BUSINESS STUDIES PRELIM

Business

An organisation that produces/sells goods and/or services in order to make a profit.

Functions of a business (WIPES ICE Q)

Wealth, Income, Profit, Employment, Goods and services, Innovation, Choice, Entrepreneurship and Risk, Quality of Life

Wealth

Successful business creates wealth for all stakeholders. Increase GDP

Income

Amount of money a person receives for their labor (wage/salary).

Profit

Sales revenue - expenses

Employment

Businesses need employees to run their business --> generate production, revenue

Dividend

A distribution of a company's profits (either yearly or half-yearly) to shareholders that is calculated as a number of cents per share.

Services (& goods)

Things done for you and items that can be seen or touched.

Innovation

Development of new products or improvement to existing products.

Research and Development (R&D)

The creation of new products, services or processes, or the improvement of existing ones

Choice

The act of selecting among alternatives.

Entrepreneurship and Risk

People who transform their ideas into a business, prepared to take the risk of starting and operating a business in an untapped market.

Quality of Life

Overall well-being of an individual, combination of non/material benefits.

Classification of business

Size, geographic spread, industry sector and legal structure

Qualitative business size

Management, advertising, market control

Quantitative business size

Number of employees and owners

Small business characteristics

5-19, sole trader, partnership, owner savings or loan, small local market share

Medium business characteristics

20-199, private company, partnership, owner savings/loan or shareholders, medium market dominance

Large business characteristics

200+, public company, retained profit, share sales, loans, large market dominance

Local geographical spread characteristics

Small to medium in size, restricted, used by local consumers

Local geographical spread example

Newsagent, Corner store, Hairdresser

National geographical spread characteristics

Medium to large in size, operates in one country

National geographical spread example

Cotton On

Global geographical spread characteristics

Business expands internationally, multinational corporation

Global geographical spread example

Mcdonalds, Apple

Industry sector

Businesses involved in similar types of production

Primary industry (60% of exports)

Businesses involved in the collection of natural and raw materials

Primary industry example

Mining, fishing, farming

Secondary industry

Secondary industry example

Iron ore, coal turned into steel - used to produce cars

Tertiary industry

Involves people performing a vast range of services for others

Tertiary industry example

Retailers, dentists, soliciters, banks, health workers

Quaternary industry

Services that involve the processing of information and knowledge

Quaternary industry example

Finance, computing, education

Quinary industry

Services traditionally performed in the home

Quinary industry example

Childcare, hospitality, tourism

Legal structure

Unincorporated

Not separate legal entity from owners

Sole trader, Partnership

Unlimited liability

Incorporated

Business separate entity from owners

Public, private company

Limited liability

Limited Liability

Only liable for the amount invested in the business.

Unlimited Liability

Owner is personally responsible for all the business's debt

Sole trader

- Unincorporated

- unlimited liability

- sued personally

- income tax

Sole trader advantages

- low operation costs

- no disputes

- keep profits

- less government regulations

Sole trader disadvantages

- unlimited liability

- business ends when owner dies

- burden of management

- difficulty in raising finance for expansion

Partnership

- unincorporated

- unlimited liability

- 2-20 owners

Partnership advantages

- low start up costs

- less costly than company

- shared workload

- minimal gov regulations

Partnership disadvantages

- liability for all debts including partners

- possibility of disputes

- divided loyalty

Companies

- Incorporated

- Limited liability

- Seperate legal entities

- Perpetual succession

- Are regulated by ASIC (Australian Securities and Investment Commission) and the Corporations Act 2001

Private company

- Pty ltd (proprietary limited)

- private shareholders

- company tax

- ASIC regulations

Public company

- Ltd (limited)

- 1 + public shareholders

- listed on ASX (Australian Securities Exchange) → attract customers through a prospectus

Government Business Enterprise (GBE)

The government or public sector have created businesses which act in the interests of the community e.g Australia Post

Privatisation

The process of transferring the ownership of a government business to the private sector

Public vs private sector

Public- government enterprises e.g sydney water

Private - owned by private individuals (shareholders)

Factors influencing choice of legal structure

Size, ownership, and finance influence the selection of a legal structure.

Size (influencing choice of legal structure)

Growing business may want to choose a smaller legal structure to gain finance, skills and expertise

Ownership (influencing choice of legal structure)

Owner may not want to share ownership

Finance (influencing choice of legal structure)

Gaining investors from switching legal structures could help success of the business

Business environment

Refers to the surrounding conditions in which the business operates (external and internal)

External influences - business has very little control (MC PIGS LEFT)

Markets, Competitive situation, Political, Institutional, Geographic, Social, Legal, Economic, Financial, Technological

Markets external influence

Include labor market, financial market, and consumer markets.

Labour market

Flow of capital/workers between countries

Financial market

Heavily impacted by interest rates

Consumer markets

People buying products

Monopoly

No competitors e.g Sydney Water

Oligopoly

Small number of large firms that dominate the market e.g banks, Woolworths

Monopolistic competition

Large number of buyers and sellers sold by differentiating e.g cafes

Perfect competition

Large number of small businesses selling same product competing through price e.g fruit and veg growers

Competitive situation external influence

Influenced by market concentration, types of markets include monopoly, oligopoly, monopolistic competition, and perfect competition.

Political external influence

Government policies impacting upon the business environment

e.g tax, environmental regulations, social reforms e.g paid parental leave

Institutional external influence

Regulating bodies (e.g ACCC), government (State), and other entities (Trade Unions) that impact businesses.

Geographic external influence

- Australia's location within Asia-Pacific region

- Changes in demography = changes in product demand

Globalisation

Allowance of global trade, increase of wider competition due to exporting opportunities

Social external influence

Rapid identification and response to changes in tastes, fashions, and culture can lead to sales and profit opportunities and business growth.

Legal external influence

Regulations and legal framework within which a business must operate

ACCC (Australian Competition and Consumer Commission)

Operates nationally for the enforcement and administration of competition and consumer protection laws

The Competition and Consumer Act 2010

Administered by the ACCC

→ a breach can result in the ACCC taking criminal proceedings against the business

Economic external influence

Fluctuations in economy due to varied levels of consumer spending

Economy is strong = consumer confidence

Government policies to influence economy

Monetary and fiscal policy

Business/economic cycle

Change in consumer and business spending over time

Financial external influence

- A major source of finance for business is debt finance (borrowings from external sources. E.g. bank loans), which is influenced by interest rates (cost of borrowing)

- Changes in global and domestic financial markets affecting borrowing costs and investment levels.

Deregulation

The removal of government regulations with the aim of increasing efficiency and improving competition.

Interest rates

As interest rates are the cost of borrowing money, increases in interest rate levels may reduce the amount of debt finance undertaken by a business.

Debt finance

Money borrowed that needs to be payed back (from a bank)

Equity finance

Money provided by owners (capital or buying shares)

Technological external influence

- Increase communication and productivity

- R&D

Sustainable competitive advantage

The ability of a business to develop strategies that will ensure it has an 'edge' over its competitors for a long period of time

Internal influences on Businesses (PLMBR) - business has control

Products, Location, Management, Business culture, and Resources.

Products internal influence

1. Type of goods and services produced effecting internal operations

2. Type of business (service, manufacturer, retailer)

3. Size of business

Location internal influence factors

- Proximity to customers

- Visibility

- Proximity to suppliers

- Cost

Prime location of business =

Customer convenience + visibility

Proximity to customers (location internal factors)

Retail vs Manufacturing business

Management internal influence

quality of managers, and the functional organisation structure style will either positively or negatively impact the performance of the business

- Classic vs behavioural management approach

Business culture internal influences

The values, ideas, expectations and beliefs shared by the staff and managers of the business.

Resources internal influences

Human: employees

Information: knowledge

Physical: equipment

Financial: Funds used to meet obligations by creditors

Stakeholders

Groups or individuals with an interest or affected by business activities.

Types of stakeholders

Society, Managers, Customers, Environment, Employees, Shareholders

Society (stakeholder)

Expect organisations to be concerned for environment + socially responsible

Managers (stakeholder)

Influence organisation policies and employee productivity

Environment (stakeholder)

Growing pleasure to adopt sustainable/ecological production practices

Customers (stakeholder)

Consider needs of customers = returning/happy experience