Year 10 Business and Finance - Business Size, Life Cycle, Success and Failure

Study for the upcoming B&F test.

Tax benefits

Advantages reducing amount of tax owed.

Income

Daily spending + Savings + Taxes

Sole trader

Business owned by one person, not a legal entity.

Partnership

Relationship between multiple people to run a business for profit.

Company

Organisation established under Corporations Act 2001 as separate legal entity.

Micro business

< 5 employees

Small business

5-19 employees

Medium business

20 - 199 employees

Large business

200+ employees

Local business

Operates in 1 town/suburb

National business

Operates in 1 country

Global business (Transnational Corporation / TNC)

Operates in multiple countries.

Primary industry

Industry in extracting natural resources (e.g. farming or mining)

Secondary industry

Industry in manufacturing and construction (e.g. factories or building companies)

Tertiary industry

Industry providing services (e.g. retail, hospitality, transport)

Advantages of Sole Trader

• easiest and cheapest to set up

• flexible working hours

• sharing of profits not required

Disadvantages of Sole Trader

• unlimited liability

• limited raising capital for expansion

• limited advice for decision making

• business may have to close if owner has serious illness

Advantages of Partnership

• raise more capital than sole trader

• share workload, risks and losses

• partners cover for each other

Disadvantages of Partnership

• partners jointly and severally liable for debts

• conflicts between partners

• profits shared

Advantages of Company

• separate legal entity

• limited liability

• continuity of existence

• simple transfer of ownership

• raise substantial capital

Disadvantages of Company

• more regulation

• more expensive and complicated setup

Company limited by shares

Liability of shareholders for company's debts = limited to unpaid shares.

Proprietary Companies

Can’t raise money from public, has 1-50 shareholders.

Pty

Proprietary company

Ltd

Company limited by shares

Capital

Money/resources invested in a business.

Shares

Units of ownership

Shareholders

Owners of a company.

Separate legal entity

Can buy assets, enter contracts, sue/be sued in its name.

Limited liability

Owners not personally liable for company's debts, shareholders only liable for their investments

Continuity of existence

Indefinite life not affected by changes in ownership.

Simple transfer of ownership

Ownership can be transferred easily without affecting the business.

Startup costs

Initial expenses incurred to start a business

• registration fees

• legal fees

• initial inventory

• equipment

• website development

• marketing

Fixed costs

Regular expenses that do not change with the level of production

• rent

• insurance

• bills

• loan repayments

• salaries.

Variable costs

Costs that vary with the level of output

• raw materials

• wages for casual employees

• shipping costs.

Business Life Cycle

Stages a business goes through: Establishment, Growth, Maturity, Post-Maturity.

Establishment

Generate enough sales → positive cash flow → solid foundation

Growth

Established consumer base + develop new products → time of accelerating growth

Maturity

↓ growth, possible decline, ↑ formal planning req.

Post-Maturity

3 possible paths: steady state, decline or renewal

Steady State

Not declining or expanding; ↑ instability over time.

Decline

Customers stop buying, ↓ revenue, difficult to reverse because:

• Can’t borrow money

• Suppliers insist cash

• Obsolete products → unsold stock.

• Employees leave

Renewal

planned strategies → new markets tapped + satisfy previously unmet demand

Proactive businesses

Can anticipate and plan for future changes.

Reactive businesses

Respond after changes have occurred, are often too late and lose market share.

Marketing

Multi-faceted approach to promoting and selling products or services.

4 P's of Marketing

Product, Place, Process, People.

Establishment Phase Challenges

• gaining stability

• getting sufficient starting capital

• cash-flow management

• effective marketing

• learning to run a business

• hiring right people

• making an effective business plan

• legal and regulations

• competition and price wars.

Growth Phase Challenges

• acquisition & retention

• organisation and structure

• sustainable growth

• lack of experience in new areas

• cash flow strain

• competition

• leadership and delegation

• debt repayment.

Maturity Phase Challenges

• restructuring

• complacency

• efficiency and production costs

• plateauing sales

• market saturation

• maintaining staff morale

• adapting to market changes.

Post-Maturity Phase Challenges

• innovation

• competition

• brand relevance (refreshing brand → maintain appeal in market)

• succession planning

Entrepreneurial Qualities for Success

• ambition

• creative/innovative

• critical thinker

• determined

• disciplined

• passionate

• prioritisation skills

• risk-taker

• teamwork skills

• work ethic

Indicators of a Successful Business

• profitability

• customer satisfaction

• staff morale

• achievement of organisational, financial, social, environmental objectives

Planning Indicators of Success

• goals and objectives achieved

Operations Indicators of Success

• ↑ quality goods or services

• efficient production, managed costs

• ↓ returned goods

• ↑ customer satisfaction

• being proactive

Finance Indicators of Success

• ↑ profitability

• good cashflow

• growth

• financial obligations met (loans, rego, taxes)

Marketing Indicators of Success

• ↑ market share

• good brand awareness

• strong sales

Human Resources Indicators of Success

• ↓ labour turnover

• ↓ accidents

• ↓ absenteeism

• ↑ productivity

• ↑ staff morale

Reasons Businesses Fail

• lack of research or planning

• lack of business funding

• financial mismanagement

• poor marketing

• not keeping pace w/ customer needs or competition

• growing too quickly

• not hiring right people

• not asking for support