Business Studies Notes

Nature of a Business

  • Businesses produce goods (tangible products) and services (intangible experiences) to meet consumer needs.
  • Businesses contribute to profit, employment, income, choice, innovation, entrepreneurship, wealth, and quality of life.

Types of Businesses

  • Size:
    • SMEs (Small to Medium Enterprises): independently owned, locally based.
    • Large businesses: public companies, employ over 200 people.
  • Geographic:
    • Local: serve the local area.
    • National: operate within a country.
    • Global: operate in various countries.
  • Industry:
    • Primary: natural resources (farming, mining).
    • Secondary: manufacturing (car manufacturing).
    • Tertiary: services (doctors, retailers).
    • Quaternary: knowledge transfer (education, finance).
    • Quinary: in-home services (hospitality, childcare).
  • Legal Structure:
    • Sole Trader: owned by one person.
    • Partnership: owned by 2-20 people.
    • Private Company (Pty Ltd): 2-50 private shareholders.
    • Public Company (Ltd): listed on ASX, unlimited shareholders.
    • Government Enterprise: owned by the government.

Legal Structures

  • Sole Trader
    • Advantages: Low entry cost, complete control, keep profits.
    • Disadvantages: Unlimited liability, burden of management, difficulty raising finances.
  • Partnership
    • Advantages: Shared workload, less costly.
    • Disadvantages: Unlimited liability, disputes, sharing profits.
  • Private Company (Pty Ltd)
    • Advantages: Easier to obtain finance, limited liability, easy transfer of ownership.
    • Disadvantages: Cannot offer shares to the public, do not publish annual reports.
  • Public Company (Ltd)
    • Advantages: Unlimited shareholders, easier to obtain finance, limited liability.
    • Disadvantages: Loss of control and privacy, hostile takeover possible.
  • Government Enterprise:
    • Advantages: Essential services, stability, affordability.
    • Disadvantages: Inefficiency, political influence.

Public vs. Private Sector

  • Public Sector: Government-owned, focuses on public welfare (e.g., Australia Post).
  • Private Sector: Individually-owned, operates for profit (e.g., Woolworths).
  • Unincorporated Businesses: Owner and business are the same; owner has unlimited liability (Sole Trader, Partnership).
  • Incorporated Businesses: Business is a separate legal entity; owners have limited liability (Private Company, Public Company).

Factors Influencing Legal Structure

  • Size of Business: affects choice of legal structure.
  • Ownership: control preferences (sole vs. shared).
  • Finances: access to capital, liability, taxation.

External Influences

  • Economic: Fluctuations in the economy.
  • Financial: Access to money.
  • Geographical: Reach of business.
  • Legal: Laws overseeing business.
  • Social: Changes shaping the business.
  • Political: Policies affecting business.
  • Institutional: Regulations from institutions.
  • Technological: Advances in technology impacting efficiency.
  • Competitive: Competition driving innovation.

Internal Influences

  • Stakeholders:
    • Internal: shareholders, managers, employees.
    • External: customers, society, environment.
  • Markets: Demand, competition, trends mold business.
  • Products: Type of goods/services.
  • Location: Visibility, cost, proximity to services/customers.
  • Resources: Funds, physical assets, information, human resources.
  • Business Culture: Values, ideas, expectations, beliefs.
  • Management: Roles and management styles.

Business Life Cycle Stages

  • Establishment: Vulnerable stage, focus on cash flow.
  • Growth: Sales increase, positive cash flow.
  • Maturity: Slowing cash flow, consider restructuring.
  • Post-Maturity:
    • Steady state: Maintaining demand and profit.
    • Decline: Change in customer taste or superior competitors lead to decline, profits decline
    • Renewal: Entering new markets to produce products customers demand.

Responding to Challenges by Stage

  • Establishment:
    • Challenge: Generate positive cash flow.
    • Solution: Basic planning, control staffing levels.
  • Growth:
    • Challenge: Expanding too quickly.
    • Solution: Slow down business supplies through a merger, aquisition, etc.
  • Maturity:
    • Challenge: Decreasing sales and loss of enthusiasm.
    • Solution: Cut costs and diversify.
  • Post Maturity:
    • Challenge: Changes and unanticipated sales.
    • Solution: Introduce new managers and ideas; cut costs.

Factors Contributing to Decline

  • Failure to embrace change.
  • Lack of capital.
  • Toxic business culture.
  • External influences.

Voluntary and Involuntary Cessation

  • Voluntary Cessation: Owner closes down (retirement, death, new opportunity).
  • Involuntary Cessation: Forced ending due to inability to pay debts.
  • Liquidation: Legal process of closing and selling assets.
  • Liquidity: Amount of cash a business has and how quickly they can access cash.