Unit 3 AOS 1: Business Foundations Study Notes

Unit 3 AOS 1: Business Foundations

1A – Types of Business

Sole Traders

  • Definition: A sole trader is an individual who owns the business and is self-employed.

  • Characteristics:

    • The sole person is legally responsible for all aspects of the business.

    • Business type is:

    • Simple to set up and operate.

    • Provides the owner full control over assets and business decisions.

    • Has fewer reporting requirements and is generally a low-cost structure.

    • Possesses Unlimited Liability: all personal assets are at risk if business fails; personal assets can be seized to recover debts.

Partnerships

  • Definition: A partnership is a business structure involving 2 to 20 individuals who own a business together.

  • Characteristics:

    • Governed by the Partnership Act 1958.

    • Relatively easy and inexpensive to set up.

    • Requires a separate tax file number.

    • Not considered a separate legal entity; partners are personally liable for business debts.

    • Shared control and management among partners.

    • Each partner responsible for individual superannuation arrangements (not employees of the partnership).

Private Limited Companies

  • Definition: A private limited company is an incorporated business, ownership divided into shares not traded on stock exchange.

  • Characteristics:

    • Typically small businesses such as independent retailers, legal firms, and accountants.

    • Separate legal entities with limited liability.

    • Limited to 50 shareholders.

    • More complex to start and operate.

    • Must comply with the Corporations Act 2001 and file an annual company tax return with the ATO.

    • Operations are controlled by directors, ownership lies with shareholders.

  • Incorporated: Has a legal identity; can sue or own assets.

  • Limited Liability: Owners are not personally liable for debts of the company.

Public Listed Companies

  • Definition: A public listed company is an incorporated business owned by shareholders, managed by directors, and listed on the stock exchange.

  • Characteristics:

    • Examples include Commonwealth Bank, CSL Limited, Westpac Banking Corp, Wesfarmers Limited, Telstra Limited, Rio Tinto, Coles Group Limited, Qantas.

    • Separate legal entities with limited liability.

    • Listed on the Australian Stock Exchange (ASX).

    • Required to comply with the Corporations Act 2001 and lodge an annual company tax return with the ATO.

    • Operations controlled by directors, money earned belongs to the company.

Other Types of Business

  • Privatisation: Transferring a business from state to private ownership or control.

  • Social Enterprise: A profit-making business with social objectives, reinvesting surpluses for social purposes, distinct from a charity.

    • Characteristics include:

    • Driven by economic, social, cultural, or environmental mission.

    • Generates revenue through membership, sponsorship, product sales, and government contracts.

  • Government Business Enterprise (GBE): Owned by the Commonwealth, operates under business principles to make a profit.

    • Examples include Australian Postal Corporation, Defence Housing Australia, ASC Pty Limited, Australian Rail Track Corporation Limited, Moorebank Intermodal Company Limited, NBN Co Limited.

1B – Business Objectives

Making a Profit

  • Definition: Profit is the surplus remaining after total expenses are deducted from total revenue; basis for tax calculation and dividends.

Market Share

  • Definition: A business's percentage of total sales within an industry.

  • Increasing Market Share: Proportion of industry sales controlled by the business, signifies competitive advantage.

  • Importance:

    • Reflects competitive advantage, company reputation, and awareness.

  • Methods to Increase Market Share:

    • Lower costs or prices, increase sales, improve quality, enhance reputation, increase advertising, adversely affect competitors.

Improving Efficiency

  • Definition: Efficiency indicates how well resources are utilized to achieve objectives.

  • Resources Used in Business:

    • Raw materials, machinery, labor, time, etc.

  • Consequences of Inefficiency:

    • Increased business costs, higher prices, reduced competitiveness, decreased sales.

Exploring Efficiency and Productivity

  • Definitions:

    • Efficiency: How well resources achieve objectives.

    • Productivity: Ratio of outputs produced compared to the inputs required (a measurement).

Effectiveness

  • Definition: The degree to which a business has achieved its stated objectives.

  • Examples of Objectives:

    • Increase profit, increase market share, meet market needs, reduce waste, transition to sustainable energy.

Market Needs

  • Definition: Desires or demands of customers.

  • Fulfilling Market Needs: Meeting customer demands through products or services.

Social Need

  • Definition: Making society better through business actions.

  • Fulfilling a Social Need: Producing goods or services aimed at improving society/world.

Shareholder Expectations

  • Definition of Share: Proportion of ownership in a company.

  • Definition of Shareholder: A person who owns at least one share, making them a partial owner.

  • Meeting Shareholder Expectations: Shareholders seek returns on investments; mechanisms include floating companies on markets, issuing shares, and dividends.

  • Dividend: Sum paid to shareholders from profits.

  • Capital Gain: Profit when selling shares for a higher price than the purchase price.

1B – Business Objectives – Levels of Planning

  • Planning: The process of determining business objectives and strategies to achieve them.

Levels of Management Planning

  • Senior Management:

    • Type: Strategic

    • Time Frame: 1-5 years

    • Focus: Business expansion

  • Middle Management:

    • Type: Tactical

    • Time Frame: 6 months – 1 year

    • Focus: Product designs, pricing, payroll

  • Lower Management:

    • Type: Operational

    • Time Frame: Daily, Weekly, Monthly

    • Focus: Rosters, stock management, budgeting

SWOT Analysis

  • Definition: A planning tool analyzing the business environment through strengths, weaknesses, opportunities, and threats.

1C – Stakeholders

Definition of Stakeholders

  • An individual or group with a vested interest in the business's actions.

Return on Investment (ROI)

  • What owners financially gain compared to their investment.

Owners

  • Stakeholders invested in business success; interests vary across business types (sole traders, partnerships, etc.).

  • Concerns: ROI, financial success, personal reputation.

Managers

  • Interested in job security, financial success, and personal reputation.

Employees

  • Interested in job security, financial success, career development, and personal reputation.

Customers

  • Interested in quality goods/services and meeting market needs.

  • Investment Levels: Vary based on loyalty and consumption position.

General Community

  • Indirectly interested in business success; primarily less invested unless significant consequences arise (e.g., pollution).

  • Positive Effects: Financial donations, community involvement, employment.

  • Negative Effects: Environmental damage, unemployment.

Suppliers

  • Interested in financial success and reputation; typically strongly invested.

Conflicts Among Stakeholders

  • Owners vs. Employees: Conflict arises over the need to maximize ROI vs. compensation/payroll.

  • Managers vs. Customers: Conflict may occur if management prioritizes profits over quality/price.

  • Employees vs. Shareholders: Employees seek higher wages which may lower profits affecting dividends.

  • Managers vs. Suppliers: Management wanting to lower costs may conflict with suppliers' pricing needs.

1D – Management Styles

Autocratic

  • Definition: A style where the leader dictates objectives and methods.

  • Communication: One-way; decision-making retained by manager.

  • Advantages: Efficient use of time, complete managerial control.

  • Disadvantages: Lack of consultation, potential resentment from team.

Persuasive

  • Definition: Dictation of objectives while persuading employees on methods.

  • Communication: One-way; decision-making retained by manager.

  • Advantages: Maintains control, efficient.

  • Disadvantages: Lack of input from employees, potential lack of empowerment.

Consultative

  • Definition: Asking employees for opinions before making decisions.

  • Communication: Two-way; manager retains final decision-making authority.

  • Advantages: Broader idea pool, boosts employee satisfaction.

  • Disadvantages: Time-consuming; some suggestions may be overlooked.

Participative

  • Definition: Sharing decision-making with the team.

  • Communication: Two-way; decisions made collectively.

  • Advantages: Empowers employees, promotes teamwork.

  • Disadvantages: Time-consuming; potential conflicts in contributions.

Laissez-faire

  • Definition: Employees are fully responsible for decision-making and operations.

  • Communication: Two-way; employees run the business.

  • Advantages: Fosters trust and creativity; empowers employees.

  • Disadvantages: Possible loss of control; conflict over direction.

Summary of Control and Communication in Management Styles

  • Autocratic:

    • Degree of Control: Centralized

    • Decision Making: Manager

    • Communication: One-Way

  • Persuasive:

    • Degree of Control: Centralized

    • Decision Making: Manager

    • Communication: One-Way

  • Consultative:

    • Degree of Control: Centralized

    • Decision Making: Manager

    • Communication: Two-Way

  • Participative:

    • Degree of Control: Decentralized

    • Decision Making: Group

    • Communication: Two-Way

  • Laissez-faire:

    • Degree of Control: Decentralized

    • Decision Making: Employees

    • Communication: Two-Way

1E – The Appropriateness of Management Styles

Nature of the Task

  • Straightforward tasks may require more control favoring autocratic styles; creative tasks lean towards laissez-faire.

Time

  • Time-sensitive tasks may demand autocratic decisions; longer timeframes may warrant participative decisions.

Experience of Employees

  • Inexperienced employees benefit from direct instruction; knowledgeable employees could handle responsibility through laissez-faire approaches.

Preference of the Manager

  • Managers often default to styles matching their personality or beliefs.

1F – Management Skills

Key Management Skills

  • Communication Skills: Transfer of information between individuals/groups within the business context.

  • Delegation Skills: Transfer of authority/responsibility from manager to employee; accountability remains with the manager.

    • Responsibility: Duty to handle assigned tasks.

    • Accountability: Obligation to justify decisions/actions.

  • Planning Skills: Strategizing to achieve business objectives.

  • Leadership Skills: Guiding the business and employees towards achieving objectives while balancing stakeholder interests.

  • Decision-Making Skills: Choosing courses of action among alternatives to achieve objectives.

  • Interpersonal Skills: Skills related to interaction and relationship-building within the workplace.

1G – Management Skills for Management Styles

Skills Needed Depending on Management Style

  • Autocratic Management: Requires effective communication, delegation, planning, leadership, and decision-making skills.

  • Persuasive Management: Requires communication, leadership, and interpersonal skills.

  • Consultative Management: Requires communication, leadership, and interpersonal skills.

  • Participative Management: Requires communication, leadership, decision-making, and interpersonal skills.

  • Laissez-faire Management: Requires communication, delegation, and planning skills.

1H – Corporate Culture

Definition of Corporate Culture

  • Corporate culture is the shared values, beliefs, and practices of a business.

  • Indicators include employee behavior, communication style, slogans, and rituals.

Types of Culture

  • Official Culture: Values/beliefs the organization tries to convey publicly via mission statements, logos, slogans, etc.

  • Real Culture: Actual observable values/beliefs present in the organization.

Summary of Corporate Culture

  • Official Culture: Targeted public perception.

  • Real Culture: Actual day-to-day practices.

  • The gap between official and real culture can affect employee morale and the overall business performance.