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Business Studies Preliminary Notes Georgia Manning

TABLE OF CONTENTS1. THE ROLE OF BUSINESS............................................................................................51.1. PRODUCING GOODS AND SERVICES...........................................................................51.2. PROFIT, EMPLOYMENT, INCOMES, CHOICE, INNOVATION, ENTREPRENEURSHIP AND RISK, WEALTH AND QUALITY OF LIFE...........................................................................................62. TYPES OF BUSINESS.................................................................................................62.1. CLASSIFICATION OF BUSINESS................................................................................62.1.1. SIZE (SMALL TO MEDIUM ENTERPRISES, LARGE).....................................................62.1.2. MARKET SHARE (LOCAL, NATIONAL AND GLOBAL)....................................................62.1.3. INDUSTRY.......................................................................................................62.1.4. LEGAL STRUCTURE............................................................................................72.2. FACTORS INFLUENCING CHOICE OF LEGAL STRUCTURE – SIZE, OWNERSHIP, FINANCE...........72.2.1. SIZE OF THE BUSINESS......................................................................................72.2.2. OWNERSHIP....................................................................................................82.2.3. FINANCE.........................................................................................................83. INFLUENCES IN THE BUSINESS ENVIRONMENT.................................................................83.1. EXTERNAL INFLUENCES..........................................................................................83.2. INTERNAL INFLUENCES........................................................................................113.3. STAKEHOLDERS.................................................................................................113.3.1. SHAREHOLDERS..............................................................................................113.3.2. MANAGERS....................................................................................................123.3.3. EMPLOYEES...................................................................................................123.3.4. CUSTOMERS..................................................................................................123.3.5. SOCIETY.......................................................................................................123.3.6. ENVIRONMENT...............................................................................................124. BUSINESS GROWTH AND DECLINE.............................................................................124.1. STAGES OF THE BUSINESS LIFE CYCLE....................................................................124.2. RESPONDING TO CHALLENGES AT EACH STAGE OF THE BUSINESS LIFE CYCLE...................134.3. FACTORS THAT CAN CONTRIBUTE TO BUSINESS DECLINE..............................................134.4. VOLUNTARY AND INVOLUNTARY CESSATION - LIQUIDATION..........................................135. NATURE OF MANAGEMENT.......................................................................................135.1. FEATURES OF EFFECTIVE MANAGEMENT...................................................................135.2. SKILLS OF MANAGEMENT.....................................................................................146. ACHIEVING BUSINESS GOALS...................................................................................146.1. BUSINESS GOALS...............................................................................................146.2. STAFF INVOLVEMENT..........................................................................................156.2.1. INNOVATION..................................................................................................156.2.2. MOTIVATION..................................................................................................156.2.3. MENTORING...................................................................................................156.2.4. TRAINING......................................................................................................15


7. MANAGEMENT APPROACHES.....................................................................................157.1. CLASSICAL APPROACH TO MANAGEMENT.................................................................157.1.1. MANAGEMENT AS PLANNING, ORGANISING AND CONTROLLING..................................15HIERARCHICAL ORGANISATION STRUCTURE.........................................................................167.1.2. AUTOCRATIC LEADERSHIP STYLES.......................................................................167.2. BEHAVIOURAL APPROACH.....................................................................................167.2.1. MANAGEMENT AS LEADING, MOTIVATING AND COMMUNICATING................................167.2.2. TEAMS.........................................................................................................167.2.3. PARTICIPATIVE / DEMOCRATIC LEADERSHIP STYLE..................................................167.3. CONTINGENCY APPROACH....................................................................................167.3.1. ADAPTING TO CHANGING CIRCUMSTANCES............................................................168. MANAGEMENT PROCESS..........................................................................................168.1. COORDINATING KEY BUSINESS FEATURES AND RESOURCES..........................................168.2. OPERATIONS.....................................................................................................178.2.1. GOOD AND/OR SERVICE....................................................................................178.2.2. THE PRODUCTION PROCESS...............................................................................178.2.3. QUALITY MANAGEMENT....................................................................................178.2.3.1. QUALITY CONTROL.......................................................................................188.2.3.2. QUALITY ASSURANCE...................................................................................188.2.3.3. TOTAL QUALITY MANAGEMENT / IMPROVEMENT..................................................188.3. MARKETING......................................................................................................188.3.1. IDENTIFICATION OF THE TARGET MARKET.............................................................188.3.2. MARKETING MIX.............................................................................................188.4. FINANCE..........................................................................................................198.4.1. CASH FLOW STATEMENT...................................................................................198.4.2. INCOME STATEMENT........................................................................................208.4.3. BALANCE SHEET.............................................................................................208.5. HUMAN RESOURCES............................................................................................218.5.1. RECRUITMENT / ACQUISITION............................................................................218.5.2. TRAINING / DEVELOPMENT................................................................................218.5.3. EMPLOYMENT CONTRACTS / MAINTENANCE...........................................................218.5.4. SEPARATION – VOLUNTARY / INVOLUNTARY...........................................................228.6. ETHICAL BUSINESS BEHAVIOUR..............................................................................229. MANAGEMENT AND CHANGE.....................................................................................229.1. RESPONDING TO INTERNAL AND EXTERNAL INFLUENCE................................................229.2. MANAGING CHANGE EFFECTIVELY OPERATIONS.........................................................239.2.1. IDENTIFYING THE NEED FOR A CHANGE................................................................239.2.2. SETTING ACHIEVABLE GOALS.............................................................................239.2.3. RESISTANCE TO CHANGE...................................................................................239.2.4. MANAGEMENT CONSULTANTS............................................................................2310. SMALL TO MEDIUM ENTERPRISES (SMES)...............................................................2310.1. DEFINITION OF SMES......................................................................................23

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10.2. ROLE OF THE SME’S.......................................................................................2310.3. ECONOMIC CONTRIBUTION OF SMES..................................................................2410.4. SUCCESS AND/OR FAILURE................................................................................2411. INFLUENCES IN ESTABLISHING A SMALL TO MEDIUM ENTERPRISE...................................2411.1. PERSONAL QUALITIES......................................................................................2411.2. SOURCES OF INFORMATION...............................................................................2411.3. THE BUSINESS IDEA........................................................................................2511.4. ESTABLISHMENT OPTIONS.................................................................................2511.5. MARKET CONSIDERATION.................................................................................2611.5.1. GOODS AND/OR SERVICES.................................................................................2611.5.2. PRICE..........................................................................................................2611.5.3. LOCATION.....................................................................................................2611.6. FINANCE.......................................................................................................2611.6.1. DEBT FINANCE...............................................................................................2611.6.2. EQUITY FINANCE............................................................................................2711.6.3. COST OF FINANCE...........................................................................................2711.7. LEGAL CONSIDERATIONS AND INFLUENCE OF GOVERNMENT ON SMES.........................2711.7.1. BUSINESS NAME.............................................................................................2711.7.2. ZONING........................................................................................................2711.7.3. HEALTH REGULATIONS.....................................................................................2711.7.4. OTHER REGULATIONS.......................................................................................2711.8. HUMAN RESOURCES........................................................................................2811.8.1. SKILLS.........................................................................................................2811.8.2. COSTS – WAGE AND NON-WAGE.........................................................................2811.9. TAXATION.....................................................................................................2811.9.1. FEDERAL AND STATE TAXES..............................................................................2811.9.2. LOCAL GOVERNMENT RATES AND CHARGES...........................................................2912. THE BUSINESS PLANNING PROCESS.......................................................................2912.1. SOURCES OF PLANNING IDEAS...........................................................................2912.1.1. SITUATIONAL (SWOT) ANALYSIS.......................................................................2912.2. VISION, GOALS AND/OR OBJECTIVES...................................................................2912.2.1. VISION.........................................................................................................2912.2.2. GOALS AND/OR OBJECTIVES...............................................................................2912.2.3. LONG TERM GROWTH.......................................................................................2912.3. ORGANISING RESOURCES..................................................................................3012.4. FORECASTING................................................................................................3012.4.1. TOTAL REVENUE AND TOTAL COST......................................................................3012.4.2. BREAK – EVEN ANALYSIS..................................................................................3012.4.3. CASH FLOW PROJECTIONS.................................................................................3112.5. MONITORING AND EVALUATING..........................................................................3112.5.1. SALES..........................................................................................................3112.5.2. BUDGET........................................................................................................31

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12.5.3. PROFITS.......................................................................................................3112.6. TAKING CORRECTIVE ACTION – MODIFICATION.......................................................3113. CRITICAL ISSUES IN BUSINESS SUCCESS AND FAILURE.................................................3213.1. IMPORTANCE OF A BUSINESS PLAN.....................................................................3213.2. MANAGEMENT (STAFFING AND TEAMS)................................................................3213.3. TREND ANALYSIS............................................................................................3213.4. IDENTIFYING AND SUSTAINING COMPETITIVE ADVANTAGE.........................................3213.5. AVOIDING OVEREXTENSION OF FINANCE AND OTHER RESOURCES...............................3213.5.1. OVEREXTENSION OF OTHER RESOURCES...............................................................3213.6. USING TECHNOLOGY........................................................................................3313.7. ECONOMIC CONDITIONS....................................................................................3313.7.1. ECONOMIC CONDITIONS THAT PROMOTE BUSINESS SUCCESS.....................................3313.7.2. ECONOMIC CONDITIONS THAT PROMOTE BUSINESS FAILURE......................................33

1. THE ROLE OF BUSINESS

1.1. PRODUCING GOODS AND SERVICES

Production: refers to activities undertaken by the business that combines the resources to create products that satisfy customers’ needs and wants

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1.2. PROFIT, EMPLOYMENT, INCOMES, CHOICE, INNOVATION, ENTREPRENEURSHIP AND RISK, WEALTH AND QUALITY OF LIFE

Wealth Business activity results in higher levels of economic growth and wealth

Quality of life businesses offer a vast array of products that improve our standard of living

Profit this is the return, or reward, that business owners receive for producing products that consumers need and want

Employment businesses provide about 80% of a private sector jobs

Incomes businesses provide income to business owners / shareholders and employees

Choice Consumers have freedom of choice and the opportunity to purchase products at competitive rates

Innovation through research and development, existing products are improved and new products are created

Entrepreneurship and risk businesses provide individuals with the opportunity to turn their ideas and passions into a livelihood

2. TYPES OF BUSINESS

2.1. CLASSIFICATION OF BUSINESS

2.1.1. SIZE (SMALL TO MEDIUM ENTERPRISES, LARGE)o Size is determined by:

The number of employees Mirco: 1 - 5 Small: 5 -19 Medium: 20 - 199 Large: 200 +

The number of owners Market share Legal structure

2.1.2. MARKET SHARE (LOCAL, NATIONAL AND GLOBAL)

Local National Global (multinational corporation)

Very limited geographical spread

Majority tend to be small to medium

(eg) newsagent, corner store

Operates within one country(eg) coles, sportsgirl, david jones, woolworths

Has branches in many different countries

TNC (transnational corporation)(eg) Coca - cola, McDonalds,

2.1.3. INDUSTRY INDUSTRY ROLE EXAMPLE

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Primary Involved in the collection of natural resources Farming, mining, fishing and forestrySecondary Industries that take the output of firms in the

primary sector and process it into finished or semi-finished products

Steel or car manufacturers

Tertiary Provide a service Retailers, dentists, solicitors, banks, museums and health workers

Quaternary Services that involve the transfer and processing of information and knowledge

Telecommunications, property, computing, finance and education

Quinary Services that have traditionally be performed in the home

Hospitality, tourism and childcare

2.1.4. LEGAL STRUCTURE

Structure RoleSole Trader Unincorporated company

Only 1 person providing finance Legal entity an individual, company or organisation that has legal

rights and obligationsA: - low cost of entry / complete control D: - personal liability for business debts

Partnership Unincorporated companyA: - shared responsibility and workload D: - personal unlimited liability / liabilities for all debts (including partner’s debts) even before the partnership has begun

Private companies Limited liability shareholder’s liability is limited to only the

business assets Proprietary limited ‘Pty Ltd’A: - get to choose shareholders / unlimited liabilityD: - process of incorporation money and time / tax on company & personal

Public companies Shares listed on the ASX

Manged by Board of Directors who appoint a CEO A public company has:

o at least one shareholder, with no max numbero has ‘limited’ or ‘Ltd’ in its name

A: - limited liability separate legal abilityD: - tax on company & personal

Government Enterprises Government – owned and operated (also known as GBEs)

GBEs can be local, state or federal Privatisation: the selling of government controlled businesses to

private investorso 1990s Qantas, Commonwealth Bank, Telstra

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2.2. FACTORS INFLUENCING CHOICE OF LEGAL STRUCTURE – SIZE, OWNERSHIP, FINANCE

2.2.1. SIZE OF THE BUSINESS

o Measurements which can be used to determine the size of a business include:

The number of employees – those who are hired to do work for the business

The number of owners Market share – the proportion of total market sales the business

has compared to competitors The legal structure – sale trader, partnership or company

2.2.2. OWNERSHIP

o If a business owner wishes to have complete control and ownership of a business, then becoming a sole trader is the only realistic option.

o Once a company floats and sells shares to the public, ownership will be divided among thousands of small, individual shareholders and a few institutional shareholders

o The degree of ownership, then, is directly related to the number of shares owned: more shares, more ownership Therefore, if the original owner/s wished to retain ownership and control of the business, they would need to hold more than 50% of all the shares sold.

2.2.3.FINANCE o Sole traders and partnerships, because of their exposure to risk (unlimited

liability) with few business assets, can sometimes find it difficult to obtain adequate finance, especially for research and development (R&D).

o One possible source of finance for R&D is venture capital.o Venture capital is money that is invested in small and sometimes

struggling businesses that have the potential to become very successful. The investors take an equity position in the business (own part of it) and provide supplementary finance.

3. INFLUENCES IN THE BUSINESS ENVIRONMENT

3.1. EXTERNAL INFLUENCES

Economic refers to the national system that produces all goods and services ‘booms and busts’ / ‘peaks and troughs’ Economic cycles the natural fluctuation of the economy between

periods of expansion (growth) and contraction (recession). Factors such as gross domestic product (GDP), interest rates, levels of employment and consumer spending can help to determine the current stage of the economic cycle

Financial There have been enormous changes in global financial markets over the past 30 years

Deregulation began in 1983Geographic Australia’s location in the Asia Pacific Region

o Especially in the growth of China Changes in demographics

o Particularly the aging of the population

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Impact of globalisationSocial Ability to respond to changes in tastes, fashions and culture

o e.g environmental awareness from customers / workplace diversity

Legal Businesses must comply with regulationso e.g taxation / workplace health and safety

Political Government policies have an impact on a business:o Free trade and removal of tariffso Deregulation and Privatisation

Institutional

Federal State Local Payment of taxes for

employees & for businesses with company tax and GST

Provision of employee superannuation

Workers compensation Work health and

safety requirements Payment of payroll

taxes

Approving new development and alterations

Fire regulations Parking regulations

Regulatory Bodieso A regulatory body is one that is set up to monitor and review the

actions of businesses and consumers in relation to certain issues (such as advertising) and the appropriate legislation.

The NSW Environment Protection Authority

Primary environment regulator for NSWAims to improve environmental performance and waste management for NSW through a wide range of programs and initiatives

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NSW Fair Trading NSW consumer protection agencyProvides information and assistance to all consumers

The Australian Securities and Investments Commission

Monitors market integrity and provides consumer protection in areas such as payment systems and financial services such as investment advice.

Other institutional influences

Technology With appropriate technology, businesses can increase efficiency and productivity, create new products and improve the quality and range of products and services.

Particularly important developments are:o Roboticso Telecommunicationo Internet and ecommerce

Rapid advances in information technology (IT) have reduced communications delays and allows suppliers and customers to interact over great distances.

Competitive situation

Factors influencing a business’s competitiveness

Local and foreign competition Marketing strategies employed by

competitors Number of competitors Easy of entry into a market for a new business

Each business aims to achieve a sustainable competitive advantage over its competition in order to capture a larger portion of the market

Sustainable competitive advantage

Sustainable competitive advantage

Trade unions

Main aim was to improve working conditions and pay ratesUnion membership declined substantially in the past 20 years because of:

New legislation that outlaws compulsory unionism Changes to work patterns (increased part - time and casual

work) Workplace agreements

Trade and industry associations

National bodies that represent larger groups of employers (e.g) lobbying government on certain issuesExamples include:

Australian Chamber of Commerce and Industry National Farmers’ Federation Australian Industry Group

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Markets 1. Changes in financial / capital markets2. Changes in labour markets3. Changes in consumer markets

3.2. INTERNAL INFLUENCES

Product 1. The type of goods and services produced will affect the internal operations of business2. Product influence will be reflected in the type of business (service, manufacturer or retailer)3. The size of the business, as previously mentioned, will be based on the range and type of goods and services produced, the level of technology utilised, and the volume of goods and services produced

1. Number of competitors

The number of competitors refers to the size and number of firms that exist within an industry.

1. Monopoly – complete concentration by one firm in the industry (e.g) Australia Post

2. Oligopoly – where a small number of larger firms have a greater control over a market (e.g) car manufacturers

3. Monopolistic competition – where there is a large number of buyers and sellers in a particular market (e.g) retail shops, clothing

4. Perfect competition – where there is a large number of small firms that sell similar products must use price to differentiate (e.g) fruit and vegetable growers / sellers

2. Easy of entry

The ability of a person (or persons) to establish a business within a particular industry.The ease of entry will be determined by the type of market concentration.

When there are many small firms (perfect competition and monopolistic competition), entry is not difficult as businesses are small and it is more affordable for the business owner to gain some part of the market.

When a few large firms dominate an industry (oligopolies), entry is difficult

When only one firm (monopoly) dominates an industry, no competitors are able to enter the market because the one firm has control over all resources that are being sold

3. Local and foreign competitors

A business will be influenced by competition: Local - Produce or sell a good or service in the same market.

Local competitors must deal with the same variables as each other.

Foreign - Located overseas or offshore. They sell their goods and services in Australia and compete with local businesses.

Differentiating factors between local and foreign Labour costs Transport costs Cost of stoke / raw materials

4. Marketing Strategies

A business will be influenced by the type of marketing measures taken by a competitor. (e.g) the business that uses television advertising extensively will have greater exposure to the market than a business that relies on flyers or word of mouth. The type and extent of marketing will depend on:

The size of the market The size of the business Number of competitors The nature of the products

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Location Location can make the difference between success and failure A good location is an asset and will lead to high levels of sales and profits A bad location is a liability to adversely affects sales and profit

Locating next to complementary businesses (one that sells a similar range of goods and services) may be beneficial because more customers may be attracted to the single siteLocation factors:

Visibility Cost Proximity to suppliers / customers

Management

Resources Human Resources These are the employees of the business and are generally its most important asset

o Playerso Equipment managers

Information Resources

These resources include the knowledge and data required by the business such as market research, sales reports, economic forecasts, technical material and legal advice

o Musical scoresPhysical Resources Include equipment, machinery, buildings and raw materials

o Musical instrumentsFinancial Resources

Are the funds the business uses to meet its obligations to various creditors

o Budget from the schoolBusiness culture

Business culture can be seen in the unwritten or informal rules that guide how people in the organisation behave

1. Values - (e.g) honesty, hard work, teamwork, quality customer, innovation2. Symbols - These consist of events or objects that are used to represent

something3. Rituals, Rites and Celebrations - These are the routine behaviour patterns in

a business’s everyday life4. Heroes - Heroes are the business’s successful employees

3.3. STAKEHOLDERS

3.3.1. SHAREHOLDERS

Shareholders purchases shares in companies so they are partial owners

3.3.2. MANAGERS

Management has the responsibility of running a profitable or successful organisation

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3.3.3. EMPLOYEES

Employees are vital to an organisation as they manufacture or produce the product the organisation sellsEmployees will influence businesses since the quality of the product depends on their skill and commitment to the process

3.3.4. CUSTOMERS

They are increasingly prepared to seek compensation if they believe they have either been unfairly treated or purchased a product that did not perform as promised. Consumer groups are also prepared to mount publicity campaigns aimed at embarrassing those businesses that do not act ethically or responsibly.

o Customers are responsible for the success or failure of businesses

3.3.5. SOCIETY

Customers care about social issues such as exploitation of workersMembers of the community increasingly expect organisations to show concern for the environment. Businesses will participate in a range of community projects and activities

o (e.g) the body shop organises for its employees to assist with a local charity of their choice

3.3.6. ENVIRONMENT

Growing pressure for businesses to adopt ecological sustainable operating practices

4. BUSINESS GROWTH AND DECLINE

4.1. STAGES OF THE BUSINESS LIFE CYCLE

4.2. RESPONDING TO CHALLENGES AT EACH STAGE OF THE BUSINESS LIFE CYCLE

4.3. FACTORS THAT CAN CONTRIBUTE TO BUSINESS DECLINE

Main two causes:

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Establishment To get the business on a solid foundation by

generating enough sales to create a positive cash flow

Small business, such as a sole trader or partnership, have unlimited liability: that is, the business owner is personally responsible for all the debts of his or her business

Growth Accelerating growtho Sales increase and the cash flow is

normally positive Growth and expansion can occur either through a

merger or acquisition (takeover)o A merger occurs when the owners of two

separate businesses agree to combine their resources and form a new organisation

o An acquisition occurs when one business takes control of another business by purchasing a controlling interest in it

Maturity In the maturity stage, the rate of growth slows and eventually flattens out; an early warning sign of possible decline

Post - Maturity

1. Steady stage - the business continues to operate at the level it has been during the maturity phase, business is neither declining or expanding

2. Decline - Falling sales and profits ultimately resulting in business failure

3. Renewal - increasing sales and profits due to


Lack of management expertise Lack of sufficient money (undercapitalisation; occurs when there is a lack of

sufficient funds to operate a business normally)Other causes: Uncontrolled growth: Lack of management skills Poor location

4.4. VOLUNTARY AND INVOLUNTARY CESSATION - LIQUIDATION

Concept Bankruptcy Voluntary Administratio

n

Liquidation

What type of legal structure does it

apply to?

Sole traderPartnership

PrivatePublic

PrivatePublic

What is it? Declaration that a business or person is

unable to pay his or her debts

Employ experts to manage

business more effectively

Sell everything to turn into cash. Turning assets into cash.

The result of this action

All assets sold to pay debt. If debt isn’t paid - go to personal assets

Better management and financial examination

Trying to pay debts in cash from assets

Becomes insolvent: occurs when a company is not able to pay its debts

(2) BUSINESS MANAGEMENT

5. NATURE OF MANAGEMENT

5.1. FEATURES OF EFFECTIVE MANAGEMENT

An effective manager needs to be good at:o Planning: the preparation of a predetermined course of action for a business

refers to the process of setting objectives and deciding on the methods to achieve them

o Organising: the structuring of the organisation to translate plans and goals into action

o Leading: the process of influencing or motivating people to work towards the achievement of the organisation’s objectives

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o Controlling: compares what we intended to happen with what has actually occurred

5.2. SKILLS OF MANAGEMENT

Effective managers are those who:(1) Possess a range of specific management skills(2) Are able to use these skills in a number of different situation(3) Require a wide range of technical, conceptual (thinking) and people skills

Skills DefinitionInterpersonal (people)

Interpersonal skills centre on the ability to relate to people, being aware of and appreciating their needs, and showing genuine understanding

Communication Managers who are effective communicators and who are able to share their thoughts and plans will find it easy to influence othersMiscommunication is to be avoided because it can lead to serious harm to the business

Strategic Thinking

Strategic thinking involves thinking about a business’s future direction and what future goals the business wants to achieve

Vision Managers must be able to provide a vision as to where the business is headed and what it is trying to achieve

Problem – Solving

Managers must be able to solve problems → finding and then implementing a course of action to correct an unworkable situation

Decision – making

Managers must be able to make decisions → identifying the options available and then choosing a specific course of action to solve the specific problem

Flexibility and adaptability to change

Managers must be flexible, adaptable and proactive rather than reactive

Reconciling the conflict interests of stakeholders

The triple bottom line refers to the economic, social and environmental performance of a businessReconciling the conflicting interests of stakeholders requires competent, informed, ethical and socially responsible managers

6. ACHIEVING BUSINESS GOALS

6.1. BUSINESS GOALS

Goals DefinitionProfits Profit maximisation occurs when there is a maximum

difference between total revenue (TR) and total costs (TC)TOTAL SALES X PRICE = TOTAL REVENUE (TR)

TOTAL EXPENSES INCURRED IN OPERATING THE BUSINESS = TOTAL COSTS (TC)

PROFIT = TR - TCMAXIMUM PROFIT = TR AT MAXIMUM DIFFERENCE FROM

TCMarket Share Market share refers to the business’s share of the total industry

sales for a particular productGrowth A business can maximise growth either internally (organically) or

externallyShare Price Companies need to satisfy their shareholders by improving the

share price and paying healthy dividendsSocial Many businesses develop social and environmental goals and

adopt strategies that will benefit the communityThere are three main social goals a business attempts to achieve:

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Community service Provision of employment Social justice

Environment Enlightened businesses are adopting sustainable development practises

6.2. STAFF INVOLVEMENT

6.2.1. INNOVATIONo Businesses should encourage an innovative business culture by

recognising and encouraging one of the most important sources of innovative ideas: employees

o An entrepreneur is an innovation employee who takes on the entrepreneurial roles within a business

6.2.2. MOTIVATIONo Motivation refers to the individual, internal process that directs, energises

and sustains a person’s behaviour

6.2.3. MENTORINGo Teaching new employees what the business expects of them helps

strengthen their dedication and commitment to the business

6.2.4. TRAININGo Employee training generally refers to the process if teaching staff how to

perform their job more efficiently and effective by boosting their knowledge and skills

7. MANAGEMENT APPROACHES

7.1. CLASSICAL APPROACH TO MANAGEMENT The classical - scientific approach led to the development of assembly line,

mass - production techniques A classical - bureaucratic approach to management, pioneered by Max Weber

and Henri Fayol, advocated:

7.1.1. MANAGEMENT AS PLANNING, ORGANISING AND CONTROLLING

Functions

Definition

Planning

Strategic planning (long - term): following 3 - 5 years → assist in determining where in the market the business wants to be, and what the business wants to achieve in relation to its competitors

Tactical planning (medium - term): flexible, adaptable planning, usually over 1 - 2 years, that assists in implementing the strategic plan → allows business to respond quickly to change

Operational planning (short - term): provides specific details about the way in which the business will operate in the short term. Management controls the day - to - day operations that contribute to achieving short - term actions and goals

Organising

a range of activities that translate goals into reality

Control compares what was intended to happen with what has actually

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ling occurred

HIERARCHICAL ORGANISATION STRUCTURE The traditional hierarchical organisational structure has people grouped according

to the specialised functions they perform

Specialisation of labour: degree to which tasks are divided into separate jobs

Chain of command: is a system that determines responsibility, supervision and accountability of members of the organisation

7.1.2. AUTOCRATIC LEADERSHIP STYLESMotivates through threats and disciplinary action

o e.g; army officer would adopt this management skill during military exercises

Advantages DisadvantagesDirections and procedures are clearly defined and there is less chance of uncertainty

No employee input allows, so ideas are not encouraged or shares

Employees’ role and expectations are set out plainly, so management can monitor their performance

It ignores the importance of employee morale and motivation

7.2. BEHAVIOURAL APPROACHStresses that people (employees) should be the main focus of the way in which the business is organised

7.2.1. MANAGEMENT AS LEADING, MOTIVATING AND COMMUNICATINGo Leading: having a vision of where the business should be in the long and

short termo Motivating: energising and encouraging employees to achieve the

business’s goalso Communicating: exchanging information between people; the sending &

receiving of messages

7.2.2. TEAMSo Well-functioning teams can produce superior performanceo Managers require a good understanding of team / group dynamicso The development of work teams has resulted in flatter organisational

structures

7.2.3. PARTICIPATIVE / DEMOCRATIC LEADERSHIP STYLE

7.3. CONTINGENCY APPROACHThe contingency management approach stresses the need for flexibility and adaptation of management practises and ideas to suit a particular situation

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7.3.1. ADAPTING TO CHANGING CIRCUMSTANCESo Due to the unstable business environment, managers need to be flexible

and borrow and blend from wide range of management approaches

8. MANAGEMENT PROCESS

8.1. COORDINATING KEY BUSINESS FEATURES AND RESOURCESThe key business functions are interdependent → each relies on the other to perform effectively

In large businesses, the key business functions are often separated into divisions or departments

In small businesses, the key business functions are not separated but often overlap

8.2. OPERATIONSOperations focus on strategies to improve production processes and to create the ideal factory or office layout

Price: the price you sell it for Cost: How much it costs to produce

It is concerned with creating, operating and controlling a transformational process that takes inputs from a variety of resources, and produces outputs of goods and services that are needed by customers

8.2.1. GOOD AND/OR SERVICETangibles: physical products that can be handled and stored before they are sold to the customer, for example; bread, clothing or a care

o The production process and consumption are not linked; that is, there is little customer involvement in product

Intangible: cannot be touchedo Service organisation will transform inputs into services; for example,

attending a training course

8.2.2. THE PRODUCTION PROCESSProcess steps

Description

Inputs Transformed resource: those inputs that are changed or converted in the operations process; they are transformed by the operations process

o Materials: the basic elements used in the production process

o Information: the knowledge gained from research, investigation and instruction, which results in an increased understanding

o Customers: customers become transformed resources when their choices shape inputs

Transforming resource: are those inputs that carry out the transformation process. They enable the change and value adding to occur

o Human resources: the people that are employed by the business

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o Facilities: the pant (factory or office) and machinery used in the operations process

Transformation

The conversion of inputs (resources) into outputs (good and/or services)

Outputs Outputs refer to the end result of a business’s efforts Issues of quality, efficiency and flexibility must be

balanced against the resources and strategic plan of the business

8.2.3. QUALITY MANAGEMENTo Strategy which a business uses to make sure that its product meets

customer expectationso Strategy to make sure that its product meets customer expectations.

Three quality approaches are quality control, quality assurance and total quality management.

8.2.3.1. QUALITY CONTROL Involves the use of inspections at various points in the production

process to check for problems and defects. Performance is measured in relation to set standards or

benchmarks.

8.2.3.2. QUALITY ASSURANCE Involves the use of a system where a business achieves set

standards in production. This is a proactive approach to quality management that aims to

prevent problems from occurring. External guideline The system is usually set out by an external organisation; for

example; ISO 9001

8.2.3.3. TOTAL QUALITY MANAGEMENT / IMPROVEMENT Total quality management (TQM) is an ongoing, business-wide

commitment to excellence that is applied to every aspect of the business’s operation.

A number of approaches may be used, such as employee empowerment, continuous improvement and improved customer focus.

8.3. MARKETINGMarketing determine the appropriate markets for the business’s products, and decide on pricing, product, promotion, placement

Marketing is a total system of interacting activities designed to plan, price, promote and distribute products to present and potential customers.

Successful marketing involves bringing the buyer and seller together and making a sale.

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8.3.1. IDENTIFICATION OF THE TARGET MARKETTarget market is a group of customers with similar characterises who presently, or may in the future, purchase the product.

Approaches DescriptionMass Marketing Approach

The seller mass-produces, mass-distributes and mass-promotes one product to all buyers

Seeks a large range of customersMarket Segmentation Approach

Market segmentation occurs when the total market is subdivided into groups of people who share one or more common characteristics

Niche Marketing Approach Narrowly selected target market segment

8.3.2. MARKETING MIXo Marketing strategies are actions undertaken to achieve the business’s

marketing goals through the marketing mixMix DescriptionProduct Products are goods or services, and consist of both tangible

and intangible features Packaging helps preserve, inform, protect and promote the

product Business owner needs to determine the products:

o Qualityo Design / packaging / labellingo Brand / logo / name

Price Business can choose one of 3 methods for calculating price:o Cost - based: a pricing method derived from

calculating the total cost of producing or purchasing a product and then adding a mark-up for profit

o Market - based: a method of setting prices according to the interaction between the levels of supply and demand → whatever the market is prepared to pay

o Competition - based pricing: choosing a price that is either below, equal to or above that of the competitors

Promotion

Refers to the methods used by a business to inform, persuade and remind customers about its products

The main forms of promotion are as follows:o Personal selling and relationship marketing:

involves the activity of a sales representative directed to a customer in an attempt to make a sale

o Sales promotion: activities or materials used by the business to attract interest and support for the goods and services; for example; free samples

o Publicity and public relations: publicity refers to any free news story about a business’s products /

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public relations are activities aimed to creating and maintaining favourable relations between a business and its customers

o Advertising: print or electronic mass media are used to communicate a message about the product

Place Refers to the distribution channels used to move finished products or supply services to the final customer

3 main types of distribution channels:1. Producer to customer: simplest channel and

involves no intermediaries → virtually all services, from tax advice to car repairs, use this method

2. Producer to retailer to customer: a retailer is an intermediary who buys from the producer and resells to customers → this channel is often used for bulky or perishable products such as furniture or fruit

3. Producer to wholesaler to retailer to customer: most common method used for the distribution of consumer goods → a wholesaler is an intermediary who buys in bulk from a producer, then sells in smaller quantities to retailers

8.4. FINANCEFinance are responsible for the financial requirements, budget allocations and financial record keeping

8.4.1. CASH FLOW STATEMENTo A cash flow statement shows the movement of cash receipts (inflows) (e.g)

cash sales, interest from investments and cash payments (outflows) (e.g) payment for stocks, payment for expenses over a period of time

Current Assets (CA): things the business owns that will be used within 12 months

Non - current Assets (NCA): things the business owns that will be used for more than 12 monthsNB:- a cash flow statement does not show if a business is profitable

o Cash flow is not profito The term liquidity is often used to describe whether a business has a good

or adequate cash flow Liquidity: used to describe whether a business has a good or

adequate cash flowo Cash flow reports are vital for the information they give on the timing of

payments and receipts of incomeo Cash flow statements are divided into 3 categories:

Cash flows from operating activities

Cash inflows and outflows relating to the main activity of the business

Cash from investigating activities

Cash flows related to the purchase and sale of non-current assets and investments

Cash from financing activities

cash flows related to the acquisition and repayment of both debt and equity finance

Relate to finance → borrowing, lending, issuing shares

Inflows when receiving money from others and outflows when paying money to others

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8.4.2. INCOME STATEMENTo Also called:

Profit and Loss statement Statement of financial performance

o Income earned minus the expenses incurred over a trading period. The amount left over is profit

o Expenses can be broken down into selling, administrative or financialo Formulas:

Gross Profit Sales – cost of goods sold (COGS)COGS (costs of goods sold)

Opening stock +purchases – closing stock

Net profit Gross profit - expenses

8.4.3. BALANCE SHEETo Balance sheets

represent a business’s assets and liabilities at a particular point in time, expressed in money terms it presents the net worth of the business

o Sets out as a summary of:(1) Value of resources the business owns (assets)(2) Money the business owes (liabilities)(3) Value of the owner’s share of the business (owners’ equity)

o Assets (A) = Labilities (L) = Owners’ Equity (OE)o Shows the overall financial stability of the business

Liabilities Debts or business borrowings and can either be current or non-currentCurrent: debt is expected to be repaid in the short term (12 months or less)

Credit card debs, accounts payableNon-Current: debt that is expected to be repaid in the long term (greater than 12 months)

Mortgages, leasesAssets Value to the business and can be either current or non-

currentCurrent: (used within a 12-month period)

Cash / inventories (stock)Non-Current: (used over a period greater than 12 months)

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Land / machinery / furnitureOwners’ equity

Refers to the owner’s claims and is considered a liability from the point of view of the business

Owners ‘stake’ in the business

8.5. HUMAN RESOURCESHuman resources are concerned with the recruiting, training, employment contracts and separation of the employees who are required to run the business successfully

8.5.1. RECRUITMENT / ACQUISITIONo Process of finding and attracting the right quantity and quality of staff to apply

for employment vacancies or anticipated vacancieso Two types of recruitment include:

Internal recruitment: involves filling job vacancies with present employees, rather than looking outside for business

External recruitment: involves filling job vacancies with people from outside the business

8.5.2. TRAINING / DEVELOPMENTo Training provides employees with the right knowledge and skills to perform

their job effectively and efficientlyo Development focuses on preparing the employees to take on more

responsibilities within the business in the futureo Two types of recruitment include:

8.5.3. EMPLOYMENT CONTRACTS / MAINTENANCEo An employment contract is a legally binding, formal agreement between an

employer and an employeeo Under common law, both employers and employees have basic rights and

obligations in any employment relationshipso Employees are entitled to 10 minimum employment conditions, known as the

National Employment Standards Hours of work Parental leave Flexible work for parents Annual leave Community service leave Public holidays

o An award is a legally binding agreement that sets out minimum wages and conditions for a group of employees

o Enterprise agreements are collective agreements made at a workplace level between an employer and a union, acting on behalf of its employees, or between the employer and a group of employees, about terms and conditions of employment

8.5.4. SEPARATION – VOLUNTARY / INVOLUNTARYThe final stage in the employment cycle is the ‘separation stage’, in which employees leave the workplace on a voluntary or involuntary basiso Voluntary

occurs when an employee decides to give up full - time or part 0 time work and includes:

Retirement → occurs when an employee decides to give up full - time or part - time work and no longer be part of the labour force

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Resignation → the voluntary ending of employment by the employee ‘quitting’ their job

Redundancy → occurs when a person's job no longer exists, usually due to technological changes, an organisational restructure or a merger or acquisition

o Involuntary occurs when an employee is asked to leave the business against their

will and includes: Retrenchment → when a business dismisses an employee

because there is not enough work to justify paying him or her Dismissal → when behaviour of an employee is unacceptable

and it then becomes necessary for a business to terminate the employee’s employment contract

Redundancy → occurs when a person's job no longer exists, usually due to technological changes, an organisational restructure or a merger or acquisition

o Unfair dismissal: Occurs when an employer dismisses an employee for

discriminatory reasons include: Race, colour, sex, age, disability, marital status, family

responsibilities and religion

8.6. ETHICAL BUSINESS BEHAVIOUR Business ethics is the application of moral standards to business behaviour The triple bottom line refers to the economic, environmental and social performance

of a businesso This means businesses are no longer simply focused on making a profit at all

costs; but rather, they recognise that environmental and social performance are also important

Business ethics is the application of moral standards to business behaviour such as:o Fair and honest business practiceso Decent workplace relationso Conflict of interest situationso Accurate financial managemento Truthful communication

9. MANAGEMENT AND CHANGE

9.1. RESPONDING TO INTERNAL AND EXTERNAL INFLUENCEWhen a business responds to the influence of change, businesses often undergo changes in their organisation structure, business culture and human resources and operations function Transformational change: results in a complete restructure throughout the whole

organisation Complete restructure of the business Incremental change: results in minor changes, usually involving only a few

employees May involve only a few employees at a time, undertaking new operational procedures

9.2. MANAGING CHANGE EFFECTIVELY OPERATIONS

9.2.1. IDENTIFYING THE NEED FOR A CHANGEAchieving such a vision requires a holistic view of the outside world and awareness of the potential impact on the business of a variety of factorsHolistic: looks at the whole picture

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9.2.2. SETTING ACHIEVABLE GOALSA vision statement states the purpose of the business → It indicates what the firm does and states its key goals

9.2.3. RESISTANCE TO CHANGEThe main reasons for resistance to change include:

Financial costs → the cost of implementing major changes can be substantial

Purchasing new equipment → this can also be expensive Redundancy payments → if employees lose their jobs as a result of

change, they are entitled to financial compensation Retraining → when changes are introduced, some employees will

require training Reorganising plant layout → the layout of the plant may need to be

reorganised if new equipment or technology is introduced Inertia → some managers and employees resist change due to a fear

of the unknownTwo strategies for overcoming resistance to change include:

Creating a culture of change (encouraging teamwork) Providing positive leadership (sharing the vision)

9.2.4. MANAGEMENT CONSULTANTSThe main role of management consultants is to help businesses improve their performance and assist the change management

A management consultants is someone who has specialised knowledge and skills within an area of business

(3) BUSINESS PLANNING

10. SMALL TO MEDIUM ENTERPRISES (SMES)

10.1. DEFINITION OF SMES

Determine whether a business is small or medium sized:o Number of ownershipo Type of financeo Source of financeo Legal structureo Market shareo Management structure

10.2. ROLE OF THE SME’S In recent years, SMEs have created many jobs, become more innovative and are

increasingly entering overseas markets

10.3. ECONOMIC CONTRIBUTION OF SMES

1. They provide considerable employment opportunities within local communities, which generates income that can be spent in the local area, thereby stimulating the level of economic activity within the area.

2. SMEs contribute to the revenue raised through taxation. Not only do they pay tax, their employees also pay income tax. Taxation is used to provide goods and services that may benefit the whole community, such as a better education system.

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3. Gross Domestic Product (GDP) is the total money value of all goods and services produced in a country in a one-year period. In Australia, it is estimated that SMEs contribute about 50 percent of the nation’s GDP ($560 Billion).

10.4. SUCCESS AND/OR FAILURE

Success Failure Thorough and constant

PLANNING, based on a complete understanding and appreciation for all the risks involved.

Successful market analysis, determining a profitable product with a particular market niche

Obtaining and implementing external professional advice

A successful location Employing the ‘right’ people

Lack of understanding:o The market and the need

for product PROMOTIONo The importance of

technological changeo INVENTORY

management Industrial problems involving

staff and unions Failure to seek external advice Failure to compete, and to gain

and maintain a competitive edge

11. INFLUENCES IN ESTABLISHING A SMALL TO MEDIUM ENTERPRISE

11.1. PERSONAL QUALITIES

Qualities DescriptionQualifications / skills

Business qualifications and skills can be attained through experience, education and/or training

Motivation Personal drive, determination and desire to achieve a goal or objective

Desire to become your own boss → freedom to choose when and where they work, with whom they work and whether to work from home

Entrepreneurship

Someone who starts, operates and assumes the risk of a business venture in the hope of making a profit

Must have a range of skills and characteristics to own and operate a business successfully

Cultural background

Community's traditions and beliefs, such as work ethic Determination to come to Aus and improve their life Arise from centuries of experience in certain trades or services,

enabling a person to use this knowledge to achieve business success

Gender Policies are being created specifically to assist small business in contributing to the national economy.

11.2. SOURCES OF INFORMATION

Professional advisers(2) Accountants – highly important – provide advice on all financial

management issues and taxation obligations(3) Solicitors – medium importance – produce information concerning

business formation and structures, registration, contracts, leases, partnership

(4) Bank managers – medium importance – provide information and sources of finance

(5) Management consultants – low importance – deals with business management issues able to provide more objective and view problems in an unbiased manner

Government agencies

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o Agencies that help businesses start and grow Other sources

Chamber of Commerce Provide legal and financial help, taxation advice, an explanation of legislation, industrial relations information

Small businesses of AUS & NZ

Membership based lobby groups

Trade associations Offer specific industry information and assistanceLibraries & reference material

Access to vast amounts of reference material

Australian Bureau of statistics

Provides data on social, economic and demographic trends

11.3. THE BUSINESS IDEA

Describes the core activities of the business, and the specific features and value of the goods or services it provides

Three key categories of business ideas(1) Completely new product / service(2) Improvement on an existing product / service(3) Graphical sector that does not have access to an existing product /

service Competition:

o Competition is rivalry among businesses that seek to satisfy a marketo The entrepreneur must decide what type of market they wish to enter

(1) Mass market: broad and large (e.g) clothes, cars, electronics, fast food

(2) Niche market: specialised and small (e.g) record players, remote control sailing boats, expensive art pencils

11.4. ESTABLISHMENT OPTIONS

Goodwill: intangible value of business (e.g) reputation, customer valueSetting up a new business from scratch

(1) A person has treated a product or service that is unique

(2) When a person recognises a gap in the market, where customers’ needs are not satisfied

(3) When the market has grown and existing businesses cannot supply all customers

A:- The owner is able to

determine the pace of growth and change

There is no goodwill for which the owner has to pay

D:- There is a high risk and a

measure of uncertainty Time is needed to set up

the business, create procedures, develop a customer base, employ and train staff, and develop lines of credit

Purchasing an existing business

The business is already operating an everything associated with the business is included in the purchase

(1) Determine why the business is being sold

(2) Examine the financial performance of the business

(3) Determine a realistic value

A:- Sales to existing

customers will generate instant income

A good business history increases the likelihood of business

D:- The existing image and

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for ‘goodwill’ policies of the business may be difficult to change, especially if the business had a poor reputation

Purchasing a franchise

A person buys the rights to use the business name and distribute the products or services of an existing business.

The business that grants the rights is known as a franchisor, while the business that buys the rights is known as a franchisee.

The franchisor supplies:(1) Established product and

business model(2) Training and staff

development(3) Materials and expertise

A:- Immediate benefit is

derived from the franchisor’s goodwill because the name is established

The franchisor often provides training and management backup

D:- The franchisee is often

required to purchase stock from the franchisor and cannot shop around for cheaper supplies

The franchisor often charges additional service fees for advice

11.5. MARKET CONSIDERATION

11.5.1. GOODS AND/OR SERVICES

o When starting a business, it is very important that the owner possess the knowledge and experience required regarding their good or service

Market analysis: involves collecting, summarising and analysing information about the state of the market, customers, the threats and opportunities that the market presents, and any advantages or disadvantages that the business is likely to have over its competitors

11.5.2. PRICE

(1) Cost-based: derived from calculating the total cost of producing or purchasing a product and then adding a mark-up for profit

(2) Market-based: setting prices according to the interaction between the levels of supply and demand

(3) Competition-based: choosing a price that is either below, equal to or above than of the competitors

11.5.3. LOCATION

Different types of businesses will be suited to different locations, and the business owner must consider a number of factors when determining the most appropriate location for their particular business

o Suitable location might be a shopping centre or retail shopping strip, or the business owner may choose an online presence or prefer a home – based business.

Zoning: means by which local councils allocate land for different uses, such as residential, commercial, recreational and industrial

11.6. FINANCE

11.6.1. DEBT FINANCE

Debt finance: relates to the short-term and long-term

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borrowing from external sources by a businessShort term borrowing: Paid back within a year Main types of finance:

o Overdrafto Commercial billso factoring

Overdraft: the bank allows a business to overdraw their account up to an agreed limit for a specified time, to overcome a temporary cash shortfallLong term borrowing:

Paid back over multiple years Main types of finance:

o Mortgageso Debentureso Unsecured notes

11.6.2. EQUITY FINANCE

Equity finance: the funds contributed by the business owner(s) to start and then expand the businessFunds contributed by the owner/s to start the business→ Advantage

Does not have to be repaid (because it is the owners money)→ Disadvantage

Owner may be able to get better returns elsewhere

11.6.3. COST OF FINANCE

The cost of the finance will depend on:o Type of finance (overdraft vs mortgage)o Source (debt vs equity)o Term (short term vs long term)

Interest rates will increase or decrease

11.7. LEGAL CONSIDERATIONS AND INFLUENCE OF GOVERNMENT ON SMES

11.7.1. BUSINESS NAME

o The Australian Securities and Investments Commission (ASIC) is now responsible for a national business name registration services

11.7.2. ZONING

o Local government controls zoning regulations and have the authority to restrict where certain businesses can locate

o Zoning creates areas where land can be used only for particular purposes

o Examples of zoning include: Residential Commercial Recreational

11.7.3. HEALTH REGULATIONS

o Local Governments also controls health regulations for businesses providing food. They supply regulations around:

Temperature for food storage Employee clothing requirements Correct food handling

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11.7.4. OTHER REGULATIONS

o Competition and Consumer Act 2010 (Cwth) This act protects both consumer and businesses. It aims to:

(1) Promote fair trade and competition in the marketplace(2) Protect both consumers and businesses from deceptive

or misleading practices

11.8. HUMAN RESOURCES

11.8.1. SKILLS

If the skills level of employees is not adequate enough for them to fulfil their jobs effectively, then the business owner has two options:

o Provide training to improve skills level of existing employeeso Recruit people who have the required skills

11.8.2. COSTS – WAGE AND NON-WAGE

A business will only employ someone if the return is greater than the cost The employer is responsible for other employee expenses, referred to as on-

costs, which account for around 30 - 40 % of the total remuneration packageOn-costs: are payments for non-wage benefits (e.g) superannuation, annual leave, public holidays, sick leave

Superannuationo A scheme set up by the federal government. It requires all employers

to make a financial contribution to a fund that employees can access when they leave or retire from a job → 9.5%

Annual leave loadingo An extra amount (presently 17.5%) is added to an employees’ holiday

pay. The amount is calculated on the 4 weeks’ annual leave to which each full time, permanent employee is entitled

11.9. TAXATION

A compulsory payment of a proportion of earnings to the government

11.9.1. FEDERAL AND STATE TAXES

Tax Levied by:

Income tax (pay – as – you – go): Imposed on the employee Taken from the employee’s salary or wage directly More you earn, more tax

Fed Gov

Goods and services tax (GST) A broad-based tax of 10 percent on the supply of most

goods and services consumed in Australia One of the state’s purposes for the introduction of the GST was to

make it more difficult for businesses and individuals operating in the ‘cash economy’ to avoid tax

Fed Gov

Land tax A tax on land owned by individuals or businesses over a certain

value (in 2013 it was $412,000 or more) Land used for primary production or an individual’s primary

residence are exempt from land tax

NSW Gov

Payroll tax NSW Gov

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Payable on wages paid by an employer to their employees on payrolls that exceed $750,000 at a rate of 5.45 percent (2013)

Input tax credit: is an allowable tax deduction that a business can claim for any GST included in the price of business inputsBusiness activity statement (BAS): records a business’s claim for input tax credits and accounts for GST payable

Australian Business Number (ABN)o A single identifying number that a business uses when dealing with

government departments and agencieso Allows businesses to participate in the GST system

11.9.2. LOCAL GOVERNMENT RATES AND CHARGES

Property rates is the main local government charge a business will faceOther taxes include:

o Water and sewerageo Waste management serviceso Development and building approval feeso Parking permits

12. THE BUSINESS PLANNING PROCESS

12.1. SOURCES OF PLANNING IDEAS

12.1.1. SITUATIONAL (SWOT) ANALYSIS

(1) The internal business environment → covers the factors within the direct control of the owners. It represents what occurs within the business → S & W

(2) The external business environment → this is the larger environment within which the business operates. It consists of factors over which the business has little control and represents what occurs on a larger scale outside the business → O & T

12.2. VISION, GOALS AND/OR OBJECTIVES

12.2.1. VISION

o The vision statement broadly states what the business aspires to become

12.2.2. GOALS AND/OR OBJECTIVES

o Objectives are specific statements detailing what a business needs to do to accomplish its vision

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o Many businesses strive to achieve goals relating to profits, market share, growth and share price as well as social and environmental goals

o Strategic goals, tactical and operational objectives are determined by different levels of management

12.2.3. LONG TERM GROWTH o Longer term growth depends on a business’s ability to develop and use its

asset structure to increase sales, profits and market share

12.3. ORGANISING RESOURCES

Operations(Machining,Designing, Quality control)

The operations function of a business involves transforming different types of inputs (raw materials, labour, equipment) into finished goods and services

The following questions will need to be asked:o What type of equipment and raw materials are needed?o Which suppliers will be used to purchase the equipment

and raw materials?Marketing(Advertising, Pricing, Sales)

The marketing plan needs to become integrated into all aspects of the business

Adequate resources, therefore, must be devoted to the marketing plan

The following questions will need to be asked:o Who is our target market?o What type of market research will we conduct?

Finance(Accounts, Debt control, Loans)

Where will we obtain our finance?o Debto Equity

Grants - there are various government grants available to small businesses

Grants are usually available for:o expanding a business / innovation / exporting

Human Resources(Recruiting, Compensation)

SME owners need to use good recruitment and selection processes to find employees who will be invaluable assets as the business grows and expands

Must provide training and development for new staff

12.4. FORECASTING

12.4.1. TOTAL REVENUE AND TOTAL COST

Total Revenue (TR)o Total amount received from the sales of goods or serviceso Calculated by: P x Qo It is possible to forecast total revenue by estimating how many units are expected to be sold

Total Cost (TC)o The total costs (TC) involved in operating a business can be broadly

classified as either Fixed Costs (FC) or Variable Costs (VC) o The total cost of producing a certain number of goods or services is the

sum of the fixed and variable costs for those unitso Fixed costs (FC): are costs that do not vary regardless of how many units

of a good or service are producedo Variable costs (VC): are costs that depend on the number of goods or

services producedo Calculated by: FC + VC = TC

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12.4.2. BREAK – EVEN ANALYSIS

o Used to determine the level of sales the needs to be generated to cover the total cost of production

o Important planning tool because management can determine the level of sales required to obtain a profit

o Sales above the break-even point will mean a profit; sales below the break-even point will mean a loss

12.4.3. CASH FLOW PROJECTIONS

o Provides info concerning the business’s expected cash receipts (cash inflows) and cash payments (cash outflows) over an accounting period, usually 12 months

o Cash flow projection: shows the cash that is expected to be made or spent over a period of time into the future

o Cash flow statement: indicated how cash has flowed into and it of the business in the past period of time

12.5. MONITORING AND EVALUATING

A business has to monitor and evaluate its environment and take corrective action Monitoring

o The process of measuring actual performance against planned performance

o Performance standard: is a forecast level of performance against which actual performance can be compared

Evaluatingo The process of accessing whether or not the business has achieved its

stated goalsThree areas that need constant monitoring and evaluating are:

Sales / budget / profit

12.5.1. SALES

o Sales management control involves comparing budgeted sales against actual sales, and making changes where necessary (e.g) if a new selling technique is introduced, the level of sales will need to be closely monitored to determine whether actual sales are above or what was forecast

o Sales regenerate revenue for the business, so it is important that the sales management control function be regularly scrutinised

12.5.2. BUDGET

o A budget is the business’s financial plan for the futureo It outlines how the business will use its resources to meet its goalso The budget contains projections of incomes and expenses over a set

period of time

12.5.3. PROFITS

o There are five main reasons why a business’s profit levels must be carefully monitored and evaluated

(1) Profit as reward → ‘the return or reward’ (e.g) chapter 1(2) Profit maximisation → main goals of a business is to maximise

its profits in the long term (e.g) chapter 6

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(3) Profit as a source of finance → important source of finance for businesses is profit that have been ploughed back (e.g) chapter 11

(4) Profit as a performance indicator → The profit level also acts as the main indicator of a business's performance

(5) Profit as a dividend payment → For incorporated businesses a proportion of the profit is allocated to shareholders as dividends

12.6. TAKING CORRECTIVE ACTION – MODIFICATION

o The process of changing existing plans, using updated information to shape future plans

o Corrective action may involve changes to: Materials Costs of turning raw materials into products Management practises

13. CRITICAL ISSUES IN BUSINESS SUCCESS AND FAILURE

13.1. IMPORTANCE OF A BUSINESS PLAN

The business plan is the ‘blueprint’ for future growth and development within a business It sets out the desired goals and direction of the business Essential to long term success and necessary for all businesses If prospective business owners neglect to develop a business plan or make profit

projections, business failure is distinctly possible because there is no clear understanding of the business’s future.

13.2. MANAGEMENT (STAFFING AND TEAMS) A manager’s skill is the most critical factor in determining a business’s success or

failureo (e.g) business may have the most up – to – date equipment and best

location, but without a manager who can effective and efficient make use of these resources then often the business will not succeed

13.3. TREND ANALYSIS

Trend analysis is a process of investigating changes over time and looking for a pattern (trend) in order to predict the future

Powerful tool which assists SME owners achieve business success by helping with forecasts such factors:

o Potential saleso Total revenue / Total operating costso Gross and net profits

13.4. IDENTIFYING AND SUSTAINING COMPETITIVE ADVANTAGE

Business success and failure is linked (in the long term) to a business’s ability to develop a strategy that allows it to gain a competitive advantage over other competitors in the market

A competitive advantage is achieved through:o Price / cost strategy → this is best accomplished by achieving the lowest

production costs, which in term allow it to reduce the product priceo Differentiation strategy → the concept behind this strategy is to offer

customers something that is not already offered by business rivals

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o Ensuring long - term success → this is assured if a business sustains its competitive edge by limiting the advances of competitors

13.5. AVOIDING OVEREXTENSION OF FINANCE AND OTHER RESOURCES

A business can overextend financially by:o Hiring, purchasing or leasing over commitmentso Purchasing excess stocko Employing too many staff for the business’s current needs

To avoid overextending financially, a business should:o Undertake thorough planningo Avoid overdependence on debt financing

13.5.1. OVEREXTENSION OF OTHER RESOURCES

o Stock Invested too much money in goods or raw materials

This may occur if the business anticipates customer demand incorrectly, or purchases a ‘bargain’ from a supplier without establishing whether it is saleable among its own customers

o Staff Overextension of staff results in employing too many staff

13.6. USING TECHNOLOGY

The integration of technology into the business is essential to succeed in contemporary society

E – business (electronic business) is using the internet to conduct business

o (e.g) uses email to communicate with customers and suppliers.

o (e.g ) uses the internet to research market conditions, industry trends and economic forecasts

E - commerce (electronic commerce) is the buying and selling of goods and services via the internet

13.7. ECONOMIC CONDITIONS

A nation’s economy will experience periods of boom and recession

13.7.1. ECONOMIC CONDITIONS THAT PROMOTE BUSINESS SUCCESS

o In periods of strong economic activity, consumer spending, sales of goods and services, production and profits are rising

13.7.2. ECONOMIC CONDITIONS THAT PROMOTE BUSINESS FAILURE

o In periods of weak economic activity, consumer spending, sales of gods and services, production and profits are failing

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