Business Studies Prelim

Profit

Revenue - Expenses

Income

Money earned by employees. Usually in the form of salary or wages.

Innovation

Occurs when businesses create a new way of doing things, or produce novel products

Risk

Possibility of financial loss

Entrepreneurship

Occurs when a person creates business wealth by focusing on a vision and bringing together all of the inputs required to realise that vision.

Qualities of entrepreneurs

- Energy

- Determination

- Creativity

- Communication skills

Wealth

The value of assets owned

Business (enterprise)

Are engaged in activities involving the provision of goods and services

SMEs (small to medium enterprises)

- Businesses with less than 200 employees

- Turnover under 2mil

Small businesses

- Businesses of less than 20 employees

- Turnover under 200k (400k agriculture)

Large businesses

- Employ over 200 employees

- Turnover greater than 2mil

Primary industry

Use of resources in their most basic, natural and unrefined form. (BHP)

Secondary industry

Sometimes called value adding sector, as conversion involves adding value to raw materials as they are changed into products. Include energy utilities- water, gas, electricity. (Holden)

Tertiary industry

Concerned with retail and provision of services. Includes logistics and transportation. (Coles)

Quaternary industry

Businesses involved with the transfer and processing of information and knowledge. (CBA, SMH)

Quinary industry

Involved with the provision of home-based services. Includes businesses that replace home based activities with servies that do those activities for a fee. (Jims Mowing)

Sole trader

A person who is the exclusive owner of a business, entitled to keep all profits after tax has been paid but liable for all losses.

Partnership

A business owned and run by two or people. Partners are individually responsible for debts incurred. All partners have agency (Contracts or agreements entered by one partner has binding effect on all partners).

Private company

- 1 to 50 shareholders

- Legal structure is seperate from owners, limits personal liability.

- Must have a director

- 'Pty Ltd'

Public company

- Unlimited shareholders

- Minimum of three directors

- Are listed on the ASX

- Must publish an annual report each year

- 'Ltd'

Government enterprise

- Businesses run by the government, but treated like a company in private sector with profit motive

- Purpose is to increase product and efficiency

Incorporation

The process of establishing a business as a separate legal identity that allows it to benefit from limited liability

Internal Influences on business

- Products

- Location

- Resources

- Management

- Business Culture

Stakeholder

Anyone who is interested in and affected by the business.

Internal stakeholders

Owners, managers, other employees

External stakeholders

- Government

- Customers

- Suppliers

- Society

- Competitors

- Environment

- Financers

Business Life Cycle

1. Establishment

2. Growth

3. Maturity

4. Post-maturity

Establishment

First stage of the business lifecycle, occurs when business launches into the market.

- Create awareness of business and loyal customers

- Penetration pricing strategy

Growth

Second stage of a business lifecycle and occurs when a business starts to sustainably increase its sales and turnover in the market

- Minor product variations in response to customer feedback

- Employ more staff, increase scale of production

Maturity

Third stage of business cycle and occurs when business has achieved a stable market share. Point that management decisions become more important to future survival of business.

- Find ways to reduce costs to maintain profitability (cheaper suppliers, investment in capital)

- Take over smaller businesses within market

Post maturity

Fourth (last) stage of the business cycle. Stage where business will either decline or find new opportunities, regrow and increase in scale.

regrow (post maturity)

- Rebrand old products

- Improve existing products

- Enter new markets (increase in customer base)

- Make new product lines

cease trading (post maturity)

- Stop making/selling new items

- Sell of all stock, complete existing contracts

- Reduce prices to generate cash

- Honour all financial obligations (staff, suppliers etc)

Challenges in establishment phase

- Financial challenge: Manage high cash outflow and the very low cash inflow after launch

- Operations challenge: Ensure there is enough reliable supply to manage the early need for product

- Marketing challenge: Increase brand-awareness whilst keeping costs low

Challenges in growth phase

- Financial challenge: Manage high cash inflow and high cash outflow that occur with rapid sales.

- Operations challenge: Ensure there is enough reliable supply to manage the high demand for the product

- Marketing challenge: Increase brand awareness and product quality

- Human resources challenge: Find skilled staff

Challenges in maturity phase

- Financial challenge: Reduce cash outflow and maintain profitability through value adding and emphasis on rewarding customer loyalty

- Operations challenge: Reduce supply costs

- Marketing challenge: Maintain brand awareness in competitive market

- Human resources challenge: Keep staff motivated to innovate and create difference when sales are steady

Challenges in renewal phase

- Financial challenge: Manage high cash outflow and the cost of entering new markets, rebranding, or experiencing rapid sales

- Operations challenge: Ensure there is enough reliable supply to manage high demand for product

- Marketing challenge: Maintain product quality, and differentiate to satify new markets.

- Human resources challenge: Attract skilled staff to manage change and regrowth

Challenges in cessation phase

- Financial challenge: Manage high cash outflow and low cash inflow (arising from sales, financial discipline must be maintained to pay off debts)

- Operations challenge: Close supply lines and manage the sale of old stock

- Marketing challenge: Manage dissapoitment that consumers may experience due to loss of brand

- Human resource challenge: Manage career transition of staff

Factors that lead to business decline

- Loss of interest by owners/management who may be seeking new challenges, achieved goals, or transitioning into retirement

- Loss of demand from market due to change in consumer preferences

- Emergence of new competition that provides better products

Liquidation

Occurs when the firms assets are sold off to generate or realise cash. This cash is used to pay off creditors and others who have an entitlement payment from the business.

Voluntary cessation

- The owners decide to close the enterprise. Sell of business assets, pay all debts and close business

- Shareholders can elect to close business through selling of assets, repaying debts, then close by notifying ASIC. Directors may choose to call in an administrator (reciever).

Involuntary cessation

- Business cannot pay of debt, a creditor will apply to court demanding payment. The assets of a business, even personal assets of owners will be sold.

- Business appoints administrator (reciever) who will try to trade the business into a position of strength. May sell off assets in order to relieve debt. If this is not possible the business will be liquidated, and all assets sold.

Effective management skills

- Interpersonal: Able to relate to employees

- Communication

- Strategic thinking: Able to keep big picture in mind when making decisions

- Vision: clear vision, 'mission statement', communicated to emplyees

- Probem solving and decison making: Identify most appropiate response

- Flexible, adapt to change: Proactive not reactive

- Reoncile conflicting interests of stakeholders

Internal growth

Increase sales, expand product range, employ more staff, increase capital, increase number of stores/locations business has

External growth

Merging or acquiring another business

Business goals

- Maximised profits

- Improved market share

- Growth

- Social goals

- Environmental goals

External influences on business

- Economic

- Financial

- Social

- Legal

- Political

- Institutional

- Technology

Classical approach

Workers focused on performing specific tasks in the most efficient and effective way (repetition of tasks). Management focused on increasing output by increasing worker effort and saving time (repetitive task -> maximum efficiency)Behaviour.

- Heirarchial organisational structure

- Autocratic leadership style

Strategic planning

Long term planning for a business as a whole developed by senior management

Tactical planning

Medium-term planning, one or two years ahead. Devised by middle management.

Operational planning

Plans for the day-to-day running of a business, using input from supervisors.

Heirarchial organisational structure

- People are grouped according to the function they need to perform

- Chain of command

- Rigid lines of communication

- Bureaucratic (most important decisions made by higher up)

Division of labour

Each task divided into small steps in the production process, each worker is assigned to a task. Evident in classical approach.

Autocratic leadership style

- Authoritarian (enforce strict obiedience to authority, less personal freedom)

- Make decisions with little input from others (centeralised)

- Very little opportunity for input from those at bottom of chain

Management approaches

- Classical

- Behaviourial

- Contingency

Behavioural approach

Focused on the human element of business, employees wellbeing is most important in terms of maximising production. Autonomous employees, easier problem solving and identify issues faster.

- Flat structure (teams)

- Participative/Democratic leadership style

Team structure

- Teamwork

- Management as facilitators, providing teams with resources

- Supervisor to lead teams

- Improved commication channels, more flexible, decisions are made and implemented faster, improved morale and productivity

Participative (democratic) leadersip style

- Employees encouraged to share their opinions

- Management consider views of others before making decision

Contingency approach

- Use a combination of classical and behavioural.

- Management make decisions based on current circumstances, adapting style and approach accordingly

Role of management classical approach

- Planning (setting goals)

- Organising (what will be done, who will do it, how it will be done)

- Controlling (compare, corrective action)

Role of management behavioural approach

- Leading

- Motivating

- Communicating

Key business functions

- Operations

- Marketing

- Finance

- Human resources

Goods

Physical, tangible items. Can be simply transformed manufactured goods (STM, used by other businesses as input) or eleborately manufactured goods (ETM, undergone a number of processes prior)

Quality control

Reactive. Involves conducting checks at various points in the production proces to ensure quality is met.

Quality assurance

Proactive. Involves implementing a set of procedures and processes that will prevent defects from occuring.

Total quality management

A philosophy that involves everyone in an organisation in a continual effort to improve quality and achieve customer satisfaction.

Leads to reduced costs, increased efficiency, improved price competitiveness, improved business name and reputation

Marketing

The process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives

Market segmentation

Division of the target market into smaller segments based on the similar or common characteristics of a customer group.

- Demographic

- Geographic

- Lifetyle

- Behavioural

Marketing mix

The process of developing a product that meets the needs of consumers and implementing the four ps that will encourage customers to purchase the product

Four Ps

Product, Price, Place, Promotion

Product (4 Ps)

- The product itself

- Packaging

- Branding/Logo

- Positioning

- Guarantee

Price (4 Ps)

- Cost plus margin

- Market price

- Competitors price

- Discount price

Promotion (4 Ps)

- Personal selling

- Sales promotions

- Advertising

- Publicity

Place (4 Ps)

- Channels of distribution

- Intensive, selective, exclusive

Net cash

Cash inflows - cash outflows

Closing balance

Opening balance + net cash

Revenue

Total income generated by a business. (Price * quantity)

Cost of goods sold (COGs)

The value of the stock used to earn revenue through sales to customers. (Opening stock + purchases - closing stock)

Gross profit

The amount remaining once COGS has been deducted from sales (sales - COGS)

Net profit

Gross profit - expenses

Current asset

Assets that the business owns for a short period of time, usually less than 12 months

Non-current assets

Assets that the business owns for a longer period of time, usually more than 12 months.

Liability

Something that the business owes or has to repay

Current liability

A debt that the business is expected to repay in the short term (less than 12 months)

Non-current liability

Debt that the business is expected to repay in the long term (more than 12 months)

Owners equity

The funds contributed by the owner into the business. Can also include net profit found on income statement (also called capital)

Human resource cycle

1. Recruitment: Process of attracting and selecting suitable staff

2. Development: The process of improving the skills of the staff

3. Maintenance: The methods used to keep staff.

4. Separation: The ending of a relationship between an employee and the business

Training

Teaching employees to perform their jobs more efficiently.

- Formal off-the-job training (external course)

- Informal on-the-job traning (shadowing)

- Computer based training

Vision

- Overarching view of the business as to what the business can be and achieve

- Owner must communicate vision, as it influences how the business is managed and operated

- Goals and objectives part of vision

Social goals

Goals to operate in a way to benefit society, include:

- Promoting human rights

- Hosting community events

- Encouraging cultural diversity

- Empowering marginalised groups

Business plan

A formal written statement that contains important details about the business, its goals, and how the business will achieve its objectives.

- Helps the owner control their business

- Necessary when achieving finance (+ why)

- Clarify business idea and path to success

- Identify potential opportunities and threats

SWOT analysis

Assist with setting goals, evaluating companies strength. Strengths, weaknesses, opportunities, threats

Controlling

Compare business performance with goals established in planning process. Corrective action could be taken if not meeting goals (including changing plans, strategy, cut costs)

Outsourcing

A decision by a corporation to turn over much of the responsibility for production to independent suppliers.

span of control

The number of subordinates who report directly to an executive or supervisor

Establishment options

New business, Enter into a franchise, Purchase an existing business

intrinsic rewards

Satisfaction a person receives from performing the particular task itself

extrinsic rewards

benefits and/or recognition received from someone else

What was Frederick Taylor's philosophy?

by optimizing and simplifying jobs, productivity would increase.

break-even analysis

a method of determining what sales volume must be reached before total revenue equals total costs