Nature Of Business

Business Studies Preliminary Course, Nature Of Business

What is a business?

The organised effort of individuals to produce and sell for a profit wit products (goods and services) that satisfy individuals’ needs and wants.

What does the production of goods and services refer to?

Activities undertaken by the business that combine the resources to create products that satisfy customers’ needs and wants.

Are goods tangible or intangible?

Tangible

Are services tangible or intangible?

Intangible

What is profit?

What remains after all business expenses have been deducted from sales revenue.

What is revenue?

The money a business receives as payment for its products.

What are operating expenses?

All costs of running the business except the cost of goods sold.

What is the profit formula?

Sales revenue — operating expenses

What is a wage?

Money received by workers, usually on a weekly basis, for services they provide to an employer.

What is a salary?

A fixed amount of money paid on a regular basis, usually fortnightly or monthly, to a permanent employee of a business.

If a business is a private or public company, it will have many owners referred to as _________.

Shareholders

Who are shareholders?

People who are part owners of a company because they own a number of shares.

What is a dividend?

Part of a business’ profit that is divided among shareholders.

What is a choice?

The act of selecting among alternatives.

What is innovation?

The development of new products, or improvements to existing products.

Who is an Entrepreneur?

Someone who starts, operates, and assumes the risk of a business venture in the hope of making a profit.

What is a quality of life?

The overall wellbeing of an individual and is a combination of both material and non-material benefits.

What is an industry?

Consists of businesses that are involved in similar types of production.

What are the 3 main types of industry sectors?

Primary, secondary, and tertiary.

The tertiary sector has been subdivided into the _________ and _________ sectors.

Quaternary, Quinary

What is the primary industry?

Includes all those businesses in which production is directly associated with natural resources.

What is the secondary industry?

Involves taking raw materials and making it into a finished or semi-finished product.

What is the tertiary industry?

Involves performing a service for other people.

What is the quaternary industry?

Includes services that involve the transfer and processing of information and knowledge.

What is the quinary industry?

Includes all services that have traditionally been performed in the home. It includes both paid and unpaid work.

What are the characteristics of a sole trader?

• Owned and operated by one person and is often the most easy type of business to establish.

• Must register name if it differs from owner’s name.

• NOT a separate legal entity and therefore it has unlimited liability.

• No company tax on profits — only personal income tax.

What are the characteristics of a partnership?

• More than one owner and therefore it has unlimited liability.

• Number of partners allowed is dependent on type of industry.

• Many rules and regulations based on the Partnership Act 1982 (NSW).

• By law, partners must develop a partnership agreement, or constitution.

• Possibility for instability through joint decision-making process.

What are the characteristics of a private company?

• Usually has between 2 and 50 shareholders and is often a family-owned business.

• A private company must have “Propriety Limited” (Pty Ltd) after its name. This means that it is a private company and shareholders have limited liability.

• Shares in a private company are only offered to the people the business wishes to have as part owners.

• Shareholders can only sell their shares to people approved by other directors. They are not listed on or sold on the stock exchange.

What are the characteristics of a public company?

• Public companies are listed on the stock exchange and the general public may buy and sell shares in them.

• Private companies tend to be small to medium sized enterprises, whereas public companies tend to be larger in size.

• A public company has a minimum of 5 shareholders, with no maximum number.

• No restrictions on the transfer of shares or raising money from the public by offering shares.

• The word “Limited” or “Ltd” in their name, indicating limited liability for shareholders.

• They must publish their audited financial accounts each year.

What are some external influences that can affect a business?

• Economic

• Financial

• Geographic

• Social

• Legal

• Political

What is the economic cycle?

Refers to the predictable long-term pattern of changes in the national income.

What is an upswing during an economic cycle?

Speed-up in the pace of economic activity, where confidence increases and employment rises.

What is a boom during an economic cycle?

Upper turning point of the cycle, where unemployment is low.

What is a downswing during an economic cycle?

Slowdown in economic activity, where there is a loss of confidence and unemployment rises.

What is a trough during an economic cycle?

Lower turning point of the cycle, where confidence is rock bottom and an increase in unemployment.

What is deregulation?

The removal of government regulation from industry, with the aim of increasing efficiency and improving competition.

What defines geographical external influences on a business?

Refers to the impact of location on a business.

What defines social external influences on a business?

The attitudes, values, and beliefs of society. Businesses that are involved in the fashion industry are susceptible to changes in the trends/styles that are emerging throughout the globalised world.

What defines legal external influences on a business?

Refers to the framework of laws and regulations that govern the operation of a business.

What is the Fair Work Act 2009?

Provides terms and conditions of employment and sets out the rights and responsibilities of employees, employers, and employee organisations in relation to that employment.

What is the Anti-Discrimination Act 1977?

This legislation protects employees against actions that might discriminate against them based on things like age, gender, and race.

What is the Workplace Health and Safety Act 2004?

Piece of legislation that is designed to protect the health and safety of employees.

What defines political external influences on a business?

Refers to the ideas that come from the political parties. Major changes in government can lead to uncertainty in the business environment as parties share different ideas/perspectives which can hinder the success of a business.

What defines institutional external influences on a business?

Refers not only to established organisations, such as unions or trade associations, but more importantly, to established practices or customs in a business.

What are some obligations of the Federal government?

• Payment of taxes for employees (earning above the minimum taxable income level) and for businesses with company tax and GST.

• Provision of employee superannuation.

• Observance of customs regulations.

• Abiding by relevant legislation that would affect business operations.

What are some obligations of the State government?

• Provision of employee entitlements, including workers compensation, occupational health and safety requirements, award rates or pay and entitlements.

• Payment of payroll taxes.

• Abiding by relevant state legislation.

• Abiding by pollution controls.

What are some obligations of the Local government?

• Approving new development and alteration (to an existing building) applications.

• Fire regulations.

• Parking regulations.

• Size, location, and shape of business signs.

What is a competitive situation?

The market where other businesses are providing products to meet the same customer need.

What is a market?

A place in the commercial world where goods and services are sold.

What is the business life cycle?

Refers to the stages of growth and development a business can experience.

Describe the establishment phase within the business life cycle.

• Slow growth in sales.

• High costs to set up business and purchase capital and labour.

• Limited financial constraints due to setup.

What are some challenges faced within the establishment phase of the business life cycle?

• Generating sufficient revenue to cover costs and provide a profit to the owner.

• Choosing a suitable location for the business that does not add financial strain and is in close proximity to the potential customers of the business.

• Hiring and training appropriate staff.

• Developing appropriate marketing strategies to create an awareness of the business and its products among potential customers.

• Ensuring all government regulations are followed, including business registration and occupational health as well as safety and taxation requirements.

What is cash flow?

The money coming into the business in the form of cash receipts, and the money leaving the business as cash payments.

Describe the growth phase within the business life cycle.

During this stage, the business is experiencing increased growth in sales and cash flow. More customers are aware of the product and, as such, the business begins to gain increased revenue, profit, and share in the market is gained.

Describe the maturity phase within the business life cycle.

The business’s growth and market share begin to slow. The business faces increased competition from new entrants into the market, with consumers increasingly willing to purchase competitors’ products.

Describe the post-maturity phase within the business life cycle.

During this stage, key decisions will be made that will ultimately affect the long-term survival of the business.

What is the steady state?

The stage in the post-maturity phase of the business life cycle when the business maintains its position. The business maintains its market share and has developed a group of loyal customers.

What is the renewal stage?

During this stage, the business begins to experience growth in sales. Market share has increased once more and the profitability of the business is also improving.

How can businesses achieve renewal?

• Through the introduction of new goods and/or services.

• An extension of an existing product with new features.

• The makeover of an existing product combined with a new marketing campaign using different forms of advertising and changes to its pricing strategies.

What is the decline stage?

The stage where customers stop buying the business’ products, therefore affecting cash flow and eventually, the decline of profits.

What is cessation?

Refers to the closure of a business.

What are some factors that can contribute to business decline?

• Uncontrolled growth.

• Lack of management skills.

• Poor location.

• Failure to adapt to changes in external environment.

• Failure to price product correctly.

• Unfavourable economic conditions.

• Ignorance of existing competition.

• Ill-conceived business idea.

• Failure to meet customer’s needs.

• Lack of demand for product.

• Failure to plan.

• Increased competition.

• Lack of adequate cash flow.

What is a receivership?

When an independent party (receiver) is appointed by the court to examine possible ways for the business to trade itself out of trouble.