Year 11 Business studies half yearly study notes

TOPIC 1 NATURE OF BUSINESS

1.The Role of Business
•Business: An organisation that attempts to satisfy the needs and wants of the community by producing and providing goods and services
•To make goods and services, businesses make use of inputs and raw materials
•Inputs: The resources (labour, finance & equipment) that a firm uses to create outputs
•The economic and social importance of business: –Profit:
The return (after expenses) received for producing products or providing services to consumers -Employment:
Businesses provide almost 80% of the opportunities for employment in Australia -Incomes:
Businesses generate income for business owners (profit), employees (wages) and investors (dividends for shareholders) -Choice:
Businesses provide a range of goods and services to suit consumer wants, needs and budgets -Innovation:
Through a need to create more profit opportunities, businesses will research and develop new products and improvements -Entrepreneurship:
Business provides the opportunity for individuals with ideas to develop and gain rewards -Wealth Creation:
Business activity (producing and selling goods and or services) results in high economic growth, creating wealth in an economy for individuals, organisations and governments -Quality of Life:
Business enables the production of a range of goods and services that improve our standard of living

2.Types of Businesses
•Classification of business:
Economic Sector
Size
Industry
Legal Structure
Primary
Large
Agriculture
Sole Trader
Secondary
Medium
Construction
Partnership
Tertiary
Small
Financial
Private Company
Quaternary
Micro
Management
Public Company
Quinary

Mining
Cooperative
Trus Trust
TSt Statutory Body
Government
Business Enterprise
(GBE)

•Geographic of business: -Local:
An organisation that operates within one area. It may produce or sell goods to a local consumer market (Small businesses) -National:
Operate across Australia. Have greater awareness amongst consumers and are trusted brands -Global:
Operates worldwide

•Classification by Sector:
International Business
(Giorgio Armani operates from Italy)
A business that has its ownership and production based in one country. The business exports its products to other countries
Transnational Business
(Toyota)
A business that operates in many countries. Its goods and services are produced and sold in a number of different countries Primary Industry
(Wheat farmer)
Businesses involved in the purchase of raw materials and
Natural resources
Secondary Industry
(Tip Top)
Businesses that use raw materials as well as labour and
Capital equipment to create finished products
Tertiary Industry
(Supermarket)
Businesses whose prime function is related to providing a service Quaternary Sector
(Telecommunications,
Telstra)
Tertiary sector businesses that provide information services to their customers
Quinary Sector
(Caterers)
Tertiary sector businesses that provide services that are
Traditionally performed in the home

•Classification by size:
Micro: 100 SME – Small Medium Enterprise -Less than 100 employees (manufacturing) -Less than 20 (non-manufacturing/services) -Independently owned and operated -Sole trader or partnership -The owners make all decisions

•Classification of Legal Structure:
Sole Trader
(Unincorporated)
-Owned and operated by one person
-Owner provides all the finance, makes all decisions and takes all the responsibility for the operation of the business
-Easy to establish in terms of legal requirements
-Owner and business are regarded the same
-Has unlimited liability ∞ If there’s financial difficulties, personal assets, may be sold to repay debts
Partnership
(Unincorporated)
-Owned and operated between 2 & 20 people
-Owners and business are regarded as the same
-Has unlimited liability
Proprietary
Companies
(Private)
PTY LTD
-Most common type of common structure in Australia
-Has between 2 & 50 private shareholders
-Its not listed and its shares are not sold through a stock exchange
-Purchase and transfer of shares is by invitation and approval only
-Limited liability
Public
Companies
LTD
-Shares are listed on Australian Securities Exchange (ASX)
-General public may buy and sell shares in those companies
-Most public companies are large in size and market eg: woolworths, Telstra, BHO Billiton, NAB
-Must have a minimum of 5 shareholders
Government
Enterprises
-Businesses owned and operates by state or federal government
Past eg Qantas, Commonwealth Bank, Telstra – these are now public companies Current eg: Australian Postal Cooperation, Aust. Rail Track Corporation
Limited, Medibank Private Bank Limited
-State GBE: State Rail, Sydney Water

•Factors influencing choice of legal structure:
Size
Small Businesses (Sole Trader or Partnership)
-Easier to maintain control
Medium to large businesses (Companies)
-Require specialist management skills
-Requires more finance
-Too difficult to raise money from a lot of shareholders without the protection of limited liability
Ownership
-Sole trader entity: those who want to make all decisions and accept all responsibility
-Partnership structures: those needing finance or expert skill from others and shares responsibility and control
-Private company: maintain cost over decisions and ownership -Public company: limited control
Finance
-Sole traders/Partnerships: finance requires for start up is relatively small
-Company structure: start up finance required is large
Finance is needed for two basis purposes:
1. START UP COSTS to establish or purchase the
Business (purchase price, fit out – shelves, equipment)
2. WORKING CAPITAL for day to day running/operating of business (stock, material, utilities, wages)
3.Influences in the Business Environment
•External and Internal influences: EXTERNAL Influences
Economic Cycle
Whether the Australian Economy is undergoing a boom or bust
Financial Deregulation
Changes to restrictions on competition and expansions into new industries and sectors

-Debit finance:
Funds borrowed from a bank, investor or another firm. It involves the agreement to repay the principal and interest over a period of time -Equity finance:
Finance provided by the owners. Owners can give business capital or contribute cash by buying shares and saving
Geographic
Australia’s position in the Asia-Pacific, ability to create business relationships and population shifts
Social
Desires to change lifestyle choices including health, work/life balance and leisure activities
Legal
Aim of government regulation is to promote fair conduct, includes: environment and consumer protection, competition, OH&S, industrial relations
Political
(Institutional)
Changes to taxation, labour market and social programmes
Technology
Rapid changes in available technologies provide advantage to fast adaptors Competitive
Environment
Number of competitors, ease of entry, marketing strategies of competition INTERNAL Influences
Location
Proximity to potential customers and suppliers, complementary business and visibility
Business Culture
Values, ideas, beliefs, expectations shared by staff and managers of the business
Product Type
Characteristics of goods (size, fragility) or services (face to face required) Resources
-Human resources: employees
-Information resources: knowledge and data, market research, sale reports, legal advice
-Physical resources: equipment, machinery, buildings
-Financial resources: funds used to meet obligations to creditors
Management
Type of structure: ridge or flexible, if workers are controlled or independent •Key policies influencing the level of economic activity in Aust: -Fiscal Policy:
Government actions – use of taxation (revenue) and expenditure, intending to influence that the level of economic activity in Australia. It mainly operates through the Commonwealth Budget -Monetary policy:
Actions taken by the Reserve Bank to influence the level of interest rates in the Australian economy -Microeconomic reforms:
Policies developed by the government to promote greater competition within a particular industry

•Stakeholder: People or organisations that are affected by the decisions or actions of a business

4.Business Growth and Decline
•Business life Cycle:
Establishment Phase
Growth Phase
Maturity phase
Post-Maturity Phase
-Customers not familiar with product

-Retailers reluctant to put on shelves

-Takes time to establish product -Expenses higher than sales revenue

-Characterised by negative profits

-Businesses lose money -Rapid increase in sales -More customers are aware

-Pressure on resources esp cash and labour

-Cash problems develop -Competitors attracted by increasing sales
-Sales level off

-Market for product is saturated -Time to employ professional managers

-Faces increased competition -Falling sales and loss of market share

-Cash flow problems emerge -Will be dictated by: •Steady State: maintains its position •Decline:
Loses competitive advantage & sales fall •Renewal:
Begins to experience growth in sales

Strategies to meet the challenges
-Prepare for the cash problem with savings

-Develop effective marketing strategies to price and promote products -Do business courses to develop management skills needed -Research government regulations -Prepare to work even harder

-Develop effective credit policy to collect debts efficiently -Manage finances to not over extend resources -Insist on quality work -Carefully pick the time when professional mangers are needed -Be persistent and having perseverance
-Focus on cutting costs -Examine every aspect to cut costs

-Expand into new products -Find ways to grow the value of the business -Improve the competitive position of business through cost cutting

-Renewal with new products -New managers with new ideas -Manage closure effectively and ethically •Cessation: Closure of a business -Voluntary:
Occurs when owner of the business decides to cease the operations of the business -Involuntary:
Occurs when closure of the business is forced on the owner. Most common cause is not able to repay debts