Business - prelim study Flashcards
(130 cards)
1
Q
The nature of a business -
what is producing goods and services?
A
Organising resources to provide goods and services that customers want.
Production = creating products
2
Q
The nature of a business -
what are Profit, employment, incomes, choice, innovation, entrepreneurship and risk, wealth and quality of life?
A
- Profit = what remains after all business expenses have been deducted
- Employment = paid labour
- Income = wage – hourly and salary – yearly
- Choice = options
- Innovation = creating new and improved products
- Entrepreneurship and risk = creating new ideas and being prepared for failure
- Wealth = the amount of money passes and earned
- Quality of life = the overall wellbeing of an individual
3
Q
Classification of business -
Size – small to medium enterprises (SMEs), large
A
- Micro business = fewer than 5 employees
- Small business = 5-19 employees
- Medium business = 20-199 employees
- Large business = 200 or more employees
- Small to medium enterprises (SMEs) = firms fewer than 200 full-time equivalent employees and/or less than $10 million turnover
4
Q
Classification of business -
Local, national, global
A
- Geographical spread = the presence of a business and the range of its products across a suburb, city, state or country or the globe
- Local = a business that has a restricted geographical spread; it serves the surrounding area (eg. a newsagent, corner store, hairdresser).
- National = a business that operates within one country (eg. Coles, David Jones, Bank of Queensland (BOQ)).
- Global = aka a multinational corporation is a large company that has branches in many different countries (eg. Coca-Cola, Google, Toyota, McDonalds, Westfields).
5
Q
Classification of business -
Industry – primary, secondary, tertiary, quaternary, quinary
A
- Industry = businesses that are involved in similar types of production
- Primary industry = includes those businesses involved in the collection of natural resources (eg. all types of farming, mining, fishing, grazing and forestry).
- Secondary industry = includes businesses that take a raw material and makes it into a finished or semi-finished product (eg. iron-ore, coal and limestone are turned into steel – a semi-finished product that is then used to manufacture cars).
- Tertiary industry = involves people performing a vast range of services for other people (eg. retailers, dentists, solicitors, banks, museums and health workers).
- Quaternary industry = includes services that involve the transfer and processing of information and knowledge (eg. telcommunications, property, computing, finance and education).
- Quinary industry = includes all services that have traditionally been performed in the home (eg. hospitality, tourism, craft-based activities and childcare, both paid and unpaid).
6
Q
Classification of business -
Legal structure – sole trader, partnership, private company, public company and government enterprise
A
7
Q
What is the private sector?
A
Is operated by private individuals and companies for the purpose of making profit (eg. sole traders, partnerships and companies).
8
Q
What is the public sector?
A
It is operated by government.
It is the least common type of business
Also known as government enterprises.
9
Q
What does ‘incorporated’ mean?
A
Refers to the process companies go through to become a separate legal entity from the owner/s.
In the case of privately and publicly owned companies, if owner dies, the business continues to operate.
10
Q
What is an unincorporated business?
A
Has no separate legal existence from its owner/s
Will be either a sole trader or partnership
When the owner dies, then so too does the business entity.
11
Q
What is a sole trader?
A
Is a business that is owned and operated by one person and takes all of responsibility for the operation of the business.
The only legal requirement specific is that the name of the business be registered if the name is different to the owner.
Not regarded as a separate legal entity.
Has unlimited liability, meaning if there is a financial problem you have to sell person assets such as property or motor vehicle to pay for the liabilities.
12
Q
What are the advantages and disadvantages of a sole trader?
A
Advantages:
Low cost of entity
Simplest form
Complete control
Disadvantages:
Personal (unlimited) liability for business debt
End of business when owner dies
13
Q
What is a partnership?
A
Is a legal business structure that is owned and operated by between 2 to 20 people.
However, there are exceptions:
- Medical practitioners and stockbrokers are allowed up to 50 partnerships
- Veterinarians, architects and chemists are allowed up to 100 partners
- Solicitors and accountants are allowed up to 400 partners.
No separate legal entity
Unlimited reliability
Personally responsible
Can be made verbally, in writing or implication
Limited partnerships allow one or more partners to contribute financially but take no part in the running
Silent or sleeping partners add more capital or finance.
14
Q
What are the advantages and disadvantages of a partnership?
A
Advantages:
Low start-up costs
Less costly to operate than a company
Disadvantages
Personal unlimited liability
Possibility of disputes
15
Q
What is unlimited liability?
A
Unlimited liability is when the business owner is personally responsible for all the businesses debt.
16
Q
What is a company?
A
All companies are incorporated enterprises and have gone through the process or incorporation meaning company has become a separate legal entity from its owners – referred to as ‘veil of incorporation’.
It has perpetual succession, which means it will continue to exist even when the owners change.
To become incorporated, you must register with ASIC to receive a certificate of incorporation and an Australian Company Number (ACN). A Director must then be appointed.
All companies have limited liability meaning the most money a shareholder can lose is the amount they paid for their shares. If the company goes into liquidation, shareholders cannot be forced to sell personal assets to pay for the debt. This does not extend to directors.
17
Q
What are the advantages and disadvantages of companies?
A
Advantages
Easier to attract public finance
Limited liability – separate legal entity
Disadvantages
Cost of formation
Double taxation – company and personal
18
Q
What is a proprietary (private) company?
A
Most common
Usually has between 2 and 50 shareholders
Tend to be small to medium sized, family owned businesses
Shareholders can only sell their shares to people approved of by the other directors
It is not listed on, and its shares are not sold through, a stock exchange
Must have the words ‘proprietary limited’ (‘Pty Ltd’) after its name
Main advantage = that shareholders have limited liability protection
If the decision is made to close a business all the shareholders of the company must agree to the company being wound up
A liquidator will manage the process of selling the company’s assets, paying its debts and distributing funds from the asset sales among the shareholders
19
Q
What is a public company?
A
Shares are listed on the Australian Securities Exchange
The general public may buy and sell shares
Most public companies are large in size and market a large range of products
A public company has:
- At least one shareholder, with no maximum number
- No restrictions on the transfer of shares or raising money from the public by offering shares
- To issue a prospectus when selling its shares for the first time
- A minimum requirement of three directors (two must live in Australia)
- The word ‘Limited’ or ‘Ltd’ in its name
- To publish its audited financial accounts each year, its annual report
20
Q
What is a government enterprise?
A
Government enterprises are government-owned and operates
Goal of making a profit
Although small in number, they are typically large
Are owned and operated by all levels of government: federal, state and local
Often referred to as public sector businesses and provide essential community services such as health, education, roads and welfare
Established by an Act of Parliament to carry out a function specified in detail in that act
The act defines the powers and functions
Privatisation = the process of transferring the ownership of a government business to the private sector
21
Q
What factors influence the choice of legal structure? (x3)
A
Size of business
Ownership
Finance
22
Q
What are external influences on the business environment? (List 5)
A
Economic
Financial
Geographical
Social
Legal
Political
Institutional
Technological
Competitive situation
Changes in markets
23
Q
What are internal influences on the business environment? (List 3)
A
Products
Location
Resources
Management
Business culture
24
Q
List 4 stakeholders of a business.
A
Shareholders
Managers
Employees
Consumers
Society/general public
Environment
25
What are the 4 stages of the business life cycle?
Establishment
Growth
Maturity
Post-maturity
26
What are some characteristics of the establishment phase of the business life cycle? (List 4)
- Management - informal
- Costs - very high
- Profit - usually slow to begin with
- Sales - begin slowly
- Goals - survival
- Typically characterised by negative profits
- Expenses higher than sales revenue
- Takes time to establish a product
- Failure rate is very high (up to 33% within the first year of trading)
27
What are some characteristics of the growth phase of the business life cycle? (List 4)
- Goal - to constantly grow/increase sales
- Profit - should increase due to rising sales and falling production costs
- Costs - tend to decrease due to economies of scale (ie. cheaper unit costs due to larger production runs)
- Management - delegation of some responsibilities
- Failure rate - lessened
- Main problems - expanding too rapidly; moving away from core business
- Rapid increase in sales
- Pressure on resources, particularly cash and labour
28
What are some characteristics of the maturity phase of the business life cycle? (List 4)
- Goal - to maintain profits
- Sales - rate of growth slows and eventually flattens out
- Profit - rate of growth slows, eventually flattens out
- Costs - keeping costs under control is now essential
- Failure rate - will increase the longer the business takes to react and reverse plateauing sales
- Sales level off
- Market for product is saturated (limited growth left)
- Time to employ professional managers
29
What are some characteristics of the post-maturity phase of the business life cycle? (List 4)
- Goals - the increase sales, cash flow and profits
- Profit - will improve over the long term
- Costs - cost will be high in the short term due to research and development, marketing, restructuring costs etc
- Failure rate - lessened compared to other phases
- Final stage of life cycle
- Falling sales and loss of market shares
- Cash flow problems emerge
- Business starts to decline
30
What is the business life cycle?
The different phases a business and/or its products will often go through over the course of its existence.
31
What is the stage in the post-maturity phase of the business life cycle called when a business experiences a fall in sales and has been unsuccessful in developing new strategies?
Decline
32
What is revenue?
All funds flowing into the business. These include: sales receipts and fees for services, rent, interest from investments and dividends on shares in other businesses.
33
How do you respond to challenges at each stage of the business life cycle?
Establishment - mindful of finance; do research; take risks
Growth - add more product/services; be prepared for and adapt to challenges
Maturity - always stay relevant; adapt to customer’s changing needs/wants
Post-maturity - take risks; add more product/service
34
What factors can contribute to business decline?
Lack of management expertise
Competition is too great
Unmotivated or poorly performing employees and managers
Inability to keep up with economical demands and changes
35
What is cessation?
When a business ceases to operate
36
What is bankruptcy?
A declaration that a business, or person, is unable to pay his or her debts
36
What is voluntary administration?
When a company is experiencing financial difficulties, it can be placed in voluntary administration.
Voluntary administration occurs when an independent administrator is appointed to operate the business in the hope of trading out of the present financial problems.
37
What is liquidation?
Liquidation occurs when an independent and suitably qualified person, the liquidator, is appointed to take control of the business with the intention of selling all the company’s assets in an orderly and fair way in order to pay the creditors.
38
What are the main features of liquidation?
Can be regarded as the equivalent of bankruptcy for a company (corporation)
Results in the life of a company coming to an end
Normally occurs because the company is unable to pay its debts as and when they fall due, it has become insolvent.
Same as bankruptcy, a business can choose or be forced into liquidation.
39
What are the characteristics of effective management?
Having the ability to analyse information, attend meetings and communicate with a wide range of people within and outside the business
Possessing the skills to manage change effectively
Having the vision to see how things could be, rather than accepting things the way they are
Providing leadership through the desire to encourage, motivate and guide employees
Understanding their roles and responsibilities in order to achieve the goals of the business
40
What are the 4 main resources for a business?
Human resources - the employees and most important asset
Information resources - the knowledge and data required by the business (eg. legal advice, sales reports, economic forecasts etc)
Physical resources - these include equipment, machinery, buildings and raw materials
Financial resources - these are the funds the business uses to meet its obligations to various creditors
41
What does a manager do?
A manager is someone who coordinates the business’s limited resources in order to achieve specific goals.
42
What is a contemporary definition of management?
the process of working with and through other people to achieve the goals of the business in a rapidly changing environment.
43
What are managers required to do?
Work with and through others - ie communicate well
Achieve the goals of the business - ie. be effective
Get the most from the limited resources - ie. be efficient
Balance efficiency and effectiveness
Cope with a rapidly changing environment - ie. anticipate and adjust to changing circumstances
44
What does effectiveness measure in relation to business management?
The degree to which a goal has been achieved
45
What does efficiency measure in relation to business management?
Compares the resources needed to achieve a goal (the costs) against what was actually achieved (the benefits).
46
What does an effective manager need to be good at?
Planning - process of setting objectives and decided on the methods to achieve them
Organising - the process of structuring the organisation to translate plans and goals into action
Leading - the process of influencing or motivating people to work towards the organisation’s objectives
Controlling - the process of evaluating performance and taking corrective action to ensure that the set objectives are being achieved.
47
Management is the process of...
Coordinating a business’s resources to achieve its goals.
Working with and through other people to achieve business goals in a changing environment.
Make sure the joint efforts of employees are directed towards achieving the business’s goals.
48
What are some management myths?
The effective manager is a methodical planner, reflects on what has been achieved, with time to systematically work through problems encountered throughout the day.
The effective manager has no regular activities to carry out. It is all a matter of coordinating other people’s responsibilities and then sitting back to watch others do the work.
Management is a science and, as such, can be reduced to a formula and set of ‘laws’ that, if followed, result in goals being achieved.
Management reality:
The typical manager is constantly interrupted, with no more than approximately ten minutes spent on any one activity. The manager takes on a great deal and has little time for reflection.
Although managers’ days are constantly interrupted by both trivialities and crises, they still have regular duties to perform.
They must interpret and analyse information, attend meetings and communicate regularly with other parts of the business.
The manager’s job is more art than science. Managers rely heavily on judgement, past experience, perception and intuition.
49
What skills are important for management?
Interpersonal:
- those skills needed to work and communicate with other people and to understand their needs
- Characteristics: empathy, active communication, body language, verbal etc
Communication:
- The exchange of information between people; the sending and receiving of messages.
- Characteristics: sender, receiver, verbal, non-verbal
Strategic thinking:
- Allows a manager to see the business as a whole and to take the broad, long-term view
- Characteristics: adaptability, innovative thinking, future-oriented mindset, ability to think systematically, ability to identify patters
Vision:
- The clear, shared sense of direction that allows people to attain a common goal.
- Characteristics: able to predict, conceptualise, good financial management skills, motivation
Problem solving:
- A broad set of activities involved in searching for identifying and then implementing a course of action to correct a situation
- Characteristics: calm under pressure, quick thinking, can come up with solutions, communication
Decision making:
- The process of identifying the options available and then choosing a specific course of action to solve a specific problem
- Characteristics: available options, calm under pressure, quick thinking, communication, ability to identify
Flexibility:
- Adaptability to change in a dynamic environment
- Characteristics: adapt to change, flexible, changing circumstances
Adaptability to change:
- possessing the skills and the knowledge and understanding to meet the needs of new problems/issues
- Characteristics: flexible, changing conditions
Reconciling the conflicting interest of stakeholders:
- Stakeholders having different ideas for how the business should run.
- Characteristics: active verbal and non-verbal communication, being transparent
50
What are the markers for achieving business goals?
Profit
Market share
Growth
- Achieve growth internally or externally
Share price
- Is a part ownership of a public company. Shareholders therefore are the real owner of the company. Companies that want to be successful, need to maximise the returns of their shareholders
Social
- All businesses operate within a community and have certain social responsibilities. Many businesses develop social goals and adopt strategies that will benefit the community.
Environmental
- Businesses are starting to play their part in achieving sustainable development and taking care of the environment. Pressure to change has come from society’s increasing awareness of environmental issues.
51
What is profit?
Maximising revenue, minimising expenses as much as possible.
52
What is market share?
Refers to the business’s share of the total industry sales for a particular product.
53
What are the three types of management approaches?
Classical approach
Behavioural approach
Contingency approach
54
What is the classical approach to management?
The classical approach to management stresses how best to manage and organise workers so as to improve productivity. It focuses on finding out the ‘one best way’ to complete a task.
Pioneered by Fredrick W Taylor, who advocated for a production line method or manufacturing as the most efficient form of production
He believed he could study a job in great detail to discover the best way to perform it.
Systematise - Introducing time and motion studies; specific task in a repetitive way; tasks were divided into small, specialised components; divide work and responsibilities
- Managers plan, organise and control
- Workers complete tasks
55
What are the 3 types of business planning?
Strategic - long term (3-5 years)
Tactical - medium term (1 year)
Operational - day to day
56
What type of structure does the classical approach to management have?
Hierarchical organisation structure:
- Features include division of labour; chain of command and pyramid structure
- Many management and supervisory levels with clearly distinguishable and segmented organisational positions, responsibilities and roles
- Bureaucratic management of authority believed to be the most effective means of controlling the workforce and ensuring that instructions are followed
- Workers believed to be prone to laziness and self-interest, so tight control and external motivation necessary to achieve required organisational goals and objectives
57
What is an autocratic leadership style?
Managers using an autocratic leadership style tends to:
- Make all the decisions
- Dictate work methods
- Frequently checks employee’s performance
- Limits worker knowledge to what needs to be done until the next step.
58
Strengths of the classical approach to management include...
Shorter time to make decisions
Could lead to improved efficiency
Increased productivity
Clear chain of command
59
Weaknesses of the classical approach to management include...
Employee boredom
- Less job satisfaction, which could lead to decreased turnover
- Can discourage creativity and innovation
- Organisation becomes inflexible and less able to adapt to changing conditions.
60
What is the behavioural approach to management?
Management as leading, motivating, communicating
Elton Mayo studied productivity in the Western Electric Company’s factory (1927-1932) to determine what effect fatigue and monotony had on employee productivity.
He selected 6 female employees from the assembly line, segregated them from the rest of the factory, frequently changed their working conditions and always discussed and explained the changes in advance.
The results were the productivity increased completely independently of any changes he made. The 6 employees had become a team and:
- Were happy knowing that they were working without coercion from senior managers or limitations from the workplace structure
- They felt they were under less pressure, not being pushed or bossed around by anyone
- Under these conditions, they developed an increased sense of responsibility, with discipline coming from within the team.
Mayo discovered that workplaces are social environments and employees are often motivated by much more than self-interest.
This is known as the ‘Hawthorne effect’.
Emphasises that people (employees) should be the main focus of the way in which the business is organised
Views management as leading, motivating and communicating
Recognition that workers have social needs in addition to economic needs
Teamwork and informal work groups important for productivity
Flatter organisational structurewith emphasis on teamwork
Fewer levels of management
The emergence of more participative or democratic aspects
61
What is the contingency approach to management?
Flexibility and adaption of a variety of ideas and principles from a range of theories mean that a range of options may be pursued to suit the business’s requirements
May be pyramid, flat or decentralised organisational structure, depending on the business’s requirements
Levels of management depends on the business’s requirements - that is, the nature of the operation and abilities of employees
Management style depends on the requirements of the business
62
What is 'tangible' in the management process?
tangibles are physical products that can be handled and stored before they are sold to the consumer such as bread, clothing, cars.
63
What is 'intangible' in the management process?
services which cannot be touched (eg. if you attend a training course, it cannot be touched but you can learn from it)
64
What is an input?
A resource used in the process of production.
65
What is the transformation process?
The conversion of inputs (resources) into outputs (goods and services). Also implies physical changes. (eg. the baking process from raw ingredients to bagged bread) as well as school students from kindergarten to employable graduate.
66
What are the key business functions for management?
Operations
Marketing
Finance
Human Resources
67
What does operations refer to?
Refers to the business processes that involve transformation or more generally ‘production’
Transforms inputs (raw materials) into outputs (sellable products)
Operations management consists of all the activities in which managers engage to produce a good or service
Products sold meets customer needs and wants
Require funds to purchase inputs
Requires trained staff
68
What does marketing refer to?
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.
It includes:
selling -
rewards -
products -
target market -
promotion - the role of promotion is to inform, persuade and remind consumers about a business’s products
consumers -
finance
69
What is the target market?
Is a group of customers with similar characteristics who presently, or may in the future, purchase the product or service.
70
What is the mass marketing approach?
Seeks a large range of customers. The business develops a single marketing mix and directs it at the entire market for the product.
71
What is market segmentation?
occurs when the total market is subdivided into groups of people who share one or more characteristics based on four elements of dimensions:
- demographic (population - age, gender, religion)
- geographic (where people live - urban, rural, suburban)
- Physiological (lifestyle - motives, personality)
- Behavioural (loyalty - use rate, price, sensitivity)
72
What is a niche market (also known as micro market)?
An extension of the market segmentation approach is that of the niche market, which is a narrowly selected target market segment
73
What does finance refer to?
Finance refers to how a business funds its activities - e.g. where it gets the money to trade, why it chooses to use certain lenders, as well as costs, risks, terms and benefits of different types of borrowings.
Cost management is crucial because businesses tend to try to maximise profits.
A thorough understanding of accounting and finance is essential for business managers
- Accounting is a management tool that is concerned with providing information on the financial affairs of a business and provides a summary of what has happened to the money which can be traced
- Finance is concerned with where the business sources its funds
Manage cash flow
Obtain funds for the business from different sources
Provide funding for different business departments to operate
Maintain business records
Requires trained staff
74
What is a cash flow statement?
Indicates the movement of cash receipts and cash payments resulting from transactions over a period of time
75
What is an income statement?
(also called statement of financial performance, revenue statement or profit and loss (P&L) statement)
Shows the revenue earned and expenses incurred over the accounting period with the resultant profit and loss
It helps users of information see exactly how much money has come into the business as revenue, how much has gone out as expenditure and how much has been derived as profit
Profit - refers to money earned by a business in the course of operating that is in excess of costs, that is, money left after expenses are covered.
Profit = income (revenue) from all sources less (minus) all costs (or expenses)
The income statement is always the first to be compiled at the end of the accounting period as this forms the basis for the balance sheet
76
What is a balance sheet?
(also called statement of financial position)
Represent a business’s assets and liabilities at a particular point in time and represents the net worth of the business
It is used to help owners keep track of their debt and equity levels, compare overall financial position with that of previous periods and help with financial decision making.
Is divided into two parts - on the left are the assets (the things the business owns) - on the right are the liabilities (owned by outside parties) and owner’s equity (the sources of the funds)
Balance sheet equation:
assets – liabilities = owners equity
Assets are items of value to the business and can be either current or non-current
Liabilities are debts or business borrowing and can be either current or non-current
The balance sheet must always balance
77
What does liquidity refer to?
Liquidity refers to the amount of cash a business has access to and how readily it can convert its assets into cash so that debts can be paid.
78
What does Human Resources refer to?
Acquire, train and maintain qualified staff that allow the other areas to function properly
Maintain of staff is carried out through monetary (financial) and non-monetary ways
Recruitment
Training
79
What is an employment contract?
An employment contract is a legally binding, formal agreement between an employer and employee
The contract outlines minimum requirements for both employer and employee
80
There are 3 types of employment contacts. What are they?
Modern award - legally binding agreement that sets out industry or occupation based minimum employment standards (includes wages and working conditions) which apply in addition to the Minimum Employment Standards or National Employment Standards (NES).
Enterprise agreement
Common law contract - cover those employees who are not under any award or enterprise agreement
81
What are the NES minimum employment standards?
hours of work (35-38 hours per week),
parental leave flexible work for parents
Flexible work for parents
annual leave (4 weeks full time),
personal carers and compassionate leave (full time 10 days each year),
community service leave (includes jury duty, emergency services duties),
public holidays
Information in the workplace (fair work information statement)
Notice of termination and redundancy
Long service leave
82
What is an enterprise agreement?
a negotiated arrangement between an employer and an union or group of employees
83
What is voluntary separation?
Voluntary separation includes retirement, resignation, voluntary redundancy.
84
What is involuntary separation?
Involuntary separation includes involuntary redundancy/retrenchment, instant or summary dismissal, dismissal after warning
85
What is voluntary redundancy?
Voluntary redundancy is a financial incentive offered by an organisation to encourage employees to voluntarily resign.
86
What are the external influences of a business?
Competition - businesses need to monitor the activities of their competitors and determine what effect they may be having in the marketplace. Knowledge of such changes enables a business to make modifications to its existing business activities and to plan new ones
Legislation - whenever new laws are passed, businesses must comply with the new legislative requirements.
Technology - a business that wants to be locally, nationally or globally competitive must adopt the appropriate technology.
Social - businesses operate within society and must adapt to changes in society’s attitudes and values
87
What are the different sizes of SMEs?
Micro - fewer than 5 employees (including the owner)
Small - between 5 and 19 employees
Medium - between 20 and 199 employees
Large - 200 or more employees
88
What is an SME?
Small to medium enterprise
89
What are some common characteristics of SMEs? (List 4)
Personalised service
Local markets
Independently operated
Independently owned
Closely controlled by owner/operator
Small share of total industry output
Locally based
Bulk of capital provided by owner
Reliant on internal support services
Owner basically responsible for decision making
Non-manufacturing companies - fewer than 20 employees
Manufacturing companies - fewer than 100 employees
90
List some statistics on SMEs in the Australian economy
Employ about 68.3% of all the people working in the private sector
Product approx 55% of all the products produced each year
Earn more profits and pay more taxes than do large businesses
According to the ABS, in 2010 SMEs accounted for approximately 98% of all private sector businesses.
91
What is GPD?
GDP is the total money value of all goods and services produced in Australia ove a one-year period
92
When does economic growth occur?
Economic growth occurs when a nation increases the real value of goods and services over time
93
What is the key to establishing a lucrative business?
Identifying a gap in the market is key to establishing a lucrative business. It means that the new business provides something that is not already available
93
What is the balance of payments (BOP)?
Balance of payments (BOP) is a record of a country’s trade and financial transactions with the rest of the world over time, usually one year
94
What is an entrepreneur?
Someone who starts, operates and assumes the risk of a business venture in the hope of making a profit
95
Where can new business owners go for advice?
Accountant - prepares and examines financial records, identifying potential areas of opportunity and risk and provide solutions
Solicitor - provide information concerning business formation and structure, registration, contracts, leases, partnership agreements, patents and legislation
bank manager
management consultant - is the practice of providing consulting services to improve their performance or to assist in achieving organisational objectives
A professional adviser can examine the business much more objectively and provide independent analysis and advice
Government agencies - all state governments have established agencies that provide support and advice to business owners
Other sources include Chambers of Commerce, trade associations, libraries and reference material, Australian Bureau of Statistics, business mentors
96
What is competition?
Competition is the rivalry among businesses that seek to satisfy a market.
97
How do you make a business competitive? (List 2)
Cost of product (or cost leadership) - the business that can produce a good or service at the lowest possible cost and this sell at the lowest price has the greatest ability to attract market share
Goods/service differentiation - this is when a business produces a goods/service that is differentiated in some way from competitors
98
What are the 3 ways of establishing a new business?
Setting up from scratch
Purchasing an existing business
Purchasing a franchise
99
What are the advantages of setting up a business from scratch?
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
100
What are the disadvantages of setting up a business from scratch?
There is a 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
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What are the advantages of purchasing an existing business?
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 already been acquired and is ready for sale
The seller may offer advice and training
Equipment is available for immediate use
Existing employees can provide valuable assistance
102
What are the disadvantages of purchasing an existing business?
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 owner’s personality and contacts, so may be lost when the business is sold
It may be difficult to assess the value of goodwill, with the likelihood that the newcomer will pay more than it is worth
There may be hidden problems
Some employees may resent any change to the business operation.
103
What are the advantages of purchasing a franchise?
Immediate benefit is derived from the franchisor’s goodwill because the name is established
The franchisor often 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
104
What are the disadvantages of purchasing a franchise?
The franchisor controls the operations, with little scope for franchisee individuality
Profits must be shared with the franchisor through the payment of ongoing franchise fees
T
he 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
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What is a franchise?
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 (eg. Gloria Jeans, Jim’s Dog Wash)
106
Who is the franchisor?
the business that grants the right to others to use its name and products
107
Who is the franchise?
the business that buys those rights
108
What is one of the most crucial decisions any business owner has to make?
the price
as it will have a major impact on the success of the business - too high may drive away potential customers - too low may make it difficult to achieve a profit
109
What is cost-based pricing?
a pricing method derived from calculating the total cost of producing and purchasing a product and then adding a mark-up for profit
110
What is market-based pricing?
a method of setting prices according to the interaction between the levels of supply and demand - whatover the market is prepared to pay
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What is competitor pricing?
choosing a price that is either below, equal to or above that of competitors
112
What is a primary business?
businesses involved in the collection of natural resources (eg. farming)
113
What is a secondary business?
Businesses that take the output of firms in the primary sector (raw materials) and process it into a finished or semi-finished product (eg iron ore into steel)
114
What is the quaternary sector?
Services that involve the transfer and processing of information and knowledge (eg. finance and education)
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What is the tertiary sector?
involves people performing a vast range of services for other people (eg banks)
116
What is a Quinary business?
all services that have traditionally been performed in the home (eg. hospitality)
117
What does a private company have at the end of its name?
'Propreitary Limited' or PtyLtd
118
What are the 4 P's?
Product
Price
Promotion
Place (distribution)
119
What are business ethics?
Business ethics is the application of moral standards to business behaviour
120
What does finance refer to in relation to establishing a SME?
Finance refers to the funds required to carry out the activities of a business
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What are the sources of finance for an SME? (List 2)
Internal source of funds where the business owner contributes their own funds (equity or capital)
External sources - a loan (debt) from banks, finance companies, credit unions, trade credit etc
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Debt finance is the money obtained by loans. What are the 3 different types?
Short term finance - less than one year (day to day working referred to as working capital)
Medium term finance - between one and five years (normally when a business wishes to expand)
Long term finance - greater than five years (commonly called working capital)
123
What is equity finance?
the funds contributed by the business owner(s) to start and then expand the business
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What are some of the costs you need to consider when setting up an SME? (List 4)
Legal fees
advertising, wages
electricity costs, insurance
initial purchase of stock
fixtures and fittings
rent
ongoing stock purchases etc
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Who do you register your business name with when starting a new business?
The Australian Securities and Investment Commission (ASIC)
126
All business owners have a legal obligation to observe the statutory regulations when commencing and operating a business. What are some of the regulations imposed?
Health regulations
Local government also imposes health regulations under the Public Health Act 2010 (NSW) - primarily for those dealing with food, such as cafes, restaurants, butcher shops and bakeries.
Other regulations
Competition and Consumer Act - protects both consumers and business, and applies to virtually all business in Australia. Designed to protect consumers from deceptive practices such as misleading packaging etc. It also deals with product safety and the warranties. It also works to stop monopolies.
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Hiring the ‘right’ people at the ‘right’ time, with the ‘right’ skills in the ‘right’ quantity is crucial for business success. What does this statement define?
Human Resources
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What are some of the costs (wage and non-wage) a new business may encounter? (List 4)
Occupational health and safety
Long service leave
Sick leave
Superannuation
Holiday pay
Study leave
Maternity and paternity leave
Workers compensation
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