U3 AOS1 Business Revision Set

Sole trader

a business that is owned by one person, who has unlimited liability

Unlimited Liability

the notion that the owner is personally responsible for any debts incurred by the business. The owner and business have the same legal entity.

Sole trader advantages

• simple and inexpensive set up

• no disputes with partners

• owner keeps all net profits

• owner has complete control

• less government regulation

Sole trader disadvantages

• unlimited liability

• takes all financial risk and burden

• more difficult to gain finance

• heavy reliance on owners skills

Partnership

a business that is owned by 2-20 people, although some have more than 20 owners. Owners have unlimited liability

Silent partner

someone who invests but plays no active role in running the business

Partnership advantages

• simple and inexpensive set up

• greater pool of experience

• shared financial risk

• shared workload

• increased funds

Partnership Disadvantages

• Unlimited liability, all partners are 100% liable

• may be difficult to remove a partner

• profits are shared

• potential for disagreement

Company/corporation

a business that has gone through the process of incorporation, giving the business a separate legal entity too the owners. The owners have limited liability and are called shareholders. The business may take on debt, sue and be sued and purchase assets.

Shares

units of ownership in a company

Limited liability

where each shareholder is responsible for the business up to the value of their ownership

Private limited company

an incorporat4ed business that is owned by 1-50 people. It must have at least one director and cannot freely sell or trade shares to members of the public. It will also have Pty Ltd. at the end of the business name.

Business Director

Senior management that makes decisions on behalf of shareholders

Private limited company advantages

• limited shareholder liability

• potential tax benefits

• maintained control over company ownership

• Greater ability to raise capital

• Perpetuity

Perpetuity

A form of continuity, where the business can live longer than directors

Private listed company disadvantages

• complex and expensive to establish

• shares cannot be freely traded (more difficult to sell)

• more reporting requirements to owners and government

• less liquidity for shareholders

Public listed company

an incorporated business that is owned by a minimum of 1 person and is listed on a public exchange such as the ASX. Owners of a public listed company have limited liability and shares can be freely traded with the public. They are also required to notify the public of their performance

Initial public offering (IPO)

When a company first lists on an exchange and offers its shares for purchase

Advantages of a public listed company

• limited shareholder liability

• perpetuity

• greater ability to raise capital

• greater liquidity (easier to sell shares)

Disadvantages of a public listed company

• complex and expensive to establish

• No control over ownership

• Greater reporting and compliance requirements

Social enterprise

a business that’s primary aim is to address and improve a social or community cause. They still operate commercially and aim to make a profit, but these profits primarily go towards their cause.

Advantages of a social enterprise

• attracting customers

• improve employee morale

Disadvantages of a social enterprise

• difficult to focus on profits and social cause

• may work tight with budgets and find it difficult to compete

Government business enterprise

a business that is owned by the government. They operate commercially and aim to make a profit whilst carrying out government policies. They are normally controlled by a board of directors and 2 shareholder (government) ministers

Advantages of a government business enterprise

• offering services to the community

• provide competition in the market, benefitting customers

Disadvantages of a government business enterprise

• changing objectives and funding

• less efficient use of resources

Business objective

a statement that gives a business a direction or path to follow, increasing it’s chances of being successful. It is a desired outcome or specific result that a business intends to achieve

Types of business objectives

• to fulfil a market need

• to increase market share

• to increase profit

• to fulfil a social need

• to improve effectiveness

• to improve efficiency

• to meet shareholder expectations

Effectiveness

how well the business is achieving it’s objectives

Revenue

the income generated from normal business operations, calculated as the total sales of goods or services.

profit

the money left after business expenses are subtracted from revenue

Market share

a business’ proportion of total sales in a market or industry, in relation to competitors.

Efficiency

how well a business uses resources to achieve objectives, with the aim of minimising resources used and maximising outputs generated.

The process for setting business objectives

• set objectives

• develop strategies

• analyse performance using key performance indicators

Key performance indicators (KPIs)

criteria used as a measure of the success or efficiency and effectiveness of a particular ar4ea of a business’ operations

Stakeholders

people with vested interests in the business, and are affected by their decisions.

Types of stakeholders

• Suppliers

• Special interest groups

• Competitors

• Shareholders

• Customers

• Government

• Employees

• Managers

corporate social responsibility (CSR)

the obligations a business has to go over and above its legal responsibilities for the wellbeing of employees and customers, stakeholders and the community and the environment

Management style

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

Management styles (most to least management control)

• autocratic

• persuasive

• consultative

• participative

• laissez-faire

CALD acronym

Communication: one or 2 way?

Authority: centralised or decentralised?

Level of employee involvement

Decision making: just managers or with employees?

COMDAC acronym

Control

Orientation (top down, bottom up?)

Motivation

Decisions

Attitude

Communication

autocratic management style

a management style where the manager solely makes decisions, and expects employees to comply without input or participation. It is characterized by a high degree of control and low employee involvement.

Persuasive management style

where the manager has full control over decisions and makes an effort to inform employees on how their decisions will benefit the business

Consultative management style

Where the manager makes all final decisions but still takes employee input

Participative management style

where the manager and employees collaborate to make decisions together

Laissez-faire management style

where employees assume total responsibility for and control of workplace operations

situational management/contingency management theory

considering the appropriateness of a management style based on factors of time, employee experience, manager preference and nature of the task

management skills

the abilities or competencies that managers use to achieve business objectives and create a positive work environment

Types of management skills

• interpersonal skills

• Leadership

• Communication

• planning

• decision-making

• delegation

interpersonal skills

ability to deal or liase with people and build positive relationships with staff

transactional leadership

provides employees with rewards for compliance

Transformational leadership

inspires and motivates staff, treating them as equals with equal opportunities

Strategic planning

plans the next 2-5years of business operations in terms of market and competitors

tactical planning

plans the next 1-2 years in terms of resources, budget and goals

operational planning

planning that focuses on maximising each day to acheive short term objectives

Planning process

• define business objectives

• analyse business environment (SWOT)

• develop alternative strategies

• implement an alternative

• monitor and seek feedback on implemented strategy (set targets to meet)

steps to decision making

• develop objectives and criteria

• outline the facts

• identify alternative solutions

• analyse the alternatives

• choose and implement one alternative

delegation

the process occurring when the authority and responsibility to carry out specific tasks is transferred from the manager to an employee.

autocratic manager SKILLSET

planning - high need

decision making - high need

communication - medium need

delegation - low need

interpersonal - low need

leadership - low need

persuasive manager SKILLSET

planning - high need

decision-making - high need

communication - medium need

delegation - medium need

interpersonal - medium need

leadership - low need

Consultative manager SKILLSET

planning - high need

decision making - high need

communication - high need

delegation - medium need

interpersonal - medium need

leadership - medium need

participative manager SKILLSET

planning - low need

decision making - medium need

communication - high need

delegation - low-mid need

interpersonal - high need

leadership - high need

laissez-faire manager SKILLSET

planning - low need

decision making - low need

communication - high need

delegation - high need

interpersonal - low need

leadership - high need

triple bottom line

refers the the economic, social and environmental performance of a business

corporate culture

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

official corporate culture

revealed officially in the policies, objectives or slogans of a business

real corporate culture

seen in 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.

elements of a corporate culture

• values and practices

• symbols

• rituals, rites and celebrations

• heroes

values and practices (corporate culture)

These are the way things are done in the business, including honesty, hard work, teamwork, quality customer service, employee participation and innovation.

symbols (corporate culture)

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

rites, rituals and celebrations (corporate culture)

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

heroes (corporate culture)

role model employees in a business