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Small business – why start your own business?

Independence, profit motive, identifying an opportunity, unemployment, desire for flexibility

Characteristics of a small business

Fewer than 20 employees, owner-operated, local area, owner provides most capital

Entrepreneur

A person who takes risks and seizes opportunities to start and operate a business for profit

Competitive advantage

When a business outperforms competitors by offering better value, quality or prices

Ways to gain competitive advantage

Lower prices, advertising, better quality/perceived quality, meeting customer needs

Economies of scale

Cost savings from producing larger quantities

Outsourcing

Getting goods or services from external suppliers instead of using internal staff

Innovation

A new idea or improved product/process that increases value or efficiency

Product innovation

Changing or improving the features of a product (e.g., new iPhone features)

Process innovation

Changing how a product/service is produced to improve efficiency (e.g., robotics)

Difference between product and process innovation

Product innovation changes the final product; process innovation changes the way it is made

Market segmentation

Dividing the market into groups with common needs/characteristics

Positioning

Creating a unique image for a product in the consumer’s mind

Marketing mix (4Ps)

Product, Price, Place, Promotion

The main purpose of marketing is to increase sales.  To do this, businesses will create a marketing strategy by integrating the elements of the marketing mix 

Why keep financial records?

To track performance, meet legal requirements, monitor cash, and produce reports

Source documents

Original records of transactions such as receipts, invoices and EFTPOS slips

Cash receipts

All money coming into a business

Cash payments

All money going out of a business

Cash Receipts Journal (CRJ)

Records all cash received

Cash Payments Journal (CPJ)

Records all cash paid out

Cash flow

Money coming into the business (revenue) and going out (expenses)

Importance of cash flow

Needed to pay bills, wages, rent, equipment; business fails without it

Statement of receipts and payments

A summary of all money received and paid during a period

Service business

A business that sells a service using time, labour and expertise instead of physical goods

Reasons for business failure

Poor record keeping, cash flow problems, poor planning, poor management

Balance sheet

A financial report showing assets, liabilities and owner’s equity at a point in time

Assets

Items of value the business owns

Current assets

Assets used within 12 months (cash, stock, accounts receivable)

Non-current assets

Assets held for more than 12 months (vehicles, machinery, equipment)

Liabilities

Debts the business owes

Current liabilities

Debts due within 12 months (accounts payable)

Non-current liabilities

Debts due after 12 months (bank loan)

Owner’s equity

The owner’s investment in the business; business’s net worth

Balance sheet equation

Assets = Liabilities + Owner’s Equity

Revenue

Income earned from selling goods or services

Expenses

Costs incurred to operate the business

Net profit

Revenue minus expenses

Example of revenue

Sales or service fees

Example of cost of goods sold (COGS)

How much it cost the business to buy or make the products that were sold.

Political spectrum

A range of political beliefs from left to right

left- rapid reform

right- slow change, traditions

Political ideology

A system of beliefs/ideas that shapes how a society should be governed

Democracy

A system of government where power is held by the people

Direct democracy

Citizens vote directly on laws and decisions

Representative democracy

Citizens elect representatives who make decisions on their behalf

Features of Australian democracy

Active citizens, inclusive society, free elections, rule of law

Levels of government in Australia

Federal, State, Local

Why we have 3 levels of government

To divide responsibilities and manage different areas effectively

Federal government responsibilities

Defence, immigration, trade, taxation

State government responsibilities

Schools, hospitals, roads, police

Local government responsibilities

Rubbish collection, local roads, parks, permits

Electorate

A geographic voting area represented by a member of parliament

Constitutional monarchy

A system where a monarch is head of state but power is limited by a constitution

Electoral process in Australia

Enrolling, voting in secret, counting votes, forming government

Formal vote

A correctly completed ballot paper showing clear preferences

Informal vote

An incorrectly filled ballot paper that cannot be counted

Electoral roll

The official list of eligible voters

GDP per capita

GDP divided by population; average output per person

GDP growth

The increase in the value of goods/services produced; calculated using percentage change

Ideal GDP growth rate

Around 2–3% per year

Inflation

The general increase in prices over time

How to calculate inflation

Percentage change in CPI

Target inflation rate

2–3% in Australia

Unemployment

When people who want work cannot find a job

Types of unemployment

Seasonal, frictional, structural, cyclical

Unemployment rate

(Number of unemployed ÷ labour force) × 100

Consequences of unemployment

Loss of income, stress; lower economic output, higher welfare costs

This results in less spending on goods and services, and reduced savings as individuals re-adjust their spending patterns.

A reduced income can;

Place stress on families and relationships as it often means cutting back spending on such things as children’s activities or family social outings. 

Create feelings of personal failure associated with the loss of status and friends.

HDI

Human Development Index measuring life expectancy, education and income

What HDI is made up of

Life expectancy, education levels, gross national income per capita

Comparing countries using HDI

Higher HDI =higher living standard