AOS 1 Business Foundations

Sole trader

a business that is owned and operated by one person.

• has the same legal entity to its owner + unlimited liability

Advantages of sole traders

• Low establishment costs

• Owner has complete control of business

• Owner keeps all the profits

Disadvantages of sole trader

• Unlimited liability (personal assets at risk)

• Relies on owner (hard to take time off)

• Business ends when owner dies

Partnerships

a business owned by 2 and 20 people

• has the same legal entity to its owners + unlimited liability

Advantages of partnerships

• Low establishment costs

• Workload can be shared among partners

• Pooled funds and talents

Disadvantages of partnerships

• Unlimited liability (personal assets at risk)

• Profits shared among partners

• Potential disagreements between partners

Private limited company

an incorporated business that is owned between 1 and 50 private shareholders.

• shareholders own part of the business and share in the profits.

• shares are sold privately

Advantages of private limited companies

• Limited liability

• Separate legal entity (owner and business are separate)

• Capital can be raised by offering shares to new partners

Disadvantages of private limited companies

• More expensive to establish

• More reporting requirements to shareholders and government

• Shares cannot be traded freely

Public listed company

an incorporated business that is owned by a minimum of 1 person and whose shares are freely traded on a public exchange.

Advantages of public listed companies

• Limited liability

• Able to gain extra capital through selling extra shares

• Experiences managements team and board of directors

Disadvantages of public listed companies

• High expense to establish

• Ownership is diluted

• Large reporting requirements

Social enterprise

A business that exists primarily to fulfil a vision that benefits the community or a social need.

Advantages of social enterprise

• Meeting a social need can encourage community support, increasing profits

• Improved morale within the business as employees value the work they are doing.

Disadvantages of social enterprise

• Difficult to obtain finance to start the business

• Difficult to focus on financial and social objectives

Government business enterprise (GBE)

a type of business that is owned and operated by the government.

Advantages of GBE

• Able to carry out government policies & deliver community service in areas the private sector might be hesitant to invest.

• Provision of health competition to businesses operating in the private sector – can lead to lower prices in the market

Disadvantages of GBE

• Political interference in day-to-day operations

• Inefficiencies caused from excessive regulation.

• Management of GBE can be less effective than that of the private sector

• There can be less accountability within a GBE, resulting in less productivity.

To make a profit

goals related to desired financial performance, such as profit, sales growth, increased productivity and market share

To increase market share

maximising the appeal of their product/service in order to hold the largest proportion of total sales in a market or industry measures against competitors

To fulfil a market need

to meet customer expectations or provide a good or service that is otherwise not available to a market.

To fulfil a social need

production/selling of goods and services for the purpose of making the world a better place

To meet shareholder expectations

goals that relate to protecting the shareholders investment and making a return on their investment.

To improve efficiency

how well a business uses resources to produce a good/service and achieve objectives.

To improve effectiveness

to achieve all objectives that the business set, either short-term or long-term and continuously improving

Owners

the person who manages/operates the business on a day-to-day basis

Managers

the person who has the responsibility for successfully achieving the objectives of the business

Suppliers

businesses or individuals who supply materials and other resources to a business (inputs) so that it can conduct its operations

Employees

the people who work for the business

Customers

the people who purchase goods and services from the business

General community

members of the local community in which the business operates

Autocratic management style

the manager makes all the decisions themselves, and dictates work activities to the employees.

Advantages of autocratic management style

• Little uncertainty (directions + procedures are clearly defined)

• Direct communication can increase productivity and efficiency

• Good for high risk business situations/decisions

• Time efficient (decisions made quickly without discussion/consultation)

Disadvantages of autocratic management style

• NO employee input → may not feel valued, lose motivation, may lead to higher staff turnover

• Less teamwork

• Doesn’t consider employee experience or knowledge

• Employees don’t get to develop their skills

Persuasive management style

managers make decisions themselves and attempt to convince the employees why it is the best decision.

Advantages of persuasive management style

• Time efficient (decisions are made with little negotiation)

• Greater clarity in people knowing what they need to do

• Can be suitable in high-risk situations

• Managers can gain trust and support through persuasion

Disadvantages of persuasive management style

• NO employee input → may not feel valued + lose motivation

• Doesn’t consider employee experience or knowledge

• Employees don’t get to develop their skills

Consultative management style

managers will seek employee feedback and take into account ideas before making a decision themselves.

Advantages of consultative management style

• Employees feel valued when their feedback is asked for and considered

• Greater communication → Improved decision-making process

• Bigger variety and more diversity in ideas

• Good motivation and morale levels in employees

Disadvantages of consultative management style

• Time-consuming (manager must wait to get feedback from all employees

• Not all ideas can be implemented - employees may lose motivation

• May not be possible for managers to consult every time, causing inconsistency.

Participative management style

management involves the employees, and they join to make decisions together

Advantages of participative management style

• Employees can take ownership and pride in their ideas

• Diversity of viewpoints

• Communication

• Employees can acquire more skills

• Shared vision - everyone works toward the same goals = boosts morale

• High motivation

Disadvantages of participative management style

• Internal conflict may arise with too many people sharing different views. (people may disagree)

• Time-consuming

• Costly (time is money)

Laissez-faire management style

managers are hands-off and allow group members to make the decisions and manage their tasks.

Advantages of laissez-faire management style

• Promotes creativity + teamwork

• Great control over your own task = boosts motivation

• Chance for good teamwork

• Staff may feel empowered and motivated to work on their own

Disadvantages of laissez-faire management style

• Total loss of control by management

• Employees may feel unguided and lose focus

• May lose overall direction

• Not suitable for unskilled workforces

Communication

the effective transmission of information from sender to receiver, with the ability to listen to feedback.

Delegation

the transfer of authority and responsibility from a manager to an employee.

Planning

the process of setting business objectives and detailing the steps to achieve them.

Leadership

the process of influencing, motivating and coaching staff to achieve business objectives.

Decision-making

the process of choosing an appropriate course of action from a range of alternatives.

Interpersonal

the ability to communicate with people and build positive relationships.

Corporate culture

the shared values, beliefs and ideas of people within a business

Official corporate culture

what the owners/directors of the business want the values and beliefs of the business to be

Real corporate culture

what the underlying values of the people within the business actually are