Topic 1 Business Studies - Nature Of Business

Business

an entity that creates value by acquiring, combining and transforming inputs to create outputs

Role of business

produce goods and services, profit, employment, incomes, choice, innovation, entrepreneurship and risk, wealth and quality of life

Profit and Income

profit for owners, income for employees

Wealth creation

allows individuals to increase personal wealth through investing their profit or income to increase amount of assets

Employment

economic role to employ people in society

Innovation

Creation of new or improved products or processes

Choice

Provide consumers with wide variety of choice through innovation to gain a competitive advantage

Entrepreneurship and risk

People who start, operate and assume the risk of running a business in an attempt to gain a profit

Micro business

5 or less employees

Small business

Less than 20 employees

Medium business

Between 20 and 199 employees

Large business

over 200 employees

Classification by location

Local, national, global

Local

Businesses that operate in or close to the geographical region where they were set up

National

Businesses that operate in multiple states of a country

Global

Businesses that operate in multiple countries

Classification by industry

primary, secondary, tertiary, quaternary, quinary

Primary industry

Businesses involved in the production, collection and extraction of raw materials

Secondary industry

Businesses involved in the manufacturing process

Tertiary industry

Businesses involved in performing a vast range of services for consumers

Quaternary industry

Businesses involved in the collection and analysis of information

Quinary industry

Businesses involved in activities that were traditionally performed in homes

Classification by legal structure

Sole trader, partnership, public company, private company, government enterprise

Unincorporated entity

Not a separate legal entity in their own right, unlimited liability, owner pays tax

Incorporated entity

Been through the legal process to become a separated legal entity, limited liability, perpetual succession, business pays tax

Sole trader

1 owner, unincorporated entity, owner provides most of capital and is involved in day to day operations

Partnership

2-20 owners, unincorporated entity, all partners act as agents and are bound by the lawful actions of each other

Public company

5-unlimited, incorporated entity, has Ltd in name, must issue a prospectus to invite people to purchase shares, run by board of directors

Private company

2-50 owners, incorporated entity, must have Pty Ltd in name, has restrictions on share transfers

Factors influencing choice of legal structure

size of business, degree of owner control, finance, tax considerations, legal requirements and set up costs, liability,

External influences

Economic, financial, geographic, social, legal, political, institutional, technological, competitive situation, markets

internal influences

Products, location, resources, management and business culture

Business environment

any factor or surrounding condition that has actual or potential influence on operation of business

Stakeholders

individuals or groups who interact with the business

Internal stakeholders

those within business

External stakeholders

those outside business

stages of business life cycle

establishment phase, growth phase, maturity phase, post-maturity phase

factors contributing to business decline

lack of demand, increased competition, unable to satisfy customers, unfavourable economic conditions, failure to adapt to changing environment

Voluntary cessation

occurs when owner ceases business on own accord

Involuntary cessation

occurs when owners are forced to cease operation of business by its creditors

liquidation

refers to business' assets being taken and sold

location(internal influence)

proximity to customers, visibility, proximity to competitors, cost, proximity to suppliers and services

resources(Internal influence)

human resources, information resources, physical resources, financial resources

product(internal influence)

type of good or service produced, range of products and services produced, industry product belongs to and size of business

business culture

refers to the values, idea, expectations and beliefs shared amongst employees and managers

market concentration

monopoly, oligopoly, monopolistic competitio, perfect competition