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 person ● No partner disputes ● Burden of management
● Complete control ● Difficulty raising finances
● Ability to keep profits
Partnership Advantages Disadvantages
● Owned by 2-20 people ● Shared workload ● Unlimited liability
● Less costly to operate ● Possibility of disputes
then company ● Sharing profits

Private Company Advantages Disadvantages

● Pty Ltd ● Easier to obtain finance ● Double taxation
● 2-50 private shareholders ● Limited liability ● Cost of formation
● Easy transfer of
Public Company ownership
● 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 IMPACT

LEGAL 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 Monitors market integrity, ensures businesses comply with industry
and Investments standards
Commission (ASIC)

Australian Competition Monitors unfair market practices, misleading and deceptive advirtising
and Consumer
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 advertising

Competition 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 sell, ➢ Proximity to support services
how much you sell it for all impact ➢ Proximity to customers
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 growth ➔ Owner is able to determine pace of
and change growth and change
➔ No goodwill for which the owner has to pay ➔ No goodwill for which the owner 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 generate
instant income
➔ A good business history/goodwill increases
likelihood of business success
➔ Seller may offer advice and training
➔ Existing employees can provide valuable
assistance
➔ Less work for establishment phase
➔ If business had poor reputation, difficult to
alter
➔ Hidden problems
➔ Some employees may resist changes
presented in business operation

Buying a Franchise
● Buying the rights from another business to distribute its products under its name

Advantages Disadvantages

➔ Established branding, goodwill, customer ➔ Franchisor controls operations, little scope

base and product range for franchisee individuality
➔ Franchisor often provides training and ➔ Profits shared with franchisor
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 the
their account up to an agreed limit borrower

Commercial Bills: short-term loans for large Debentures: Issued by a company for a fixed rate
amounts 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 salary Federal government

Fringe Benefits Tax (FBT) Employers pay on benefits paid Federal government
to employees

Goods and Services Tax (GST) 10% of goods and services Federal government
consumed in Australia

Company Tax Paid on earnings of a company Federal government

Capital Gains Tax Caculated on the profit made on Federal government

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