bus man booklet 1

Question 1

Define unincorporated business

Answer 1

This is when the owner and the business are viewed as a single entity E.g. sole trader/partnerships

-Unincorporated business also have unlimited liability due to this

Question 2

Define incorporated business

Answer 2

This is when the business becomes it’s own legal entity separate from it’s owners E.g. private limited company/public listed company

-incorporated businesses thus have limited liability

Question 3

what are the 4 business types

Answer 3

sole trader, partnerships, private limited companies (Pty Ltd.) and public listed companies (LTD)

Question 4

Define sole trader

Answer 4

A sole trader is an unincorporated business structure with only one owner who also operates the business

Characteristics: owned and operated by a single person, unlimited liability, owner has to source all fundings, retains all profits after personal income tax, may have employees

suitable when:
small business that the owner works in day to day E.g. Tradies, hairdressers, freelancers

Question 5

Define the strengths of sole trader

Answer 5

low cost of set up, low level of government regulation,
centralized decision making= no conflict for the owner, owner retains all profit

Question 6

Define the limitations of sole trader

Answer 6

unlimited liability=risk to personal assets, difficulty to raise funds-2 sources=owner investments or loans from banks, high level of responsibility for owner

Question 7

define partnerships

Answer 7

A partnership is an unincorporated business structure owned by 2-20 owners

Characteristics: partners have shared responsibility, unlimited liability for business debts, source all funding for bus. , partners can divide and retain all profits

Suitable: small to medium business size businesses E.g. law firms, dental practices

Question 8

Define the strengths of Partnerships

Answer 8

Low cost of set up
Low level of govt. regulation
Multiple ownerships= knowledge base/quality of decisions- different skill sets/area of expertise

Question 9

Define the weakness of Partnerships

Answer 9

Unlimited liability= risk to personal assets
Difficult to raise funds= partner investment + loans from the bank
Potential conflict between partners

Question 10

Define Private limited companies (Pty Ltd.)

Answer 10

A private limited companies is an incorporated business with at least 1-50 selected shareholders

Characteristics: business MUST be followed by Pty Ltd. (Proprietary limited), company is a separate legal entity, high level of control retained by shareholders, overseen by directors= decision makers, profits are taxed twice (company and personal income tax)

suitable: protection of incorporation and control is desired

E.g. 7-eleven, cotton on group

Question 11

Define the strengths of Private limited companies

Answer 11

incorporation means that liability is limited to business= protection of shareholders
directors can be shareholders or can be appointed by shareholders= increased expertise
Revenue can be Increased by sharing shares in the organization
company tax rate is lower than personal income tax rate- so tax for the business is less

Question 12

Define the limitations of Private limited companies

Answer 12

Profits are taxed twice- company and personal income tax
Cost of set up and level of government regulation are higher

Question 13

Define Public listed companies

Answer 13

A private listed companies (LTD) is an incorporated business that can sell shares in an open market to an unlimited number of shareholders

Characteristics: bus. MUST be followed by LTD, company separate legal entity, shares sold on ASX (Australian securities exchange), shareholders have limited decision making influence but receive a share of profits dividends, strictest level of govt. regulation

Suitable: large business, move to when want to raise large amount of funds publicly E.g. Coles, Qantas

Question 14

Define the strengths of LTD

Answer 14

incorporation means that liability is limited=protection of shareholders
increased capacity to raise funds through selling shares
provides prestigious profile

Question 15

Define the limitations of LTD

Answer 15

Profits taxed twice
cost of set up and government regulation are the highest
greater public scrutiny
shareholders can lack patience on return investment results in bus. more focused on profit of risk fall in share prices

Question 16

Define Business objectives

Answer 16

The goals a business intends to achieve

-if they are clear, specific and measurable they provide direction for decision making and planning

Question 17

Define KPI (Key Performance Indicators)

Answer 17

It’s a criteria that measures how efficient and effective a business is at achieving business objectives

Question 18

Define efficiency

Answer 18

How productively a business uses its resources when producing a good or service
–> less resources used for the same number of products=higher efficiency

Question 19

Define effectiveness

Answer 19

The extent to which the business achieves its business objectives

Question 20

Define the 5 business objectives

Answer 20

make a profit, meet shareholders expectations, increase market share, fulfil a social need, fulfil a market need

Question 21

Define make a profit

Answer 21

What? when revenue (e.g. sales) are greater that expenses (E.g. wages, cost of resources, rent on property etc.)

Why? Profit=essential for survival

How used? returned to shareholders or owners or reinvested into the business)

How achieved? Any strategies that increases revenue or reduce expenses

Question 22

Define increase market share

Answer 22

What? Increase control of the market to become more competitive

Why? Increased customer loyalty= increase customer stability–>increase profits

How achieved? Make price lower than competitor, provide a unique benefit of your product

Question 23

Define meet shareholder expectation

Answer 23

What? Ensure a return of investment to shareholders through dividends and increased share prices

Why? Attract new shareholders b/c seen as strong investment + prevent conflict btw management and shareholders

How achieved? Increase profit

Question 24

Define meet shareholder expectation

Answer 24

What? Ensure a return of investment to shareholders through dividends and increased share prices

Why? Attract new shareholders b/c seen as strong investment + prevent conflict btw management and shareholders

How achieved? Increase profit

Question 25

Define Fulfil a market need

Answer 25

What? Provide good or service that meets the desires the desires of a group of customers

Why? Increases sales –> increases revenue –> increases profit + if the organization fulfilling a ‘gap in the market’ which increases customer loyalty

How achieved? Identify what needs the market is not currently meeting and develop a product or service to meet that need

Question 26

Define Fulfil a social need

Answer 26

What? Improve the community or environment through business activities

Why? Improves reputation which can increase sales + market share OR b/c it’s the organizations purpose –> NB can make profit at the same time

How achieved? Consider social and environmental impact when making decisions OR supporting other organizations work

Question 27

How are KPI’s be used by businesses?

Answer 27

Business base their decisions on data and objective information
- allows business to gather info about current performance, set objectives, inform and initiate change, evaluate change

note KPI’s do not tell what exactly to change/ also require an initial benchmark for comparison

Question 28

What are the 5 KPI’s?

Answer 28

Percentage of market share, net profit figures, number of sales, level of wastage, rate of productivity growth

Question 29

Define Number of sales

Answer 29

Total quantity of a particular product or service purchased during a defined time period

Indicates the measure success of marketing campaigns, sales training and product innovation/ the most popular or unpopular products

Question 30

Define Percentage of Market share

Answer 30

A representation of the proportion of sales that a business has compared to the total sales for the industry or product, expressed as a percentage

Indicates the level of control in a market, if you have improved quality or price comp to comp, if sales dropped (issue with organization of market is shrinking), if sale rise (becoming more comp or increase in demaand)

Question 31

Define Net profit

Answer 31

Net profit figures are calculated by deducing total expenses incurred from total revenues earned over a period of time
-determines a business long term success

Indicates capacity of organization to uses it’s resources to MAX., if selling price is right, increasing revenue or reducing costs

Question 32

Define Rate of productivity growth?

Answer 32

Compares the amount of output produced to the amount of input (resources) going into production from one defined period to the next

Indicates the organization is using resources more efficiently, the organization is using fewer inputs to obtain the same level of output or more output from same input

Question 33

Define Level of wastage

Answer 33

The amount of resources discarded by the business during the production process

Indicates reduction of waste means that an organization can cut costs leading to greater profits, high levels of waste can indicate negative impact on the environment

Question 34

Define Macro factors

Answer 34

Macro factors are influences over which a business has no control. The external environment is dynamic and ever changing so a business must adapt to these factors to remain viable.

Question 35

State the 3 Macro factors

Answer 35

legal + government regulations, societal attitudes and behaviors, economic conditions

Question 36

Define legal + government regulations

Answer 36

refers to the business related legislation passed by local, state or federal governments, as well as decisions made by the courts, that protect consumers, the community and the environment while encouraging fair trade and competition

E.g. The Privacy Act 1988, contains rules about collecting, storing and use of personal information.
E.g.g of privacy breaches: 2016 red cross half a million blood donors’ data hacked

Question 37

Define Societal attitudes + behaviors

Answer 37

Includes external and internal customers’ values, beliefs and customer trends. Incl. what people currently think about ways of working, how businesses should be operating and purchasing patters.

Question 38

Define impacts of societal attitudes + behaviors

Answer 38

Positive
-adapting to social change means the business is constantly up to date and can offer products in line with customer wants and needs
-can create new profit generating opportunities
Negative
-social changes can occur frequently and it may not always be possible for businesses to respond, can be a disaster in competitive industries ‘

Question 39

Define Economic Conditions

Answer 39

includes all things financial, meaning when planning businesses must take into account consideration interest rates, tax rates, business confidence and consumer confidence levels

E.g. low interest rates, unemployment and interest rates

Question 40

State the impacts of Economic conditions

Answer 40

Positive
-strong economic growth=expands the customer base=more sales/revenue/profit
-greater levels of consumer confidence
Negative
-weak economic growth (recession)= reduces the consumer base=damage sales
-economic sanctions, restrictions etc. = increase costs
-increase unemployment=increase inflation=increase interest rates all affect demand

Question 41

Define interest rates

Answer 41

the amount a lender charges a borrower and is a percentage of the principal (amount loaned).
also refers to the amount earned on savings
(The cost of borrowing)

Question 42

Define inflation

Answer 42

the rise in prices, which can be translated as the decline of purchasing power over time.

The rise in price, often expressed as a percentage, means that a unit of currency effectively buys less than it did in prior periods

Question 43

Define unemployment

Answer 43

a term that refers to a situation where a person is actively searching for employment but is unable to find work.

This is a key measure of the health of the economy