BUSINESS STUDIES NATURE
OF BUSINESS
Nature Of Business:
Profit Employment Innovation
Incomes Choice Entrepreneurship
Wealth Quality of life Risk
How is wealth created?
- Government taxes
- Profits/dividends
- Employees
How are businesses classified?
Size, Legal Structure, Geographical Spread, Industry
Micro-business Less than 5 employees
Small Business 5-19 employees
Medium Business 20-199 employees
Large Business 200+ employees
Industry Description Examples
Primary Natural recources Farming, mining
Secondary Take raw materials and process into Car manufacturing
finished/semi finished product
Tertiary Services for others Doctor, dentists, retailers
Quaternary Transfer of knowledge Education, finance
Quinary Performed from home Hospitality, childcare
Sole Trader Advantages Disadvantages
● Business owned and ● Low entry cost ● Unlimited liability
operated by one ● No partner disputes ● Burden of management
person ● Complete control ● Difficulty raising
● Ability to keep profits finances
Partnership Advantages Disadvantages
● Owned by 2-20 people ● Shared workload ● Unlimited liability
● Less costly to ● Possibility of disputes
operate then ● Sharing profits
company
Private Company Advantages Disadvantages
● Pty Ltd ● Easier to obtain finance ● Double taxation
● 2-50 private ● Limited liability ● Cost of formation
shareholders ● Easy transfer
of ownership
Public Company
● Ltd
● Listed on ASX
● Unlimited
shareholders
PUBLIC SECTOR: Government
PRIVATE SECTOR: Private businesses owned by individuals
UNINCORPORATED: Not separate legal entity, sole trader or
partnership INCORPORATED: Separate legal entity, companies
FACTORS INFLUENCING LEGAL IMPACT
STRUCTURE
Size of business - As business grows, more finance may be needed
through shareholders (formation of company)
- Most businesses start as sole trader or partnership
Ownership - Different legal structures offer different ownership control
- If owner wants to share ownership =
private company/partnership
- If owner wants complete control = sole trader
Finances - Business expansion = more finance
- Companies are more likely to secure loans from lenders
through provision of bank statements
EXTERNAL FACTORS INTERNAL FACTORS
➔ Economic ➔ Products
➔ Financial ➔ Location
➔ Geographic ➔ Recources
➔ Social ➔ Management
➔ Legal ➔ Business culture
➔ Political
➔ Institutional
➔ Technological
➔ Competitive Situation
➔ Markets
EXTERNAL FACTORS:
ECONOMIC:
➢ Economic fluctuation, businesses need to monitor economic trends
FINANCIAL:
➢ Loans and shares
➢ Deregulation: Removal of economic restrictions
➢ Internal sources of finance: Retained profits
➢ External sources of finance: Debt, equity
GEOGRAPHIC:
➢ The geographical reach of a business, local, national or international
SOCIAL:
➢ Societal values, beliefs and ideas held by people
➢ Includes: sustainability, equality, diversity, ethical practices
LEGAL: Taxation, WHS
POLITICAL: Current government
NSW Fair Trading Providing information to consumers and business owners
regarding fair and ethical practices
Trade Unions Impoving working conditions and pay rates
Australian Securities and Monitors market integrity, ensures businesses comply with
Investments industry standards
Commission (ASIC)
Australian Competition Monitors unfair market practices, misleading and deceptive
and Consumer advirtising
Commission (ACCC)
Monopoly ➔ Complete concentration by one business in industry
Oligopoly ➔ Small number of large businesses
Monopolistic ➔ Large number of buyers and sellers, differentiated from
Competition advertising and quality
Perfect Competition ➔ Large number of small businesses that sell products the
same or similar
➔ Differentiated through price
INTERNAL INFLUENCES:
Products: Location:
➢ What you sell, the range of what you ➢ Proximity to support services
sell, how much you sell it for all ➢ Proximity to customers
impact internal operations ➢ Visibility
➢ Cost
Recources: Business Culture:
➢ Financial: funds ➢ Values, ideas and expectations
➢ Physical: equipment, machinery ➢ Heros, celebrations
➢ Information: knowledge and data
Management:
➢ Stakeholder: someone
involved in a businesses
activities
➢ Managers: responsible for
running the business
➢ Employees:
manafacture/produce a
businesses products, influence
quality
➢ Customers: consumers are the
prime concern of businesses
BUSINESS LIFE CYCLE -
Establishment Stage ➢ High risk and failure rate
➢ Profit is slow
➢ Cash flow shortages
➢ Establishing a customer base
Growth Stage ➢ Sales increase
➢ Cash flow is positive
➢ Development of loyal customer base
➢ Diversification of business activities
➢ Satisfying existing customers
➢ Loss of control is expansion is too rapid
Maturity Stage ➢ Cash flow and profits begin to slow down
➢ Minimising costs is essential
➢ Maintaining customer and brand loyalty through
advertising
Post’-Maturity Stage ➢ Can lead to steady state, decline, or renewal
➢ Steady state: same as maturity level,
➢ Decline: falling sales and profits, business failure,
caused from complacency, lack of management skills
➢ Renewal: increasing sales and profits, achieved
through undertaking market research
VOLUNTARY CESSATION:
Owner ceases to operate their business on their own accord
INVOLUNTARY CESSATION:
Owner is forced to cease trading by creditors of business
VOLUNTARY ADMINISTRATION:
● Companies facing financial difficulties are can be placed into voluntary administration
● Administrator examinines the business’s financial affairs and accesses its creditors
in hope of recovering financial problems
● If successful, business resumes as normal
● If unsuccessful, business goes into liquidation
LIQUIDATION:
- Liquidator sells assets to pay creditors
- Surplus cash is paid to owners
BUSINESS STUDIES BUSINESS
MANAGEMENT
Features of Effective Management:
➔ Development of business culture when everyone embraces change
Effective Manager Needs to Be:
➔ Planning: setting goals and methods to achieve them
➔ Organising: structuring organisation to translate plans into action
➔ Leading: influencing or motivating others
➔ Controlling: compares what was intended to happen with what has actually occurred
Business Recources:
Human resources: employees
Information resources: knowledge and data for a business
Financial resources: funds
Physical resources: equipment, machinery, buildings
Contemporary Management:
➢ Process of working with and through other people to achieve business goals in a
rapidly changing environment
➢ Planning, leading, organising and controlling
➢ Working with others
➢ Using resources efficiently
➢ Coping with a rapidly changing environment
➢ Achieving goals
➢ High levels of productivity and quality’
Profit Maximisation:
➔ Occurs with large difference between revenue (no. of sales x price) and costs
Market Share:
➔ Businesses share of total industry sales for a particular product
How do businesses increase market share:
➔ Developing an extensive product range
➔ Larger market share = larger cash flow and profit
➔ Marketing towards existing customers
Acquisition: business purchasing existing business
CLASSICAL MANAGEMENT APPROACH:
- Organisational structure has numerous levels of management, rigid lines on
communications
- Division of labour into function-related units
- Views management as planning, organising and controlling
- Time and motion studies to reduce inefficiencies
- PRODUCTIVITY
Classical Scientific Management - Studying job in detail to find best way to perform
it
- Workers trained to perform repetitive tasks
- Strick management supervision
- Many disciplinary rules and strong hierarchy of
authority
Classical Hierachical/Bureaucratic - Impersonal treatment of employees
Management - Workers and tasks are specialised
AUTOCRATIC LEADERSHIP/MANAGEMENT STYLE:
- Clearly defined instructions
- Expectations are clear
- Stable, safe, consistent environment
- Division in workplace
BEHAVIOURAL APPROACH:
➢ Management is leading, motivating and communicating
➢ Focus on employee relations and staff wellbeing
➢ Positive and supportive supervision
➢ Teamwork, recognition that workers have social needs too
Advantages: employee satisfaction increases productivity and output
Disadvantages: management may be undermined
CONTINGENCY APPROACH:
➢ Focuses on flexibility and adaptability
➢ Mix from range of theories, depending on businesses requirements
HOW IS A BUSINESS DIVIDED?
Operations:
Goods/services ❖ Goods = tangible
❖ Services = non-tangible
Production Process ❖ INPUTS -> TRANSFORMATION -> OUTPUT
❖ Inputs: people, skills, cash, resources
❖ Transformation: manufacturing, handmaking, completing
❖ Output: Tangible product/completed service
Quality Management Quality Control: inspections at various points in production
process, reducing defects of goods/services
Quality Assurance: set standards in production
Total Quality Management: continuous improvement in all
aspect
of business operations, becomes responsibility of all
employees
Marketing:
Product ❖ Pricing determines both customer attraction and profit
❖ Can be cost-based, market-based, and competition-based
Price ❖ INPUTS -> TRANSFORMATION -> OUTPUT
❖ Inputs: people, skills, cash, resources
❖ Transformation: manufacturing, handmaking, completing
❖ Output: Tangible product/completed service
Promotion ❖ To inform, persuade and remind consumers about business products
❖ Aim of increasing brand awareness and loyalty
❖ Personal selling: directed to a consumer
❖ Sales promotion: sales and coupons
❖ Publicity and public relations: promoting awareness of business
Advirtising: Print or electronic mass media to communicate a
message about a business
Place ❖ Activities to make goods/services available to customers
Finance:
Accounting and finance management
Financial statements: reports which summarise transactions over a period of time
Cash Flow Statement - Indicates movement of cash over a period of time
- Records business’s inflows and outflows resulting
from transactions
- Divided into operating, investing and financial activities
Income Statement - Indicates how well business’s assets create profit
- Includes: revenue, COGS, gross profit, expenses, net profit
- Expenses -> selling, administrative, financial
Balance Sheet - Statement showing business’s assets and liabilities
- Current: less then year
- Non-current: longer then year
Human Recources:
Effective management of formal relationship between employer and employees
1) Acquisition: identification of staff needs, recruitment and
selection Internal Recruitmnet: filling job vacancies with
employees in business
Adv - applicants are familiar, cost of position advertising is lessened
Disadv - no one may be suitable, successful applicant may have to be replaced
External recruitment: filling job vacancies with external people
Adv - wider range of applicants, new ideas, business growth w new employees
Disadv - costs involved with advertising, process of selection is time consuming,
2) Development: Training and development and maintenance of
databases Training: ensuring employees perform their tasks correctly
and effectively
Benefits - goals are effectively met, higher productivity, better job performance, reduced
costs for potential errors
On-the-job - first-hand practical training
Off-the-job - theory related
3) Maintenance: Monetary and non-monetary benefits
Maintenance: involved looking after staff wellbeing, safety
and health
Employment contract - legally binding, formal agreement between employer and employee
Award - legally binding agreement stating minimum wages and conditions
Enterprise agreement - Collective agreements made at a workplace level between an employer and a
union
Montary benefits - financial compensation for employees
Non-monetary benefits - fringe benefits
4) Separation: voluntary and involuntary
Voluntary - an employer chooses to leave the business of their own free will
Includes retirement, resignation, redundancy
Involuntary - fired
Includes retrenchment, dismissal and involuntary redundancy
Involuntary redundancy: offered redundancy payment
RESISTANCE TO CHANGE:
➢ Reluctance of adaptability from employees behalf
REASONS FOR RESISTANCE TO CHANGE:
➢ Financial costs
➢ Inertia
➢ Fear of unknown
➢ Retraining
➢ Reorganising plant layout
➢ Purchasing new equipment
➢ Redundancy payments
INERTIA:
➢ Unenthusiastic response to proposed changes
➢ Some managers and employees resist change because they are moved away from
their ‘comfort zones’
HOW IS RESISTANCE TO CHANGE REDUCED:
➢ Managers have to identify the reasons for why change is resisted
➢ Change of business culture: eg, support from managers
➢ Positive leadership
WHAT IS A SUCCESSFUL LEADER:
➔ A manager who promotes change in a manner that will achieve cooperation and
acceptance
➔ Resolves conflicts arised from when change is implemented
➔ Keeping an open mind
➔ Cultivating a sense of stabliity
➔ Showing confidence for staff
➔ Building and communicating a clear vision
BUSINESS STUDIES BUSINESS
PLANNING
Common Characteristics of SME’S:
➔ Independently owned and operated
➔ Owner responsible for all decision making
➔ Operate in local market
➔ Give personalised service to customers
➔ Generally non-manufacturing businesses
➔ Account for around 99.8% of all private sector businesses
Role of SME’S:
➔ Provide employment
➔ Produce a wide range of goods and services
➔ Export goods
➔ Carry out market research and development
Economic Contribution of SME’S:
➔ The SME sector contributes around 55% of GDP and 68.3% of private sector
employment
➔ Often supply from local businesses
SME SUCCESS:
➔ Flexibility
➔ Reputation
➔ Focus on market niche
➔ Entrepreneurial abilities
➔ Access to information
SME FAILURE:
➔ Declared bunkruptcy = unincorporated
➔ Forced into liquidation or voluntary cessation = incorporated
➔ SME’s have a high failure rate, 60% in first 3 years
➔ Causes include managerial inexperience and incompetence, undercapatalisation
and lack of planning
Influences in establishing a small to medium enterprise
PERSONAL QUALITIES:
❖ Dependence on owners abilities, resources, enthusiasm, initiation and experience
❖ Entrepreneurship
Qualifications:
❖ For most SME’s, academic qualifications is nore required
Skills:
❖ Experience, education and/or training
❖ Business success is highly dependent on the skills of the owner
❖ Many tertiary courses are available to learn or develop these skills prior to owning an
SME
❖ Independence, leadership skills, organisational skills, time management, customer
service
Motivation:
❖ Personal drive, determination and desire to achieve goals and objectives
❖ Drive for both monetary and non-monetary rewards
Entrepreneurship:
❖ Entrepreneur is someone who starts, operates and assumes the risk of a business
venture in the hope of making a profit
❖ Desires responsibility, works well with others, tolerates failure, skilledl organiser,
strong drive, confidence
❖ Benefits: freedom and independence, potential business success
❖ Burdens: time consuming, commitment
Cultural Background:
❖ Cultural influence impacts a business
❖ Work ethic
Gender:
❖ Recent rapid increase of women owning and operating businesses
SOURCES OF INFORMATION:
➢ Professional advisers: accountant, solicitor, bank manager
➢ Government agencies: state and federal (ATO AND AUSTRADE)
NSW Business Connect - supporting small business start up, create jobs and increase
confidence through provision of information
Boosting Business Innovation Program - access to research organisations
➢ Technological advice
THE BUSINESS IDEA:
➢ Business opportunity: something an entrepreneur can see as an avenue to
success, “gap in market”
➢ Competition: rivalry amount businesses that seek to satisfy a market
ESTABLISHMENT OPTIONS:
Starting From Scratch
● Unique idea, marketing owners innovation
● Recognising a gap in the market
● Market growth
Advantages Disadvantages
➔ Owner obtains freedom ➔ Owner obtains freedom
➔ Owner is able to determine pace of ➔ Owner is able to determine pace
growth and change of growth and change
➔ No goodwill for which the owner has to ➔ No goodwill for which the owner
pay has to pay
Buying Existing Business
● Purchasing existing operating business
● Everything associated is included in the purchase, including stock, premises,
customer base, staff, goodwill
Advantages Disadvantages
➔ Sales to existing customers will ➔ If business had poor reputation,
generate instant income difficult to alter
➔ A good business history/goodwill ➔ Hidden problems
increases likelihood of business ➔ Some employees may resist
success changes presented in business
➔ Seller may offer advice and training operation
➔ Existing employees can provide
valuable assistance
➔ Less work for establishment phase
Buying a Franchise
● Buying the rights from another business to distribute its products under its name
Advantages Disadvantages
➔ Established branding, goodwill, ➔ Franchisor controls operations, little
customer base and product range scope for franchisee individuality
➔ Franchisor often provides training ➔ Profits shared with franchisor
and management back up
➔ Volume buying is possible, cheaper
stock
Market Considerations:
Price:
Cost-based: mark-up profit
Market-based: supply and demand, whatever market is
prepared to pay Competition-based: below, equal to or
above competition
Location:
Different businesses are suited to different locations, online or phyiscal
Finance:
External Sources Of Finance -
Debt Financing - boring funds from external sources, short-term or long-term
Short Term Debt Long Term Debt
Overdrafts: bank allows business to overdraw Mortages: a loan secured by the property of
their account up to an agreed limit the borrower
Commercial Bills: short-term loans for large Debentures: Issued by a company for a fixed
amounts rate of interest and for a fixated period of
time
Factoring: Selling of accounts receivable for a Unsecured Note: A loan from investors for a set
discounted price period of time
Internal Sources Of Finance - Equity
Finance - internal
Examples include capital, retained profits, family or friends, investors, shares
Cost Of Finance - interest is charged
Legal:
Business Name: ABN
Zoning: local government has authority to restrict where certain businesses can locate,
businesses must enquire with local council
Health Regulations: local governments provide businesses with requirements to abide by,
particular food businesses
Competition and Consumer Act 2010:
- Aims to promote fair trade and competition
Human Recources:
Skills:
- Qualified applicants of a business need required skills
- Businesses can recruit people with necessary skills, or provide training to new
employees
Costs:
On-costs: non-wage benefits (sick leave, maternity leave, holiday pay,
superannuation) Annual Leave Loading: payment on top of annual leave pay
Taxation:
Tax Description Levied By
Income Tax (PAYG) Imposed on employee’s Federal government
salary
Fringe Benefits Tax (FBT) Employers pay on benefits Federal government
paid to employees
Goods and Services Tax (GST) 10% of goods and Federal government
services consumed in
Australia
Company Tax Paid on earnings of a Federal government
company
Capital Gains Tax Caculated on the profit made Federal government
on sale of assets, eg.
business or properties
bought and resold within 12
months
Stamp Duty A tax levied on transfer of NSW Government
property
Land Tax Tax on land owned by NSW Government
individuals or businesses
over a certain value
Payroll Tax Levied on wages paid from an NSW Government
employer to employee
BUSINESS PLANNING PROCESS
Sources Of Planning Ideas:
Situational (SWOT) Analysis: collection of methods managers can use to analyse a business’s
internal and external environment
Internal Assessment - Strengths, Weaknesses
External Assessment - Opportunities, Threats
STRENGTHS Determining businesses current strengths
WEEKNESSES Honestly finding the businesses weaknesses
OPPORTUNITIES Determining current, new and potential opportunities and the benefits
of these
THREATS Potential threats relating to competitors, laws, market trends
Vision, Goals and Objectives:
➔ Vision statement broadly states what the business aspires to become, they are
direct and guide employees
➔ Once goals are established, SME owner determines objectives
➔ Strategic goals, tactical and operational objectives are incorporated to accomplish
its goals and vision
➔ Longer term growth: ability for business to continually expand, dependent on
business’s ability to develop and use its asset structure to increase sales, profits
and market share
Organising Recources:
Operations: transforming inputs into outputs (production process), organisation of
equipment & supplies, resource allocation
Marketing: marketing will need to be highly organise to ensure it is incorporated with all
business resources, extra funds may be required
Financial: appropriate sources of funding, exploring government grants
Human: motivating and retaining employees, ensuring they are representing the business
in a positive way
Forcasting:
Forecasting are financial projections for businesses
TOTAL REVENUE (TR)
(P) = selling price
(Q) = quantity of units sold
TOTAL COST (TC)
(FC) = fixed cost
(VC) = variable
cost
BREAK EVEN QUANTITY (Q)
Level of sales neede to
cover production costs
Cash Flow Projection: Shows the changes to the cash position brought about by the operating,
investing and financial activities of the business
MONITERING AND EVALUATING:
Monitoring: the process of measuring actual performance against planned performance
Performance Standard: a forecast level of performance against which actual performance can
be compared
Evaluation: process of assessing whether the business has achieved stated goals
Budgeting: financial management, budgeted sales should be compared against actual sales
to detect any discrepancies
- Profit levels are an indicator of a businesses performance and should be carefully
monitored and evaluated
- Comparing figures within one financial year, then different financial years
TAKING CORRECTIVE ACTION:
- If there are changes in the internal and external business environment, then usually
modiciations need to be made to the business plan
- Corrective action involves making changes to any part of the business plan
- Modifying: process of changing existing plans to shape future plans
CRITICAL ISSUES IN BUSINESS SUCCESS AND FAILURE -
Importance of a business plan:
➢ Allow the owner to clearly define goals and future projections (eg. finance)
➢ Prevent any issues from progressing
➢ Assist in the securing of finance from banking institutions or investors
➢ Reflect the skills and abilities of business owner
Management:
Staffing - employees have to be satisfied and motivated to work productively
Skills audit: process that establishes current skill levels of employees and future requirements
Skills database: database containing information of the skills and abilities of employees
Teams - when managed effectively, teams can:
- Make more informed decisions and creative decisions through team work
- Work without the need of close supervision
- Create greater levels of employee cooperation
- Provide improved customer service
- Stimulate idea generations
Trend Analysis:
- Process of investigating changes over time and looking for a trend in order to predict
the future
- Powerful tool which assists SME owners to achieve business success by helping with
forecasts
Identifying and sustaining competitive advantage:
Price/cost strategy:
➢ Reducing production costs is the most beneficial way to gain profit
Price/cost competitive advantage:
➢ Achieved by efficiency of operation
➢ Low labour costs
➢ technologies
Differentiation strategy:
➢ Offering customers something that is not available in the market
➢ Sustains competitive advantage through enhancing differences in their
products, therefore gaining an edge over rivals and driving them to match
these differences
Ensuring long-term success strategy:
➢ Long term success is assured if a business sustains its competitive advantage
➢ Actions of management must be dynamic and adaptable to change
Avoiding Over-Extension of Finance and Other Recources:
➔ A business can overextend financially by:
- Hire purchase or lease overcommitments
- Purchasing excess stock
- Employing too many staff for the business’s current needs
➔ Overextending expenditure can create high degree of business risk
➔ Overextension of stock ties up a business’s cash and can lose the business revenue
➔ Overextension ofo staff results in employing too many staff
➔ To avoid overextending financially, a business should:
- Undertake thorough planning
- Avoid overdependence on debt financing
- Engage in long-term financial planning
- Grow at a sustainable rate
Using Technology:
● Technology allows a business to operate its processes and practices more
efficiently and effectively, cutting costs and improving productivity
● E-business (electronic business) is using internet to conduct business
● E-commerce (electronig commerce) is the buying and selling of foods/services via
internet
Economic Conditions:
➢ A nations economy will experience periods of boom and recession
Strong economic activity (boom): high levels of consumer spending, falling unemployment,
increased production -> leads to success
Weak economic activity (downturn, bust): lower levels of consumer spending, rising
unemployment, decreased production
