Running head: ASSESSMENT 1 BUSINESS STUDIES Sarah Milani

Business Report
A business can be defined as the coordinated effort of individuals to manufacture
and distribute goods that meet the needs and wants of consumers, making a profit
from them. However, many influences affect the process from running in order as
companies have a continually evolving world to cope with. What occurs in the larger
business world could impact many other firms directly. For example, certain
companies may not be able to afford the purchasing of new machinery and
equipment as interest rates escalate. The internal and external forces as well as the
environment in which the company works impact all decisions made in the business
as to how and what to produce. For instance, Ali’s business, ‘cafe olay’, is
experiencing a loss of sales due to the external and internal influences having an
effect on the business (technology, covid 19, economy, legal structure, etc.), the
impact of each of these influences, and the advantages and disadvantages of
changing his legal structure. In order for his cafe to grow and develop, Ali, like any
other business manager, needs to understand the market environment and identify
his business’ strengths, weaknesses, opportunities, and threats. By expanding his
legal structure, it gives him more flexibility to respond positively to changes that take
place and prepare for the impacts the changes will have on his business operations,
as well as allowing him to broaden his business and gain more support thereby
making it possible for the positive outcomes to take place.

Identifying the external and internal influences having an effect on the

business.
The business environment refers to the internal and external factors that affect how a
company operates.The internal business environment consists of factors within the
organization that have an impact on the performance and strategy of operations. The
business has control of these factors, unlike the external environment. Internal
influences comprise circumstances, factors, participants and actions which have the
potential to impact the company’s decisions and operations. For example, finances,
staff, new products, insurance/ security, or legal expenses/ structure. However, The
external environment of a business encompasses all outer forces, pressures, events,
individuals and circumstances, which often occur beyond the limits of the
Running head: ASSESSMENT 1 BUSINESS STUDIES Sarah Milani

organization but have a major impact on the service, efficiency, viability and
sustainability of the business. For example, natural disasters, war, interest rates,
business competitors, or covid 19. Both internal and external factors have major
impacts on how smoothly a business can run.

Ali runs a small cafe in inner Sydney, called ‘cafe Olay’. He is currently running his
business with no support and due to the effect of external and internal influences,
Ali’s cafe has experienced a loss in sales. The external influences that have had an
impact on this issue is the growth in use of technology and the outbreak of Covid 19.
Ali noticed that customers are using applications and/ or the internet, such as ‘Uber
eats’ to pre-order their coffees and lunches as well as not spending a lot at the
moment due to the infectious virus known as Covid 19 that has been spreading
which leads to an economic cycle whereby the economic rates of his business are
plunged into a recession, and when consumers notice this, they become more
cautious with their way of spending, making it difficult for an economic recovery. For
Ali, it will be a downfall as he would lose confidence in his business’ economic future.
Ali has also been facing internal influences that contribute to his loss in sales
including staff/ management, legal structure, and lack of equipment. Some of his
staff have complained and expressed their concerns about the lack of equipment
and current work environment feeling that his management does not consider the
opinions of staff. If Ali’s employees have complained and are unhappy with the work
environment, then it wouldn't be a healthy running business and will eventually fall
apart. In addition, Ali’s legal structure restricts him from expanding his business as
he has no outer support from other companies making it difficult for development and
growth as well as stability for upcoming decisions and changes. Internal factors
essentially represent internal strengths and weaknesses which can have an effect on
how an organization achieves its goals.

Overall, a business must better understand the market environment, such as the
internal and external environment in which it works, in order to succeed and function
smoothly. If Ali learns how to be organized and operational, being able to take
strategic risks and be innovative, as well as identifying his business’ strengths and
weaknesses, he will be able to make positive influences come out of the negative
ones.
Running head: ASSESSMENT 1 BUSINESS STUDIES Sarah Milani

Outlining the impacts of each influence

In reality, internal and external influences can be described in terms of the
controllable and uncontrollable facets of a company. Ali's company, Cafe Olay, is
affected by external and internal forces which are gradually decreasing his chances
of growing and expanding his firm. Knowing how internal and external influences
impact an organization will allow a business to prosper.

Legal Structure:

In order to provide an acceptable legal structure, Ali must consider carefully setting
up the one which fits him and his business best. There are four different legal
structures to choose from when deciding how a business is to be owned and
operated; sole trader, partnership, private company, and public company. Ali needs
to ensure that his legal structure fits in with the flow of his business and is widely
transmitted to all consumers, and necessary laws and legislation are in effect to
guarantee the benefits of workers and the company as well. Ali wants to expand his
business, however, his legal structure does not give him that option. This drags him
down as other businesses are progressing with society and the times. The quality
and suitability of a legal structure is vital for a business to run smoothly as it can
either impact it in a positive or negative way. For Ali’s instance, his legal structure
limits him from advancing his business, impacting his business in a negative way as
it does not provide him any support or flexibility to develop and prepare for impacts
of other influences.
Employees/ resources:
Strength of staff are a vital component to a successful business as the number of
employees hired by a business will largely depend on the nature of the products and
number of customers. In a high-performance workplace, not only do employees have
talent, but they still work better together. The staff and employees work closely on
proposals and solutions. The staff in Cafe Olay, have expressed their concerns and
have complained about the current work environment as well as the lack of
equipment needed to perform their tasks, feeling that management does not
consider the opinions of staff. As manager of the business, Ali needs to regard the
emotions and opinions of staff. Emotions may have both a positive and a negative
affect. They influence how people think and behave, and how they react to threats,
Running head: ASSESSMENT 1 BUSINESS STUDIES Sarah Milani

and how they work under pressure. Employees will have an effect on judgements
and control on how to cope with tough decisions. Strong decision-making will also
rely on employees' moods and feelings at the moment.

Technology/ e-commerce:
Technology has undoubtedly had one of the biggest effects on industries. By
inventing and developing new innovations every day, this will only serve to increase
the competitiveness and performance of companies. Technology has its advantages,
but with the latest technology replacing the old one, this ensures that processes and
applications are continually retrained. This can also outweigh the advantages of
using modern technologies in the first place. For Ali’s business, due to the rapid rise
of the internet as he has noticed consumers are purchasing their coffees and
lunches from apps and the internet. This impacts his business in a negative way as
he is experiencing a loss of sales, and can’t expand his business to the internet
because of his unsupportive legal structure.

Covid 19:
With the recent outbreak of the infectious disease known as Covid 19, people
became very cautious on going out and where and how to spend their money. This
pandemic has had significant economic implications worldwide. Which has not only
consequences for the economy; it has also influenced society, leading to drastic
changes to the way corporations work and people treat themselves. Ali has realised
that consumers are not spending as much at the moment which is influencing his
economic cycle in an unfavourable way. Economic forces have a major impact on
both business and customers. In Ali’s case, Covid 19 is influencing his business’
capacity to compete, and the customer’s willingness to spend.

Discussing the advantages and disadvantages of changing the legal structure.

There are several ways to protect Ali’s business, its resources, and personnel, one
of which is to do business under the most suitable legal structure. His tax payments,
Running head: ASSESSMENT 1 BUSINESS STUDIES Sarah Milani

legal responsibility and possible future income will be influenced by the legal system
that he uses to fund the company. Ali is embarking on shifting from a sole trader to
becoming a partnership business but he needs to explore the advantages and
disadvantages of changing his legal structure.

Sole proprietorship- A sole proprietorship (an unincorporated business entity) is a

company owned and managed by one person. They provide all the finances, make
all the decisions, and bear all the obligations while their workers do the job. This is
the current legal structure Ali is operating under.
Advantages:
- Complete control over the business
- Less government regulation
- Less cost to operate
- No partner disputes
- Easy to quickly wind up your company by changing your legal structure later if
conditions change
Disadvantages:
- Difficulty in raising finance for expansion
- Unlimited liability for business debts
- Need to carry all losses of the business
- Maintaining high quality employees can be difficult

Partnership- A partnership is owned and operated by between 2-20 people. Both

partners share liabilities and income equally in a partnership business.
Advantages:
- Less costly to operate than a company
- Shared responsibility and workload
- No taxes on business profits, only personal income
- Minimal government regulation
- If conditions change, it is easy to change the legal system later

Disadvantages:
- There is a chance of conflicts and disputes between partners and
management
Running head: ASSESSMENT 1 BUSINESS STUDIES Sarah Milani

- Each partner shall be responsible for their shares of the debts as well as
liability for all debts
- Divided loyalty and authority
- Difficulty in finding a suitable partner

There are several considerations that affect the choice of legal structure, in particular
the size of the company, ownership and finances. Of all the considerations that affect
the company, Ali must settle on the most suitable legal structure for the better of his
business. A sole proprietorship can sound simpler and quicker, since it is cheaper
and one has absolute ownership, but in the long run it would be impossible to
balance everything. Partnerships, on the other hand, offer more support and leeway
in the company as workloads are spread among others. Overall, both legal
arrangements have their pros and cons, and in Ali's case the partnership structure is
the most appropriate option, since his company requires help that would open up
more doors for him, such as the growth of his business. Whereas the sole
proprietorship leaves him alone with more expenses and more stress of having to
suffer business losses.

Conclusion/ Recommendations
Businesses play a vital role in our society by largely determining our standards of
living. With the many internal and external influences impacting businesses, it can be
hard to keep up without the required support. Taking all into account, Ali needs to
take action to shift his existing legal structure to a partnership in order for Cafe Olay
to continue effectively. By considering employee feelings and views, updating the
facilities of the workplaces, and finding new ways to market his product to
consumers, it will expand and improve his business, making it possible for positive
results to take place in the future. Taking these measures would make running his
company more profitable, efficient and successful.
Running head: ASSESSMENT 1 BUSINESS STUDIES Sarah Milani

References
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Retrieved 29 January 2021, from
https://www.business.tas.gov.au/manage_a_business/tax/choosing_a_busine
ss_structure/partnership_advantages_and_disadvantages
- S, S. (2021). Difference Between Internal and External Environment (with
Comparison Chart)- Key Differences. Retrieved 29 January 2021, from
https://keydifferences.com/difference-between-internal-and-external-
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(2021). Retrieved 29 January 2021, from
https://www.business.tas.gov.au/manage_a_business/tax/choosing_a_busine
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