Chapter 2A -D

Internal enviornment

Involves factors within a business that a business has control over.

Types of internal environements

SWOT analysis, resources, business locations, sources of finance, business support, services, type of business models, type of businesses, corporate social responsibility for business planning, purchasing an existing business vs establishing a new business.

External enviornment

Involves the surrounding factors that can impact a business, which it has minimal control over.

2 types of external environments

Macro factors, operating factors

Macro factors

social, legal, technological, global, and economic conditions that a business operates in and has no control over.

Operating factors

are the primary external factors impacting a business that it is has some control over.

Type of macro factors

Corporate social responsibility considerations, societal attitudes and behaviour, global considerations, economic conditions, technological considerations.

Types of operating factors

customer needs and expectations, special interest group, competitor’s behaviour, suppliers and the supply chain.So

The relationship between the internal environment and the external environment of a business

Business has control over the internal environment and can plan for internal factors influencing the impact of its activities and decisions on the external environment.

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Business has minimal control over external factors, meaning changes in conditions of the external environment often have a more significant effect on the internal environment of a business.

Types of businesses

Sole trader, partnership, private limited company, public listed company, social enterprise, government business enterprise

Soletrader

business structure that is owned and operated by 1 individual. UNINCORPORATED, UNLIMITED LIABILITY

Unincorporated

the business owner and the business being viewed as the same legal entity

unlimited liability

the business owner being held personally responsible for the business’s debts.

Advantages of a sole trader

low risk of dispute as there is only 1 owner making decisions, easy/cheapest to set up, fewer reporting requirements and minimal government regulation

Disadvantages of a sole trader

unlimited liability, resources are limited to the owner, difficult to have personal time as no one else can operate the business, difficult to raise money to expand the business.

Partnership

business structure that is owned by 2-20 owners. UNINCORPORATED

Advantages of a partnership

greater range of expertise/ideas amongst multiple partners, financial and legal risks are shared between partners, owners can share the workload and take time off, easy/cheaper to start off, fewer reporting requirements and minimal government regulation

Disadvantages of a partnership

liability for debts incurred by other partners is held by all the partners, profits need to be shared unlimited liability, personality differences, if a partner leaves could be time consuming to restructure the partnership

Private company

an INCORPORATED business structure that has at least one director and a max of 50 shareholders.

Incorporated

a business being established as a separate legal entity from the owners.

Advantages of a private limited company

limited liability for shareholders, greater variety of expertise and ideas, business’s existence is not threatened by the removal of 1 director, more access to capital banks are more inclined to provide them with loans.

Disadvantages of a private limited company

complex reporting requirements, difficult to change structure once a company has been established, complex to establish, increased reporting requirements and government regulation, expensive to setup and operate.

Public listed company

Is an incorporated business that has an unlimited number of shareholders and lists and sells its shares on the ASX.

Advantages of a public listed company

shareholders have limited liability, greater access to expertise and ideas, no permission is needed to trade and sell shares, life of company is long lasting, greater access to capital.

disadvantages of a public listed company

personality differences when making decisions between directors, complex reporting requirements, time consuming to set up, expensive

Social enterprise

type of business that aims to fulfil a community or environmental need by selling goods/services, not considered a legal business structure in Australia.

Advantages of a social enterprise

community benefits, positive reputation, purposeful work, likely to receive financial support

disadvantages of a social enterprise

difficult to maintain a bank loan, difficult to balance the achievement of financial objectives with social objectives.

Government business enterprise (GBE)

a business that is owned and operated by the government.

Advantages of a government business enterprise

delivers goods/services that help the community, provides healthy competition to the private sector, operate with some independence, provide services that the private sector would hesitate to invest in, can rely on the government for the initial investment.

disadvantages of a government business enterprise

government/politicians can interfere and change business strategies, follow significant red tape(excessive rules and formalities), productivity may be lower as there is a lack of accountability.

business model

outlines a business’s plan of how it will function and make a profit

Types of business models

online business, direct-to-consumer business, bricks-and-mortar business, franchise, importer, exporter

Online business

a business model where goods and services are traded via the internet

types of online business models

advertising model, brokerage model, direct-to-consumer or merchant model, subscription model,

Advertising model \[facebook\]

Customers typically have free access to a business’s website as revenue is obtained through advertising. Other businesses pay for promotional space on this business’s website to promote their products and attract customers.

Brokerage model \[ebay\]

Buyers and sellers are brought together to exchange products online. Money is earned by charging sellers a fee when sales are made.

Direct-to-consumer or merchant model

The business makes direct sales to consumers via the internet.

Subscription model

Businesses regularly charge customers a fee in order to log into and use the website or application.

Advantages of an online business model

* customers can order products at any time
* business are able to develop wider customer base
* greater customer convenience
* online websites can be set up quickly in comparison to other business models
* less time devoted to daily operations
* less expensive to operate as they avoid paying rent

disadvantages of an online business model

* customer can’t touch, try, feel a product so may be reluctant to purchase it
* difficult to offer customer service online - strong customer relationships may be hard to develop
* customer are exposed to higher risk of theft due to line security breaches
* online security issues may have potential to negatively impact a business’s reputation
* time is needed to train employees to fulfil online orders and use other features of websites
* development and maintenance of the website software can be costly

Direct-to-consumer business

business model where the business’s products are sold directly to consumers with no intermediaries involved

intermediaries

are individuals or businesses that serve to transfer a product in a distribution channel from a manufacturer to the end consumer.

Advantages of direct-to-consumer business

* Greater customer convenience as they are able to buy and receive their products directly from the manufacturer.


* Direct control over the brand presence and advertising since the business uses its own channels to sell its products.
* More reliable sales data and customer information can be obtained for the business to use, therefore a better connection and understanding of the customer base can be formed.


* save time as additional sales to intermediaries are not made.
* Obtain higher profit margins because the costs associated with selling to intermediaries are not incurred.

disadvantages of direct-to-consumer business

* difficulty in growing the business since intermediaries, such as retailers and wholesalers are not used.
* high level of competition as it is relatively easy to set up a direct-to-consumer business as it uses a direct distribution channel.
* may not be able to reach as many customers as it is not selling through intermediaries that can provide more promotion and reach customers.

Bricks-and-mortar business

business model that has a physical store presence, that often have an accompanying online website (clicks-and-mortar model)

Advantages of bricks-and-mortar business

* Customers can see, feel, and test products before purchase.
* Products can be displayed and promoted in the front windows of the store to attract customers.
* have face-to-face interactions, allowing strong customer relationships \n to be built.
* Brand recognition can be established through signage and logos, even when the business is closed.
* More employees may be required for this business model, therefore, increasing employment opportunities and opportunities for career advancement.
* Customers can obtain instant gratification and reward from the purchase of the product, therefore encouraging impulse buying and boosting business sales.

disadvantages of bricks-and-mortar business

* Customers must physically access the store which may be difficult if they are busy or are located far away.
* Customers may require access to car parking.
* Businesses must comply with local government regulations
* Customers may find it inconvenient if they experience crowded stores or long queues.
* In busy periods, employees may feel stressed and overwhelmed by the volume of customers within the store.
* Time is required to train employees who work in the store.
* It is time consuming to establish a physical location as time is required to find
* Far more expensive to establish and operate as costs, such as rent, need to be paid.

Franchise

business model that grants another person the right to operate under its name, use its business systems and sell its goods and services

Advantages of a franchise business model

• Support and advice can be provided by the franchisor as they want the business to succeed.
• may have already established a good reputation with strong customer loyalty.
• Reduced risk of business failure as operations systems and reputation are already established.

• Established systems and processes in place so the time needed to establish these is reduced.

• Sales are likely to be high as there is already customer awareness of the brand.

Disadvantages of a franchise business model

• Franchisee has limited decision-making power and independence as the franchisor has the most control over the business.

• Reputation of the brand may be negatively impacted by the poor performance of other stores.

• Training staff to understand the franchise’s standards could be time consuming.

• high cost associated with purchasing a franchise as the established systems and brand identity is included in the cost.
• Franchisees must regularly pay a percentage of the profits to the franchisor.

Importer

a business model that purchases goods/services from overseas and sells them in its home country.

Advantages of importer

• Provides access to products and resources that an owner’s home country does not have.

• Some resources are seasonal, meaning a business can import from overseas when they are not available in the home country.

• A business may be able to access cheaper prices as overseas regulations, such as minimum wages, are different.

Disadvantages of importer

• Difficult to deal with different systems and regulations in various countries.

• Importing products can reduce local employment opportunities, which can harm a business’s reputation.

• Lack of reliability in supply chains can mean customers are unable to purchase a business’s products

• Jobs may be lost if the need for domestic producers is reduced. • long waiting times when importing products from another country.

• May be subject to import tariffs.
• Increased delivery costs as products travel a further distance.

Exporter

a business model that purchases goods/services in its home country and sells them to overseas buyers.

Advantages of exporter

• Access to overseas customer bases can increase sales.

• Growth of Australian industries is promoted as there is increased demand for products or inputs produced by Aus businesses.

• Overseas customers may be willing to pay more for products they do not produce.

Disadvantages of exporter

• Non-renewable natural resources are often sold which may be harmful to the environment.

• May be difficult to understand and accommodate different overseas cultures and laws.

• Higher transportation costs to sell overseas rather than domestically.

Purchasing an existing business

Involves buying a business that is already set up and operating. The buyer will also obtain the premises, equipment, existing stock, employees, customer accounts and goodwill of the established business.

Advantages of purchasing an existing business

* may already have a strong reputation with loyal customers
* original business owner and existing employees can provide valuable advice/assistance to promote business success
* employees are less likely to need training since they already have experience working at the business
* time can be saved as business processes/systems do not need to be developed
* could already have stock and suppliers
* business can generate revenue immediately as it is already operating

Disadvantages of purchasing an existing business

* reputation can be difficult to judge accurately and may be negative
* previous business success could have been due to the previous owner’s personality or personal contacts, which can’t be transferred when business is sold
* employees may be resistant and uncooperative with the change in ownership
* goodwill can be difficult to value, meaning the cost of the business may end up being overpriced

Establishing a new business

often the best choice for individuals with innovative business ideas that are not yet present in the market. Owner needs to consider, location, business name registration, suppliers and staff employment.

Advantages of establishing a new business

* owners have full decision-making control
* business can provide something different that is not currently offered in a market
* with full authority business owners can make decisions quickly
* no goodwill costs that need to be paid as the business is new

Disadvantages of establishing a new business

* may be difficult in building customer base as it is new
* greater risks, uncertainty and room for error
* time consuming to find and train staff
* require a lot of time to set up business processes and systems
* may be greater difficulty in securing finance as there is no previous business reputation
* equipment and facilities need to be paid for as they are not already set up
* business may earn revenue slowly and there is no guarantee sale will be made immediately since the business is completely new