outcome 2-Internal business environment and planning Flashcards
(23 cards)
What is a sole trade business?
Definition: An individual owner of a business, entitled to keep all profits after tax has been paid but liable for all losses.
Advantages:
Simple and inexpensive to establish
Owner has total control over business
Simple to wind up
Minimal government regulations
Disadvantages:
Harder for owner to get finance for the business
Unlimited liability for owner
Reliant on owner’s own knowledge and skills
What is a partnership business?
Definition: Where 2 to 20 people combine expertise and resources to work together. Each partner is jointly liable for business debts incurred (unlimited liability).
Advantages:
Inexpensive and simple to set up
Risk is shared between partners
Minimal government regulation
Workload may be shared
Offers broader access to capital, knowledge, skills and experience
Disadvantages:
Unlimited liability
Liability for debts incurred by other partners
Business could be threatened by one partner leaving (i.e. no perpetuity – no ongoing life, a new partnership needs to be formed)
Potential for disputes and personality clashes
What is a private listed company?
Definition: A private limited company is an incorporated business structure that has at least one director and a maximum of 50 shareholders.
Advantages
Limited liability – Ensures minimal financial ramifications to you as an individual
Extra capital can be obtained by issuing more shares
Separate legal entity
Existence is not threatened by death or removal of one of the directors or shareholders (i.e. has perpetuity)
Disadvantages
Higher establishment costs
Higher degree of complexity in establishing
Higher degree of government control and reporting requirements
Additional compliance costs
What is a public listed company?
Definition: A public listed company is an incorporated business that has an unlimited number of shareholders and lists and sells its shares on the ASX.
A public listed company is run by a board of directors.
Eg NAB
Advantages
Limited liability
Able to gain extra capital through selling extra shares
Separate legal entity
Existence is not threatened by death or removal of one of the directors or shareholders (i.e. has perpetuity)
Disadvantages
Highly complex structure
High establishment costs
Needs more accountability and compliance paperwork
Additional compliance costs
What is a social entreprise?
Definition: A type of business that aims to fulfil a community or environmental need by selling goods or services.
Advantages
Can open up new markets – the social enterprise may meet a need that commercial businesses chose not to
Meeting a social need can have a positive effect on profit and market share
Many consumers like to feel as though they are helping a greater cause with their purchases
Disadvantages
Difficulty in obtaining capital to start the business – it can be hand to find finance
Significant operating costs – social enterprises will often take on costs that conventional businesses would not
It can be difficult to focus on both social and financial objectives
What is an online business model?
An online business operates primarily or entirely through the internet, offering products or services to customers via websites or online platforms. These businesses have the advantage of reaching a global audience without needing a physical storefront. Online businesses can range from e-commerce stores to service providers offering digital products or services.
Example:
Amazon – an e-commerce giant that sells products directly to consumers through its online platform.
Advantages
Able to reach customers across the globe via the internet
Easy access for customers (24/7, 365)
Significantly lower cost (no rent, less overheads, less staffing)
Marketing is usually cheaper online
Potential for customer impulse buying is huge
Disadvantages
Online shopping is often impersonal and it’s hard to build loyalty with customers
Customers may be reluctant to purchase products they can’t try before they buy
Online fraud or hacking has the potential to damage online business reputation.
Expose customers to the risk of credit card theft when making payments online
What is a bricks and mortar business?
Bricks and mortar business: the traditional business model that is based on a store, office or production facility with a physical presence.
Advantages
Face-to-face customer interaction possible
Customers can try before they buy
A physical presence builds trust
Disadvantages
Overhead costs are higher
Shopping is less convenient for busy customers
Access is limited for potential customers in distant markets
Online stores can provide a wider range of products
Queues suck
What is a direct to consumer business?
The direct-to-consumer (D2C) model involves selling products directly to customers without intermediaries like wholesalers or retailers.
Businesses using this model often operate through online platforms or catalogs, building direct relationships with their customers. This model allows companies to have more control over their brand, pricing, and customer experience.
Advantages
Strong focus on and connection with customers tends to build customer loyalty
Typically lower costs due to not needing to negotiate prices with intermediaries and lower operating costs
Lower costs means DTCs can be more competitive with lower prices
Disadvantages
Businesses must master all steps from manufacturing to marketing, sales and distribution, which can be time-consuming and less efficient than selling to retailers that specialise in selling
If the business relies on online selling, it is exposed to the risks associated with cybersecurity and data protection.
What is a franchise business?
A franchise is a business model where an individual or group (franchisee) purchases the right to operate a business under the name and systems of an established brand (franchisor). The franchisee pays an initial fee and ongoing royalties to the franchisor, who provides training, branding, and operational support.
Example:
McDonald’s – a global fast-food chain that operates through franchised locations.
Advantages
Significantly reduces risk of business failure
Avoidance of franchisor’s initial mistakes
Support from established franchisor
Tried-and tested business
Franchised business already known and trusted by consumers
Disadvantages
Far less independence. In a way, the franchisee is a manager rather than an owner
Franchisee is not allowed to utilise their own ideas
Excessive costs and fees reduce profits
All franchises share reputation - risk.
What are the pros and cons of developing a business from scratch?
Advantages:
Complete control over concept and operations – owner makes their own mark
The business price will not include the cost of goodwill
Complete autonomy to run the business however owner sees fit
Avoids paying for the mistakes of others
Original ideas and concepts remain property of owner
No need to purchase intangible assets (eg: name, branding, etc)
Disadvantages
Far greater degree of uncertainty and risk with no previous sales history or figures to refer to
More work initially as establishment of business systems, hire and train staff will be required from the ground up
It will take longer to establish to client/customer base and, therefore, cash flow
Greater time and energy is required to establish a good name and reputation
More difficulty in obtaining finance with an unproven venture
A suitable location will need to be secured and the business resources built from scratch – this involves time and potentially greater expense
potential for unexpected competition
More scope for error with the new business owner being required to make more decisions (risk is the enemy of a good plan)
A significant period of time before profits may be generated because s customer base and business goodwill need to be established.
What are the pros and cons of using an existing business?
Advantages:
It involves a much simpler process, because things like registration of business name and staffing have already been done
Ready access to business financial records makes it easier to obtain finance
Total cost is agreed upon initially and less likely to blow out
The business will become operational and generate cash flow more quickly
Business operating procedures and practices are already in place and do not require development from scratch
The business has existing suppliers, staff and client base Established policies and systems
Disadvantages
The intangible assets of a business, such as goodwill, are difficult to value precisely and may be overvalued’ the value of the business is therefore often difficult to gauge
Danger that the purchaser may be ‘buying a lemon’ (someone else’s failure)
Goodwill can, in fact, be bad will if a business has a poor reputation
What are recourses?
Resources: the people and objects that are needed for the business to function properly
A business owner must work out what they will need to run the business.
What are natural resources?
Natural resources are items used by the business that come from the natural environment.
These include land, water and raw materials.
A business must ensure that it uses natural resources wisely and does not harm the natural environment in its operations. Failing to do so will make it more difficult to attract and retain customers and employees.
Businesses should consider the following factors when planning for their natural resource needs:
Where will they source their natural resources from?
Are the raw materials that they plan to use in production sustainable, accessible and reasonably priced?
How can they reduce wastage and environmental damage during the production process?
Are their products environmentally friendly, and how can they minimise the negative effect of the products on the environment?
Are the shops, offices and/or factories of the business designed in a sustainable way that minimises energy usage?
e.g. air, water, soil, plants, animals, fossil fuels
What are labour resources?
Labour refers to the human work and expertise required in the production of goods and services.
Labour involves the skills and knowledge of workers, from factory workers to executives
The quality and availability of labour affect productivity and innovation.
Example: Apple Inc. employs highly skilled labour to design, engineer, and assemble its devices
How many workers will be needed and what kind of skills will they need?
How will the business attract and retain these workers?
What kind of training should the business offer to its workers to help them grow and benefit the business?
How will the business provide fair pay and healthy working conditions for its employees?
What are the legal responsibilities of the business towards its employees?
How will the business resolve any disputes that arise with employees?
Does the location of the business allow access to the types of workers that it needs?
workers in factories, construction, retail, and education, as well as professionals like engineers, artists, and pilot
What are capital resources?
Capital resources are man-made goods used in the production of goods and services.
Capital resources allow businesses to produce their products faster and help deliver high-quality goods and services to customers.
Meeting the physical requirements of a business is an ongoing cycle requiring constant attention. The following actions will be required:
negotiation of leasing and/or purchasing arrangements for buildings, equipment and other inputs
servicing and maintenance of equipment and other capital items.
replacement of capital resources when they reach the end of their life cycle; for example, vehicles, information technology (IT) equipment and software
Businesses should consider the following factors when planning for their capital resource needs:
What kind of tools and machinery will be needed?
How will the business repair, maintain and replace its capital equipment when needed?
Does the business have the right workers with the right skills to operate the machinery they need?
machinery, buildings, tools, vehicles, inventory, and human capital
What are the factors affecting choice of location?
A business location is the physical or non-physical place that a business operates from.
Factors affecting choice of business location:
Visibility
One of the most important factors of successful retail and service-based business. A business wanting high visibility would locate in a prime shopping area e.g. shopping Centre
Cost
Leasing or purchasing a central location in a busy shopping canter will be for more expensive than a location with lower levels of passing customer traffic. The business owner will need to be confident to generating sufficient business to justify the higher cost.
Proximity to customers and suppliers:
Ideally all business would choose to locate close to customers and suppliers both for customer convivence and to minimize to cost of transportation from suppliers
Proximity to competitors:
Primary am issue for retailers and service provides. It would be unwise to establish a new bsuniess in shopping Centre due to competition
Proximity to complementary business:
Can assist in bring customers to a new bsuniess. Offers goods or services aimed at the same customers.
What are internal sources of finance?
There are 2 categories for finance option:
one is Equity finance: money sourced internally by the business
these include’
Self-funding
When the owner of the business uses their personal finance to fund the business
There is a risk that the owner will lose all of their investment should the business fail
Bootstrapping: starting a business using personal finance or revenue from the business [without borrowing from external sources]
Private investors
Investors can contribute funds to a business in return for a share of profits and equity
Investors of start-ups are usually involved in the business, either directly or as a mentor
They can provide development capital, and they can also contribute their business skills and contacts to benefit a new business
Crowdfunding
This involves setting a funding goal, providing project and budget details and inviting people to contribute to a start-up capital pool
Crowdfunding is a way of financing a business through donations of money from the public
This is commonly done through crowdfunding websites
You’ll spend most of your initial capital distributing your first product, and may not have much left to continue business after that.
Family and Friends
Sometimes friends and family may offer money for a business, particularly if it is a small business starting up
There is a chance for relationships with friends and family to be impacted if this isn’t managed perfectly transparently and in good faith on both side
What are external sources of finance?
There are 2 categories for finance option:
one is Debt finance: money provided by an external lender, such as a bank, building society or credit union
These include factors such as:
Financial Institutions
Financial institutions such as banks, building societies and credit unions offer a range of finance products for both short and long term finance solutions (see pg. 108)
Often, the condition of borrowing money from a financial institution will be that you end up playing back more than you borrowed, as interest and fees are applied to your debt
Retailers
Many stores offer finance to purchase goods such as furniture, technology or equipment, and many also offer store credit through a finance company
Generally, this is a higher interest option and is suited to businesses that can pay the loan off quickly within the interest-free period
Suppliers
Most suppliers offer trade credit that allows businesses to delay payment for goods
The terms often vary and trade credit may only be offered to business that have an established relationship with the supplier
May be unable to place new orders when previous orders are still awaiting payment
Finance Companies
Most finance companies offer finance products via a retailer
Examples include GO, Capital Finance and Motor Finance Wizard
Often the terms of borrowing from a finance company are even less favourable than those from a financial institution, including higher interest, more exorbitant fees and other conditions.
What the business support services available?
Legal and financial advice’Business owners should regularly seek legal and financial advice form professionals
Solicitors are up-to-date with commercial law and can provide information concerning business formation & structure, registration, contracts, leases, partnership agreements, patents & legislation
Accountants provide valuable advice on all financial management issues and tax obligations.
Bank managers provide information and advice on sources of finance and basic business management
Technological advice
IT Consultants can establish an online business presence
Networking a number of computers within the business premises
Making maximum use of mobile devices
Purchasing equipment from a supplier who offers advice and backup support, or establishing a relationship with an ICT consultant, is another importance decision to be made.
See business.gov.au service that provides free advice on topics including establishing an online presence, e-commerce, social media and online marketing.
Community based services’Local networks offering advice, support and information
Membership into business service clubs can put business owners in touch with other local businesspeople
Examples include:
Business Enterprise Centres [BEC] Australia
Small Business Centres Victoria [SBCV]
Business mentors
Someone who is experienced or knowledgeable in the field
This person can provide invaluable advice and strategies to the small business owner on a variety of issues
What is a business plan what are the benefits and key features?
a written description of the company’s future; it is a formal statement of the business’s goals, reasons they are attainable, and plan for reaching these goals
Benefits
Provides Direction and Focus
Attracts Funding and Investment
Facilitates Decision-Making
Manages Risk
Key features
A business plan details how a company intends to achieve its objectives, covering aspects like products/services, target market, marketing strategies, and financial planning
What is a swot anaylsis
A SWOT analysis, completed honestly and objectively by the business owner, can be used to evaluate the business’s current situation and interpret information about what the business might do well, where improvements can be made and where the business might be placed in the external environment
Strengths
A business when doing its planning will need to consider what areas is it currently doing well in
You may ask the following questions:
What is the business good at?
Is our product popular?
Are our customers loyal?
Do we have a skilled and motivated workforce?
Do we function efficiently?
Are we in a solid financial position?
Is our equipment state of the art?
Weaknesses
Do we have competent managers and staff?
Is our computer system obsolete?
Have we experienced past failures?
Have we been upgrading our facilities to keep pace with others?
Oppurtunties
What will new technology bring for us?
Is the national economy strong?
Are interest rates low?
What are our possible new markets?
What other businesses can we acquire to expand the business?
Threats
What trends have been evident in our markets?
Are there new laws regulating what we do?
Are there new competitors?
Are current competitors taking over our market share?
What is CSR and how does it affect business planning?
Corporate social responsibility (CSR) is the ethical conduct of a business beyond legal obligations, and the consideration of social, economic, and environmental impacts when making business decisions.
CSR refers to a company’s commitment to manage the social, environmental, and economic effects of its operations responsibly, while balancing the interests of various stakeholders
It involves going beyond compliance with legal requirements to improve society and contribute positively to the environment.
Why is it important?
Builds a positive brand image and customer loyalty.
Contributes to long-term business sustainability.
Addresses social and environmental concerns.
Why is CSR important for business planning?
Corporate Social Responsibility (CSR) significantly impacts business planning by influencing brand reputation, employee engagement, customer loyalty, and long-term sustainability. Integrating CSR into business strategies can lead to increased profitability, better talent recruitment and retention, and a stronger competitive advantage.
Examples of CSR
A business should consider the welfare of local, national, and global societies by protecting and preserving the environment.
Business owners should plan to consider the environmental impacts of their business activities and aim to increase the environmental sustainability of their business practices.
e.g.
When planning the packaging for a product, owners may decide to eliminate all packaging that is not environmentally friendly.
Business owners may plan to use various waste management strategies when producing goods and services. Waste management strategies include recycling and reusing excess materials where possible.
Business owners could plan to donate a portion of their profits to organisations that seek to save the environment.
Business owners can choose environmentally friendly, renewable resources.
Reducing carbon footprints.
Improving labor policies.
Participating in fairtrade.
Diversity, equity and inclusion (DEI)
Charitable global giving.
Community and virtual volunteering.
Corporate policies that benefit the environment.
What is the triple bottom line?
What Is the Triple Bottom Line (TBL)? The concept of the triple bottom line (TBL) maintains that company performance should be measured equally on social issues, environmental goals, and corporate profits. TBL theory posits that instead of one bottom line, there should be three: profit, people, and the planet.
