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Economics > business topic 3 (chap 10-11)) > Flashcards

business topic 3 (chap 10-11)) Flashcards

1
Q

gvts devised policies or SMEs to build on strengths and overcome weaknesses of SMEs. these policies focus on

A

access to finance
networking
innovation
export programs

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2
Q

adaptive and dynamic SMEs respond to gvt policies through

A

increased spending on R&D
new product developments
improved bus practices
export-oriented business culture

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3
Q

SMEs in AUS have sig contribution to AUS’

A

GDP, balance of payments
employment
invention & innovation

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4
Q

wualitative and quantitative measurements to determine SMEs

A

no. employees
type of ownership
legal structure
management structure
sources of finance
market share

<200 employees

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5
Q

common features of SME

A

-closely controlled by owner
-independently owned & operated
-not dominant in industry (small share of total industry output)
-owner provides bulk of capital
-non-manufacturing, <20 employees
-manufacturing <100 employees
-local markets

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6
Q

why do many SME owners wanna stay small

A

avoid pressures and difficulties experienced by larger businesses
-content knowing offer personalised service to customers

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7
Q

2 reasons why is it difficult to provide accurate count of no. SMEs in AUS

A
  1. no universally accepted definition of SME
  2. SME sector extremely dynamic, changing daily
    -boom –> no. SMEs ^ rapidly
    -recession –> failures >commencements
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8
Q

SME stats

A

generate increasing amt of AUS total exports
-provide wide range of products used by large businesses
-earn more proits and pay more taxes > large bus

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9
Q

3 basic economic questions

A
  1. what & how much to produce
  2. how to produce
  3. for whom to produce
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10
Q

AUS eco sysem

A

marke capitalist economy
-most answers provided by private buyers & sellers

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11
Q

SMEs conribution to GDP

A

-produces wide range of g&s
-total output of SMEs range from highly specialised professional & technical firms to local corner store sig contribution to economy

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12
Q

SMEs contribution to employment

A

employed ppl use wages earned to buy g&s to satisfy needs & wants, support businesses and opening more opp for job creation
-major generator of new jobs in AUS eco
-improve living standards and reduces burden on state to provide unemployment benefits while boosting revenue received by GVT (employees pay income tax) for community g&s

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13
Q

over last 25 yrs, AUS exporting industries became more/less competitive in global markets

A

more

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14
Q

SMEs contribution to balance of payments

A

increasing awareness to service overseas markets
-SME AUS exporters grow > large exporters (agribusiness, manufacturing, professional services)
-more successful at exporting than large businesses
-adaptability & flexibility of SMEs more responsive to needs of overseas markets
-fed gvt promotes export growth with various programs

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15
Q

BOP Balance of payments

A

record of country’s tradeand financial transactions with other countries usually 1 yr

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16
Q

how to maintain favourable BOP and encourage eco growth

A

export MORE than import

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17
Q

SMEs contribution to invention & innovation

A

-main source, constantly research, develop and test new ideas & products for improved efficiency and increased productivity
-SME spending on R&D rapidly increasing, can use venture capital (investors take equity position in bus (own some of it) and provide supplementary finance)

difficulties of R&D
-obtaining adequate finance
-banks perceive finance request as high risk

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18
Q

how SMEs can enter global market for long term growth
4

A
  1. selling directly to customers in export territories
  2. marketing products through local distributor
  3. participating in joint venture with local business partner
  4. selling through website
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19
Q

HOW CAN SMEs enter the global market by selling directly to customers in export territories?

A

-easier entry to countries through trade agreements
-rapid expansion in e-business, brought by development of internet, can sell direct to consumers across national borders
-enter by selling directly to customers in export territories, marketing products through local distributor, participating in joint venture with local bus partner/selling via website
-diff lvls cost, risk, control

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20
Q

how can marketing products through local distributor enable SMEs to enter the global market

A

-local presence in markets they wanna export to
-distributors buy products from bus and resell to own customers
-D offer bus benefit of established local contacts & market knowledge
-but bus has minimal control over way D deal with customers/market product

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21
Q

how can participating in joint venture with local business partner enable SME to enter global market

A

with local business partner provides beneits of local market knowledge & contacts
-org sets up business relationship with company in local market

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22
Q

how can SMEs enter the global market by selling through a website

A

simple, low-cost
-global customers can visit any time to place orders
-to improve chances of success, need to prepare website pages specific to diff markets wish to export
-need product info in local language, prices in local currency
-suitable for products don’t require demonstration/explanation by sales representative

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23
Q

psychological and financial pressures of SME owners

A

often be owner, accountant, marketing manager, sales representative, stock clerk, receptionist at once
-long hours, holidays rare
-major challenges juggling home and work responsibilities

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24
Q

3 industries with highest business survival rates

A
  1. healthcare & social assistance
  2. agriculture, forestry, fishing
  3. rental, hiring & real estate services
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25
Q

5 keys to SME success EIFNR

A

Entrepreneurial abilities

access to INFO

FLEXIBILITY

focus on MARKET NICHE

REPUTATION

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26
Q

entrepreneurial abilities for SME success

A

-highly motivated and optimistic
-drive, enthusiasm, objectives ,risks

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27
Q

access to info for SME success

A

-diff to choose relevant info and gauge quantity of info needed
-as minimum, operator must have info regarding:
1. profitability
2. quality of g&s
3. employee performance
-accurate, up-to-date info allow owner to make better decisions

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28
Q

flexibility for SME success

A

-small size –> owner adapt quickly to external enviro changes
-fewer lvls management, decisions made quickly
-close contact betw owners and customers allows establishment of personal relationships to respond quick to changing tastes and preferences

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29
Q

focusing on market niche for success of SME

A

can concentrate efforts on small market of consumers to
-fulfil needs
-develop strong, lasting relationship,
-opp for SME to become more specialised
-deliver high lvl service

most likely to succeed if adopt niche marketing strategy
-fundamental threat to SMEs is ultra-competitive and over-advertised global marketplace
-to overcome despite low budget,small market niche to operate in enviro with less comp

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30
Q

reputationfor SME success

A

servicing to narrow maket niche
-develop enviable reputation for quality and service

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31
Q

SME classified as failure when it is

A
  1. UNINCORPORATED and declared BANKRUPT
    -legal process distributing among creditors the property of bus/person who can’t pay debts
  2. INCORPORATED and FORCED LIQUIDATION/VOLUNTARILY closs down
    -cant pay debts and faces cash flow problem
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32
Q

is a business considered a ‘failure’ if owner ceases operating bc of ill health/loss of partner/personal reasons NOT associated with FINANCIAL problems?

A

NO

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33
Q

SME failure trends

A

female owned businesses have higher survival rate > men/jointly operated by men and women

failure rate accumulated as years pass
(1 yr –> 20%)
(10 YRS –> 70%)

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34
Q

top reasons for SME failure (ranked)

A
  1. insufficient leadership & management + planing and execution
  2. inadequate market research, marketing, sales
  3. poor financial management
  4. underestimating impact of externalities
  5. poor governance structures regarding partners, family
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35
Q

undercapitalisation towards failure

A

without suficient capital, unable to purchase stocks & materials –> lose sales unless alternative finance arranged

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36
Q

business plans towards failure

A

Fails to develop business plan –> imminent failure
-no certain goals/directions, no blueprint for bus’ future growth

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37
Q

most common fault with many SMEs

A

lack of adequate financial reporting and evaluation

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38
Q

most common causes of SME failure

A
  1. managerial inexperience & incompetence
  2. undercapitalisation
  3. lack of planning
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39
Q

personal qualitiy influences in estrablishing SME
QSMECG

A

qualifications
skills
motivation
entrepreneurship
cultural background
gender

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40
Q

success/failure of business depends largely on onwer’s..

A

MOTIVATION.
resources
initiative
lvl management expertise
decision making skills

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41
Q

best for business owners to select business opportunity that

A

suits their personality and builds on their strengths
-honest understanding of personal qualities minimises failure

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42
Q

personal qualities
QUALIFICATION

A

commonly 15-29 yrs of age
-over 1/4 small bus owners work excess 50 hrs per week
-dont require academic qualifications, knowledge can come from experience working for other bus
-combine to form desire to create new business
1. motivation
2. entrepreneurship

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43
Q

personal qualities
SKILLS (experience and education/training)
EXPERIENCE

A

-for management experience, complete management training course/undertaking management role within business, esp work in type of bus they intend to become self-employed
-understand realistic financial and personal demands

experiences can be
-organisational skills
-time management
-customer service
-leadership

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44
Q

personal qualities
SKILLS (education/training)

A

-uni, tafe offer courses eg. degree in bus management or diploma in human resource management, marketing
-some courses expensive and take years to complete (not always available for small bus owners who want knowledge quickly)
-gvt agencies provide opp to learn starting (business enterprise cetnres) offerstart-up assistance, bus growth mentoring, business skills training, networking opp

avenues for edu allow owner develop essential skills:
-accounting
-staff management
-bus organisation
-marketing

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45
Q

personal qualities MOTIVATION

A

freedom to choose when and where they work, whom they work and whether to work from home
-no 1 motivator (stats) being boss, passion, better work-life balance, greater control of life, potential for greater financial reward (non/monetary)

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46
Q

personal qualities ENTREPRENEURSHIP

A

Must have range of personal characeteristics enable to take advantage of opp for innovative g&s to be developed:
-must be confident in decision making and willing to accept all responsibility for their decision
-need determination to recover from poor decisions/mistakes
-creativity to create/seize opp for bus, new niche markets/new g&s
- NO1: ability to set goals and have vision for bus future, adjusting to changing bus, eco and customer markets

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47
Q

benefits of entrepreneurship

A

-freedom, independence of bus owner
-choose when & where work, whom they work and work from home
-satisfaction of guiding bus’ growth
-enjoy overcoming obstacles, setting and meeting targets, gaining large customer base

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48
Q

burdens of entrepreneurship

A

-work hrs invariably longer than employee’s
-consumes their personal life
-if succeeds, owner may only have little money to spend apart tom salary pay themselves
-need to reinvest profits to generate long term growth

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49
Q

personal qualities
CULTURAL BACKGROUND

A

traditions and beliefs
-many migrants have few resources except strong desire to improve lives
-determination –> bus success
-cultural influence from experience in trades/services eg. thai food

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50
Q

personal qualities GENDER

A

gvts od feveloped ecos realise employment growth from creation/expansion of small bus sector
-policies to assist small bus & change in social attitudes
-clear upward trend since late 1990s of women owners

women stats
-~1/3 small bus in AUS
-industries are service oriented

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51
Q

sources of help and advice for SME owner

A

support from gvt and private support agencies as owners normally don’t have funds to employ consultant to assist management
-professional advisers
-gvt agencies
-SEAANZ
-trade associations
-chambers of commerce

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52
Q

professional advisers to help SME owners

A

owners needs good relationship with accountant, solicitor, bank manager, regularly
-management consultants to restructure business
-advisers can examine bus objectively and provide independent analysis of org, more aware of legal, eco, financial enviro changes

best advisers
1. accountants
2. solicitors
3. bank managers
4. management consultants

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53
Q

accountants as professional advisers

A

valuable advice on all financial management issues & tax obligations
-access latest changes to taxation & financial reporting requirements

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54
Q

solicitors as professional advisers

A

info concerning bus structures, registration, contracts, leases, partnership agreements, legislation
-up to date with changes to COMPANY law
-advise owner how best to deal with this

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55
Q

bank managers as professional advisers

A

info and advice on financial services, sources of finance and basic bus management
-wide range of experience
-able to access resources of bank

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56
Q

management consultants as professional advisers

A

for bus management problem that owner cannot deal with, advice
-objective, unbiased perspective
-check credentials and experiences when outsourcing peeps

57
Q

main gvt agencies to help SME owners from state government

A

from Department of Planning, Industry and Environment (DPIE)
1. Business Connect supports start-up, create jobs, help established SMEs become sustainable by:
-general, specialist bus advice & gvt info to startups and SMEs
-promote bus growth through innovation, improving resilience and boosting productivity

  1. Boosting Business Innovation Program BBIP
    small businesses access research orgs to build strong local bus communities and stimulate eco growth in metropolitan & regional NSW
58
Q

federal gvt provision of gvt agencies to help SME owners

A

Department of Industry, Science, Energy and Innovation DISEI maintains national network to streamline access to info and advice to businesses

ATO (main revenue collection agency) provide info starting & running bus + taxation

ATIC (trade and investment commission)
-trade, investment, edu promotion agency help bus develop international markets by providing info, advice, services

59
Q

using tech advice to help SME owners

A

establishing online bus presence, networking computers within bus premises/max use of mobile devices improve bus efficiency
-purchase equip from dealer (offers advice and backup support)
-ICT consultant
-fed gvt Digital Business Kits DBK provides industry-specific info & resources to help SMEs & Not-for-profit- orgs engage in digital eco and take advantage of opps through digital tech

60
Q

local gvt help for SME owners

A

creates employment
-local councils advice on land zoning,
-assist with subsidised land
-consider development applications

61
Q

chambers of commerce and how they can help SME owners

A

local associations of businessppl usually centred on suburb/region
-legal and financial help,
-taxation advice
-explain legislation and industrial relations info
-organise training seminars
-arrange industry conferences

62
Q

SEAANZ and how it can help SME owners

A

not-for-profit org for development of SMEs in AUS & NZ
-research, policy development, dissemination of ideas of entrepreneurship and small bus management for SME sector

63
Q

how trade associations can help SME owners

A

specific industry info and assistance
-AUS Retailers Association
-AUS Medical Association
-each made up of orgs in same line of business to provide specific details abt product development and industry trends

64
Q

ABS help for SME owners

A

valuable data on social, eco, demographic trends
-specialised data on bus activities
-Demographic Trends and statistics
-household expenditure surveys
-owner can analyse changes to external enviro

65
Q

3 inspiration for business ideas of SMEs can be generated by:

A

listening to others
-esp ideas on g/s wanted, but not readily available

research (social media)
-gvt stats and info
-new tech/products from overseas

find improvements could be made on existing product, identify gap in market (demand not currently satisfied)

66
Q

identifying bus opportunities

A

something entrepreneur can see as avenue to success, believing they can provide g/s better/diff way from those already on market
-new products, new customers, new ways running bus

67
Q

how can entrepreneurs identify a business opportunity

A
  1. analysing parts of market to find opening for certain g/s
    -larger bus unable/unwilling to provide (do things u cant buy in bulk and focus on services)
  2. identifying if many others share certain hobby/interest
    -main catalyst in identifying
    -must have large enough market to sustain sales of g/s
68
Q

after identifying a business opp, the (most vital) next step is to

A

consider compettion

69
Q

competition

A

rivalry among businesses that seek to satisfy a market

70
Q

steps in considering competition

A
  1. decide which market to compete (mass/niche) broad or specialised
  2. identify lvl comp and main competitors
  3. how to make bus comp?
    -develop customer base/gain market share from comp
    - mass market –> extensive planning to create market share
71
Q

2 ways of achieving competitiveness

A
  1. COST OF PRODUCTION
    -depend on production techniques
    -produce g/s lowest cost possible and sell at lowest price has greatest ability to attract market share
  2. DIFFERENTIATION
    -uniqe/better than rivals
72
Q

3 establishment options for SME

A
  1. setting up NEW BUSINESS from scratch
  2. PURCHASING EXISTING business
  3. purchasing FRANCHISE
73
Q

CONDITIONS more favourable for starting new business from scratch

A

-created sumn unique/market innovation or invention
-recognise gap in market
-market grown and existing bus cant supply all customers

if these conditions don’t exist, starting from scratch more dif cause existing SMEs more competition

74
Q

4 advantages of starting business from scratch

A

-freedom to set up business to liking
-can determine pace of growth and change
-no GOODWILL(monetary value attached to bus reputation) owner has to pay
-if funds limited, possible to begin on smaller scale

75
Q

3 disadvantages of starting business from scratch

A

-high risk and uncertainty without revious bus reputation, diff to secure finance
-time to set up, create procedures, develop customer base, employ & train staff, develop lines of credit
-start up period slow, business may not generate profit for long time

76
Q

when buying an existing business, what is associated with the purchase

A

-stock and equipment
-existing customer base
-staff
-reputation & goodwill
-location

77
Q

what does the potential purchaser need to know before purchasing existing business

A

why business is for sale
-if struggling, bad

examine detailed accs for last 3 years at least
-determine financial health of business

shouldn’t overestimate value of bus reputation
-consultation with accountant to confirm accuracy of value placed on goodwill by seller

78
Q

5 advantages of buying existing business

A

sales to existing customers generates instant incme
-good business history –> increase likelihood of success
-proven track record easier to obtain finance
-stock already acquired and ready for sale
-equipment available for immediateuse

79
Q

3 disadvantages of buying an existing business

A

-existing image nad policies of bus may be diff to change esp if bus had poor reputation
-success maybe from previous owner’s personality and contacts, maybe lost when bus sold
-diff to assess value of goodwill with likelihood newcomer pay more than worth

80
Q

franchise

A

buying rights from another business to distribute its products under its name

81
Q

franchisOr and franchisee

A

ind/bus GRANTS franchise
-supplies known & advertised bus name, required training and staff development, management skills and materials

ind;bus PURCHASES franchise
-supplies startup money & labour, operates business and agrees to abide by terms & conditions of franchise agreement

82
Q

why do people buy franchises?

A

avoid problems of starting new business
-for set fee, small bus owner receives benefits of successful bus, well-recognised name and established trademarks
-success rate ~3x independent business bc involves established bus name backed by managerial expertise
-fastest growth in AUS

83
Q

4 advantages of buying a franchise

A

-derive immediate benefit from franchisor’s goodwill bc name established
-franchisee can succeed despite limited experience
-equipment and premises design established and operational
-volume buying possible (cheaper stock)
-business methods and plan already exist

84
Q

6 disadvantages of buying a franchise

A

-franchisor controls operations,
-profits shares with franchisor through payment of ongoing franchise fees
-franchisor charges additional service fees for advice
-franchisee cannot shop for cheaper supplies
-contracts can be biased in favour or franchisor
-franchisee shares burden of franchisor’s mistakes

85
Q

3 market considerations when establishing SME

A
  1. g&s
  2. price
  3. location
86
Q

2 ways to establish how viable business might be

A
  1. conduct FEASABILITY STUDY
  2. undertake market research

making decisions based on reliable info concerning demands of consumers minimises risk of failure

87
Q

feasibility study

A

assessment of business idea’s potential for success
-determine how practical idea is
-if would successfully translate to market

88
Q

feasibility study may include 5

A
  1. ASSESSMENT OF THE MARKET
    -analyse level & type of demand for new/improved product
    -who & where potential customers are
    -strengths and weaknesses
    -what bus’ competitive advantage is
  2. CONSIDERATION OF OPERATIONS
    -describe product that’ll be sold
    -resources needed (plant, equip, materials, staff)
    -location
    -legal requirements
  3. ANALYSIS OF COMMERCIAL FEASIBILITY
    -consider financial aspects of business idea(how long until 1st sale, how price will be determined, –how much finance needed to start and sustain operations, forecast sales, costs, cash flow, profit)
  4. APPRAISAL OF POTENTIAL OWNER’S MANAGEMENT ABILITY
  5. UNDERSTANDING WHETHER OTHERS TRIED IDEA
89
Q

feasibility study
appraisal of potential owner’s management ablity

A

qualities required to be successful business owner

90
Q

feasibility study
understanding whether others have tried idea

A

finding if anyone else tried idea and if failed, why it failed

91
Q

market considerations
g&S

A

owners need knowledge and experience regarding their g/s
-NEED CUSTOMERS, fail without market (c) always MARKET RESEARCH (systematically collecting, recording, analysing info concerning specific market problem)
-w/o reliable info, product fail to sell

92
Q

3 steps for market research (surveys, questionnaires, focus groups)

A
  1. DETERMINE INFO NEEDS
    -identify what it wants to measure/discover abt its target market/customer base
  2. COLLECT DATA FROM PRIMARY & SECONDARY SOURCES
    -plans to collect missing data
    -1st hand (online, observing customer buying patterns)
    -existing data sources gathered by specialise companies
  3. ANALYSING AND INTERPRETING DATA
    -facts need to be analysed and interpreted to determine what results mean for business
93
Q

market considerations
price

A

too high, drive away potential customers
too low, diff to achieve profit

recall chapter 8 3 pricing methods (cost based, market based, competition based)

94
Q

market considerations
location

A

crucial for owner to invest time and effort finding ideal location for business
-consider all factors affected by location (shopping centre, retail shopping strip, online presence, home-based)

suburban shopping centre complex
retail shopping strips
online presence
home-based businesses

95
Q

zoning

A

local councils allocate land for diff uses (residential, commercial, recreational, industrial)
-keep bus activities separate from residential areas and prevent households disturbed by bus operations

96
Q

suburban shopping complex

A

shopping centre complex(suburban) with supermarkets and small specialist stores (hairdressers), full range of specialist retail outlets
-great if no competition
-leasing expensive, remain open during shopping centres hrs (all week)
-rely on centre renewing its lease, otherwise forced to move elsewhere

97
Q

retail shopping strips

A

near public transport
-may struggle to compete with growth of shopping centre complexes offering off-street parking and air-conditioned enviro
-high visibility for passing traffic
-lack of parking

98
Q

online presence

A

no longer limited to dealing with ppl who can physically visit premises
-expand
-avoiding physical associated expenses eg rent
-keep up with competition while retaining retail store

success depends on right investment of time money and resources into setting most effective e-commerce business

99
Q

home based businesses

A

plumbers, electricians (service providers) dont need bus location, performing services in customers home
-development of info and communication tech allow use mobile phones, internet
-online ordering and payment allow expansion of home based retail businesses
-owner doesn’t face substantial expenditure on rent/purchasing premises

-risk reduced when starting
-flexibility when owner works, reduces commuting time

-diff for owner to keep work and home life separate

100
Q

difficulties for SMEs to access finance

A

esp diff for startups, access extremely limited
-banks reluctant to finance startups from high risks
-entrepreneurs bootstrapping ventures from personal credit products (credit cards) to finance working capital needs
-MORE diff to access unsecured loans
-bus need to provide security (real estate, personal guarantees eg. house) to obtain finance from banks
-delay expansion until funded from retained profits
-interest rates on loans to SMEs higher than mortgage holders/larger businesses

impact growth, employment, investment

101
Q

steps before borrowing finance

A
  1. consider:
    -cost to start
    -how much need/expect
    -how much debt can afford
    -where to finance capital requirements
    -what funds available, what need to acquire
    -how much capital to operate
  2. determine most appropriate source of finance
  3. choose appropriate term/length of time (short <1 yr/long term >1yr)
102
Q

options for sourcing finance

A

contribute own funds (equity/capital) INTERNAL
-retained profits
-private investors
-shares
-crowdfunding

obtain finance (debt) from EXTERNAL SOURCES
-SHORT TERM: overdraft, commercial bills, factoring
-LONG TERM: mortgage, leasing, debentures, unsecured notes

103
Q

debt finance

A

short and long term borrowing from external sources by business
-owner doesn’t have to sell any ownership in business (no 1 advantage)
-taxation advantages
-most popular when starting

104
Q

short term borrowing aka working capital

A

money needed to fund daily operations of business

105
Q

main types of short term finance OCF

A

OVERDRAFTS
-bank allows bus to overdraw acc to agreed limit for specified time to overcome temporary cash shortfall

COMMERCIAL BILLS
-short term loans issued by financial institutions for larger amts for 30-180 days (>$100 000 usually)

FACTORING
-selling accounts receivable for discounted price to a finance/factoring company

106
Q

leasing recommended for

A

eqipment becomes obsolete very quickly
-computers,
-expensive items (land, buildings, new tech, industrial/office equip)

107
Q

main types of long term finance MUD

A

MORTGAGE
-loan secured by property of borrower (business)

DEBENTURES
-type of bond issued by company for fixed rate of interest for fixed period time

UNSECURED NOTE
-loan from investors for set period of time, not secured against bus’ assets

108
Q

equity finance 3 adv and disadv growing (if owners willing to give portion of company)

A

funds contributed by business owner/s to start and expand business (raising funds b selling shares in company to investors)
-unlike debt finance, money raised through equity doesn’t have to be paid back in instalments with interest
-investors contribute money to business and become part owners, entitled to a share of profits over time
-adv over other sources bc doesn’t have to be repaid unless owners leave business
-cheaper than others bc no interest payments for bus
-owner contributes equity to bus retains control over how finance used

owner may expect good ROI, however small amt of finance may generate only low profits and returns

109
Q

common sources of equity finance SFPSC

A

SELF FUNDING
family/friends
PRIVATE INVESTORS
shares
CROWDFUNDING

110
Q

self funding aka BOOTSTRAPPING(source of equity finance)

A

owner/s use personal finance to fund bus
risk: owner/s lose all investment if fails

bootstrapping: bus finances operations w/o borrowing from external sources
-funded purely from personal finances and revenue made
-SUPER CAUTIOUS BRUH of expenses

111
Q

family or friends (source of equity finance) start

A

can expect share of profit in return
-easy, quick for extra finance
-relationships could be adversely affected
-should put details of arrangement in writing
-most common for small businesses
-owners may experience diff obtaining debt finance since don’t have track record and high risk of failure

112
Q

private investors (source of equity finance)

A

contribute funds to business in return for share in bus’ profit and equity
-often provide support and advice to ownerand receive ROI

but owner will lose complete control of bus (investors part owners and have say in how business operates)

113
Q

shares (source of equity finance)

A

raise funds by offering shares in bus
-only companies can use
-public listed companies can access more capital > private limited companies (able to issue shares to public) aka initial public offering IPO

IPO: listing on stock exchange so public can freely trade shares
-expensive, complex option

114
Q

crowdfunding (source of equity finance)

A

raise finance by using online & social media networks
-crowdfunding platform appeal to ppl for launch of product
-set goal for project, provide details of it and invite ppl to contribute finance
-Go FundMe
-quick to raise finance with few fees
-allows owner connect potential customers and receive feedback

-generating interest requires a lot of work, no guarantee owner reach funding target
-failed project may tarnish reputation

115
Q

cost of finance depends on TST

A

type of finance
-influence cost of capitl
-debt financing requires money from external source (bank, finance company, building society)
-cost of interest (borrowing money) charged by institution

, source,
-equity finance: no interest charged bc entrepreneur and shareholders invested money
-return paid at end of financial yr if makes profit (dividend if COMPANY)

term (time)

also can be measured in terms of liability

116
Q

liability measuring cost of equity finance

A

unlimited if business operates as sole trader/partnership
-creditors sell all bus and personal assets to recover debt

limited (company)
-limited to just assets of company and all funds from shareholders
-cost of capital depend on term and type of finance used by business

117
Q

financing options available to bus (HARD SHEET)

A

TRADING BANK LOANS

OVERDRAFTS

PERSONAL LOANS

LEASING FINANCE

OWNER/SHAREHOLDER’S EQUITY

118
Q

LEGAL INFLUENCES ESTABLISHING SME
NZHO

A

business name
zoning
health
other regulations

119
Q

legal considerations for businesses and what theyre for

A

licences, permits, approvals, authorities
-legal obligation to observe statutory regulations when operating bus
-risk losing customers, reputation, fines, losing right to continue trading
-regulations to promote fairness, protect consumers and encourage efficiency

120
Q

business name legal consideration

A

ASIC responsible for name registration service
-just personal, not required
-Pty Ltd, Motors, Associates, Co
-prohibit others from trading under similar name
-doesnt protect/establish rights to name (that’s for trademark with federal agency for intellectual property IP AUS)

ONLINE presence
-domain name (address of bus’ website on internet)
-unique to represent activities, easy to remember and spell
-multiple domains possible for easier search and prevent others from registering similar domain name for confusion

121
Q

zoning legal considerations

A

acquisition & development of bus premises influenced by local gvt zoning
-local gvt authority to restrict locations
-activites don’t belong together, separate (eg factories and residential areas)
-assits local community, diff activities occur in suburb/district
-zoned for residential/commercial/industrial/agricultural/recreational uses

must enquire with local council to determine which zoning regulations affect bus

122
Q

health regulations legal consideration

A

local gvt imposes health regulations under Public Health Act 2010 (NSW)
-local council supplies bus (esp food) w/ requirements to meet to receive licence to operate
-temp & temp for food storage,
-cleanliness, labelling

health inspector assess premises regularly, to ensure standards maintained
-if caught, given time to rectify situation or closed

123
Q

other regulations legal consideration

A

Competition and Consumer Act 2010 (Cwlth) protects consumers & bus
-consumers from deceptive/misleading practices
-product safety & its conditions, warranties
-regulates trade practices of bus that can restrict comp (monopolistic power) (affects price and quality of goods)

breaches –> penalised up to $10 mill for companies, $500K for individuals

124
Q

misleading practices illegal under competition and consumer act

A

MISLEADING/DECEPTIVE CONDUCT
-ads cant use deceptive words/claim product has quality doesn’t have
-price reductions genuine

REFERRAL SELLING
-bus offers customer special deal/price if refers other potential customers to seller
-illegal, encourage consumers to spend more money than planned, expecting if they encourage more ppl to buy

125
Q

employment regulations legal considerations

A

if employing staff, need to comply with employment legislation covering conditions of employment, employer responsibilities for tax payments for employees, employee welfare through occupational health and safety legislation
-aware of legal responsibilities when recruiting staff esp discrimination and equal employment opp

126
Q

human resources (skills and costs [non/wage]) in establishing SME

A
  1. staff employed (main sources of employees)
    -ads
    -universities, schools, tafe
    -private employment/recruitment agencies
  2. fulfil no. human resource requirements dealing with
    -skills of staff
    -forecast future staff skills and requirements
    -admin records to manage employees

most important requirements deal with skill lvl of employees –> more productive –> create wealth for bus

127
Q

skills (HUMAN resources for SME)

A

must recruit qualified applicants with msot suitable skills to choose most appropriate position
-more productive, wealth

I skills of employees not adequate enough for job, 2 options
1. provide TRAINING for existing employees
2. recruit those with required skills

general skills/employability skills msot important include:
good teamwork, communication, problem solving, initiative, quick learner, plan and organise

128
Q

human resources for SME (cost: non/wage)

A

only employ if ROI higher than cost
-pay for wage/salary and employee expenses (on-costs) 30-40% of remuneration package

on-costs: payments for non-wage benefits
-superannuation
-annual leave
-public holidays
-sick leave
-leave loading

129
Q

superannuation (on-costs)

A

scheme requires employers to make financial contribution to fund employees can access when retire so money can be used:
-for retirement
-if become an invalid
-by beneficiaries upon their death

-federal gvt

130
Q

annual leave loading (human resources, non- wage costs)

A

employees except casuals entitled to min 4 weeks annual leave for each year they work
-extra payment received on top of annual leave pay (17.5%)
-common feature of most modern awards

131
Q

taxation for SMEs

A
  1. federal and state
  2. local rates and(gvt) charges

taxation compulsory payment of prop of earnings to gvt

132
Q

federal and state taxes

A

apply to diff businesses
-main taxes imposed by federal and state gvts
-ATO gvt body administers and collects tax for federal gvt

133
Q

5 major FEDERAL taxes that apply to businesses (levied by…)

A
  1. INCOME tax (PAYG)
    -imposed on employee
    -takenfrom salary/wage directly
    -progressive rates
    -lodged with tax department by bus, detailed in certificate employee received at end of financial year
  2. FRINGE BENEFITS tax
    -tax on provision of benefit (low- interest loans, housing & accommodation) in place of salary/wage
    -paid by employer at 47% of value of benefit
  3. GST
    -10% on most g&s
  4. COMPANY tax
    -earnings of company, calculated using company’s taxable income (left after deductions)
    -full rate 30%, lower 27.5%
  5. CAPITAL GAINS tax
    -calculated on profit made on selling assets including sale of bus/prop bought & resold within 1 yr
134
Q

3 taxes levied by NSW GVT

A
  1. STAMP DUTY
    -levied on transer or property
    -individual/business
  2. LAND tax
    -tax land owned by indi/bus over certain value
    -land used for primary production/ind’s primary residence exempt (free)
  3. PAYROLL tax
    -payable on wages paid by employer to employees on payrolls >$1.2mill at certain rate
135
Q

how should SMEs manage tax

A

structure records and finances so they have necessary info and money to efficiently manage taxation obligations
-must become familiar with appropriate tax requirements to fed and state gvt on basis of what they earn, own and sometimes purchase
-diff taxes apply to diff bus

136
Q

GST

A

10% on most g&s in AUS
-more diff for bus & find operating in ‘cash eco’ to avoid tax
-bus become responsible for collecting tax on behalf of gvt

137
Q

3 steps of GST

A
  1. bus annual turnover ≥$75K must register for GST
  2. bus entitled to claim INPUT TAX CREDITS from ATO for GST included in price of inputs bus purchases
    -consumer bears cost of GST, not bus providing
    -responsibility of bus to pay to ATO amt GST collected from consumer
  3. GST requires bus to prepare Business Activity Statement BAS at regular reporting intervals (monthly/quarterly)
    -need organisation esp in input tax credit
138
Q

input tax credit

A

allowable tax deduction that bus can claim for any GST included in price of bus inputs

139
Q

BUSSINESS ACTIVITY STATEMENT BAS

A

document records bus’ claim for input tax credits and accounts for GST payable

Economics (12 decks)

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