VCE Business Management: Unit 1, AOS 2

Internal Environment

Internal Environment

The controllable elements inside an organisation, including its people, its facilities and how it does things that influence the operations of the organisation.

Resource Needs - Natural Resources

items used by the business that come from the natural environment.

Resource Needs - Labour Resources

refer to the people that provide their skills, effort and knowledge to the business.

Resource Needs - Capital Resources

refer to the tools and machinery that are used to produce goods or perform services.

Business Location Factors - Visibility

A business wanting high visibility would locate in a prime shopping area, such as a shopping centre or main street.

Business Location Factors - Proximity to Customers and Suppliers

Retail businesses must be convenient for their customers, so shopping centres or shopping strips with off-street parking will be the primary choice for businesses such as butchers, florists, bakeries and gift stores.

Business Location Factors - Proximity to Competitors

It would be unwise to establish a new business in a shopping centre that already has one or more businesses of that type, unless existing businesses are not satisfying the level of demand.

Business Location Factors - Complementary Businesses

Complementary businesses offer goods or services aimed at the same customers. For example, an electrical store and a furniture store will both be selling to householders.

Business Location Factors - Cost

Leasing or purchasing a central location in a busy shopping centre will be far more expensive than a location with lower levels of passing customer traffic.

Business Locations

The physical location of a business can determine whether or not it will ultimately succeed. It is therefore crucial for the business owner to invest time and effort into finding the ideal location for the business.

Sources of Finance - Internal/Equity Finance

Equity refers to the funds contributed by the business owners to start and then expand the business. This includes money from self funding, family/friends, private investors, shares or crowdfunding.

Sources of Finance - Internal vs External Funds

Internal: Owner's personal funds
External: Debt (bank bills or mortgage) or Grants

Sources of Finance - External Funds

Funds that are provided by banks must be paid back over time with interest.

Sources of Finance - Factors Affecting the Choice of Finance

Level of Control, Overall Cost, Flexibility, Terms of Finance, Business Structure

Purchasing an exisiting business or establishing a new business

When planning a business, a prospective business owner will need to consider whether to purchase an existing business or to establish a new business.

Purchasing an exisiting business or establishing a new business - Established Business

Already operating and stock and equipment, business premises, employees, an existing customer base, and reputation and goodwill is included in the purchase.

Purchasing an exisiting business or establishing a new business - Established Business - Benefits

- Sales to existing customers generate instant income.
- A good business history increases the likelihood of business success.
- A proven track record makes it easier to obtain finance.
- Stock has already been acquired and is ready for sale.

Purchasing an exisiting business or establishing a new business - Established Business - Costs

- The existing image and policies of the business may be difficult to change, especially if the business has a poor reputation.
- The success of the business may have been due to the previous owner's personality and contacts, so may be lost when the business is sold.
- It may be difficult to assess the value of goodwill, with the likelihood of the new owner paying more than the goodwill is worth.

Purchasing an exisiting business or establishing a new business - Starting a new Business

The most common reason for setting up a new business is the recognition of a gap in the market.

Purchasing an exisiting business or establishing a new business - Starting a new Business - Benefits

--The owner has the freedom to set up the business exactly as he or she wishes.
- The owner can determine the pace of growth and change.
- There is no goodwill for which the owner has to pay.
- If funds are limited, it is possible to begin on a smaller scale.

Purchasing an exisiting business or establishing a new business - Starting a new Business - Costs

- There is a high risk and a measure of uncertainty.
- Without a previous business reputation, it may prove difficult to secure finance.
- Time is needed to develop a customer base, employ staff and develop lines of credit from suppliers.

Types of legal business structure

- Unincorporated business entities: sole traders and partnerships
-Incorporated business entities: privately and publicly owned companies

Types of legal business structure - Sole Trader

The person who owns and runs a business.

Types of legal business structure - Sole Trader - Benefits

- Low cost of entry
- Complete control
- No partner disputes
- Owners right to keep all profits

Types of legal business structure - Sole Trader - Disadvantages

- Personal (unlimited) liability
- End of business is owner is sick/dies
-Burden of management
- Difficult in raising for expansion

Types of legal business structure - Sole Trader - Factors to consider

-Is the owner prepared to risk the unlimited liability of operating their business?

-Will the owner have enough finances, skills and expertise to establish and grow the business?

- Is the owner prepared to take complete responsibility of the business in exchange for complete control and the right to keep all profits?

-Does the lower cost of establishing and maintaining a business as a sole trader outweigh the benefits of incorporation?

Types of legal business structure - Partnership

A partnership is also an unincorporated business ownership structure. Most partnerships require a minimum of 2 and a maximum of 20 partners.

Types of legal business structure - Partnership - Benefits

- Low startup costs
- Less costly to operate
- Pooled funds and talent
- On death of one partner, business can continue

Types of legal business structure - Partnership - Disadvantages

- Personal unlimited liability
- Divided authority
- Possible disputes
- Liability of all debts, including debts of the partner before the partnership begins

Types of legal business structure - Partnership - Factors to consider

- Are the owners prepared to risk the unlimited liability of operating their business?

- Will the prospective partners have enough finances, skills and expertise to establish and grow the business?

- Do the individuals believe that their prospective partners will act in the best interests of the business?

- Is each individual certain that their prospective partners will not expose them to personal debts?
Can the prospective partners foresee disputes arising due to a clash of personalities or opinions?

Types of legal business structure - Companies

Incorporation is when a business becomes a company.

Types of legal business structure - Proprietary (private) companies

Shares in a private company are offered to those people who the business wishes to have as part owners. They must have the name 'Pty Ltd'.

Types of legal business structure - Public listed companies

The shares for public companies are listed on the Australian Securities Exchange (ASX), and the general public may buy and sell shares in those companies. They must have the name 'Ltd'.

Types of legal business structure - Public listed companies - Benefits

-Easier to attract public finance
-Limited liability, separate legal existence
-Experienced directors

Types of legal business structure - Public listed companies - Disadvantages

-Cost of formation
-Double taxation, company and personal
-Public disclosure of reports

Types of legal business structure - Public listed companies - Factors to consider

-Does the owner need the extra legal security offered by limited liability?

-Will the business need public finance, as is possible with a public company?

-Will the owners be willing to relinquish control of the company to unknown investors by going public?

-Is it worth the extra costs associated with establishing a company and preparing separate yearly tax returns?

Types of business models

A business model is the way in which the business will run its operations to generate a profit. It acts as a general framework for how the business will earn its income and function on a day-to-day basis.

Types of business models - Planning to consider

-What is the main goal of the business?
-What type of goods or services will the business offer?
-How will the business sell these goods/services?
-Who are the target customers?
-What types of costs will the business expect to incur?
-Will a new business be established or will a franchise agreement be entered into?

Types of business models - Online business

They exist solely on the internet, as well as having a small number of offices to support their online presence.

Types of business models - Online business - Advantages

-Reach customers across the globe
-No rent/wages

Types of business models - Online business - Disadvantages

-Risk of payment theft
-Cannot inspect items

Types of business models - Bricks and mortar

Businesses with a physical location.

Types of business models - Bricks and mortar - Advantages

-Can inspect goods
-Face to face interaction

Types of business models - Bricks and mortar - Disadvantages

-Expensive rent/wages
-No 24/7 buying

Types of business models - Import and export

Earning income by trading goods internationally.

Types of business models - Import and export - Advantages of Importing

-Providing products that aren't readily available

Types of business models - Import and export - Disadvantages of Importing

-Shipping, tax and distribution cost
-Need to be informed and knowledgeable of the health, safety and quality standards

Types of business models - Import and export - Advantages of Exporting

-Allows a business to reduce its dependence on local markets and open new markets
-Sell to more customers around the globe

Types of business models - Import and export - Disadvantages of Exporting

-Need to be aware of legal requirements such as shipping, foreign exchange, quarantine and politics.

Types of business models - Social enterprise

Social enterprise is a business model that aims to improve the wellbeing of others through its business activities.

Types of business models - Social enterprise - Advantages

-Intrinsic value of doing good for others.

Types of business models - Social enterprise - Disadvantages

-Difficult to obtain finance
-Need to focus on both social and financial objectives.

Types of business models - Franchise

Under a franchise agreement a person buys the rights to use the business name and distribute the goods or services of an existing business.

Types of business models - Franchise - Advantages

-Receive the successful business formula
-Recognisable name and logo

Types of business models - Franchise - Disadvantages

-Little control over decision making
-Franchisor takes a percentage of profit
-Cannot expand

Business Support Services

A new business owner will seek legal and financial advice to ensure that all important aspects of the business are planned for.

Business Support Services - Legal and financial advice

Solicitors, Accountants and Bank managers

Business Support Services - Technological advice

ICT consultant, equipment dealer and business.gov.au

Business Support Services - Community-based services

Rotary, Lions and Apex
Additionally, Business Enterprise Centres (BEC) Australia and Small Business Centres Victoria (SBCV)

Business Support Services - Formal networks: private

Chambers of commerce, Victorian Chamber of Commerce and Industry (VCCI), Small Business Association of Australia and New Zealand and Trade associations

Business Support Services - Formal networks federal, state and local governments

The Australian Bureau of Statistics (ABS), The Australian Tax Office (ATO)

Victorian Small Business Commission (VSBC)

Advice from local government on zoning.

Business Support Services - Informal networks

Friends and colleagues

Business Support Services - Business mentors

Seeking regular advice from a person who is experienced or knowledgeable in the field.

Equity

Advantages:

Cheaper, owners can keep all profits

Disadvantages:

Not suited to those with low savings

putting in a small amount may not see alot of results

Bank Overdraft

Advantages:

Interest rates are lower

overcome a temp cash shortage quicker

Disadvantages:

a fee, intersesr must be paid

not suitable for large amounts of finance

short term

Loan

Advantage:

large ammounts of money can be borrowed

Disadvantages:

Must be repaid with lots of interest

Long term

Leasing

Advantages:

Can borrow funds, equip without large capital contributions

lease payments are a tax deduction

Disadvantages:

interest is higher than other forms

must have a regular cash flow to make repayments

Gov Grants

Advantages:

provides business with teh finance to beginor improve opps

does not have to be paid back

Disadvantages:

have to qualify for a grant

Trade credit

Advantages:

interest is not ussally charged, cheaper option

easy to obtain

Disadvantages:

requires a good relationship between supplier

short term- 30-90 days

Crowdfunding

advantages:

raise quick finance minimal fees

can connect with potential customers

can generate interst with consumers

Disadvantages:

if you dont reach the target you do not recive the money

requires effort to generate interst in the product

failed project may result in damage to the business’s reputation