Business Management Unit 2

Study Notes and key points for

Internal Environment

Factors over which the business has some degree of control (A.K.A: micro environment)

Examples of Internal Environment

Employees, managers, Legal business structure, Type of business model, Source of finance

External Environment

Factors over which the business has little control (Operating environment and Macro environment)

Operating Environment

Outside stakeholders whom interacts with the business in conducting business

Examples of the Operating environment

Suppliers, competitors, customers, special interest groups

Macro environment

Broad conditions and trends in society +economy within which a business operates

Examples of Macro environment

CSR conditions, global, economic, legal and gov regulations, societal attitudes + behaviour + Technological

Relations between Internal + External

External: Gov regulations impact, Internal: Employee Morale (Changes to be monitored and adapted to other enviro to stay competitive)

Types of Legal business Structures

Sole Trader, Partnership, Private Limited COmpany, Public Listed Company, Social Enterprise, Government Business Enterprise (GBE)

Business Entity

Organisation that exists separately to its owner in order to produce + sell goods + services

Incorporated

Separate legal existence apart from the owner

Incorporation

Process of the business goes through to be a registered company and separate legal entity

Limited Liability

Shareholders of company can’t be held responsible for the debts of the business

Sole trader

Business owned operated by one person

Bens + Lims of Sole Trader

Bens: Lower startup costs, complete control

Lims: Unlimited liability, high responsibility + workload

Partnership

Unincorporated business with a min of 2, max 20 owners

Bens + Lims of Partnership

Bens: Shared responsibility +workload, low startups costs

Lims: Personal unlimited liability, conflict

Private Limited Company

Incorporated business with min/shareholders max 50 non-employees shareholders

Bens and Lims: Private Limited Company

Bens: Limited liability, tax advantages

Lims: Limited access to capital, restricted investor pool

Public Listed Company

Incorporated business with a min 1 shareholder and traded on the ASX

Bens and Lims: Public Listed Company

Bens: Easier attraction of public finance, Limited liability

Lims: Cost of formation, Forced Public disclosure of certain info

Social Enterprise

Operates with primary objective to fulfill social need

Bens and Lims: Social Enterprise

Bens: Can open up new markets

Lims: Difficult to obtain initial capital, significant startup costs

Government Business Enterprise (GBE)

Controlled by the government main objective to make profit

Bens and Lims: Government Business Enterprise (GBE)

Bens: Able to carry out gov policies delivering community services

Lims: Political interference, inefficiencies due to gov ‘red tape’

Types of Business models

Bricks and Mortar, Direct to consumer, Franchise, Online Business, Import + Export

Bricks and Mortar

Physical Location

Online Business

Exists solely on the internet

Direct to-consumer business

Selling directly to consumer without intermediaries

Franchise

Sells the right to distribute its goods + services of business name

Import + Export

Goods + services produced overseas and sold in Australia (import)

Goods + services produced in Aus sold overseas (export)

Purchasing an Established Business

The business is already operating and everything associated with the business is included in the purchase

Goodwill

The monetary value attached to the reputation of a business

Starting a new Business from scratch

There is a clear gap that existing providers one not catering to the demand for a particular good or service

Resources

The people and objects need for a business to function properly

Natural Resources

Items that come from the natural environment. E.g: water, raw materials, land

Labour Resources

The people that provide their skills, effort and knowledge to the business

Capital Resources

The tools and machinery that are used to produce goods and perform services

Zoning

Means by which local councils allocate land for diff commercial, recreational and industrial

Different Types of locations for a business

Shopping centres, Retail shopping strips, Online and home based businesses

Factors affecting choice of location for a business

Cost, proximity to supplier, proximity to customers, proximity to competitors, complementary business

Sources of finance

Internal Sources and External Sources

Equity finance

The funds contributed by the owners of the business

Examples of: Equity finance

Self funding, Family and Friends, Private Investors Shares and Crowdfunding

Self funding (source of finance)

The owner of the business personally funds the business

Pros and Cons of private investors (source of finance)

Pros: Can contribute funds for share + profit

Cons: Investors will have a say in how the business runs

Shares (source of finance)

May raise funds by selling shares in a business (only available for companies)

Crowdfunding (source of finance)

Method of raising finance by using online and social media networks

Pros and Cons Family or Friends (source of finance)

Pros: Quick way to obtain finance

Cons: Could negatively affect family relations

External sources of finance

Typically in the form of debt

Examples of Short term borrowing (source of finance)

Bank Overdraft, Bank bills, Trade credit

Bank Overdraft (source of finance)

Bank allows a business to overdraw it’s account limit

Bank Bills (source of finance)

Bills exchanged for larger amounts

Trade Credit (source of finance)

Charged for expenses at a later time

Long Term borrowing (source of finance)

Relates to borrowing funds for over 2 years, typically with interest rates attached

Examples of Long Term borrowing (source of finance)

Loan, Leasing, Mortgage, Government Grants

Secured Bank Loans (source of finance)

Comes with lower interest but owner will need to offer up another asset as security against the loan

Unsecured Bank Loans (source of finance)

Doesn’t require any collateral but has higher interest rates

Leasing (source of finance)

Financing the purchase of assets without a large capital outlay

Mortgage (source of finance)

A loan on a property secured by the borrower (can’t be sold till mortgage is repaid)

Debt

funds provided by banks or other financial institutions which must be paid back

Government Grants (source of finance)

Finance provided by the Government

Factors that affect choice of finance source

Terms finance, business structure, overall cost, Flexibility, level of control

Examples of Business Support Services

Legal + financial advice, Technological advice, Community-Based services, Formal networks, Informal Networks + Business Mentors

Legal and Financial advice

Solicitors, Accountants, Bank Managers

Technological advice

Regarding establishing an online presence (marketing, commerce, social media)

Community-Based Services

Business enterprise centres + small business centres Victoria

Formal Networks: Private

Business owners can access info from professional organizations

Examples of Formal Networks: Private

Chambers of commerce, Vic chamber of commerce + Industry

Formal Networks

Federal: delivers support programs

State: info + support to start +manage a business

Local: advice regarding zoning, development applications

SWOT Analysis components

Strengths, Weakness, Opportunities and Threats

Business plans

A written statement of the goals and objectives for the business and the steps to be taken to achieve them

Planning

A process or series of actions to achieve an objective

Business Plans should have the following elements:

Executive summary, operation plan, financial plan and marketing plan

Benefits of Developing a Business Plan

-helps test viability

-assist the business to be proactive instead of reactive

-identifies the business strengths + weakness

Corporate Social Responsibility (CSR)

Need to go above and beyond legal requirements

Why CSR?

Failure to do so can lead to boycotting

CSR benefits staff morale + employee retention

How to be socially Responsible

Environmental issues, Customer issues, S

Environmental Issues (CSR)

Business needs to consider the impact the environment. Can conduct an environmental audit

Customer Issues (CSR)

Meet the needs of customers in a socially responsible way

Staffing Issues (CSR)

Business needs to consider staff being socially responsible. Consider:

Fair Pay, Safe + healthy working conditions, employing disadvantaged groups

Socially Responsible Policies

Policies that reflect commitment to social responsibility