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What is the role of a business, and what are the 2 types of products
Produce and sell products which satisfy the wants and needs of their target market of consumers, with the incentive of generating profit. There are two types of products - goods and services. Goods are products of a physical nature whereas services are products of a non-physical nature.
What are the 8 roles of a business
Profit, employment, income, choice, innovation, entrepreneurship and risk, wealth, quality of life
What is profit + its formula
The return business owners receive after all expenses have been paid. Profit = revenue - expenses
Employment
Businesses must hire employees in order to produce their products, as well as providing them with an income which they can use to purchase products. The ABS defines an employed person as people aged 15 - 64 years old engaging in at least one hour of paid work a week.
Income and its 7 types
The money received by employees in exchange for their labour. Wage - payment based on hourly rate. Salary - fixed yearly income regardless of hours worked. Paid to permanent employees. Dividend - percentage of profits paid to shareholders of a company. Bonus - an extra benefit supplementing an employee’s wage or salary. Overtime - work completed outside of regular working hours and is paid at a higher rate. Commission - a percentage of revenue received by a salesperson for converting a prospective customer into a customer. Fringe benefits - additional benefits provided to employees on top of their normal wage eg company car.
Choice
The act of selecting amongst alternatives. Freedom of choice - when consumers can shop around and select from a range of competitors. The more competition, the more choice there is. Choice incentivises businesses to differentiate themselves from competition through competing on value, price and product features through innovation.
Innovation
Modifying features on an existing products to create improvements and further solve the needs of customers. This allows businesses to provide more value to customers, driving sales revenue and increasing customer acquisition
Entrepreneurship and risk
Individuals who convert their ideas into a business that produces a product catered towards a certain target market. They face the risk of business failure which results in financial loss.
Wealth
The more profit generated, the more wealth is injected into the economy. A portion of the net profit that the business generates is distributed into the economy through taxation and government expenditure.
Quality of life
The overall wellbeing of an individual. Businesses improve quality of life through providing products which solve needs and wants, consistently innovating and improving product quality, and providing employment
What are the types of businesses
Micro, small, medium, large
Micro business
Less than 5 employees, owned and operated by 1 - 2 people, Sole trader / partnership. Owner responsible for decision making. Uses owners cash flow. Small market share
Small business
Less than 20 employees. Owned and operated by 1 - 2 people. Sole trader / partnership. Owner responsible for decision making. Uses owners cash flow. Small market share.
Medium business
20 - 199 employees, owned and operated by a few owners and / or private shareholders, partnership / private company, owner responsible for decision making which is harder and influenced by directors, uses owners cashflow and investors invested amounts. Loans can be acquired from investors and banks. Medium market share, eg Harris farm markets.
Large business
Over 200 employees, owned by thousands of public shareholders, public company, complex decision making done by directors and other layers of management, income through profit, sales of shares and loans from domestic and overseas institutes. Large market share eg qantas
SME
Small to medium enterprise, a business with less than 200 employees and / or less than $10 million in annual sales revenue
Local business
A business that operates in one geographical area, small business eg butcher
National business
Operates in one country but several states, medium to large business eg Wesfarmers
Global business
Large business that operates in several countries eg Mcdonalds
What are the types of industries
Primary, seconday, tertiary, quarternary, quinary
Primary
Involved in the extraction of raw materials. 60% of exports come from this industry. Eg farming, fishing, mining
Secondary
Businesses that take the output from the primary industry and combine it with labour to produce finished or semi-finished products. This includes all manufacturers, eg car manufacturers
Tertiary
Businesses that provide services, broken into quarternary and quinary. Eg dentists, doctors, hairdressers
Quarternary
Services that involve processing and transferring information and knowledge. Eg telecommunications, info products
Quinary
Services that have traditionally been performed at home eg hospitality, childcare
What are the 5 legal structures
Sole trader, partnership, private company, public company, government enterprise
Unincorporated business
Business that is not legally separated from its owner. The owner is personally responsible for all liabilities, meaning that they have unlimited liability.
Incorporated business
Business that is legally separated from its owners. The company itself is responsible for liabilities, meaning owners have limited liability.
Sole trader
Unincorporated business owned and operated by one person. May employ others but owner is responsible for providing all finance, decision making and operations of the business. Advantages: low cost of entry, owner gets complete control and keeps all profit. Disadvantages: unlimited liability
Partnership
Unincorporated business owned and operated by 2 - 20 owners. A partnership agreement between owners is involved. Advantages - low cost of entry, shared workload. Disadvantages - possibility of disputes, difficulty of finding high quality business partners, unlimited liability
Private company
Incorporated business with 2 - 50 shareholders. Small to medium business, company owners are selective of who can become shareholders, shareholders can only sell their shares with the approval of directors, has PTY LTD in the name, shared decision making and responsibility within the company. Advantages: growth potential due to greater funding, limited liability. Disadvantages: double taxation (company and personal income tax), annual report must be published, closing the company is much harder than it is as a sole trader because shareholders must all agree to the company being terminated
Public company
Incorporated business listed on the Australian securities exchange. Has at least 5 shareholders, ownership open to members of the public, shareholders buy shares and may receive a dividend, has LTD in the name. Advantages: growth potential due to greater funding, limited liability. Disadvantages: double taxation (company and personal income tax), annual report must be submitted, closing a company is much harder than it is being a sole trader because all shareholders must agree to the company being terminated
Government enterprise
Owned and operated by the government, either local, state or federal. Provides essential services. Privatisation - the sale of a government enterprise to private investors. When the company is privatised, it becomes a public company. Eg Auspost
3 factors influencing choice of legal structure
Size, ownership and finance
How does size infleunce legal structure
Higher customer demand leads to differing legal structures. Changing legal structures brings extra skill, expertise and funding through shareholders and partners.
How does ownership infleunce legal structure
People who do not want to interact with others choose sole trading. Those who lack finance or seek divided responsibility choose partnership or private company. Demutualisation - the process of organisations providing shares to members
Finance
The amount of money the owner possesses influences legal structure. To overcome financial difficulty, shares may be sold, providing owners with incorporation and security due to becoming private companies
What are the 10 influences in the business environment
Financial, economic, legal, technological, political, institutional, geographical, markets, competitive situation
Economic extenral nfluence (3 policies mate)
Determined by consumer spending. The economic cycle shows the fluctuation of consumer and business spending. Upswing - greater consumer demand, spending, profit generated, investments made. Downswing - less consumer demand, spending, profit generated, investment made. Influenced by fiscal policy - the use of government spending and taxation to influence the economy. Monetary policy - the RBA’s influencing of interest rates to affect employment, demand and inflation. Higher interest rates mean less business profit. Microeconomic reform - policies developed by the government to promote competition within an industry, with the goal of providing consumers with lower prices and more choice. Eg deregulation - the removal of government regulations on an industry.
