Nature of Business

Role of Business

To sell goods and services to satify customers needs and wants, with the aim of making a profit

Advantages of starting a business from scratch

• Cost will be siginicatlly cheaper as purchasing an existing business might have to pay goodwill

• Greater flexibility in descisons

• Avoids problem of poor reputation from previous business

Small to Medium Enterprise

• Include both small and medium businesses

• Less than 200 full time employee

• Local Cafe, Hair salon, Online store

Large Business

• Organisations that operate on a large scale, more employee, high revenue and complex management

• Woolworths, Apple, McDonalds

3 Major Classifcations

• Local- Operare in restricted geographic area

• National- Operate across one country

• Global- Operare in Multiple countries

5 Industry sector

• Primary

• Secondary

• Tertiary

• Quatenery

• Quinary

Primary Industry

• Business involved in the collection of natural materials

• Farming, Mining

Secondary Industry

• Business involved in the manufacturing and processing raw materials into finished products

• Car Manufacture, Food, Furniture

Tertiary Industry

• Provides services to consumers and businesses rather than producing physical goods

• Health care, school, transport

Quatenery Industry

• Services that involve information and knowledge to make profit

• IT, Computing

Quinary Industry

The quinary sector is mainly about top-level decision-making and leadership,

• High‑level decision-making (CEOs, government leaders).

Legal structure of Businesses

• Sole Trader

• Partnership

• Private Company

• Public Company

• Government Enterprise

Sole Trader

• A business that is operated and owned by only one person

• Plumber, Tutor, Barber

Partnership

• Legal business that is owned and operated by 2-20 people

• Partnership agreement

• 2 Dentist, Friends opening cafe

Private Company ( Pty Ltd)

• An incorporated business with 2-50 private shareholders, not listed on stock market

• Cotton On Pty Ltd

• Incorporated - Limited Liability, legally seperate from owner

UNLIMITED LIABILITY: Owners are personally responsible for all business debts.

LIMITED LIABILITY:Owners are only responsible up to the amount they invested in the business.

Public Company

• Incorporated Business where it can sell shares to the public and listed on the ASX

• Woolworths Ltd, Telstra Ltd

Government Enterprise

• Government owned and operated, aim to increase the value of their assets and return to shareholders (government)

• Sydney Water, Aus Post

Capital

• Money Business use to run operations

Limited Liability

• The business is legally seperate from the owner

• Only responsible for money invested

• Priavte and Public Companys

Unlimited Liability

• The Business and the owner are legally the same

• Fully responsibile, personal assets at risk

• Sole Trader and Partnership

Factors Influencing the choice of legal structure

• Size

• Ownership

• Finance

Size

• Small Business- Sole Trader

• Medium - Partenrship

• Large- Company

Large Businesses need more money and legal protection

Larger businesses tend to choose a company structure because it can handle more operations, employees, and growth. Smaller businesses usually choose sole trader or partnership.

Ownership

Sole Trader- 1 owner

Partnesrip- Shared control

Company- Controlled by directors

Some owners want full control, some want to share

Finance

Sole trader- Hard to obtain finance

Partnership- Hard to obtain finance

Company- Great Finance

External Influences on Business

• Economic

• Financial

• Social

• Legal

• Political

• Institutional

• Technological

• Competitive situation

• Markets

Economic Influence

• Economic Cycle: Periods of Growth and Recession

• Boom and Busts

• Interest rates

• Boom

- Higher consumer spending

- High revenue and profits

- Business expansion

- More employment

Bust

- Less consumer spending

- Loss

- Unemployment/ Shut down of Business

Eg COVID 19- Shut down of Business

Financial Influence

- Factors related to a business money and ability to fund its operation

DEREGULATION : Removal of Government regulation from industry making it easier to access finance, increasing competition between lenders, and reducing borrowing costs. This allows businesses to expand and invest more easily.

Geographic Influence

- Affected by its location and physical environment

• Climate and Weather

- Farming Businesses depend on weather

- Extreme weather can disrupt operations

Demographics : A business in sydney will have a larger customer base than in rural towns

• Population size

• Income Level

• Age/ Gender

Globalisation

• International Businesses

• Distance from markets

• Shipping

Social Influence

• Societal Attitudes and behaviour, changes to fashion

• Business must adapt to trends

• Online Lifestyle

Legal Influence

• Business owners who face Legal obligation and regulations

• Laws on taxation, WHS

• Public Health Act 2010 NSW

Political Influence (Government)

• Actions , descisons and policies of the government

• Increase business costs, affect prodit

• Aus Govt increase tax, profit decrease, business pay more tax

Instiutional Influence

• Effects that major organisations have on business

• Government, Regulatory bodies

• Fair trading

• ATO

Technological Influence

• The effect of new technology on how business operates

• Improves communication

• 3D printers

Competitive situation influence

1. Market Concentration

The more a market is dominated by a few large businesses (e.g. oligopoly), the harder it is for smaller businesses to compete

2. Ease of Entry

If it is easy to enter an industry (low start-up costs, few regulations), more competitors will enter, making the market more competitive

Monopoly

• A market with one seller and no close competitors.

• No competitors

Oligopoly

• A market with a few large businesses dominating.

• Woolworths and Coles

Monopolistic Competition

• A market with many businesses selling similar but slightly different products.

• Many competiors

• McDonalds

How business compete in a monopolistic competition

1. Sustainable Competitive Advantage

2. Differentiation strategy

1. Sustainable competitive advantage

• Refers to the ability of businesses to develop strategies to ensure an “EDGE” over its competitors

2. Differentation strategies

• Making a product different, unique or better than its rivals

• Allows business to offer customers with products that other competitors dont include

• Differentiation can include, high quaility, brand image or top quality service

Perfect Competiton

• A market with many sellers offering identical products.

• identical

• Fruit shops

Market Influence

• Any placewhere buyers and sellers interact to change goods, services

• Financial Market: Business go here to borrow money

• Labour Market: Business hire workers

• Consumer Market: Business sell goods and services to customers

Internal Influence

• Product

• Location

• Management

• Resources

• Business Culture

Product Influence

• How the goods or services a business produces affects its internal structure

1. Determine Sales and Revenues

- The quaility and appeal of a product affects customers decisions

2. Improves reputation

3. Affects size of business

- Coca Cola, selling a diverse range of products lead to internal expansion within the business

- Recquire more staff and technology

4. Types of business

- Whether a business is in manufacturing or retailer

Location Influence

• Need a constant flow of people

• Next to complementary businesses- Gym and Supplement store

PROXIMITY - How close from stores

VISIBILITY- Locate in shopping malls

PROXIMITY TO SUPPLIERS- Close to suppliers

COST- Cost in Malls would be higher than mechanics, car hire

Resource Influence

• Human Resource- Employees

• Information Resource- Knowledge and data recquired by business

• Physical Resource- Equipment, Machinery

• Financial Resources- Funds the business uses to meet obligations

Management Influence

• Impact managers have on operations, peformance and success of a business through planning, organising and leading

Key Roles

• Planning: Business goals

• Organising: Assigning staff to roles

• Leading: Encourage productivity

• Controlling: Monitoring sales

• Improve productivity

• Improves employee motivation

• Helps Business grow

Business Culture

• The values, ideas, expectations and beliefs

• Business with a healthy culture, are more likely to be successful

Elements of cutlure

• Values - Honesty, hard work

• Symbols- Events or objects used to represent something

• Rituals- Regular social gatherings

• Heroes- Business successful employee

SPOTIFY- FUN AND INSPIRING

Stakeholders

• Group or individual who are interested or affected by a business

- Customers

- Employee

- Owners

- Management

- Environmental

Influences of “Customer” stakeholder

• Influence what products are made and pricing through their demand

• Busineses have to adapt to their needs

Influences of Employee Stakeholders

• Can influence productivity of work

• Low motivation can impact peformance

2 responsiblities a business has to its shareholders

• Provide an annual report

• Manage funds effectively so a reasonable return is paid

Problems that arise for stakeholders when business go into liquidation

• Employees: Loss of jobs, outstanding money such as long service leave may not be paid to them. Suffer from no sense of income, affecting family and social life

• Creditors: Not being able to recieve all the money owed, possibly placing creditors in debt

Business Life Cycle

• Business Life Cycle refers to the stages of growth and development a business can experience

Stages of the business life cycle

• Establishment

• Growth

• Maturity

• Post Maturity

Establishment

• The first stage in opening a business

• The business is newly formed and entering the market.

• Sales are low because customers are not yet aware of the product.

• Profits are usually low or negative due to high startup costs.

• The business focuses on survival and gaining customers.

Challenges of Establishment

• Lack of customers

• High expenses

• Cash flow problems

• Risk of failure

Growth Stage

• A time where businesses experience accelerating growth, higher sales and cash flow is positive

• Profits increase as revenue becomes higher than costs.

• Business expands into new markets.

• More employees are hired

• Vertical, horizontal and diversification

Challenges for Growth

• High costs when expanding

• Maintaining product quaility

• Complex management

Merger

• The owners of two seperate businesses agree to combine their resources and form a new organisation

• Disney. Pixar

Acquisiton

• One business buys another business to grow

• Facebook purchasing Instagram

Maturity Stage

• When a business reaches it “steady” state. Longest period in the life cycle of a firm, industry, or product, during which sales peak and start to decline

• Sales reach their highest level

• Profits are high but growth slows

• Business has a large customer base

Challenges of Maturity stage

• Market saturation – most customers already have the product

• Strong competition from other businesses

• Need for innovation to stay relevant

• Customer retention becomes important

Post Maturity

• Steady State

• Decline

• Renewal

Challenges in Post Maturity ( Renewal)

• Requires investment in new technology

• Risk of failure

• Must adapt to changing market condition

Vertical Integration

• When a business expands by gaining control of its suppliers

Horizontal Integration

• When a business expands by merging with or buying another business at the same level (a competitor)

Diversification

• Business merges with an unrelated business ( Furniture- Soap industry)

Market share

• The portion of a market controlled by a particular company or product

• Example: If a company sells 25 out of 100 smartphones in a market, its market share is 25%.

Factors that contribute to Business Decline

• Failure to meet consumer needs

• Lack of demand for product

• Failure to plan

Failure to meet consumer needs

• A business may fail when it does not keep up with customer expectations, resulting in reduced loyalty, negative feedback, and declining sales as customers switch to competitors that better meet their needs.

Lack of Demand for Product

• Demand can drop when products become outdated, replaced by new technology, or no longer fit consumer lifestyles, causing revenue to fall and making the product unsustainable in the market.

Failure to plan

• Little market research

• Poor planning can lead to unrealistic goals

• Inefficient use of resources, and an inability to respond to risks or changes in the market

Cessastion

• Permanently closing a business

• Volountary

• Involountary

Volountary Cessation

• When a business owner chooses to close down the business

• Owner wants to retire, personal reasons

Involountary cessation

• When a business is forced to close down

• Bankruptcy : Sole trader and Partnership

• Liquidation: Companies

Bankruptcy

• Volountary bankruptcy: Owner chooses to declare bankruptcy

• Involountary bankruptcy: Court declares business bankrupt

Volountary Administation

• A compnay that is in financial trouble chooses to appoint an independant administrator to control the business

Liquidation

• Selling a company’s assets to repay debts when it cannot continue operating

Volountary Liquidation:

• Creditors voting to liquidate

• Shareholders agree to liquidate the company

Involountary Liquidation

• The creditos or ASIC can apply to court to liquidate the company

Insolvent

• A company that is not able to pay its debts

Creditors

• People or business that are owned money by a company

Recievership

• When a business has a reciever operated by creditors or cours to take charge of the affairs of the business

Realise

• Converting business assets to cash

Problems when liquidation occurs ( stakeholders)

• Employees lose kobs

• Creditors may not receive money owed

• Loss of economic influelce