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Business Studies notes

Topic 1- Nature Of Business


The importance of businesses
The function of business in creating value/benefit
A business is an organization that buys and sells goods, makes products or provides services.
Business enterprises undertake many activities to provide the products demanded by customers, however, the
most important activity is production.
The management of the business, organizes all aspects of running the business including choosing a particular
product or service
Production
Refers to those activities undertaken by the business that combine the resources to create products that satisfy
customer needs and wants.
All products are made from a combination of the following three ingredients:
National Resources (raw materials)
Capital Resources (machinery and technology)
Laour Resources (human s!ill and effort)
Adding Value through production
"alue Chain- the concept that value is added through each stage of the production process, as inputs are transferred
into final products (output)
alue is added during the production of a loaf of bread:
The productive activity was:
!roduction of wheat on farm
!roduction of bread at bakery
!roduction of delivery services by drivers
The product "output# of one business becomes the raw material "input# by another business is referred to as
intermediate products.
Businesses are interdependent as one relies on another for further manufacturing of the product and after
distribution.
As the raw materials move along the various stages of production, e$tra value is created% a process known as
value adding.
The production process creates the value chain
The value of production is the total value added by a producer, measured in dollar terms:
"alue of production#"alue of sales-"alue of intermediate products
The value added to the product is the difference between the cost of the raw materials and the amount received
from customers when the product is sold
The Social and Economic Roles of Businesses
&reate employment
Provide the basis of the nations income- Business success has an effect across an entire society, increasing
wealth and economic activity
Bring about technological change and innovation Provides major competition for businesses !ompetitors
offer products which are better, cheaper or more convenient
Provide opportunities fro individuals to become entrepreneurs- can achieve substantial success and build
substantial wealth
ffer choices relating to !or" and consumption- offers people a diverse sector which gives them the
opportunity to specialise in what they do
Provide social interaction- for dealing with people of all ages, for friendships and in some cases even marriage
Business Sta"eholders
" sta#eholder is any member of the community affected by the decisions and actions of a business
Emplo#ees- business decisions impact their health, safety, security, pay levels and general working conditions
$anagement- 'anagement in a firm is ultimately responsible for communicating business decisions to other
stakeholders and because the career directions of managers will be influenced by public perceptions of the
performance of the firm.
%ustomers- become dependent on a business for the supply of particular goods and services . &hanges in
business conduct can influence customers sometimes causing great inconvenience such as the relocation of a
business that sells key supplies for the community
Suppliers- may make a decision to invest substantially in a new technology, business premise, inventory(training
in order to provide services to a business with whom it may have a particularly important relationship.
&ocal %ommunities- )or an manufacturer, production may have adverse effects on the environment that are
especially significant to local residents.
'uture (enerations- The decisions of large global companies, such as oil producers, will have an impact on the
state of the environment and the level of resource depletion in the future.
Business (oals
*oals and ob+ectives are those things a business seeks to achieve through its e$perience and its operation. They
include, financial and social goals together with personal goals of the owners and managers.
$inancial %oals
Profit and $eturn on %nvestment
Businesses are owned and organized by people who invest money in them. ,- return for this investment they
e$pect to receive a reward, usually financial.
Profit is the name given to the reward for taking the business risk.
.efined as the e$cess of revenue over e)penditure
/.g. toymaker sells 01.2 million worth of goods during a trade period. This amount represents the gross revenue
from sales. ,f the costs in relation to production and sales of these toys is 01 million, then the profit would be
0233 333his appears a good profit.
Return on *nvestment is how much money your making in order to pay the initial investment.
!rofit alone can not be used as a measure for the efficiency of a business
/.g. the toymaker in the above e$ample has invested 04 million setting up the factory, then the return on
investment would be 56.
The business person must decide whether the return on investment is ade7uate "this will vary between businesses
and the amount of money invested#
&ales by Product and mar#et share
$ar"et Share refers to the proportion of the product8s total market in terms of sales that a business controls
Sales b# Product is the amount of a product that is sold.
9ome businesses will accept a lower profit for increased sales. This will enable the business to spread
overheads "cost of research and development, advertising etc.# over more unit sales "numbers of a product sold#
'rowth and (iversification
(ro!th can involve selling more products, employing more people, buying more e7uipment etc.
By growing business can spread their fi$ed costs "costs that do not change with output, such as rent# more
effectively and financial institutions are more inclined to support a profitable business that had grown.
+iversification is the process of moving the business into new areas of production "a service station owner
opens a steel production company#
A business may not be able to grow without diversifying because it is limited in tis customers. .iversifying allows
a business to branch out to other potential customers and this grow in its reputation and ultimately profit. :ithout
this a business will fail if demands for its production fall and it has nothing else to offer.
& 'ocial %oals
The purpose of a social goal is to benefit certain sections of the community while allowing the business to achieve its
financial goals. These include:
!roviding workers with employment, income and better career paths
;ealth and safety programs
!roviding services to the community such as educations etc
!ursuing social +ustice aims at improving employment opportunities
/ngaging in more environmentally sensitive production such as reduction of pollution and proper disposal of
waste products.
,t is now accepted that financial goals may not be achieved if social goals are not part of a business8s ob+ectives.
c& (ersonal goals of managers and owners
The most common personal goals are the desire to be your own boss and to develop products from original
ideas.
9ometimes these personal goals may influence the nature of businesses. /.g. personal goals related to ambition
may be consistent with a business goal of e$pansion.
;owever, personal goals may lead to a business8s downfall. /.g. he failure of a business because a personal
goal of power and status was put as a first priority.
The competing and conflicting nature of goals
Achieving goals will re7uire the use of business resources, there will be competition of the allocation of these
resources
The goals of profit ma$imization may conflict with that of sales ma$imization. :hile eh social goal of ecological
sustainability may be compatible with the goal of growth and diversification
The *mportance of Small Business
9mall businesses are important to the Australian economy because they:
%reate ,obs% over 436 of small businesses employ people other than the business owner. ,n <332, 1 <=> 333
small businesses employed almost ?.? million workers
;elping to increase the national income and living standards
,ncreases e$ports, less than 46 of small businesses
*reater choice for customers
&ontributes to growth in specific regions and strengthening local communities
,nnovating% appro$. 1(13 of overall investment in research and development in made by small businesses
,mproving the skills of the workforce
9trengthening family ties <(?8s of small businesses are family owned
)ow are small businesses classified*
,t is independently owned and operated
,ts is closely controlled by owners(managers who also contribute most, if not all the operating capital
The principal decision making functions rest with owners( managers
Australian Bureau of 9tatistics defines small businesses as:
A non%manufacturing business employing less than <3 employees
A manufacturing business employing less than 133 employees
%oordinating a Business
!ontrolling the value chain
The factors re7uired for successfully controlling the value chain are:
@now enough about the market which you want to sell in
@now how competitive the market is and how successful are the people who are operating it
@now which location you are considering to choose
&onsider how your business will be different and better than the current firms in the market.
@now where you can go for advice.
The role of management
Planning- identifying the appropriate ob+ectives for the firm
rgani-ing- making sure that the business operation "production# are efficient
%oordinating% ensuring that departments work together efficiently
+irecting% training, motivating and supervising staff and departments to ensure goals are met
%ontrolling% determining whether or not the business is meeting e$pected levels of sales
Budgeting% estimating with appropriate e$pert advice the e$pected cash flow for the business
&ife %#cle of a Business
+stablishment
!hallenges for the business during the establishment stage:
;igh &osts associated with the business8s setup
.ifficulties in obtaining the funds for the business8s start up needs
&ustomers may only become aware of the business gradually and in the early stages business8s may e$perience
slow growth sale
)inding the right legal structure
&hoosing the right product with a distinctive advantage over competitors
Anticipating the business8s entire financing re7uirements throughout its establishment stage
'rowth
Business moves into a period of rapid growth.
Business operations generally improve at this point
The business operator has a better understanding of how the business functions best.
Business benefits from better management
'ay be able to achieve cost saving advantages by operating on a larger scale. "economies of scale#
,t is easier to obtain finance once a business has been established for a few years
The number of employees e$pands, allowing then to specialize, in their +obs and focus on improvement.
!hallenges during the growth stage:
/nsuring the 7uality of service or production is maintained as output grows
'anaging cash flows and taking into account the financial re7uirement involved in e$panding the business
9ustaining growth and not letting the success of the business create a sense of self satisfaction or laziness
Redefining the role of management so that the manager8s workload in not overwhelming
,aturity &tage
A business is unlikely to achieve substantial growth unless e$ternal or internal conditions change significantly
Business may have reached it ma$imum achievable size with only one business premises, and the operator ma
be reluctant to open up elsewhere.
The owner may be content with the size of the business as it stands and may not which to partake in risks
involving in moving the business to a larger scale
!hallenges during the maturity stage:
9taying responsive to changes with consumer demands
9ustaining the motivation of management and staff and avoiding laziness and complacency
Rationalizing business operations and minimizing costs
Post ,aturity
Beyond the maturity stage the business can head in one of three directions:
stead# state, where sales levels are maintained and the business remains profitable without any significant
changes to the overall business strategy
rene!al, where the business takes off and e$pands again. This e$pansion might be fueled by the introduction of
new products, a takeover or merger or e$pansion into new markets "such as new markets for the products
overseas#
+ecline and 'inal %losure% the business may lose its competitive advantage or its products my become
obsolete. !rofits may decline steadily, finally reaching a point where the business is no longer viable.
!hallenges during post maturity
Anderstanding the changing tastes and needs of the customer base
9hifting into new and related markets where there are greater growth opportunities
Brientating the management and staff towards change.
Voluntar# and *nvoluntar# %essation
Voluntar# closure . is !hen a bus o!ner !ants a different challenge or !ants to retire/
*nvoluntar# closure % when the failure of a business forces the operator to cease trading. These includes factors
such as:
A lack of business management skills
/$cessive borrowing
)ailure to seek out and use professional advice
Being out done by competitors or not responding to changing conditions
Anfavorable economic conditions
%lassification of Business
&i-e
An important way of classifying business entities is according to their size:
&arge% businesses employing <33 or more people
$edium% Businesses employing more than <3 or more people, but less than <33 people
Small% Businesses employing less than <3 people
Ver# small0$icro- Businesses employing less than 4 people including non employing businesses
%ndustry &ector
1. Primar#- industries that are involved with obtaining raw materials e.g. mining, fishing, and farming
<. Secondar#% these industries turn raw materials into semi finished( finished products e.g. manufacturing
?. Tertiar#-service industries e.g. retail
2. 1uaternar#-+obs involving information e.g. teachers, accountants
4. 1uinar#- providing domestic services e.g. cleaners, chefs
Public Private &ector
(ulic )nterprises
*overnment owned and operated "A@A. *B/, government business enterprises#
!rovides the community with essential goods and services
,nclude all levels of government federal, state and local
Privati-ation- the process of transferring the ownership of a government business to the private sector
(ri*ate 'ector
Businesses owned and operated by private individuals or groups of individuals
Appro$. >>.46 of businesses are privately owned
!rivate sector businesses cover all businesses not owned by the government
'ost e$ist to make profit
Classification +ccording to geographical spread
%nternational Businesses
!roduces its products in only one country and e$ports them to overseas markets.
,ultinational Businesses
Bwnership restricted to one country, operations occur in more than one country. &ommonly using production
facilities overseas.
Transnational Businesses
,nternational ownership and relations. Cikely to be registered in many countries with each country or region8s
operations acting with some degree of independence.

SOLE TRADER: an unincorporated private bus. owner
advantage:
est. is cheap only legal setup cost is registration of bus. name
owner keeps profits
free to make decisions and can operate independently no interferences choice of working hours
direct contact with customers give better customer service
disadvantage:
unlimited liability for the conduct of the bus. and debts
use own savings or a bank loan money for expansion must come from bus. profits or savings slow down growth
of bus.
have to work long hours without holidays
if fall ill major problems if die bus. ceases
PARTNERSHIP: an unincorporated private bus. with two or more owners
advantage:
no legal formalities but registering bus. name
if one falls ill not so badly affected
better access to finance
split incomes tax advantage
disadvantage:
unlimited liability if a person isnt able to pay, others have to pay if bus. gets sued, lose all personal assets
end in disagreements concerning direction or running of bus.
profits must be shared
decisions made are legally bidding on all other partners
PRIVATE COMPANY (PTY LTD): an incorporated company with between 1 and 50 shareholders owners! shares can be
sold privately limited liability
PUBLIC COMPANY: an incorporated company with unlimited shareholders shares sold publicly unlimited liability
"##$%&'()*%+, bus. owned jointly by all its members or workers who share profits e-ually
"#..%&")'/ "##$%&'()*%, operate in primary industries rural activities e.g. farming!
0)1'1")'/, provide common financial benefits for members building societies and credit unions provide vehicles
where members can invest their money and when needed burrow for housing and personal needs
"#..21)(3 +%&*)"%, provide ethnic community service e.g. childcare!
CHANGING CONSUMER TASTES:
current fashions clothing, footwear, hairstyles shaped by movie icons, television celebrities and entertainers
reinforced by fashion maga4ines
healthy lifestyle, introduce low5fat, all5natural, no5added sugar and preservative5free products
better5informed population, consumers aware of health risks e.g. demand for cigarettes have fallen
time5saving products, domestic appliances, home delivery services including fast food, and services at home
mowing, painting and cleaning
housing demand more people living in city convenience of being near work and entertainment venues
ECONOMY MY AFFECT BUS.:
Boom perio (e!o"omi! #ro$%&) more 'o() !re*%e+ %&ere,ore i"!re*)e !o")-mer )pe"i"# i"!re*)e )*.e)
*" pro,i%)
Re!e))io" ().o$o$" i" e!o"om/) .o)) o, 'o()+ %&ere,ore re-!e !o")-mer )pe"i"#+ .o)) i" )*.e) *" e!.i"e
i" pro,i%)
INCREASED DIVERSITY:
ageing population increased demand for diff products health services and recreational facilities to cater older age
groups and retirement comities
rising incomes demand for higher -uality, more prestigious products and services bouti-ue fashion, resort
accommodation
FEDERAL GOVERNMENTS:
regulate the economy and use diff. policies
MONTARY POLICY: gov actions involving supply of money that influence economic activity in 'ust. using
&eserve 6ank e.g. rising interest rates sell houses, cant afford their loan, less investment in housing, reduce
spending, encourages spending greater return from 6anks
FISCAL POLICY, this is using the budget and decisions are made about spending and revenue raising activities by
spending money in one sector flow on effect e.g. tourism increase recognition of country, plane companies,
tour guides, cruises increase
STATE GOVERNMENTS:
set many of the legal re-uirements for a bus. e.g. registration of bus. name
LOCAL GOVERNMENTS:
control most of land 4oning regulations and building codes e.g. to change parking arrangements, or create a local
shopping mall would effect the bus. in that location
REGULATORY BODIES:
A-)%r*.i*" Se!-ri%ie) *" I"0e)%me"%) Comm-"i%ie) (ASIC):
regulate and provide customer and market protection
ensure honesty and fairness in financial market
A-)%. Compe%i%i0e *" Co")-mer Commi))io" (ACCC):
enhance welfare of 'ust through promotion of competition and fair trading and provision for consumer protection
administers Pries S!rvei""ane At #$%& pro0ie) ACCC %o 0e%o propo)e pri!e ri)e)+ &o. i"1-irie) i"%o
pri!i"# pr*!%i!e) *" mo"i%or pri!e)+ !o)%) *" pro,i%)
2or3p.*!e Le#i).*%io":
'(r)*"ae Re"ati(ns A+end+ent At ,--. )e%) o-% re#-.*%or/ #-ie.i"e) ,or $*#e "e#o%i*%io") *" )e%%.i"# o,
i"-)%ri*. i)p-%e) i" A-)%.
+imilar to OH&S 2000 set appropriate standards for health, safety and welfare in workplace
Topic ,- -ey Business $unctions
BUSINESS FUNCTIONS:
#perations inventory!
7uman &esources
.arketing
0inance and 'ccounting
HIERARCHICAL STRUCTURE: where organisation of functions is arranged with many units and sub5units 5ve prevents
employees developing skills, reducing commitment to bus.
FLAT STRUTURES, company organised into only a small number of key units 8ve give employees greater control over
their work
CHAIN OF COMMAND: the flow of authority, responsibility and communication from the top to the bottom of the
organisation
SPAN OF CONTROL: number of workers directly controlled by a supervisor
,-T/R./!/-./-&/ B) BA9,-/99 )A-&T,B-9:
All departments of a bus. work towards achieving the prime function of the bus.
The concept of bus. functions helps to identify the different roles that a small group of people must do
/ach plays a role in the value chain of bus.
!rime )unction the main task of the bus.
o 'arketing adds value to a product via the successful promotional activities
o )DA add value by increasing the efficiency w( which the !.). is performed. .etermines what bus. opp8s
are financially worthwhile
o ,nventory adds value by ensuring that the relevant goods are available when they are needed
o ;.R. ensures that efficient management of employees, improve customer service, slve problems,
innovate and improve productivity
+*V*S*2 ' &AB3R- dividing of the production process into smaller tasks and then allocating employees into
their specialist areas
A.A-TA*/9:
,ncreases efficiency% allow employees to concentrate on their specific areas
)ewer training e$penses
/mployees are easily replaced, as skills levels are clearly defines
.,9A.A-TA*/9
/mployees can lose sight about their role in the bus. operations
9pecialization reduces fle$ibility of production
:orkers can lose motivation is +obs lack variety
R/CAT,B-9;,! B/T://- BA9,-/99 )A-&T,B-9
Bus. operations do operate independently
/nsuring the flow of info between dept8s is a crucial aspect of effective management
/.g. 'arketing dept. when making campaigns must contact finance to find out ho much is available for spending
)inance contacts operations for production costs to make budget
!roductions contacts ;.R. for wage costs, which ultimately determine production costs
PERAT*2S 4inventor#5
RBC/ B) B!/RAT,B-9
Bperations involve the transformation of inputs into outputs
,t is the function of the bus. that combines raw materials, energy, and labour into something that can
earn money for the bus.
!AR&;A9,-* A-. 9A!!CE &;A,- 'A-A*/'/-T
!urchasing% paying of necessary stocks for production
!urchasing dept. must know how far ahead and in what 7uantities inputs have to be ordered
,t is essential for supplies to be accessed from a central area to ensure inputs are reached easily, reducing time
inefficiencies
9upply chain% are the links between suppliers and a bus8s production process
RB9T/R,-* A-. 9&;/.AC,-*
Rostering is concerned w( allocating people in the bus. to tasks
,nvolves organizing the availability and use of labour most efficiently according to bus. re7uirements
'anagers are responsible for organizing their ;.R in the most cost%effective manner
,t allows for management to coordinate ;.R w( the production process so as to minimize wastage and overlap
between employees
9cheduling is concerned w( the timing of the use of resources in the operations process
Both are important if production if to be efficient
9taff must be trained to follow schedules so work is completed w(in the right amount of time
TA9@ ./9,*-
Refers to how a +ob is to be done
Task design will have to be more specific as tasks become more complicated
'anager must make sue that they have workers that are able to perform the relevant tasks
BA9. CAEBAT A-. :AR/;BA9,-*
&rammed spaceF inefficiencies
Bffice spaces should be mage w( processes being grouped togetherF ma$imum efficiency
:arehousing involves organizing storage in the most cost%effective manner
-eed for storage space can be kept to a minimum w( an effective inventory policy
Biggest e$pense of a bus( FG warehousing
,'!RB,-* B!/RAT,B-9
T/&;-BCB*E
,mpact of technologyF computerization
,mpact of computerization captures info. ,n virtually any transaction
Technology is a ma+or factor towards lowering costs, lifting 7uality, and creating a competitive adv.
&A. A-. &A'
&omputer aided design: use of comp8s to design a product
/liminates inefficiencies in design process
&omputer aided manufacturing: use of comp8s in production process
/liminates inefficiencies and wastage in manufacturing of a product
,'!A&T B) T/&;-BCB*E
Replacing human labour in production and services "robotics#
,ncreased levels of outsourcing
.emand for highly skilled workers
'anagers role% supervisor to facilitator and team leader
Reduces people in middle management
&B-TRBCC,-* B!/RAT,B-9
Prevention- establish systems to check all raw materials thoroughly and e$amines procedures before production
begins
%oncurrent 4!or"-in progress5- set up to detect ant variations from set standards while it is occurring
Aims to rectify problems before ne$t stage commences
'eedbac" 4output control5- compares results of production process w( targets
&ontrols may be internal "final inspection of good# or e$ternal "customer satisfaction surveys etc#
,-/-TBRE &B-TRBC
6ust-in-Time approach 46*T5- order raw materials for the bus. H+ust in time8 to meet bus. needs
Reduces storage costs and money tied%up in stock
Reduces financial liabilities
Renders warehousing unnecessary
7 Bin Approach% stock is filled and e$hausted from one bin, refill occurs while stocks are dran from the other bin
sales trends must be constantly monitored
IAAC,TE &B-TRBC
strategic factor in gaining high competitive advantage
TBTAC IAAC,TE 'A-A*/'/-T
stresses continuous improvement in an org8s internal processes as a way of increasing customer satisfaction
links employees to value%adding activities to achieve customer satisfaction at the lowest cost
o TI' is based on
Iuality assurance in every stage of production
'ulti%skilled teams that run themselves to sustain 7uality in the org
,nventory control used to maintain inventory efficiency
R/&BR.9 'A-A*/'/-T
Allows managers to make timely and informed decisions and to fulfill certain legal re7uirements
&rucial for effective descisions making
/ssential for setting goals and performance measurement
E$P&8$E2T RE&AT*2S
&an be used to gain competitive adv.
Avoid conflict w( employees and employers
'a$imize +ob satisfaction w(in bus.
Allows for the effective management of the employee function of the org.
/nsure appropriate staff are hired, trained, remunerated and replaced
;A'A- R/9BAR&/9 &E&C/% A&IA,9,T,B-
'anagers must continually ensure, staff achieve prime function and current employees are being managed
effectively
&ycle restarts after employee"s# leave bus. and position"s# left vacant
o Recruitment
o *nternal- filling position w( employees already employed w(in the firm
o *ives employees an incentive to work well
o Reduces bus. e$penses "i.e. e$tra wages#
o E)ternal- bus. must undertake strategies to hire new staff ie. 'inimizing +ob specification and
advertising
;A'A- R/9BAR&/9 &E&C/% .//CB'/-T
Training% once employees understand the internal processes on their new work environment they are able to
work far more productively
Benefits of training include
o *ncreased emplo#ment motivation- high bus. commitment will improve sense of direction and +ob
satisfaction of employees improve productivity
o *ncreased fle)ibilit#- employees gain more skill broadens fulfillment roles beyond their usual ones
o (aining the full benefits of technolog#
o %reativit#- leads to more efficient methods and lower production costs
;A'A- R/9BAR&/9 &E&C/% 'A,-T/-A-&/
/nsures employees work efficiently prime function and other bus. goals are met and at the lowest possible
cost
/mployees working w( ma$imum efficiencyF competitive adv.
.#1%('&3,
wages
salaries
share options
1#15.#1%('&3,
staff discounts
child care
company parking
%.$/#3.%1( &%/'()#1+,
#79+ 1::0
'nti5discrimination act 1:;;
;A'A- R/9BAR&/9 &E&C/% 9/!ARAT,B-
oluntary% employee"s# choose to leave current position in search of a new one "not entitled to any special
compensation#
,nvoluntary% termination of employee due to:
o /conomic downturn
o Restructuring of operations
o /mployee is not ade7uately fulfilling the position or responsibility
o Bus. follow conduct to minimize risk of legal action
$AR9ET*2(
RBC/ B) 'AR@/T,-*
,dentify consumer wants
.evelop products to satisfy these wants
.irect the flow of production
o 9timulates consumption which in turn influences production, employment and wealth
o ,nfluences consumer satisfaction, choice, product variety etc.
,./-T,),&AT,B- B) TAR*/T 'AR@/T
'arket research aids in identifying target market
Target market% group of consumers, sharing common characteristics in which a particular product(service will be
sold.
&rucial in determining prime function
!ut firms Hin touch8 w( consumer demands, allowing the company to develop strong consumer relationships
o )actors:
o +emographic- population, age, se$ etc. successful marketing campaigns seek to address relevant
target age groups
o Ps#chographic% lifestyle characteristics, personality types, social class etc why does a consumer
buy different products(services
o (eographic- knowing when and where a customer makes purchase decisions
o Behavioral- understanding how a consumer makes decisions and motivations behind decisions.
'arkets can be classified into:
o 'ass markets% single marketing mi$ whole markets
o .ifferentiated markets% different marketing segments
o &oncentrated marketing% single marketing mi$ segment of who market "niche market#
/C/'/-T9 B) 'AR@/T,-* ',J "2 !89#
PR+3%T
,s whatever satisfies consumer needs
*oods(services provided by the bus. includes physical attributes "colour, size, shape etc# and non%physical
attributes "price, distribution means etc#
,ncludes positioning "image products invoke in the products of the consumers#
!ackaging is important and often becomes as recognizable as the product itself
:arranty and guarantees are also included
PR*%E
Amount consumers have to pay for the product
Bus. needs to take into account production costs, competitor prices and Hvalue for money8 logic
Cower prices don8t always make a product popular
Cower pricesF short term loss, but maybe successful in the long run
;igher prices may create a sense of prestige
o < common methods of pricing
o market penetrations strategy% product is priced low in order to enter the market
o 'arket skimming strategy% product is priced relatively high before competition entry
!roduct differentiation may add e$tra value to a product
PR$T*2
The way which a bus. tells people about its products and persuades them to buy it
,t has ? main ob+ectives:
o Attract new customers
o encourage customers to try a new product
o encourage suers to increase consumptions
'ethods of promotion:
sales promotion "free samples, coupons etc#
advertising "print media, tv, radio, internet etc#
personal selling "face to face w( consumers#
word of mouth
P&A%E
transportation, storage and distribution of the product to consumers
o distribution channels
direct, producer to consumer% "door to door, mail order etc#
producerretailer consumer "distributed in a wider area#
producerwholesalerretailerconsumer "distribution spans a wide geographic area, large no. of small
retailers, and large no. of consumers#
,'!BRTA-&/ B) 'AR@/T,-* ',J
To ensure a competitive adv ma$imum profit, revenue and sales for bus.
A%%32T*2( A2+ '*2A2%E
$./+ .0 "!!.12T%2' "2( 0%2"2!+
Accounting% the process of identifying, measuring and communicating financial information about a bus. To allow
informed +udgments and decisions by users of the info.
'ain functionF make and collect payments and prepare financial reports communicating the performance of the
bus.
)inance% the necessary money to do something such as begin or e$pand business operations
Aims to manage the bus8s short%term li7uidity "ability to meet its liabilities# and long solvency "ability to keep
operating# via effective care of investments and cash flows.
)inance dept. is responsible for raising finance from the appropriate source and ensure that e$cess funds are
used effectively.
&.1$!+& "2( 1&+& .0 012(&
E:uit# 'inance; funds provided by the owners of a bus. The main types of e7uity are:
,nternal /7uity: reinvestment of profits that have been retained by the bus. ,nto activities of the bus.
"e$pansion, research( development#
/$ternal /7uity: comes from issuing shares in the bus.
A+VA2TA(ES;
Cess financial constraints in bus.
Rate of RB, paid to e7uity holders is lower than for debt holders
+*SA+VATA(ES;
As number of owners in crease it is increasingly difficult to make decisions due to division in opinions
)reedom of owner is reduced
Takes longer than debt
Cegal costs of becoming a company are high.
+ebt 'inance; finance raised from borrowing funds from outside the bus., usually banks, gov8t bodies or credit
unions
,ain types of short3term debt financing:
Bank overdrafts: company is given permission to write che7ues in e$cess of their account funds up to
certain limit.
!romissory -otes: company purchases goods by signing a note promising to pay at a certain date
&ommercial bills: company purchases goods buy signing a bill of e$change agreeing to pay at a later date.
;ire !urchase: firm attains assets in return for future payments at fi$ed times
,ain types of long3term debt financing
'ortgage
.ebentures: debt security issued by company, must be repaid after a fi$ed period of time, interest is paid
Ansecured -otes: similar to debentures but not secured by assets of the bus.
A.A-TA*/9
/asy to arrange
'anagers are able to make decisions w( freedoms "debt holders do not have rights in management#
.ebt payments can act as incentive to ensure ade7uate cash flows.
.,9A.A-TA*/9
;igher risk of li7uidation
Additional debt may send a Kve message to share holders
.ebt holders may issue covenants(restriction on company actions
'*2A2%*A& STATE$E2TS
The Balance 9heet
The summary of the type an amount of assets, liabilities and e7uity of a bus.
Accounting e7uation:
Assets< &iabilities= !ners E:uit#
r
!ners E:uit#< Assets- &iabilities
Assets; items of value owned or controlled by the bus. /ither &urrent or -on%&urrent
%urrent- can be converted to cash w(in 1< months ie. &ash on hand, cash at bank, accounts receivable
"debtors#, and stock "inventory#
2on-%urrent- are those which will not be converted to cash in 1< months. ,e. !roperty "land(building#, plant and
e7uipment, motor vehicles
&iabilities- amounts owed by the bus.
%urrent; those payments e$pected w(in 1< months ie. Accounts payable "creditors#, and overdrafts
2on-%urrent; those which have to be repaid over a longer period of time ie. 'ortgages and long%term loans.
!ner E:uit#; the money that the bus. is worth to the owners. 'ade up of capital "money owners have put in
to the bus.#, and retained profits "profits which are earned by the bus. but have not been paid as dividends#
Balance Sheet of All Australian +rin"s %ompan# Pt# &td
As at >?0?@0?A
A99/T9 C,AB,C,T,/9
!1$$+2T "&&+T&:
Accounts Receivable 0133,333
9tock 0?,333,33
&ash in Bank 0?3,433
,nventory 0<43,333
2.23!1$$+2T "&&+T&:
!lant and 'achinery 0143,333
Cand 0L33,333
!1$$+2T /%"B%/%T%+&:
Accounts !ayable 0133,333
Bank overdraft 0<43,333
2.23!1$$+2T /%"B%/%T%+&:
Bank Coan 013,333
TBTAC: 0?13,33
B:-/R9 /IA,TE
&apital 0?,433,333
Retained !rofits 02<3,33
TBTAC: 0?,><3,333
TBTAC: 02,<?3,433 TBTAC: 02,<?3,333
:ritten in the T% )ormat or -arrative 9tyle
R//-A/ 9TAT/'/-T "!RB),T A-. CB99#
A financial report of income, e$penses and profit or loss of a bus. at a certain period of time.
Revenue: income generated by the bus(s daily activities
/$penses: costs incurred by the bus. in the course of operating
&ost of *oods 9old "&B*9#: amount it costs the bus. to are a good( service
)BR'ACA: PE2*2( ST%9= P3R%BASES- %&S*2( ST%9
(RSS PR'*T< SA&ES REVE23E- %(S
2ET PR'*T< (RSS PR'*T- ECPE2SES
Revenue Statement of All Australian +rin"s %ompan# Pt# &td
'or the period ending 6une >? 7??A
%ASB '&D STATE$E2TS
Reports on the way that a bus. has used its cash over a certain period of time. ,t is divided into different sections
to represent cash flows resulting from:
perating activities; cash flows relating to the provision of products and services
9AC/9 R//-A/ 04,333,333
C/99 &B*9
Bpening 9tock 0<,333,333
&losing 9tock 01,333,333
!urchases 0433,333
TBTAC &B*9: 01,433,333
(RSS PR'*T; E>FG??F???
4.ther income
,nterest from loan 0?,333
.iscount Received 01,114
TBTAC *.!: 0?,432,114
+5P+2&+&
:ages 0?,333,333
,nsurance 043,333
Advertising 01,433
9ubcontractors 0<43,333
'aintenance 013,333
Bther Bills 0<,433
.elivery services 014,333
'iscellaneous 0<,433
Bank &harges 0=33
-ew 'achinery 0143,333
TBTAC /J!/-9/9: 0?,25<,333
2ET PR'*T; E77F?HG
*nvesting activities; cash flow arising from the ac7uisition and disposal of non%current assets such as land,
building and machinery
'inancing activities; cash flow relating to changes in debt and capital contributed by owners, ie. dividends,
issues of new shares to the public etc.
All Australian +rin"s %ompan# Pt# &td
Statement of %ash 'lo!s for #ear ended at >? 6une 7??A
!"&) 0/.6 0$., .P+$"T%2' "!T%7%T%+&:
Receipts from 9ales 02,333,333
!ayments to 9uppliers 0433,333
!ayments to /mployees 0?,333,333
&ompany Ta$ 0=1,433
,nterest !aid 01,333
&ash !ain on ,nventory 0<43,333
-/T &A9; !RB,./. BE B!/RAT,-* A&T,,T,/9: 015L,252

!"&) 0/.6 0$., %27+&T%2' "!T%7%T%+&
!urchase of Cand 0<43,333
!urchases of !lant 0133,333
and /7uipment
!roceeds on 9ales of 0=4,333
/7uipment
-/T &A9; !RB,./. BE ,-/9T,-* A&T,,T,/9: 0<14,333
!"&) 0/.6 0$., 0%2"2!%2' "!T%7%T%+&
9hare ,ssue 0<44,333
,ssue of .ebentures 0114,?33
.rawings 0=3,333
.ividends 04?,=43
Repayments on loan 0133,333
-/T &A9; !RB,./. BE ),-A-&,-* A&T,,T,/9: 01==,=43
-et ,ncrease "decrease# in cash held 04=>,122
&ash at beginning of the year 0244,33
&ash at the end of the year 01,3<2,122
TBE 9E8 3SES ' '*2A2%*A& STATE$E2TS
'anagement accounting: directed towards internal stakeholders. ,nvolves collecting and summarizing the
financial statements necessary to make informed decisions and identifying changes that could be made
)inancial accounting: involved w( preparation of traditional financial reports.
BA.*/T9 A9 !CA--,-* TBBC9
Budget% a financial plan that sets out e$pected incomes and outlays.
/nable management to identify ob+ectives and strategies that need to be employed.
They force management to plan for the future
There are < main types of budgets
o perating budgets- refer to the profit earning activities of firm "sales and production#
o 'inancial budgets- concerned w( the inflow and outflow of cash to planned e$penditures and capital
revenues for a given period.
Together these make up the master budget, which presents the overall picture of the bus8s goals.
By using this info, a bus. is better informed and able to implement its plans, identify emergencies and achieve its
goals.
I Ta)ation and on-costs
&ompany Ta$ K for incorporated business, this is ?36 of profits.
*oods and 9ervices Ta$ "*9T# K 136 on all goods and services
sold by businesses, e$cept fresh food, etc.
!ay%as%you%go Ta$ "!AE*# K employees pay this ta$ according to
Ta)ation the ta$ scale and their income level.
&apital *ains Ta$ "&*T# K companies are liable to pay &*T on any profits
made on the sale of assets.
!ayroll Ta$ K state governments levy this ta$ based on the total
amount of wages paid to employees per year.
n-costs
These are payments for labour in addition to wages. They include:
:orkers compensation premiums
'aternity leave
9ick leave
Ceave loading
Cong service leave
9uperannuation.
Superannuation
A compulsory feature of wage structures in Australia. ,t is a means of ensuring an income for people in retirement.
9uperannuation is paid at a rate of >6.
Critical .ssues .n Business 'uccess +nd $ailure/
9uccess indicators include a business that makes a profit, covers costs and gives its owner(s a
reasonable return.
)ailure indicators include a business that closes or has the need to sell off assets or debts. Bther
failure causes are:
verconfidence- can lead to bad planning, unrealistic estimates of market share and
underestimating costs. This can result in failure and thus closure
*nade:uate mar"et share- failure to take into account for consumer reluctance to switch brands,
underestimate competitor and length of time re7uired to build upa sufficient consumer base.
'inancial problems-
I The importance of a business plan
Business plan . a formal, written e$pression of the overall framework for decision making in a business and for the
allocation of roles to employees. ,t clearly identifies the goals of the organisation, so that managers can focus on
achieving them.
I *dentif#ing and sustaining competitive advantage
&ompetitive advantage is essential for a business to establish itself and to grow. -ew businesses usually
determine what their competitive advantage is during the early stages of planning, on the basis of current
market conditions.
&ompetitive advantage is usually a feature of the business or product that distinguishes a business from its
competitors and gives the business an advantage in the market. Bnce this is established, the ne$t challenge
for the business is to sustain its competitive advantage.
The changing nature of consumer tastes, competitors8 strategies, and technology are the main factors that affect
competitive advantage.
I Avoiding over-e)tension of financing and other resources
Being unable to meet duties in regards to finance, wages, ad any other obligations to share holders or
contracts that the bus. has established
Bvere$tension of other resources such as:
9tock: by buying too many raw materials that might not get sold in time for you to pay
back the suppliers.
9taff: may be too many of them causing the business to keep paying them and lose
money that they could have put back into the business.
investing a high proportion of funds in plant and machinery
Borrowing too much money etc.
'anagers must always ensure that budgets are adhered to, collect money owed to the bus, maintain records,
source funds w( use in order to keep the bus, successful
I 3tilising and e)ploiting technolog#
This leads to success or failure by how sometime technology cost less causing the business to e$pand, but
sometimes is the technology breaks down there well be less production, and could cost more to fi$ up the piece
of e7uipment.
Eou can also use the internet to conduct your business by how they have:
/%commerce: is the buying and selling of goods and services on the internet
/%business "electronic business#: this is using the internet to conduct business.
I $anaging cash flo!
%ash flo! . the movement of funds into and out of a business. A business with good cash flow management is able
to pay bills on time, has funds available for short%term spending, etc.
A business with bad cash flow management has overdue bills and has clients who owe them money, etc.
There are several ways to manage negative cash flow:
$anaging creditors- forging good relations w( both clients8 and suppliers can help prevent
problems from occurring and minimize damage.
'actoring- form of outsourcing where debts are sold to financial institution. )or small bus8s
factoring their debts will have an adv. That is payments are received immly, eliminating a ma+or
source of cash flow problems.
.isadvantage% factoring company8s withhold commissions
+ebt collection . a drastic form of outsourcing payments. Bnly heavily overdue debts are
collected.
Topic 01 2)")LO(.N% + B3'.N)'' (L+N
The role of a business plan
Business doe not plan to fail they fail to plan. This is shown by how some business men have so much
optimism that there business idea was so big that they will succeed but this is not always enough to succeed as
the business plan allows a business to look into the future and picture what it might face and they can and try
and prevent this by how they have already seen slightly into the future.
There are many types of business plans but each one is uni7ue as it has its own personal features and
strategies. But at the same time can be similar as they all posses:
/$ecutive summary
Bb+ectives goals
9trategies
Business description and outlook
'arketing plans
)inancial plans
And Bperational plans
BREA9 EVE2 'R$3&A
)i$ed costs are those that remain constant regardless of the volume of the good or service produced, such
as rent(insurance
ariable costs increase as output rises and include labour costs, and the cost of raw materials
Total rvenue is determined by multiplying the 7uantity sold by sales "price $ 7uantity#
TTA& '*CE+ %STS
BREA9 EVE2 P*2T <
SE&&*2( PR*%E . VAR*AB&E %STS032*T