Business Management U1 AOS2 Revision

5 factors of the internal environment

Employees, structure of business, production of goods and services, capital/labour resources, and sources of finance.

The 3 business environments

Macro, operating and internal

Internal environment

A.k.a micro environment. Environment within the business in which the business owner has full control.

Operating environment

Layer of the external environment in which the business owner has partial control. Includes things like competitors, customers, suppliers, etc.

Macro Environment

Layer of the external environment in which the business owner has no control. Includes CSR, global issues, economic conditions, etc.

Legal business structure

Hierarchy of managers and employees in the business

Types of legal business structures

sole trader, partnership, private company and public listed company

Sole trader

Type of legal business structure where the business is run entirely by one person

Partnership

Type of legal business structure where people combining their efforts to run a business

Public listed company

Type of legal business structure where the business can be opened to the entire public and anyone can buy shares. Over 50% of the company must be shared.

Private company

A type of legal business structure where the business is owned privately and shares cannot be bought by the general public.

Unincorporated business entities

sole traders and partnerships. Same legal existence as its owner(s)

Incorporated business entities

private and publicly owned companies. Separate legal existence to its owner(s)

Business model

A business’ plan of how it will function and make a profit

Types of business models

online, bricks and mortar, import and export, franchise, social enterprise.

Online business model

internet based business, possibly with physical distribution centers. Can be advertising based, subscriptions, brokerage and merchants.

Brokerage

websites that bring buyers and sellers together in exchange for a fee when sales are made

Merchants

Online sellers who operate through their own independent website or through the use of platforms such as cotton on

Advantages of an online business model

wider customer base, quick business set up, avoidance of costs such as rent

Disadvantages of an online business model

customers cant try products, time is needed to fulfill online orders and online security issues have the potential to negatively impact the business’ reputation

Bricks and mortar business model

Traditional retail set up where a retailer has a physical store or shopfront where transactions will take place and face to face customer service is experienced. Combinations include Bricks and clicks or clicks and mortar, where purchases can be made in store or online.

Advantages of Bricks and Mortar

customers can try products, products can be displayed and promoted through windows to attract customers, brand recognition can be built through signage.

Disadvantages of Bricks and Mortar

customers must physically get to the store, time is required o train employees, more expensive to start and operate.

Import and Export business model

Earn their income by trading goods internationally by either importing goods and services or exporting.

Importers

must ensure products meet local laws regarding safety and quality, as well as consider the costs associated with shipping products from overseas

Exporters

must be aware of the various overseas markets and whether the product needs to be adjusted to suit different customer needs.

Advantages of importing

possibility of accessing cheaper prices as overseas regulations are different (eg. min. wage), provides access to products and resources that an owners home country doesn’t have or produce, and access to seasonal resouces.

Disadvantages of importing

subject to tariffs, long wait times, loss of jobs to create domestic products

Tariffs

tax on imports or exports

Advantages of exporting

access to overseas customer bases, promotes growth of Australian industries, overseas customers are willing to pay more for products they don’t produce

Disadvantages of exporting

non-renewable natural resources often sold, difficult to understand and accommodate for different overseas cultures and laws, higher transportation costs.

Social enterprise business model

Main objective is to support social and environmental causes.

Advantages of social enterprise

community benefits, employees have purposeful work and are satisfied with their job, likely to receive government financial support.

Disadvantages of social enterprise

staffed by low-commitment volunteers, customers may be fatigued by charity, difficulty balancing achievement of social objectives with financial objectives

Franchise business model

where the business is a duplicate of others, all owned by the same company.

Franchisee

Buys the right to use the business name and distribute products or services of an existing business

Franchisor

sells/owns the rights to a business

Franchise agreement

outlines the conditions of the agreement, stating the obligations and responsibilities.

Advantages of a franchise

business already has a good reputation, strong customer loyalty, reduced risk of failure, time saving processes already in place

Disadvantages of a franchise

limited power in the business, high cost to buy a franchise, brand being negatively impacted by other store’s performance

Advantages of buying an existing business

immediate cashflow, no growing pains of starting a new business, plans policies and procedures are already in place, preexisting financial history makes it easier to get financed, the business may be undervalued, goodwill, existing clientele, suppliers, equipment, plant and stock

Disadvantages of buying an existing business

plant and equipment may need an upgrade, potential capital intensive to turn around the business, goodwill is due to previous owner, financial history is not an indicator of future success, and business may be overvalued based on previous earnings.

Advantages of establishing a new business

can be cheaper if you know what you’re doing, you learn as you build the business, business success is dependent on your execution and no legacy issues of an existing business

Disadvantages of establishing a new business

outlay can be higher than buying a business, you start with no goodwill or clientele, no immediate goodwill or cashflow and you need to negotiate lease and council permits

Types of productive resources

Natural, Labour, Capital

Natural productive resources

Used in the production of many types of goods (such as crops) as well as services. Eg rainfall and climate conditions, mineral deposits, oceans and forests

Labour productive resources

Needed to produce particular goods and services. Eg skill and knowledge of doctors, builders and business people

Capital productive resources

Used by by businesses in the production of many goods and services. Eg electricity and grid system, commercial buildings, highways, schools, dams and ports

Short term sources of finance

To be paid back within 1-2 years

Long term sources of finance

to be paid back after 2 years

Bank overdraft

when you have a negative balance in your bank account

Trade credit

a promise to pay a supplier at a later date

Equity

funds contributed by the owner(s) of a business to start and build a business

Debt

Funds provided by banks, other financial institutions, government and suppliers that you owe them back

Overdraft facility

an extension of credit from a lending institution when an account reaches zero, it continues to allow withdrawal of money

External funds

Debt and Grants

Internal funds

Owners personal funds

Crowdfunding

setting a funding goal, providing project and budget details and inviting people to contribute to a startup capital pool.

When choosing a source of finance, a business should consider these 5 factors…

• Flexibility: The ability of the business to change the terms of the agreement or exit the loan

• Business Structure: What type of business is it?

• Terms of finance: the amount and frequency of repayments

• Level of control: how much ownership of the decisions made by the business will be retained if the owner chooses a given source of finance

• Overall cost: the added up value of all repayments made over the life of the loan

Business support services

Legal and financial advice, technological advice, community based services, formal networks, informal networks, business mentors

Legal and financial advice

During the planning stage of the business, the business owner will consult with accountants and solicitors to choose a legal business structure. When up and running, this consultation will continue, additionally with bank managers. Solicitors provide legal information and advice. Accountants provide financial advice. Bank managers also have financial advice and resources within the bank

Technological advice

Suppliers can provide information on certain parts and bussiness.gov.au includes information and practical advice

Community based advice

Many businesses are able to join business service clubs. The primary focus of these is to provide business people with an opportunity to provide business people with an opportunity to engage in community service projects. Membership can also put business owners in touch with other local business people

Formal networks

Business owners can access information and support from a large number of professional organisations, such as chambers of commerce (local associations of business people providing legal and financial help and liaising with government departments) and other centres.

Informal networks

Networks business people have such as friends and colleagues

Business Mentors

Some business people have mentors they can work with or ask advice from

SWOT

Strengths, Weaknesses, Opportunity, Threats. S and W are internal, O and T are external

Benefits of SWOT

Evaluates current situation, low-cost, simple, straightforward, helps develop goals and strategies, helps the business owner become familiar with the business.

Limitations of SWOT

must be completed alongside market research and a business plan when planning a business, can generate some irrelevant information, doesn’t provide solutions for W and T and best of S and O

Corporate Social Responsibility (CSR)

A business being socially responsible by considering how it can go above and beyond basic legal requirements to improve the welfare of its stakeholders, including employees, customers and the wider community

Advantages of CSR

higher likelihood to attract customers, less likely to be boycotted, strengthens relationship with employees

Limitations of CSR

financial costs of implementing CSR methods such as solar panels, and how cotime consuming planning can be

CSR issues can be classified into…

Environmental, staffing and customer

Business plan

A written statement of the goals and objectives of a business, and the steps to be taken to achieve them. Should be ever changing

4 key elements of a business plan

Operations, financial, marketing and executive summary

Operations plan

Outlines how the business will be set up and the human resource needs

Financial plan

Details how the business will be financed and projected cash flow, revenue, expenses and profit

Marketing plan

Outlines key information from the industry the business will be entering and the gap in the market that the business will be filling. The marketing strategy is included in this section

Executive summary

A one page document describing the business and its objectives. This is usually prepared at the end of the plan writing process

Benefits of a business plan

• Can be used as a potential benchmark to review business performance

• Employee performance may improve as they are provided with clearer direction and understanding of the business and its objective

• Can save time in the future by planning for business crises and emergencies

• Reduces unnecessary spending as realistic estimates of the costs can be planned

• Helps a business obtain external funding as financial institutions will look at the business plan to determine if the business is financially viable

Limitations of a business plan

• just a plan - does not garuntee business success

• time could be wasted on the plan instead of the business

• must be implemented

Factors that go into selecting a business location

• personal factors

• style of operation

• area profile

• local government by-laws

• pending planning proposals

• site accessibility and visibility

• suitability of the buildings

• costs

• accessibility to transport

• accessibility to labour