing a course of action to
3. Develop alternative solutions
correct an unworkable situation
4. Analyse the alternatives
5. Implement one solution
6. Evaluate the situation
Identifying the options available and
 Identifying available options and
then choosing a specific course of
choosing which is best
action to solve a specific problem
 Make decisions within a particular
time frame
 Understanding implications of
decisions
Refers to being responsive to change
 Important as it is impossible to
and able to adjust to changing
predict spontaneous events that will
circumstances
occur in the future
 Risk taking
 Being proactive (making changes
before damage is done) not reactive
Being able to deal with changes in the
 Having a contingency in case of
internal and external business
emergency
environments.
Reconciling the Conflicting Interests of Stakeholders




Each stakeholder has their own reason for having an interest in the business
What one stakeholder hopes to achieve may conflict with the desires of other stakeholders
Managers need to reconcile the conflicting interests of various stakeholders.
Senior managers must attempt to satisfy as many stakeholder expectations as possible
Achieving Business Goals
What is a Goal?

Desired outcome (target) that an individual or business intends to achieve within a certain time
frame
 Carefully prepared goals benefit managers by:
- serving as targets
- measuring sticks
-motivation
-commitment.
 The best method of writing effective goals is by using the S.M.A.R.T. technique. (specific,
measurable, achievable, realistic, timebound)
Types of Goals
Financial





Social


Environmental


Maximise profit
o Continue to increase profit
o Profit maximisation - when there is a maximum difference between the
total revenue into the bus and total costs. One way to achieve is
increasing sales
Improve share price
o A share is a part ownership of a public company.
o People buys shares in the hope of selling them for a higher price, or
because owning shares in a company entitles an investor to a part of the
company’s profits - distributed in the form of dividends.
o Maximise the returns their shareholders, achieved by keeping the share
price rising — constantly improving the share price — and paying back
healthy dividends.
Increase market share
o Refers to the businesses share of the total industry sales for a particular
product
o important goal for bus’ that dominate the market, because small market
gains often translate into large profits
o Larger customer base  increased sales  increased profits
Maximise growth
o expansion
o Achieve growth internally or externally
o Internally – employing more people, increasing sales, introducing
innovative products, purchasing new equipment or establishing more
outlets
o Externally – merging with or acquiring other businesses
Community service
o Business sponsorship of a wide range of community events, promotions
and programs
Provision of employment
o Most large businesses do not see employment of people as a main goal.
Many small business owners, employing family members who otherwise
might be unemployed.
Social justice
o Adopting a set of policies to ensure that employees or other community
members are treated equally and fairly.
Developing products and creating ideas that are environmentally friendly
Sustainable development
o Economic growth must be achieved sustainably
o There needs to be a balance between economic and environmental
concerns
Achieving a Mix:


Businesses generally have a range of goals because they have different stakeholders who each have
different needs. Therefore managers have a mix of goals that they try to achieve simultaneously
Goals are interdependent

E.g. strategies employed by a bus. to achieve the goal of maximising growth may simultaneously
help that bus. achieve the goals of maximising profits and increasing market share.
Staff Involvement:



Involving employees in the decision-making process and giving them the necessary skills and
rewards.
Type of decentralisation that involves allowing ee’s some authority to make decisions.
Only successful if a bus. provides ee’s with the necessary expertise & recognises the importance of:
Innovation: when a new idea is applied to improving an existing product or idea
Motivation: individual internal process that directs, energises & sustains a person’s behaviour
Mentoring: the process of developing another individual through tutoring, coaching & modelling
acceptable behaviour
Training: the process of teaching staff how to perform their job more efficiently by boosting their
knowledge & skills. Allow employees to upgrade skills and become multi-skilled employees
MANAGEMENT APPROACHES
Classical management approach
Classical management approaches have a high level of specialisation and division of labour to increase productivity.
They use a strict pyramid organisational structure with a rigid chain of command and a narrow span of control. It
places an emphasis on the management functions of planning, organising and controlling. It also encourages
managers to use an autocratic leadership style. They use financial rewards are a key motivators for employees.
Planning is the preparation of a predetermined course of action for a business. It involves showing how th business
will achieve its state mission and business goals.
Organising is where management puts into practice the goals that were determined in the planning stage. It
determined what is to be done, who needs to do it and how it is to be done.
Controlling is when it attempts to evaluate performance and take corrective action to ensure that objectives are being
achieved.
Behaviours approach
Behavioural management approaches place an emphasis on the need for management to work with people. It realises
that an effective two-way communication process is needed between management and workers. It sees a manager’s
role of leadership as paramount and focuses on motivation using a range of intrinsic and extrinsic rewards. It uses a
flatter organisational structure with work teams and encourages managers to use a participative or democratic
leadership styles with employee participation in descion making. Employees are considered a key part of the whole
business.
Leading: a range of effective leadership skills is necessary
Motivating: creating collegiality and including staff in decision-making are significant motivators as well as
understanding the different needs of different individuals and using these as motivators
Communicating: two-way communication between managers, team leaders and staff will ensure that they are
successful in sharing information.
Contingency approach
Contingency management approaches emphasise the need for a more flexible structure, varied leadership styles and
greater mounting of the business environment
Definition
Stresses how best to
manage and organise
workers so as to improve
productivity (output)
Scientific: best way to
perform a job
Bureaucratic: rules &
regulations that control a
business
Planning
Organising
Controlling
Stresses that people
(employees) should be
the main focus of the
way in which the
business is organised
Leading
Motivating
Communicating
BOTH
Organisational
structure
Hierarchical – tall
Teams - flat
BOTH
Leadership
Style
Autocratic
“Do it the way I tell you”
Participative/ democratic BOTH
“Any suggestions for this
task?”
Management
styles
Example
Stresses the need for
flexibility and
adaptation of
management
practices to suit
changing
circumstances
MANAGEMENT PROCESS
Coordinating key business functions and resources
Key functions:
o
o
o
o
Finance
Human resources
Marketing
Operations

Strategies: A series of actions undertaken to achieve specific goals

Outsourcing key business functions: not required all the time and expensive

Interdependence between key business functions: mutual dependence that the key functions have on
one another. This means that the various business functions work best when they work together

Separation of key business functions: because they require difference skills and knowledge
o Reduces complications regarding the business functions and promotes efficiency within the
business

Overlapping: when duties in the business fall under more than one of the 4 business functions
Operations
Operations: the business processes that involve transformation or ‘production’.


The production of a good or the provision of a service
Transforming inputs into outputs
Goods and/or Services:
Goods tangible – can be touched e.g. clothing or car
Serviceintangible – include service that can’t be touched, e.g. a training course
Production Process:
o Inputs
o Processes
o Outputs

Inputs  resources used in the transformation (production) process.
 6 types:
1. Material– raw materials that are transformed into products
2. Capital equipment – major, expensive equipment used to process the input into output
3. Labour – human resources needed to complete a job
4. Information – information readily available to the company
5. Time – coordinating all resources within a specific timeframe
6. Money – used to continue the production process



Transformed resources  those inputs that are changes or converted in the operations process
-Materials – raw materials that are transformed into products
-Information – the knowledge gained from research, investigation and instruction which results in
increased understanding
-Customers – customers become transformed resources when their choices shape inputs
Transforming resources  those inputs that carry out the transformation process
-Human
resources – the people that are employed by the business
-Facilities – the
plant (factory or office) and machinery used in the operations process
ProcessesConversion of inputs (resources) into outputs (g’s & s’s)
Operations in the manufacturing process:
Operations in service businesses:

Outputs the end results of a business’s efforts - finished goods or services
Quality Management:
strategy a business uses to make sure that its products meet customer expectations
-benefits of implementing quality management practices include:
 reduced waste and defects
 reduced variance in final output
The


improved reputation and customer satisfaction
reduced costs
Marketing
Marketing is the process of developing a product and implementing a series of strategies aimed at correctly
promoting, pricing and distributing the product to a core group of customers. The role of marketing is to increase
market share
-
Identification of the target market
A target market is a group of customers with similar characteristics who presently, or who may in the future, purchase
the product. Most businesses must select specific groups of customers on which to concentrate their marketing
efforts.
TYPES OF TARGET MARKETS
Mass marketing approach – a large range of customers. In mass markets the seller mass-produces, mass-distributes
and mass-promotes one product to all buyers
Marketing segmentation – segments the market to better direct its marketing strategies to a specific group of
customers. This occurs when the total market is subdivided into groups of people who share one or more common
characteristics
Niche markets – narrowly selected target market selection. It is also known as a micro market
-
Marketing mix
Marketing mix refers to the combination of the FOUR p’s that make up the marketing strategies. The emphasis place
on various aspects of the Marketing mix will be determined by the position or stage of the Product life cycle or target
markets.
Product – the element of the marketing mix which looks at the products quality, packaging, design, labelling, name,
exclusive features, warranty and guarantees. Packaging involves the development of a container and the graphic
design of the product. It helps promote the product but also helps preserve, inform and protect. Brand and brand logo
are a powerful marketing tool that conjures up feelings and perceptions.
Place – the place refers to the distribution. This refers to activities that make the products available to customers
when and where they want to purchase them. A distribution channel is a way of getting the product to the
consumers.
Finance
Finance: concerned with where the business sources its funding.
Accounting: A management tool concerned with providing information on the financial affairs of a business
-
Accounting provides info. that is valuable to managers. Also provides info. to ee’s, owners and
shareholders (if it is a company), suppliers, lenders, customers, government (including regulators),
competitors and the general public.
Cash Flow Statement:



Shows the movement of cash receipts & cash payments
Liquidity refers to the amount of cash a business has access to and how readily it can convert its assets
into cash so that debt can be paid
Opening cash + inflows-outflows = cash balance
Jan
Feb
March
Opening balance
3000
3300
1800
+ Revenue (Cash
inflows)
1000
1000
1000
-Expenses (Cash
inflows)
700
2500
600
Closing Balance
3300
1800
2200
Important terms:
-opening balance: cash balance for the bus. at the start of the month
-revenue: cash flowing into the bus. during that month
-expenses: cash flowing out of the bus. that month
-closing balance: cash balance at the end of the month (& opening balance for next month)
Income Statement (revenue statement/profit & loss):




Summary of the income earned & expenses incurred over a period of trading.
Gross profit = sales – COGS
COGS= opening stock + purchases – closing stock
Net profit = gross profit – expenses
-
Sales
$1 000 000
COGS
$ 400 000
Opening stock
60 000
+purchases
410 000
-closing stock
70 000
=
Gross Profit
$600 000
-
Expenses
$35 0000
=
Wages
195000
Rent
155000
Net Profit
25 0000
Balance Sheet:

Represents a business’s assets and liabilities at a particular point in time and represent the net
worth of the business
 Traditional T format or narrative format
 Assets – physical items of value, owned by the business
-Current assets: things of value that are kept for about 12 months, e.g. accounts receivable (or
debtors-money owed to the bus), cash in the bank, inventory etc.
-Non-current assets: items that have a more lasting value to the bus. >12 months, e.g. motor
vehicles, buildings, plant & equipment
 Liabilities – anything owed to people or other businesses outside the business entity
-Current liabilities: monies owed within the near futures, e.g. accounts payable (creditors) & bank
overdraft
-Non-current liabilities: monies owed by the bus over a longer period, e.g. bank loans - &
mortgages
 CLAD: creditors a liability, debtors an asset
 Owner’s equity – also called capital or proprietorship, it is the net worth of the bus, and
represents what the bus owes to the proprietor. Represents what is left of the bus. after all
outside liabilities have been paid.
 A = L + OE or OE = A – L
TERMS
Sales
Opening stock
Closing stock
COG’s
Gross Profits
Net Profits
Operating expenses
DESCRIPTION
Is the total value of goods sold
Is the value of stock the business had at the beginning at the accounting
period
Is the value of stock the business had at the end of the accounting period
As the costs the business incurred in order to sell products to customers.
The amount of profit calculated by subtracting the cost of goods sold
from the total sales revenue. It does not take into account other income
or expenses.
The amount of final product calculated by subtracting the cost of
expenses in running the business from the total gross profit.
A business’s expenses are usually divided into 3 sections:
1. Selling expenses: salaries, wages, advertising, delivery, expenses,
electricity, freight outwards
2. Administrative expenses: stationary, office salaries, rent, rates,
telephone, accountant’s fees
3. Financial expenses: discounts to customers, bad debts, interests
on loan, dividends
Human resources
HR is defined as the effective management of the formal relationship between the employer and employees. Most
businesses that are successful in the long term maintain a balance between concern for success and regard for their
employees. Effective HRM involves hiring the best staff, develop cooperative and effective relationships, motivate
staff and provide opportunities.
The HUMAN RESOURCE CYCLE refers to the various stages of Human Resources management. These include:
1. Acquisition: identify needs, recruitment, selection
-
Planning: identifying staffing needs; job analysis (determining the exact nature of the position to be filled)
Recruitment: attracting people to apply for the position in the business ; internal and external recruitment
Selection: choosing and hiring the most qualified; testing and interviewing
2. Development: training and development
- Induction and training: teaching employees new skills and heling them learn tasks associated with their new
job
- Development: the process of improving the skills, abilities and knowledge of staff
3. Maintenance – benefits monetary and non-monetary
- Monetary benefits: rewarding employees efforts through financial compensation; pay rates
- Non-monetary benefits: such as conditions; fringe benefits
4. Separation – voluntary and involuntary
- Voluntary: employees leaving on own accord; retirement and resignation
- Involuntary: employees being asked to leave; retrenchment, dismissal
Ethical business behaviour
Behaviour that is considered consistent with the behaviour standards set by society. This includes acting
honestly in marketing, providing value for money, promoting social justice and being environmentally
friendly. Managers are expected to manage the resources of the business in a responsible manner while
considering the potential impacts of their decision on all stakeholders and the environment.
MANAGEMENT AND CHANGE
Responding to internal and external influences
Types of Change
Change: any alteration in the internal or external environments
Transformational Change: results in complete restructure of the whole organisation. A transformed
business will have:



A different (usually flatter) organisational structure
New work systems & procedures
A change ee’ structure
Incremental change: results in minor changes usually only involving a few employees. E.g:

Change from using a fax to email when sending information to customers
-Managers should be proactive rather than reactive in order to adapt to change
Structural response to change:
Structural changes: refers to changes in the business’s structure- that is the organisation chart e.g.
outsourcing, flatter organisation structure, work teams
-Outsourcing: the contracting of some organisational operations to outside suppliers



Impact on arrangement of workforce i.e. Part time/full time
May mean that job losses occur within the organisation and other jobs need to be created.
+ The organisation may be able to produce its goods, or supply its service, more efficiently than
before.
-Flat Structure:


As middle-management positions are abolished, greater levels of accountability and responsibility
to frontline staff
Impact seen through reporting controls
-Work Teams:



Coupled closely with the emergence of the flatter organisational structure is the development of
work teams.
Allows businesses to be more flexible &responsive
Teams also motivate employees to be more creative, to develop a broader view of goals, and to
contribute across the entire business
Impacts on:
Business Culture

Managers and ee’s must develop a new mindset and way of
thinking- a new business culture in order to adapt to new
environments
Human Resource
 Organisational change will ultimately have a profound impact
Management
on ee’s at all levels within a business
 Main human resources changes:
-Recruitment and selection must be altered to reflect the
need for individuals who possess the knowledge and skills
required to handle the changing circumstances.
-If ee’s are made redundant, appropriate termination
procedures must be put in place.
-Training must be offered to existing ee’s in the areas of
teamwork, problem solving, decision-making and change
management.
-Performance appraisal and reward systems that reinforce the
new behaviours must be put in place.
Operations
 Main operations management changes are:
Management
-bus’ have refitted and reorganised their factories to take
advantage of improvements in technology. They are also
pursuing efficiencies in process design and materials
management.
-new advances in production technology have been
accompanied by changes in the way the production process is
organised, including flexible manufacturing.
-Flexible manufacturing allows production plants to be
smaller, more specialised, and closer to important markets.
-Emphasis on quality management — an organisation-wide
system of procedures to ensure that the products satisfy
consumers.
-Human relations are being improved so that ee’s will
approach their work more intelligently.
Managing Change Effectively
Identifying the Need for Change:


Effective manager who has the ability to scan the business environment, attempting to understand
the factors that will have an impact on the business
Holistic view of the outside world

Business information systems: gathers, organises and summarises data into practical information to
be used by managers who use them to make decisions
Setting Achievable Goals:

A vision statement states the purpose of the business. It indicates what the firm does, and states its
key goals. In conjunction with the vision statement, a business establishes specific company goals
that are measurable
Resistance to Change:
Reason
Definition
Management Some managers make hasty decisions that are unclear and poorly timed. Some managers are
indecisive and put off making a decision creating uncertainty. Employees will eventually lose
confidence in the manager’s decision-making abilities.
Fear of Job
Employees become fearful of changes that threatens job security and therefore resist the new
Loss
processes because they feel the result will be loss of power and control.
Disruption to
Routine
Time
Fear of the
Unknown
Inertia
Cost
Employees worried they are worried about adapting to new procedures that threaten established
work routines
Not enough time is provided for employee’s to think about the change, accept it and implement it.
Sometimes timing is poor.
Change can create feelings of lack of control, fear of the unknown and uncertainty about the future.
The unenthusiastic response to proposed changes. Some managers and employees resist change
because it involves them moving out of their comfort zone.
The financial cost of implementation of change. Must weigh up the costs and benefits of the change.
Driving and Resisting Forces:



Driving – forces that support change
Resisting – forces that work against change
Managers who are trying to implement a change must analyse the situation to identify and balance the driving and
restraining forces.
Strategies for reducing resistance to change:

Build trust among ee’s, provide constant feedback, offer support – this reduces fear and anxiety, and
clearly articulate the purpose of the change
Creating a culture of change:


For ee’s & managers to be prepared to take such risks, the bus. culture needs to be supportive. One
method to assist, is for the bus. to identify individuals who could act as supportive change agents .
Change agents: person/group of people who act as catalysts, assuming responsibility for managing the
change process.
Positive leadership:


How a manager treats their ee’s will largely determine their acceptance of or resistance to change
A successful leader will need to:
-market and promote the change in a manner that will achieve cooperation and acceptance
-resolve conflicts, which often arise when change is implemented
-keep an open mind, seek out new ideas and freely share information
Management Consultants:









A management consultant is someone who has specialised knowledge and skills within an area of
business.
Bus’ hire the services of management consultants because they provide:
-A wide range of business experiences
-Specialised knowledge and skills
-An objective (external) viewpoint
-Access to the latest research
-Awareness of industry best practices.
especially helpful in providing change management advice- a methodical approach to dealing with
change, both from the perspective of a business and on the individual level
Can provide strategies to smoothly manage the introduction of business changes by:
-undertaking change readiness reviews
-creating a supportive business culture
-actively involving all stakeholders in the change process
-gaining and recognising early achievements.
BUSINESS PLANNING
SMALL TO MEDIUM ENTERPRISES
Definition
A small to medium enterprise can be difficult to define due to their dynamic nature, however the following
quantitate measures can give an indication as to what a small to medium enterprise is.
Quantitative Measure
Number of employees
Type of ownership
Sources of finance
Legal structure
Market share
Management structure
Content
Small: <20 employees or <100 for manufacturing businesses Medium: up
to 200
Independently owned and operated
Bulk provided by owner (owners’ equity) (internal) and some debt from
financial institutions (external).
Sole trader or partnershipUnincorporated businessesunlimited
liability
Small market share
Owner responsible for making all decisions and it is closely controlled by
the owner/operator.
Role







Employ about 73% of all the people working in the private sector (51 per cent in small businesses and 22% in
medium businesses)
Have created 80% of Australia's employment gains during the past 10 years
Produce approximately 50% of all the products produced each year
Generate an increasing amount of our total exports
Account for 20% of all money spent on R&D
Provide a wide range of products used by large businesses
Earn more profits and pay more taxes than do large businesses.
Economic Contribution

Contribution to GDP (gross domestic product- total money value of all g’S & s’s produced in Australia over a 1-year
period)
- Economic growth (when a nation increases the real value of goods and services over time)
- Contribute 50% to GDP

Contribution to Employment
-employment keeps the economy healthy
-SMEs employ around 8 mil people, which represents about 70% of total private sector employment.
-last 20 years, the SME sector has been the major generator of new jobs in the Australian economy.

Contribution to Invention and Innovation
-mains source of inventions and innovations
- Around 40% of SMEs are actively engaged in some form of innovation.
- Finding new ways to do things has resulted in improved efficiency and increased productivity.
-Increase in levels of R&D from SME’s

Contribution to Balance of Payments
-BOP – record of the country’s trade and financial transactions with the rest of the world over time,
usually 1year
-overseas markets
- no. of SME Australian exporters is growing faster than large exporters.
Success and/or Failure
Success
1. Focus on market niche. Small businesses can concentrate their efforts on a few key customers or a specific
segment of the market. This provides the opportunity for the SME to become more specialised and able to
deliver a high level of service.
2. Reputation. Because the SME is servicing a narrow market niche, it can develop enviable reputations for quality
and service.
3.
Entrepreneurial abilities. The people in SMEs are crucial to the success of the enterprise. Attitudes and
personalities of owners will vary enormously. Some will have drive and enthusiasm, many will set targets, and
some will take big risks.
4. Flexibility. The small size of the business allows the owner to adapt quickly to changes in the external
environment. Because there are fewer levels of management, decisions can be made quickly. In addition, the
close contact between owners and their customers allows the establishment of personal relationships.
5. Access to information. Its difficult for a SME owner to choose relevant info. & to gauge the quantity of info.
needed. As a bare minimum, the SME operator must have information regarding profitability, the quality of
products and services, and the performance of employees. Accurate and up-to-date information will allow the
SME owner to make better decisions.
Failure


The failure rate of SME’s is around 70% in the first 5 years, due to: risk, psychological pressure &
financial pressure
A SME is classified as a failure when it is:
-Unincorporated and declared bankrupt - a legal process of distributing among the creditors the
property of a business or person who cannot/will not pay their debts
-Incorporated and either forced into liquidation or voluntarily closes down because it cannot pay its
debts and faces a cash flow problem.
Reasons for Failure:





Failure to plan
Economic downturn
Inaccurate record keeping
Complacency
Insufficient capital
INFLUENCES IN ESTABLISHING A SMALL TO MEDIUM ENTERPRISE
INFLUENCE
1. Personal Qualities
2. Sources of Information
3. The business idea
4. Establishment options
5. Market
6. Finance
7. Legal
8. Human Resources
9. Taxation
Qualifications
Skills
Motivations
Entrepreneurship
Cultural background
Gender
Professional advisors/government agencies
Competition
New
Existing
Franchise
Goods/services
Location
Price
Source and cost
Business name
Zoning
Health and other regulations
Skills
Costs – wage and non-wage
Federal, state, local
1. PERSONAL QUALITIES
All types of people own and operate a business however not everyone is suited to the role of business owner as
certain skills and personal qualities are required to succeed. It is important for people to recognise their strengths
and weaknesses, decide if they have the right personal characteristics to be a business owner, and learn the skills
they do not presently have. There is no simple checklist of skills and personal characteristics however starting a
business does require courage, determination and energy
QUALIFICATIONS
Exceptional grades or previous qualifications in business are not essential. The most important aspect is the
eagerness to work long hours. For some SMEs there are few or no formal academic requirements needed to
commence operating however, there are many courses such as Business Studies that provide further knowledge and
understanding to assist in successfully owning a SME.
SKILLS
Skills can be obtained through experience, education and or training
-
Experience: working provides you with valuable experience and well-developed skills
Education and or training: is another way to gain skills
All of these avenues provide skills in
o Accounting
o Computing
o Staff management
o Business administration
o Marketing
MOTIVATION
Motivation is the reason or reasons for acting a certain way. Most businesses use monetary and non-monetary
benefits to motivate workers to be efficient and effective
ENTREPRENEURSHIP
An entrepreneur is someone who starts, operates and assumes the risk of a business venture in the hope of making
a profit. A range of personal characteristics is required to be successful in creating business opportunities. These
include
-
Setting realistic goals
Taking risks
Motivated by achievement
Confident
Takes responsibility
High levels of energy
Tolerates failure skilled organiser
CULTURAL BACKGROUND
Cultural influence can arise from a communitys traditions and beliefs, such as the work ethic – the willingness to
work long and hard in an effort to be successful – which is strong in many European and Asian culture. Their
determination translates into business success/ cultural influences can come from experience and or specialist
knowledge in specific trades or services
GENDER
An entrepreneur’s gender will not determine whether his or her business will be successful. Changes in the social
acceptance of women in the workplace have increased, with many women setting up their own businesses at three
times the rate of men.
2. SOURCES OF INFORMATION
-
Accurate and up-to-date information can help entrepreneurs make better plans to establish a business and
gain a competitive advantage
SME owners can receive assistance from a large number of government and private support agencies
SOURCES of advice
-
Networks
-
Trade associations
Federal, state and local government departments
Small enterprise association of Australia and New Zealand
Accountants
Solicitors
Bank Managers
Australian Chamber of Commerce and Industry
TAFE colleges
Universities
Other business contacts
Community-based services
AusIndustry
Australian Bureau of Statisics
Business Enterprise Centre
Chambers of commerce
PROFESSIONAL ADVISERS
Professional advisers deal with a large number of business and are therefore able to adopt a much wider view of
individual businesses
The FOUR MAIN professional advisers are
1.
2.
3.
4.
ACCUNTANTS: advice on financial management issues and taxation obligations
SOLICITORS: advice on business structures, registration, contracts, leases and partnership agreements
BANK MANAGERS: advice on financial services, sources of finance and basic management
MANAGEMENT CONSULTANTS: advice on problems from and outside and unbiased perspective
GOVERNMENT AGENCIES
LOCAL GOVERNMENTS
This level of government is
becoming more involved in
encouraging business because
it creates employment. Local
councils offer advice on land
zoning, assist with subsidised
land and consider
development applications.
STATE GOVERNMENTS
NSW Trade and Investment –
Provides information and
advice on starting and
managing a small business
Provides interactive tools to
assist owners to start and run
their business
Provides programs to develop
key business skills
Business Enterprise Centres
Australia – is a peak body for
business enterprise centres
and it is non-for-profit
organisation that assists home
based business owners,
business intenders
FEDERAL GOVERNMENTS
www.business.gov.au offers
access to all government
departments, with advice on
everything from fair-trading to
taxation.
Technological advice establishing an online business
presence, networking a
number of computers within
the business premises or
making maximum use of
mobile devices can all improve
business efficiency.
CHAMBERS OF COMMERCE
Chambers of commerce are local associations of business people, usually centred around a suburb or region. They
provide legal and financial help, taxation advice, an explanation of legislation, and industrial relations information.
The chambers also organise training seminars, arrange industry conference and liaise with government departments
SMALL BUSINESS ASSOSCIATION OF AUSTRALIA AND NEW ZEALAND
This lobby group has a membership consisting of thousands of individual small business owners. The association
provides a forum for exchanging news and views relating to small business matters. It only organises raining days
and promotes the role of small business and its importance in the total economy
TRADE ASSOCIATIONS
Trade associations offer specific industry information and assistance. Examples include:
-
Australian Retailers Association
Plastics and Chemical Industries Association
Australian Medical Association
Each association is made up of organisations that are in the same line of business, so it can provide specific
details about product development and industry trends
LIBRARIES AND REFERENE MATERIAL
Libraries are a valuable source of information because they have access to vast amounts of reference material. Most
libraries have online access to large databases with search facilities that help locate specific material. Librarians are
high trained and will undertake a search of the literature available. Most libraries also subscribe to trade and
industry journals.
AUSTRALUAN BUREAU OF STATISITCS
The Australia bureau of statistics provides valuable data on social, economic and demographic trends. It also
provides specialised data on business activities. Information useful to business owners can be obtained from the
following
-
Census on population and housing
Demographic trends and statistics
Household Expenditure Surveys
Having access to such information assists the business owner in analysing and understanding changes to the external
environment
3. THE BUSINESS IDEA
All the businesses in the word must have started from an intial idea and then grown according to their success. The
successful identification of a gap in the market (demand currently not being satisfied) is a key to establishing a
lucrative business
IDENTIFYING BUSINESS OPPORTUNITIES
A business opportunity – is something an entrepreneur can see as an avenue to success. Identified when a person
believes they can provides goods or services in a better or different way from those already in the market. TWO
main ways to identify an opportunity
1. Analyse and review particular parts of the market to find an opening for good or service
2. Identify whether many other people share a particular interest or hobby. Making a profit is not always the
catalyst, belief in the product itself is sometimes what drives entrepreneurs
COMPETITION
Once a business opportunity is identified, consideration of competition needs to be investigated. The type of market
in which the business chooses to operate in will ultimately determine its competitors. A niche market may have
minimal or no competitors whereas a mass market will require extensive planning.
2
WAYS TO ACHIEVE COMPETITIVENESS
4. ESTABLISHMENT OPTION
There are three ways of establishing a new business
1. Setting up a new business from scratch
Sometimes conditions are more favourable for starting a new business than for buying an existing operation
-
When a person has created something unique and starts a business to market their own innovation or
invention
When a person recognises a gap in the market, where it is clear that customers needs are not satisfied by
existing business
When the market has grown and existing businesses cannot supply all customers
If these conditions do not exist, then starting from scratch could be more difficult because existing SMEs will provide
considerable competition
ADVANTAGES
- The owner has the freedom to set up
the business exactly as they wish
- The owner is able to determine the
pace of growth and change
- There is no goodwill for which the
owner has to pay
- If funds are limited, it is possible to
begin on a smaller scale
DISADVANTAGES
- There is high risk and a measure of
uncertainty. Without a previous
business reputation, it may prove
difficult to secure finance
- Time is needed to set up the business,
create procedures, develop a customer
base, employ and train staff and
develop lines of credit
- If the start-up period is slow, then the
business may not generate profits for
some time
2. Purchasing an existing business
When an existing business is purchased, the business is already operating and everything associated with the
business is included in the purchase
-
Stock and equipment
Staff
Premises
Location
-
Existing customer base
Reputation and good will
When purchasing an existing business, it is essential for the potential purchaser to know why the business is for sale.
If the business has been struggling, it may not be very good to purchase. It is also important to examine detailed
accounts for at least the previous three years to determine the financial health of the business. The true value of
goodwill is one aspect of the financial statements that is often hard to estimate. The seller of the business may
overestimate the value of the businesses reputation; therefore, consultation with an accountant is important to
confirm the accuracy of the value laced on goodwill of the seller
ADVANTAGES
- Sales to existing customers will
generate instant income
- A good business history increases the
likelihood of business success
- A proven track record makes it easier
to obtain finance
- Stock has generally been acquired and
is ready for sale
- The seller may offer advice and training
- Equipment is available for immediate
use
- Existing employees can provides
valuable assistance
DISADVANTAGES
- The existing image and policies of the
business may be difficult to change,
especially if the business had a poor
reputation
- The success of the business may have
been due to the previous owners
personality and contacts, so may be
lost when the business is sold
- It may be difficult to assess the valur of
goodwill, with the likelihood that is the
worth
- There may be hidden problems
- Some employees may resent any
change to the business operation
3. Purchasing a franchise
Under a franchise agreement, 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 right to others to use its name and products is known as
a franchisor, while the business that buys those rights is known as a franchisee. The franchisor supplies a known and
advertised business name, the required training and staff development, a method of doing business, management
skills and materials. The franchisee supplies the start-up money and labour, operates the franchise business and
agrees to abide by the terms and conditions of the franchise agreement.
ADVANTAGES
- Immediate benefit is derived from the
franchisors goodwill because the name
is established
- The franchisor provides training and
management backup
- A franchisee can succeed despite
having limited experience
- Equipment and premises design are
usually established and operational
- Well-planned advertising often exists
- Volume buying is possible, often
resulting in cheaper stock
- A business plan and proven business
methods already exist
DISADVANTAGES
- The franchisor control the operations,
with the little scope for franchisee
individuality
- Profits must be shared with the
franchisor through the payment of
ongoing franchise fees
- The franchisee is often required to
purchase stock from the franchisor and
cannot shop around for cheaper
supplies
- Contracts may be biased in favour of
the franchisor
- The franchisee must share any burden
of the franchisor’s business mistakes
5. MARKET CONSIDERATIONS
6. FINANCE
Finance refers to the funds required to carry out the activities of a business.

Debt financing is the most popular form of finance as the owner does not have to sell any ownership in the
business and there are taxation advantages.

There are THREE main terms for debt financing:

Short term: less than 1 year

Day-to-day workings (working capital = CA - CL)




E.G’S include bank overdraft, bank bills and trade credit
Medium term: between 1-5 years

Used for expansion of business, new equipment

E.G’S include term loans, personal loans, leasing
Long-term: greater than 5 years

Purchase buildings, land, plant and equipment

E.G’S include a mortgage (loan secure loan on an asset)
Equity finance, also called equity capital, refers to the funds contributed by the business owner(s) to start
and then expand the business
Cost of finance
The cost of finance will depend on the type of finance, the source and the term of finance.
For example, Debt finance is borrowed money from an external sources (such as a bank) which
requires interest to be charged.
Before finance is obtained, owners need to consider establishing costs and operating costs when starting a business.
Establishment costs include those costs involved in setting up the business (expenses)
Operating costs include those costs involved in the ordinary day-to-day running of the business (expenses)
Legal – business name, zoning, health and other regulation
All business owners have a legal obligation to observe the statutory regulation when commencing and operating a
business. Businesses that do not obey the law risk losing customers and their reputation, being fined, or losing the
right to continue trading. Some of the main laws and regulation that SME owners need to comply with are:
-
Business name registration
Zoning
Health regulations
Trade practices
Human resources – skills, costs – wage and non-wage
Employees are the most valuable resource of any business. Hiring the right people at the right time, with the right
skills in the right quantity is crucial for business success. It an SME owner decides to hire staff, many sources are
available. The source chosen will depend on the size of the business, the type of position available and the nature of
the labour force. The main sources of employees of for businesses are word of mouth, ads, schools and job searching
services.
Skills: the business owner has two options
-
Provide training to improve the skill level of existing employees
Recruit people who have the required skills
Wage and Non-wage: on-costs are payment for non-wage benefits, including long-service leave, workers
compensation and annual leave loading
Taxation – federal and state taxes, local rates and charges
Taxation is the compulsory payment of a proportion of earnings to the government. There are a number of
federal and state taxes that apply to different businesses, and it is important that a person starting a
business becomes familiar will all tax requirements if they wish to continue to operate. Businesses pay taxes
to their federal and state governments based on what they earn, what they own, and even what they
purchase. One of the most important tax obligations is the goods and services.
PAYG = imposed on the employee, taken from the employee’s salary or wage directly, taken from the
employee’s salary or wage directly, lodged with the tax department by the business, detailed in a group
certificate that the employee receives at the end of the financial year,
FBT (fringe benefits) = tax on the provision off a benefit to an employment in place of the salary or wage
GST = 10%
Capital gains = calculated on the profit made on the sale of assets acquired after 19 September 1985,
including on the sale of a business or properties bought and resold within 12 months
Company Tax – paid on the earning of a company and calculated on the company’s taxable income –
calculated at 30 per cent of taxable income
Stamp duty – a tax levied on the transfer of property
Land Tax – a ta on land owned by individuals or businesses over a certain value
Payroll Tax – payable on wages paid by an employer to their employees on payrolls that exceed $750,000
THE BUSINESS PLANNING PROCESS
All SME owners must have a good understanding of the role of the business plan and process of business planning. A
business plan is the road map for future growth and development within a business. It sets out the desired goals and
direction of the business.
ELEMENT
1. Executive summary
2. Goals
3. Strategies
4. Business description and outlook
5. Management and ownership
6. Operational plans
7. Marketing plans
8. Financial plans
9. Human resources plans
PURPOSE
Overview of the plan
Hopes to achieve
How will the business achieve its goals
Overview of the industry and situational analysis
Nature and type of organisation
Production process and people required for this process
Marketing details
Description of the businesses financial needs and
methods of evaluation of its performance
Details of both represent present and future staff
requirements
Business planning is the process of setting goals and deciding how to achieve them. It acts as a link between the
business owners ideas and the actual operation of the business.
Sources of planning ideas
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Situational analysis
in order to develop a business plan and initiate action, business owners need ideas. These ideas or information can
come from a variety of sources. These sources can be divided into two categories
Internal business environment
This covers the factors within the direct control of the owners. It represents what occurs within the business
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 of the business
INTERNAL
STRENGTH
WEAKNESS
What is the organisation
Do we have competent
good at?
managers and staff?
Is our product popular?
Is our computer system
Are our customers loyal?
obsolete?
Are workers skilled and
Have we experienced past
motivated?
failure?
Do we function efficiently? Have we been updating
Are we in a solid financial
our facilities to keep at
position?
pace with others?
EXTERNAL
OPPOURTUNITIES
THREATS
What will new technology What trends have been
bring for us?
evident in our market?
Is the national economy
Are there any new legal
strong?
regulations?
Are interest rates slow?
Are there any new
What are our possible new competitors?
markets?
Are current competitors
What other business can
taking over our market
we acquire to expand?
share?
Another type of situational analysis is market analysis/research. This should be undertaken to determine if there is a
demand for the product or service being produced and if the target market is large enough to support the business.
Vision, goals and objectives
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Vision
A vision statement broadly states what the business aspires to become; its purpose and its function. The main
purpose of the vision statement is to guide and direct business managers, owners and employees. Once the business
has created a vision statement and analysed its position in the market through a situational analysis, it can determine
its business goals and or objectives.
-
Business goals
TERM
Vision
Goal
Objective
DEFINITION
Broad statement of overall purpose
More specific statement of what is intended to be
achieved
Very specific statement of how the goal is to be
achieved
Typical goals may be –
o
o
To improve market share
To become the largest business in the market
Once goals have been established a SME owner must decide how to achieve them. This involves breaking the goals
down into specific objectives that will help achieve the business vision. Generally, the senior manager will establish
strategic goals. Middle managers will then use strategic goals to establish tactical objectives, followed by supervisors
who determine operational objectives.
STRATEGIC GOALS
TACTICAL GOALS
OPERATIONAL GOALS
-
Determined by senior management
Broad aims
Long term – years
Determined middle management
Specific aims
Midterm – month
Determined by front-line management
Specific arms
Short term – days/weeks
Most business owners try to achieve THREE broad gals – financial, social and personal
FINANCIAL GOALS
Profit, Market Share, Growth and Diversification and Share Price
SOCIAL GOALS: These goals relate to the role of the business in the community. Businesses must be aware of their
responsibilities to society and the expectations a community has of the business
Community service, employment, social justice and ecological sustainability
PERSONAL GOALS: the nature and operation of a business tends to reflect the owners personal goals.
Higher income, financial security
-
Long-term growth
If a business wishes to achieve long-term growth it needs to increase sales, profit and market share. To do this it
needs a comprehensive strategic plan, which will allow it to produce quality goods and services so that it can achieve a
sustainable competitive advantage and strong customer loyalty. Strategies, which may be used to help achieve longterm growth, include:
o
o
o
o
Customer feedback: customer feedback is important so that the business is consistently upgrading
Supplier/customer partnership: provides customer with the opportunity to develop products in consultation
with the business designers
Product innovation: trying to create new and innovative products
Sigma six: the business management approach aims to improve business performance by improving quality,
reducing costs and new opportunity
Organising resources
Once the SME owner had formulated the vision, goals and objectives, the next stage in the planning process is to
organise the resources needed to fulfil the plan. This requires resource allocation, which is the efficient distribution of
resources so that they successfully meet the set goals
STEP 1: develop plans and establish goals
STEP 2: determine activities
STEP 3: group activities
STEP 4: assign work tasks and delegate authority
STEP 5: design a hierarchy of relationships
o
o
o
o
o
Operations
Involves transforming things
What type of equipment and materials
What suppliers do we use
How much money should we allocate
What storage, warehouse and delivery system are required
o
o
o
Marketing
Adequate resources
Additional training
Coordination
o
o
o
Finance
Use debt capital and equity
Investors
Grants
o
o
Human resources
Use good recruitment and selection process
Comply with legislation relation to anti-discrimination and equal employment opportunities
Forecasting
Forecasting means trying to predict what will happen in the future to facilitate forward planning. In most cases it
involves giving values or financial projections for sales, output, expenses, quantity and/or quality of resources, time
growth or market share. Forecasting tools included break-even analysis and cash flow projections.
-
Total revenue, total cost:
When trying to determine whether a business will be financially successful, a SME owner can attempt to forecast the
amount of money the business may receive as sales – its total revenue, and how much it has to pay for business
expenses – its total cost
TOTAL REVENUE FORCASTING
Selling price (P) by the quantity (Q) of goods sold
PXQ = TR
TOTAL COST FORECASTING
Fixed costs and variable costs equals total costs
FC+VC= TC
-
Break-even analysis
Break even analysis is used to determine the level of sales needed to be generated to cover the total costs of
production. Sales about the breakeven point will make a profit; sales made below the break-even point will incur a
loss. This planning tool is used in the strategic planning stage
A business that does not cover its costs will make a loss. The breakeven occurs when the revenue of the business
equals total costs. After the business has reached the break-even point, every product sold will lead to more profit.
Quantity = total fixed costs /unit price - variable costs per unit
Fixed costs do not change as sales increase or decrease. They included rent, insurance, salaries of management and
office staff, rates depreciation, interest on loans and office expenses.
Variable costs increase as sales increase or decrease
Total costs are the sum of the fixed costs and the variable costs
-
Cash flow projections
Cash flow projections involve establishing future cash flows and future cash outflows for the business. Forecasts need
to be made to show how much money is needed by the business, when it will be needed and where it will come from.
The projections should show the changes in the cash made available that are necessary for the business to continue
its operations. They should also highlight periods of cash shortage or surplus and therefore giving management time
to organise additional funding or develop strategies to cope with the shortfall. Past records provide guide for
forecasting
Cash flow projections show the changes to the cash position brought about by operating, investing and financial
activities of the business. It offers the SME owner a clear indication of how much capital investment the business idea
requires.
Monitoring and evaluations
A good business plan will not guarantee the achievement of the business goals. The plan will be consistently
monitored and evaluated so the business can make modifications when necessary. Monitoring is the process of
measuring actual performance against planned performance. Evaluating is the process of assessing whether the
business has achieved stated goals.
1.
2.
3.
4.
Establish goals and objectives (what do we want to achieve)
Monitor performance (what actually happens)
Evaluate performance (is what is happening good or bad and why is it happening)
Take corrective action (what should be done about it)
The three most common areas requiring monitoring and evaluation are sales, budgets and profits
-
Sales
Sales are important because they generate revenue for the business. If a new marketing campaign is launched, the
owners would expect sales to increase, so if actual sales do not meet expectations the owners would want to know
why
-
Budget
Budgets specify the finance needed for the resources required to implement the business’s plans. They outline how
the business will use its resources to meet its goals. There are many different kinds of budgets, including project
budgets which relate to the development of a new product; cash budgets for cash low and cash flow projections; and
marketing budgets for spending on advertising and promotion. Budgets allow managers to compare what actually
happens with what had been budgeted and give an indication if plans need to be modified
-
Profit
Profit is crucial to business success and is based on the relationship between costs and revenue. Monitoring and
evaluating profit may reveal important information about business costs as well as revenue
Taking corrective actions
Modifying is the process of changing existing plans, using updated information to shape future plans. Sometimes the
PLANNED performance standards are unrealistic when they are first formulated or changes to the external
environment make the standards unattainable. Whatever the reason, you cannot continue until the business
undertakes some corrective action/modification.
-
Slowing sales = use promotion strategies
Lower profit – investigate methods of reducing costs
Poor returns – lower prices
Cash flow problems – investigate leasing of equipment
CRITICAL ISSUES IN BUSINESS SUCCESS AND FAILURES
When a business commences operation, the SME owner is optimistic of success. Most business people are aware of
the general pitfalls but all businesses must pay close attention to a number of critical issues
Importance of a business plan
A business plan should contain said goals – strategies, clear concise goals and reliable control standards for measuring
performance. Just like businesses, business plans need to be adjusted to suit changes that occur. Failure to adjust the
plan may result in failure. The presentation and preparation of the business plan will reflect the effort and
commitment of the business owners
Who uses the business plans? Banks, accountants, investors, government and customers
Management – staffing and teams
Management can be seen as coordinating business resources to achieve its goals. The employees within a business
are considered ‘potential’; it is the role of the manager to use this potential to achieve success. A manager’s skill is the
most critical factors in determining a business’s success or failures. If an SME owner wants the business to succeed
then it is essential to have employees who are satisfied and motivated, as they will be more productive. Overall, the
most important accomplishments a skilful manager will achieve for a business include the ability to:
-
Solve difficult problems
Set and help attain important goals
Develop attitudes of commitment and ownership
Create a positive business culture through their words and actions
Monitor the business’s external and internal environments
Plan and allocate resources
Monitor the performance of teams or individuals
Successfully put workplace and business changes into actions
Outsourcing this function (HR) can ensure the hasty recruitment and selection decisions are not made. Hiring an
expert ensures that eh best person for the job is hired.
STAFFING
-
Positive valued: high productivity, low absenteeism and low staff turnover
Therefore the management of the Human Resource must be undertaken with care
When employing staff, some business wish to outsource recruitment
A community employment agency such as Mission Australia Employment Solutions provides this service at no
charge to the business
EMPLOYEE SKILLS DATABASES
-
A skills audit is a process that establishes the current skills levels of employees and future skills requirements
The aim of A SKILLS AUDIT is to
a. Give a competitive advantage
b. Identify weaknesses that threaten the business survival
- A skills inventory is a database containing information on the skills, abilities and qualifications of existing staff
TEAMS
-
Very common nowadays – flatter organisational structures
Investing time and money in the development of teams to improve productivity
How these teams are managed is a critical issue determining a businesses success
Trend analysis
A trend analysis is a process of investigating changes overtime and looking for a pattern in order to predict the future.
A trend analysis will assist a business owner is forecasting factors such as
-
Potential sales
Operating costs
Gross net profits
Availability of labour
A trend analysis is used by businesses to implement appropriate strategies and avoid poor performance.
Identifying and sustaining competitive advantage
Competitive advantage refers to the strategies used by a business to gain an edge over its competitors. There are 2
key strategies used to gain and sustain a competitive advantage. These are:
1. Price/cost strategy
This is best accomplished by achieving the lowest production costs, which in turn allow it to reduce the product price.
-
Efficiency of operations
o Max output while minimising inputs
- Low costs labour
o Decrease size of workforce and use technology or more operations overseas
- Technology
o Technology assists the businesses efficiency and therefore minimises costs
- Economies of scale
o Reduce the cost of inputs by increasing the level of outputs
2. Differentiation strategy
- Offering something that is not already offered by another business
- This can be achieved through high quality product, design and quality
service
- Other strategies include celebrity endorsements
Once a business gains competitive advantage, they must then sustain this
advantage. The ability to sustain competitive advantage is as important as
gaining it. For a business to sustain competitive advantage management must
-
Be dynamic
Predict trends and changes
Act on these predictions
Businesses must also ty to reduce opportunities available for competitors to gain an advantage. This can be done
through
-
Research and development
Patents and copyrights
Exclusive contracts
Lobbying government to restrict imports
Avoiding over-extension of finance and other resources
Some business owners overextend their capacity in the establishment or takeover stage, resulting in excess
expenditure that is financed primarily by external sources such as banks. A business can overextend financially by:
-
-
Using hire purchase and/or leasing commitments made on
o Cars
o Equipment
o Office furniture
o Plant and machinery
o The premises
Purchasing excess stock
Employing too many staff for the business’s current need.
These expenditures are fixed. Leasing is an effect option but a lot of owners decide to buy the premises and over
borrow. This means it harder for the business to make a profit due to the capital and interest repayments. There are
many tips for a business of any size and type to avoid overextending financially, including
-
Business planning
Avoiding overdependence on debt financing
Long-term financial planning
A small start
Finance is not the only area in which a business can overextend. Other ways include:
Stock: a business that overextends in terms of stock has invested too much money in goods or raw materials. Stock is
unrealised sales and a business with too much stock not only ties up its own cash but also potentially loses revenue.
Staff: a business many find itself with too many staff. This may be due to over-optimism about sales levels, or just poor
job allocations and hiring. There are many ways a business can decrease its dependence on these resources and
reduce cots in the long term. These options include
-
Outsourcing
Redefining current job descriptions
Using more equipment and machinery
Using technology
Technological changes have affected upon the internal and external business environments. Communication time
delays have been reduced. The integration of technology into the business is essential to succeed in contemporary
society.
Accessing electronic information services via the internet
One of the main advantages of accessing material electronically is that specific information can be located quickly,
24/7. The internet is an easy and cheap way of collecting information. You can use it for individual requests such as
legal requirements, techniques, changes (taxation) and WHS. Some disadvantages include expenses in terms of
hardware, connection and software, slowness, viruses, spam and information overload
E-business
An electronic business uses the internet to conduct business. They use the internet to find information, use email to
communicate with customers and supplier and working
E-commerce
Electronic commerce is the buying and selling of goods and services via the internet. Due to the perceived cost and
complexity of e-commerce, some small business owners are tentative in their use of it.
Economic conditions
Economic conditions that promote business success
When an economy is in a boom, it will most likely mean that consumers are prepared to increase their spending
because consumer confidence is high. In periods of strong economic activity the economy will experience:
1. High levels of consumer spending.
2. Falling unemployment
3. Increased production
Economic conditions that lead to business failure
When an economy is in a downturn, it will most likely mean that consumers are not spending as much. This is because
consumer confidence is low. In periods of weak economic activity the economy will experience
1. Low levels of consumer spending
2. Rising unemployment
3. Decreased production