SAC1 Business unit 3 aos1

1.2 Shareholders

the owners of a company

1.2 Types of Businesses

Three common legal structures used by businesses in Australia are:

-Sole traders

-Partnerships

-Companies

Other types include:

-Social enterprises

-Government business enterprises

1.2 Sole Trader And one Legal Requirement of a Sole Trader

A sole trader business has one person who owns and runs the business.

They provide all the finance, make all the decisions and take all the responsibility for the operation of the business.

The only legal requirement specific to a sole trader is that the name of the business must be registered with the Australian Securities and Investments Commission (ASIC), but only if it is different from the name of the owner.

1.2 Sole trader ADV and DIS

ADV: Low cost of entry, Owner gets all profits, Centralised decision making

DIS: High work loads, unlimited liability

1.2 Partnership

A partnership is a business owned by two or more people. Most partnerships have a maximum of 20 partners.

partners in a business are subject to unlimited liability, and so could be personally responsible for the debts of the business.

A partnership can be made verbally or in writing, or by implication. A written partnership agreement is not compulsory, but it is certainly worthwhile if disputes arise

partnership has its own tax file number — separate from those of each of the partners — and lodges its own tax return.

1.2 Partnership ADV and DIS

ADV: Low start up costs, Pooled funds and talent, Distributed work load

DIS: Disagreements, Unlimited liability

1.2 Incorporation

The processes that businesses go through to become a registered company and a separate legal entity from the owner/shareholder

In order for a business to become incorporated, a company name must be registered with ASIC, which will issue a certificate of incorporation and an Australian Company Number (ACN).

1.2 Private limited company

An incorporated business that has a minimum of one shareholder and maximum of 50 non-employee shareholders, and whose shares are offered only to those people whom the business wishes to have as part owners

A private company must also have at least one director.

1.2 Private Company ADV and DIS

ADV: Easy to attract finance, Limited liability

DIS: High formation costs, Requirement to produce annual reports

1.2 Public listed company

An incorporated business with a minimum of one shareholder and no maximum, and whose shares are openly traded on the Australian Securities Exchange

•a minimum of one shareholder, with no maximum number

•no restrictions on the transfer of shares or raising of money from the public via share offers

•the word 'Limited' or 'Ltd' in its name

1.2 Public listed company ADV and DIS

ADV: can attract extra capital by issuing shares on the share market. This means that there is a greater potential for growth

DIS: required to abide by stringent compliance rules and disclose corporate financial information

1.2 Social Enterprise

A social enterprise is a business that produces goods and services for the market, but operates with the primary objective of fulfilling a social need.

The business may make a profit, but will concentrate on some sort of community or environmental need.

A majority of the profit that the social enterprise makes will be reinvested back into the business so that it can continue to fulfil the social need.

1.2 Social Enterprise ADV and DIS

ADV: Can open new markets and fulfil needs that aren't usually fulfilled

DIS: It can be difficult to juggle financial and social objectives

1.2 Government business enterprise

A government business enterprise (GBE) is a type of business that is government owned and operated.

Like companies, GBEs participate in commercial activities with the goal of making a profit.

GBEs carry out government policies while they deliver community services.

They operate at both the federal and state level of government.

1.2 Government business enterprise ADV and DIS

ADV: Can operate with some independence from government

DIS: Political interferences

1.2 Liquidation

The process of selling off the assets of a business in order to repay creditors, with any assets remaining to be distributed among shareholders.

1.2 Limited liability

Refers to when the shareholders in a company will not be held personally responsible for the debts of that business

1.2 Unlimited liability

Refers to when the business owner is personally responsible for all the debts of their business

1.4 What are the business objectives (P.E.E.M.M.S.SE)

-Make a profit

-Increase market share

-Improve efficiency

-Improve effectiveness

-Fulfil a market need

-Fulfil a social need

-Meet shareholder expectations

1.4 Make a profit (Objectives)

Profit is what is left after business expenses have been deducted from money earned from sales (revenue).

A loss occurs when the expenses exceed the revenue.

A major indicator of a business's success is the size of its profit, so many businesses not only want to make a profit, they want to maximise their profit

1.4 Increase market share (Objectives)

DEF: The proportion of total sales in a given market or industry that is controlled or held by a business, calculated for a specific period of time.

1.4 Improve efficiency (Objectives)

In order to sell a product or provide a service to customers, a business will use resources (inputs) to produce the product or service (an output).

A business will hope to use these resources efficiently — to minimise the resources used and/or to maximise the outputs generated from those inputs.

1.4 Improve effectiveness (Objectives)

Effectiveness refers to how successful a business has been in terms of achieving its stated objectives.

A business may set a target for itself of increasing net profit by 10 per cent in the coming year. If it increases profit by 10 per cent, the business has been effective; if profit increased by 8 per cent, then it hasn’t been as effective as it planned.

The business should be able to consider its effectiveness in relation to all the objectives that it set, either short- or long-term, and should always be looking to improve in these areas.

1.4 Fulfil a Market need (Objectives)

a business may exist to meet customer expectations or provide a good or service that is not otherwise available to a market.

In some cases, it is quite possible that small businesses may be able to meet specific market needs more efficiently than larger businesses.

For example, a small general store in a rural area may have the objective of meeting the specific needs of a local community, whereas larger food retail businesses might struggle to meet these needs.

1.4 Fulfil a Social need (Objectives)

This objective involves the production and/or selling of goods and services for the purpose of making the world a better place.

A business with such a focus may generate an income, but its primary purpose is the common good.

1.4 Meet shareholder expectations (Objectives)

Making profit is the primary objective of many businesses.

This is particularly important for investors in a company — its shareholders.

-Shareholders expect to make a return on their investment.

-They expect the business that they have invested in to make a profit, as they receive a proportion of the profits (called dividends).

-They also make a capital gain if the value of a company's shares increases.

1.4 Steps to setting business objectives

1-Set objectives

2-Develop strategies

3-Analyse performance

3/4-KPI's

1.4 KPI

Specific criteria used to measure the efficiency and/or effectiveness of the business' performance

1.4 Vision statement

States what the business aspires to become

1.4 Mission statement

Expresses why the business exists, its purpose and how it will operate

1.5 Business's stakeholders

1.5 Stakeholders

Groups and individuals who interact with the business and have a vested interest in its activities

1.5 Stakeholder interests

1.6 Corporate Social Responsibility

The obligations a business has over and above its legal responsibilities to the wellbeing of employees and customers, shareholders and the community, as well as the environment

1.6 Competitive Advantage

Occurs when a firm, industry or economy has a lower cost prices structure than its rivals. In this situation, goods and services can be sold more cheaply, undercutting competitors, and expanding domestic and foreign sales.

The concept can also be extended to product quality range and flexibility in adapting to new trends in the market.

1.6 Potential conflicts between stakeholders

For example, customers want quality products at reasonable prices. If the business meets this expectation, sales should increase, leading to greater profits. This in turn satisfies the shareholders, who are rewarded with higher dividends.

Some expectations are incompatible; that is, they oppose each other.

For example, employees and their unions require safe working conditions and reasonable wages, while customers want reasonably priced products. Providing a wage rise or working conditions beyond what is legally required is socially responsible, but it will cost the business money in the short term.

1.6 Conflicting interests upon stakeholders

1.6 CSR ADV and DIS

+Customers who believe that a business has a reputation for being socially responsible are more likely to continue to deal with the business.

+They are also likely to refer the business to other customers.

+Employees will want to work for the business, reducing costs of replacing staff and increasing productivity.

-By comparison, a lack of social responsibility can damage a business's reputation and reduce its competitive advantage.

-Customers may react and stop purchasing a business's product if they learn that the business is exploiting employees, accepting bribes or polluting the environment.

1.8 Management styles def

The behaviour and attitude of the manager when making decisions, when directing and motivating staff, and when implementing plans to achieve business objectives

1.8 Types of management styles

Autocratic

Persuasive

Consultative

Participative

Laissez-Faire

1.8 Autocratic

An autocratic management style is one where the manager tends to make all the decisions, dictating work methods, limiting employee knowledge about what needs to be done and frequently checking on employee performance.

The autocratic manager generally provides clear directives by telling employees what to do, without listening to or permitting any employee input.

The autocratic style of management can be effective in a time of crisis, when immediate compliance with rules or procedures is needed, or in meeting an unexpected deadline, when speed is important.

1.8 Autocratic ADV and DIS

ADV: •Directions and procedures are clearly defined; there is little uncertainty.

Employees’ roles and expectations are detailed and precise, so management can monitor their performance.

DIS: •No employee input is allowed, so ideas are not encouraged or shared.

•When no responsibility is given to lower level staff, job satisfaction decreases. This impacts on issues such as absenteeism and staff turnover.

•An ‘us and them’ mentality may develop because of the lack of employee input.

1.8 Persuasive

the manager attempts to convince employees that management's way is the right way.

Authority and control remain centralised with senior management, but managers attempt to make employees accept the objectives of the business and work to certain plans and procedures.

Workers are not given the opportunity to share ideas or provide feedback.

1.8 Persuasive ADV and DIS

ADV: •Managers can gain some trust and support through persuasion.

•Instructions and explanations remain clear and constant.

DIS: •Attitudes and trust remain negative. Employees fail to give full support to management.

•Communication is still poor and limited to a top-to-bottom, one-way system.

1.8 Consultative

A consultative management style is one where the manager recognises the importance of good personal relationships among employees and consults with staff on certain issues before making a decision.

The consultative manager:

•seeks the opinions of employees

•holds information-sharing meetings

•recognises good performance

final decision-making power remains with the manager.

1.8 Consultative ADV and DIS

ADV: •Employees begin to have some ownership of the way in which the business is run, so they take more of an interest in it. This is reflected in their levels of motivation and commitment, which increase substantially.

DIS: •Some issues to be decided on are simply not suitable for a widespread consultation process. If the process is not consistent with each decision made, staff can become uncertain and confused about their role.

1.8 Participative

A participative management style is one where the manager not only consults with employees, but also shares decision-making authority with subordinates.

Participative managers recognise the strengths and abilities of employees and actively involve them in all the stages of the decision-making process.

1.8 Participative ADV and DIS

ADV: •Motivation and job satisfaction are optimal, because employees feel they have played an active role in allocating tasks and implementing actions to meet objectives.

•Employees have a greater opportunity to acquire more skills.

DIS: •Reaching decisions and introducing tasks can be time-consuming when differing views have to be considered.

•The role of management, and the control of the manager, may be weakened and undermined, with employees given too much power in some cases.

•Internal conflict can arise with so many views and opinions being shared. More involvement may bring about disagreement.

1.8 Laissez-faire

A laissez-faire management style is one where employees are responsible for workplace operations.

Management has no central role or decision-making power.

Management will set objectives and is still accountable for the overall performance of the department or business, but employees take responsibility for implementing the means of achieving the objectives.

1.8 Laissez-faire ADV and DIS

ADV: •Employees feel a sense of ownership, which can promote outstanding results.

•There is continual encouragement of creativity, which is conducive to a dynamic working environment.

DIS: •There is a complete loss of control by management. No control or direction means there is potential for misuse of the business’s resources, including time and money, because these have been placed in the hands of the employees.

1.9 Contingency Management Theory

Stresses the need for flexibility and the adaptation of management styles to suit the situation

1.9 Aspects of choosing the appropriate management style

-Nature of task

-Time

-The experience of employees

-The preference of the manager

1.9 Nature of the task (Choosing Management styles)

the nature of the task. For example, when a business undergoes change, the manager may need to make decisions quickly and so may adopt an autocratic style. Alternatively, if there are experienced employees, a manager might be more consultative as the experience of employees may be able to assist in navigating change.

1.9 Time (Choosing Management styles)

time. For example, an impending deadline might mean that an autocratic style is appropriate. On the other hand, an extended timeframe, with access to ample resources, might lend itself to a manager making use of a more participative style.

1.9 The experience of employees (Choosing Management styles)

the experience of employees. For example, a workplace with inexperienced staff might necessitate the use of an autocratic style, whereas a team of experienced staff would indicate that a consultative or participative style would be appropriate

1.9 The preference of the manager (Choosing Management styles)

the preference of the manager. For example, a manager’s personality, experience, values, beliefs and skills might mean that they prefer to use a particular management style.

1.9 Situational Management

The consideration of the appropriateness of management styles in relation to the nature of the task, time, experience of employees and manager preference is often referred to as 'situational management'.

Another name for this approach is contingency management theory.

1.11 Management skills

Management skills are the abilities or competencies that managers use to help them to complete the tasks that are necessary for the achievement of business objectives.

Usually, effective managers are those who possess a range of specific management skills and can use these skills in a number of management situations.

1.11 Management skills examples

communication

delegation

planning

leadership

decision-making

interpersonal skills.

1.11 Communication (Management skills)

Communication is the transfer of information from a sender to a receiver. Communication can occur both within and outside the business.

Communication is fundamental to almost everything that occurs in a business. Effective communication — clear, articulate and concise — helps maintain good relationships.

1.11 Communication flowchart

1- Sender

2- Message

3- Reciever

4 (back to 1)- Feedback

1.11 Delegation (Management skills)

Delegation occurs when the authority and responsibility to carry out specific activities is transferred from a manager to an employee.

Delegating is an appropriate skill to use in order to manage time effectively and to enable staff to learn new skills. It can lead to fresh ideas and an improvement in employee motivation.

Delegation can be used to build trust and a feeling of mutual understanding between the subordinate employee and manager.

1.11 Planning (Management skills)

Planning is the ability to define business objectives and determine methods or strategies that will be used to achieve those objectives.

1.11 What are the levels of planning

Operational (Short term) Planning

Tactical (Medium term) Planning

Strategic (long-term) planning

1.11 Operational (Short term) Planning

Operational (short-term) planning provides specific details of the way the business will operate in the short term. Management controls the day-to-day operations that contribute to achieving short-term actions and objectives.

1.11 Tactical (Medium term) Planning

Tactical (medium-term) planning is flexible, adaptable planning, usually over one to two years. It supports the implementation of the strategic plan and allows the business to respond quickly to changes. The emphasis is on how business objectives will be achieved through the allocation of resources.

1.11 Strategic (long-term) planning

Strategic (long-term) planning is planning for the following two to five years. This level of planning will help determine where the business wants to be in the market, and what the business wants to achieve in relation to its competitors.

1.11 Stages of the planning process

Step 1: Define the objective

Step 2: Analyse the environment (SWOT analysis)

Step 3: Develop alternative strategies

Step 4: Implement an alternative

Step 5: Monitor and seek feedback on the implemented strategy

1.11 Leadership (Management skills)

Leadership occurs when managers endeavour to influence or motivate people in the business to work to achieve the business objectives.

A transactional leader provides staff with rewards in return for their compliance and acceptance of authority.

A transformational leader inspires or enthuses staff with a vision to ensure that they are committed to achieving the objectives of the business.

1.11 Decision Making (Management Skills)

Decision-making involves identifying available options and then choosing one course of action from the alternatives.

Effective decision-making involves being able to make decisions within a particular timeframe. It also requires a manager to adequately assess the risk involved if the decision is implemented.

1.11 Interpersonal skills (Management Skills)

Interpersonal skills refer to management's ability to deal or liaise with people and build positive relationships with staff.

This skill is very important because it is through other people that managers achieve business objectives.

A manager who is able to identify and recognise how other people see things and then make use of these views in a logical and understanding manner is most likely to be effective in achieving objectives.

1.12 The relationship between management styles and skills: Example 1

If a manager assesses a situation and chooses to use a participative style, then clear communicating, delegating, planning, leading and interpersonal skills will be important.

A manager making use of this style would use two-way communication and delegate the responsibility for making decisions to staff.

1.12 The relationship between management styles and skills: Example 2

Managers who are strong in decision-making would prefer to use the autocratic, persuasive or consultative styles. However, an autocratic manager would not have much use for delegating or interpersonal skills.

Furthermore, the autocratic manager would also use communicating, planning and leading — they would just utilise them very differently to a manager using the participative style, for instance.

1.13 Corporate culture

The values, ideas, expectations and beliefs shared by members of the business

1.13 Official corporate culture vs Real corporate culture

Official corporate culture: Corporate culture can be revealed officially in the policies, objectives or slogans of a business.

Real corporate culture: The unwritten or informal rules that guide how people in the business behave, such as the way staff dress, the language staff use, and the way that staff treat each other and customers.

1.13 What are the elements of a corporate culture

1- Values and practices

2- Symbols

3- Rituals, rites and celebrations

4- Heroes

1.13 Values and practices (elements of a corporate culture)

Values and practices

These are the way things are done in the business.

1.13 Symbols (elements of a corporate culture)

Symbols

These are the events or objects that are established to represent something the business believes to be important.

1.13 Rituals, rites and celebrations (elements of a corporate culture)

Rituals, rites and celebrations

These are the routine behavioural patterns in a business’s everyday life.

1.13 Heroes (elements of a corporate culture)

Heroes

Heroes, or champions, are the business’s successful employees who reflect its values and, therefore, act as an example for others.