Business

Topic 1 — Nature of Business

Role of Business

Definition: A business is a coordinated effort by individuals to combine resources to produce goods and services that satisfy consumer needs and wants for the ultimate goal of making a profit.

• Inputs → land, capital, labour, enterprise

• Outputs → goods and services

• Production = activities that combine resources to create products satisfying customer needs/wants

• Goods = items that can be seen and touched (clothes, food, cars)

• Services = things done for you by others (banks, airlines, plumbers)

• Finished product = a good or service ready for customers to buy and use

• 98% of businesses in Australia are SMEs

PIECEWIQ — 8 Roles of Business

Profit (Economic)

• Profit = Sales Revenue − Expenses

• Encourages entrepreneurs to take the risk of opening a business

• Business profit becomes the owner's income

Income (Economic)

• Money received for providing labour/work or a return on investment

• Wages/salaries for employees; dividends for shareholders (part of profit divided among shareholders)

Employment (Economic & Social)

• Businesses provide employment → consumers earn income → purchase products → economy stays healthy

• International competition has forced some businesses to reduce workforce to remain competitive

Choice (Social)

• International business growth has given consumers choice through innovation and competition (cereal, soft drinks, fast food)

Entrepreneurship & Risk (Economic)

• Entrepreneurship = ability and willingness to start, operate and assume the risk of a business venture in the hopes of profit

• Risk of losing money if the business fails

• Eg. Bill Gates, Elon Musk

Wealth (Economic)

• Wealth = the net amount a person or business owns

• Business creates wealth for:

  • Lenders — loan repayments

  • Governments — taxes (income tax, payroll tax, GST, fringe benefits tax)

  • Owners/shareholders — profits and/or dividends

  • Employees — salaries, wages, benefits

  • The business itself — reinvested for expansion

Innovation (Economic)

• Innovation = a new or improved product or process

• Businesses use R&D to maintain competitive edge → improved products, greater consumer choice, increased market share and profits

• Eg. AirPods → AirPods Pro → AirPods 3

Quality of Life (Social)

• Quality of life = overall standard of living and well-being of an individual

• Positive impacts: improved standard of living, variety of goods/services, increased leisure time

• Negative impacts: depletion of natural resources, environmental impact

Classification of Business

By Size

Australian distribution: 0 employees 62.1% | 1–4 employees 27.1% | 5–19 employees 8.5% | 20–199 employees 2.2% | 200+ employees 0.2%

By Geographical Spread

• Local — restricted geographic spread; serves surrounding area; tend to be SMEs (newsagent, corner store)

• National — operates across the country; wider product range (Coles, Bunnings, Fitness First)

• Global — branches in different countries; called a Multinational Corporation (MNC) (McDonald's, Apple, Nike, Amazon)

  • Expansion of a national business; limited new customers due to market saturation

By Industry (5 sectors)

By Legal Structure

Unincorporated vs Incorporated

Sole Trader

• Owned and operated by 1 person; unincorporated; most common legal structure

• Unlimited liability

• Advantages: Low set-up cost; full control; all profit to owner; minimal legal requirements

• Disadvantages: Unlimited liability; no succession; no income when sick/on holiday; difficulty raising finance; sole responsibility for all tasks

Partnership

• 2–20 owners; unincorporated; partners act as agents for the business

• Unlimited liability (including partner's prior debts)

• Partnership Agreement covers: names of partners, percentage owned, distribution of profits, process of selling, conflict resolution

• Limited Partnership — silent partner invests capital with limited liability; not involved in management

• Advantages: Low set-up cost; shared responsibility; pooled talents; minimal government regulation; specialisation

• Disadvantages: Unlimited liability; divided loyalty; possibility of disputes

Private Company (Pty Ltd)

• 2–50 owners; incorporated; must have "Pty Ltd" in name

• Most common type in Australia; limited liability; share transfers must be approved by directors

• Advantages: Limited liability; perpetual succession; easier finance; company tax rate; risk spread; board of directors; no public financial disclosure

• Disadvantages: Limited shareholders; high set-up cost; not listed on ASX; complex to shut down (all shareholders must agree)

Public Company (Ltd)

• 5+ owners (no maximum); incorporated; must have "Ltd" in name; run by board of directors

• Must issue a prospectus (formal legal document for investment offering) to invite share purchases

• Listed on the ASX — public may buy and sell shares

• Profit divided among shareholders as dividends

• Advantages: Limited liability; experienced management; perpetual succession; access to large equity finance; no restrictions on share transfer

• Disadvantages: High set-up cost; must issue prospectus; public disclosure of financial data; separation of ownership and management

Government Enterprise (GBEs)

• Government owned and operated businesses; participate in commercial activities aiming for profit

• Owned by all levels of government (federal, state, local)

• Often largest employers in Australia; provide essential community services (health, education, roads, welfare)

• Examples: Australian Rail Track Corporation, NBN Co, Essential Energy, Defence Housing Australia, Sydney Water, Australia Post

Factors Influencing Choice of Legal Structure

Top 3 factors: Size · Ownership · Finance

Other factors: Legal liability · Cost/complexity of formation · Tax implications

Influences in the Business Environment

External Influences

Factors a business has little control over.

Economic

• Economic/business cycle = periods of growth (boom) and recession (bust)

• Expansion: ↑ consumer spending, ↑ investment, ↑ sales/profit, ↓ unemployment

• Peak: high wages/salaries, full capacity, highest sales/profit, low unemployment

• Contraction: ↓ consumer spending, ↓ investment, ↓ sales/profit, ↑ unemployment

• Trough: low wages, below-capacity, lowest sales/profit, highest unemployment

• Covid-19: global recession → ↑ unemployment, disruption to industries, ↓ consumer spending

Financial

• Changes due to globalisation, technology, and deregulation (removal of restrictions)

• Interest rates: ↑ rates = businesses cautious about debt; ↓ rates = businesses borrow more, buy more capital equipment

• Exchange rates: if AUD appreciates against USD → cheaper raw material purchases from US

Geographic

• Climate, natural resources, topography, infrastructure, location

• Australia in Asia-Pacific region → economic growth of Asian nations = expanded opportunities

• Demographic changes (age, income, ethnicity) change demand

• Baby boomers (born 1946–1964) retiring → labour skill shortage

Globalisation impacts:

• ↑ Competition | Expanded markets | Greater customer expectation | Economies of scale | Location flexibility | Cheaper materials | Diversification | Access to better labour

Social

• Changing attitudes, tastes, fashion, culture = sales/profit opportunities or threats

• Main social changes in Australia: environmental concern; family-friendly workplaces; workplace diversity

Legal

• Businesses must comply with federal, state, and local government laws

• Failure → fines, penalties, reputational damage

• Transnational corporations (TNCs) must navigate different laws across countries

• Examples: WH&S, Equal Employment Opportunities, Anti-Discrimination Act, Public Health Act

Political

• Government policies directly and indirectly impact business

• Examples: introduction of GST (2000), Carbon Price (2010); deregulation; privatisation

• Privatisation examples: CommBank, Telstra, Qantas

• Current issues: paid parental leave, gender diversity, equal pay, GST, company tax cuts, tax incentives

Institutional

• Local government: approving development, fire regulations, parking, business signs

• State government: worker WHS, payroll tax

• Federal government: taxes above minimum taxable income

• Employer associations: formulate policies, assist in enterprise/collective agreement negotiations

• Trade unions: improve working conditions and pay rates

Technological

• Increases efficiency/productivity; creates new products; improves quality

• Eg. robotics: ↑ productivity, ↓ employment opportunities

• IT adoption: businesses operate 24/7, reduced geographic boundaries, flexible workplaces

Competitive Situation

• Monopoly: 1 business controls the market; sets own price; customers have no influence (Australia Post, Sydney Trains)

• Oligopoly: small number of large businesses dominate; heavy advertising restricts new entrants (banks, oil companies, car manufacturers)

• Monopolistic competition: most common in Australia; large number of buyers/sellers; products differentiated by packaging, advertising, brand, quality (clothing manufacturers, local retailers)

• Perfect competition: many small businesses; same/similar products; price competition only; little advertising (fruit/vegetable growers)

Market concentration factors: number of competitors; ease of market entry; marketing strategies of competitors; local and foreign competition

Markets / Changing Markets

• A market = the setting where items are exchanged

• Technology enables financial products to be bought/sold across borders

• Labour market globalised by migration and outsourcing to low-wage economies

• Disposable income = money available from salary after paying all taxes

Internal Influences

Factors within the business over which it has some degree of control.

Product

1. Type of goods/services produced (large goods requiring many inputs → complex structures needed)

2. Range of goods/services (larger number → more internal impacts, need to expand operations)

Location

• Good location = asset → high sales and profits; Bad location = liability

• Prime location = combination of customer convenience and visibility

• Factors: Visibility · Cost · Proximity to customers · Proximity to suppliers · Proximity to support services

Resources

1. Human resources — employees; most important asset

2. Information resources — market research, sales reports, economic forecasts, legal advice

3. Physical resources — equipment, machinery, buildings, raw materials

4. Financial resources — funds to meet obligations to creditors

Management

• Managers must adapt style to changing situations

• Technology has changed management structures (less centralised, more flexible)

• Traditional structure: many levels of management

• Flat/emerging structure: few/no middle management levels → faster adaptation, greater individual responsibility

Business Culture

• Business (corporate) culture = values, ideas, expectations, beliefs shared by members

• Can be official (policies) or informal (behaviour, dress code)

• Effective culture: employees embrace change; clear expectations → sense of belonging

• Elements: Values · Symbols · Rituals · Heroes (eg. Employee of the Month)

Stakeholders

Business Growth and Decline — The Business Life Cycle

Stage 1: Establishment

The initial period in which a business is set up.

Stage 2: Growth

Accelerating growth — increasing sales revenue and customer awareness.

Stage 3: Maturity

Growth in sales begins to level out.

Stage 4: Post-Maturity

Three possible outcomes:

Steady State — sales remain at maturity level; R&D stopped; business will eventually be forced to change
Renewal — increasing sales/profit through new products, new users, or new markets; requires market research
Decline — falling sales and profits; challenges include difficulty raising funds, suppliers demand cash, low morale, high staff turnover

Mergers and Acquisitions

• Merger = two businesses agree to combine resources and form a new entity

• Acquisition (takeover) = one business purchases a controlling interest in another

Types

Example: Bakery ← wheat farm (backward) | Bakery → bread shop (forward)

Factors Contributing to Business Decline

Internal: Lack of management knowledge · Inadequate planning · Lack of finance/poor cash flow · Poor location

External: Unexpected competition · Government policies · Natural disasters

Broader list: Ignorance of competition · Unfavourable economic conditions · Failure to price products correctly · Uncontrolled growth · Failure to adapt to change · Lack of management skills · Failure to meet customer needs · Failure to plan

Voluntary and Involuntary Cessation

Cessation = ending of a business

Voluntary Cessation

Owner ceases operations of own accord; all assets sold.

• Reasons: business failure (rising debts, negative cash flow); retirement; lifestyle change; death (sole trader)

Involuntary Cessation

Owner is forced to cease trading by creditors concerned about debt levels.

Methods of Cessation

Bankruptcy (sole trader / partnership)

• Unable to pay debts; can be voluntary or involuntary

• Court appoints representative to collect money, sell assets (including personal), divide between creditors

• Realisation = converting assets to cash

Liquidation (companies)

• Independent qualified liquidator appointed to sell all company assets in an orderly way to pay creditors

• Equivalent of bankruptcy for a company; company comes to an end

• A company in liquidation may also be in receivership (receiver takes control of business affairs)

Impacts of Liquidation

Topic 2 — Business Management

Nature of Management

Definition: Management = the process of coordinating a business's resources to achieve its goals.

Resources managed:

• Human — employees

• Information — market research, sales reports, legal advice, economic forecasts

• Physical — equipment, machinery, buildings, raw materials

• Financial — funds to meet obligations to creditors

A manager = someone who coordinates the business's limited resources to achieve specific goals.

Features of Effective Management (POLC)

Skills of Management (RAPIDS CVF)

Interpersonal (People) Skills

• Skills needed to work/communicate with others and understand their needs

• Vital for building positive relationships with stakeholders

• Clear communication + empathy = inspirational influence on employees

Communication Skills

• Exchange of information (oral or written); non-verbal body language is powerful

• Effective communication assists in meeting goals through detailed planning/strategies

• Managers must overcome barriers and avoid sending false messages

Strategic Thinking

• Thinking about the business as a whole; taking on board long-term goals

• Managers then: view stakeholder interrelations; understand effects of actions; gain insights; contextualise business through trends; identify opportunities and threats

Vision

• Clear, shared sense of direction allowing people to attain a common goal

• Constantly adapt to change; ensure cooperation; avoid failure

• Managers must display leadership qualities to share their vision

Problem-Solving

• Broad set of activities for searching, identifying, and implementing a course of action

• Process: Identify problem/causes → Gather information → Develop alternatives → Analyse alternatives → Choose and implement → Evaluate solution

Decision-Making

• Identifying options and choosing a specific course of action

• Must be completed in specific time frames; risks must be adequately assessed

• Effective decision-making should involve employee input

Flexibility

• Being responsive to change; able to adjust to changing circumstances

• Incorporate dynamic actions into plans

Adaptability to Change

• Change = the act/process by which something transforms or becomes different

• Successful managers anticipate and adjust to changing circumstances

Reconciling Conflicting Stakeholder Interests

• Managers must interact with all stakeholders and ensure all parties are included in business objectives

• Increases chance of success by pursuing goals aligned with stakeholder interests

Achieving Business Goals

Goal = a desired outcome or target

Why goals matter for managers:

1. Serving as targets — managers set goals to aim for

2. Measuring sticks — benchmarks for performance

3. Motivation — good goals present a challenge

4. Commitment — employee participation is vital

Types of Business Goals

Profit

• Profit = Total Revenue − Total Costs

• Aim for profit maximisation (maximum difference between revenue and costs)

• Achieved by: ↑ sales (may need to ↓ price); long-term goal

Market Share

• Business's share of total industry sales for a particular product

• ↑ market share = business doing well; can be achieved through advertising/promotional strategies

Growth

• Increasing size of business long-term

• Achieved by: ↑ physical size; ↑ employees; ↑ sales/profits; new equipment; more outlets

Share Price

• A share = part ownership of a public company

• Companies must maximise returns for shareholders

Social Goals

• Community service (sponsorship, programs); provision of employment; social justice (fair and equal treatment)

Environmental Goals

• Recycle, renew, regenerate; sustainable development; meeting increasing environmental regulations

Achieving a Mix of Business Goals

• Managers need a mix of goals for different stakeholders

• Goals are interdependent (must work together)

• Some goals are compatible (strategies that achieve multiple goals simultaneously)

• When goals conflict, the business may need to compromise

Staff Involvement

Vital to maximise employee involvement and satisfaction → high labour productivity.

Two advantages: ↑ employee motivation + solutions to organisational problems.

1. Innovation

• New idea applied to improving an existing product or idea

• Competitive advantage if done successfully

• Encourage brainstorming; reward innovative ideas; demonstrate that new ideas are valued

2. Motivation

• Higher motivation = higher productivity; lower motivation = lower productivity

• Monetary rewards: pay rise, bonuses, extra holidays

• Punishment: termination (stick approach)

• Good managers must be good motivators

3. Mentoring

• More experienced staff offer advice, guidance, coaching, tutoring to co-workers

• Results in skill transfer, expertise gain, understanding of workplace values

• Helps socialisation; prepares employees for their roles

4. Training

• On-the-job training, seminars, re-training for new technology

• Improves productivity and skills → higher efficiency

• Investment opportunity; allows adaptation to rapidly changing technological environment

• Types: off-the-job, on-the-job, corporate universities, mentoring, online, action learning

Management Approaches

Classical Approach (Scientific Management)

Stresses how best to manage and organise workers to improve productivity.

Management as Planning, Organising, and Controlling:

1. Planning — determining business objectives and strategies

   • Strategic planning: long-term (3–5 years)

   • Tactical planning: medium-term (1–2 years; flexible)

   • Operational planning: short-term (day-to-day)

2. Organising — arranging resources to achieve goals

   • Determining work activities (broken into smaller steps)

   • Classifying and grouping activities (similar activities grouped)

   • Assigning work and delegating authority

3. Controlling — evaluating and modifying tasks to ensure goals are met

   • Establish standards → Measure performance → Take corrective action

Hierarchical Organisational Structure:

• Increasing authority at higher levels

• Several levels of management with separate roles/responsibilities

• Specialisation of labour

• Clear chain of command

• Many management levels determined by top levels

Autocratic Leadership Style:

• Managers use high degree of direction; little employee participation in decisions

• Manager makes all decisions and dictates work

Behavioural Approach

Focuses on people (employees) as the main focus of business organisation. Managers must meet the social needs of their employees.

Management as Leading, Motivating and Communicating:

1. Leading — influencing/motivating people to work towards objectives

   • Good leader: conveys work goals; empowers workers; demonstrates flexibility; has confidence in workers

2. Motivating — motivated workers always perform at higher levels

   • Fair/reasonable play; providing training; safe work environment

3. Communicating — open communication; exchange of information

   • Providing employees with information about goals, plans, financial results

Teams (Flat Organisational Structure):

• People interact regularly and coordinate work towards a common goal

• Removes hierarchical structure; individuals have greater responsibilities

• Managers become facilitators; balance team needs with business needs

• Managers develop trust and build common goals

Participative/Democratic Leadership Style:

• Manager consults employees, seriously considers suggestions, then makes a decision

• Shared decision-making; employees have input

Contingency Approach

Adapting to changing circumstances — no single best way to manage.

• Organisational structure depends on business requirements (flat or pyramid)

• Levels of management depend on requirements

• Management style depends on business needs

Management Processes — Coordinating Key Business Functions

Operations
Marketing
Finance
Human Resources
--> All work together to acheive business goals

The four key business functions are interdependent (mutually dependent; a decision in one affects all others).

Operations

Transforming inputs into outputs (production).

Goods and Services:

• Manufacturer → tangible products (can be handled and stored)

• Service organisation → intangible products (cannot be touched)

• Many businesses produce a combination

The Production Process:

• Inputs = resources used; divided into transformed resources (materials, information, customers) and transforming resources (human resources, facilities)

• Processes = conversion of inputs into outputs

• Outputs = good or service delivered to the customer; must meet quality, efficiency and flexibility standards

Quality Management:

Marketing

Activities to make consumers want and buy a product.

Definition: A total system of interacting activities designed to plan, price, promote and distribute products to present and potential customers.

Four General Marketing Objectives:

1. Increasing market share

2. Increasing product range

3. Maximising customer service

4. Expanding into new geographic markets

Identification of Target Market:

• Target market = group of customers with similar characteristics who will purchase the product

• Variables for market segmentation:

  • Demographic — age, gender, income

  • Geographic — city, country, region

  • Psychographic — lifestyle, personality, values, interests

  • Behavioural — loyalty, knowledge of product

Market Approaches:

• Mass market — targets everyone; one product to all buyers (McDonald's, Google)

• Market segmentation — subdivided into groups by common characteristics (Coke, Aldi)

• Niche market — very small, narrowly selected segment; reduces pressure from competitors

The Marketing Mix (4Ps):

1. Product

• A good, service, or idea to be exchanged

• Tangible features (taste, colour, size) and intangible features (image, brand, reputation)

• Product branding — distinguishing name/symbol (Nike, Cadbury)

• Product packaging — designing container or graphic wrapper

• Product positioning — creating image to distinguish from competitors (Magnum vs Paddle Pop)

2. Price

• Setting methods:

  • Cost-based — total cost of production + mark-up for profit

  • Market-based — what the market is willing to pay (supply and demand)

  • Competition-based — below, equal to, or above competitor's price

• Strategies:

  • Market skimming — high price for a product

  • Market penetration — low price on entry to gain large sales volume

  • Loss leaders — priced below cost to attract customers

  • Price points — different prices for similar products

3. Place

• How a product is distributed — transportation, storage, store type

• Distribution channels:

  • Producer → Consumer (direct)

  • Producer → Retailer → Consumer

  • Producer → Wholesaler → Retailer → Consumer

  • Producer → Agent → Wholesaler → Retailer → Consumer

• Distribution intensity:

  • Intensive — everywhere (Coke)

  • Selective — few outlets (specific brands)

  • Exclusive — very limited stores (luxury goods)

4. Promotion

• Inform customers about the product and persuade them to buy

• Strategies:

  • Personal selling — directly approached by salesperson

  • Advertising — paid, non-personal, mass media (TV)

  • Sales promotion — incentives to purchase (discounts, contests)

  • Publicity — unpaid promotion not paid for by business (celebrity wearing a brand)

  • Relationship marketing — building long-term customer relationships (loyalty programs)

Finance

Financial management is the planning, organising, directing and controlling of a businesess monetary resources to achieve its overall goals.

Strategic Role: To ensure the business continuees to operate, grow and remain profitable over the long term (usually 3-5 years).
Key Tasks: Allocating funds to different business departments, setting financial budgets, securing short term and long term finance, managing financial risks.

TLDR
Income Statement
Balance Sheet
Cashflow statement

Cash Flow Statements

• Summary of cash transactions over a period of time

• Details inflows and outflows; helps predict future cash flows

• Liquidity = amount of cash a business has access to; how readily assets convert to cash

• Three areas:

  • Operating activities — main business activities

  • Investing activities — purchases/sales of non-current assets and investments

  • Financing activities — activities involving investors and creditors

Formula: Opening cash balance + inflows − outflows = closing cash balance

Examples:

• Wages → operating outflow

• Dividend payments → financing outflow

• Payment to supplier → operating outflow

• Purchase of company car → investing outflow

• Loan repayment → financing outflow

• Sale of land → investing inflow

Income Statement (Profit & Loss)

• Summary of income (revenue) and expenses over a period of time

• If revenue > expenses → profit; if revenue < expenses → loss

• Five main categories: Revenue · COGS · Gross Profit · Expenses · Net Profit

• Formulas:

  • COGS = Opening stock + Purchases − Closing stock

  • Gross Profit = Sales Revenue − COGS

  • Net Profit = Gross Profit − Total Expenses

Balance Sheet

• Provides business assets and liabilities at a specific point in time

• Shows net worth (financial stability)

• Key Accounting Equation: Assets = Liabilities + Owner's Equity

Human Resources

HRM = effective management of the formal relationship between employer and employees.

The Human Resource Cycle: Planning → Recruitment → Selection → Induction → Training & Development → Performance Management → Separation

Acquisition (Hiring New Employees)

Internal Recruitment:
| Advantages | Disadvantages |
|---|---|
| Employees already known | No-one may be suitable |
| Familiar with business culture | Can lead to conflict (multiple applicants) |
| Creates career paths | May result in another recruitment process |
| Reduced advertising cost | |

External Recruitment:
| Advantages | Disadvantages |
|---|---|
| Greater choice of applicants | Choice may be difficult |
| New skills and qualifications | Costly advertising |
| May lead to further growth | Time consuming |
| | Existing employees may view as a threat |

Employee Selection: Gathering information (interviews, testing, background checks) to choose the most appropriate applicant.

Development and Training

• Training = teaching staff to perform their job more efficiently and effectively

• Development = preparing staff to take on greater responsibilities in the future

• Types: off-the-job, on-the-job, corporate universities, mentoring, online, action learning

• Induction = introducing new employees to the business (workings, day-to-day)

Benefits for employee: Promotion opportunities · ↑ job satisfaction · Greater adaptability
Benefits for employer: ↑ productivity · Goals more effectively met · ↓ costs from mistakes/defects · More capable staff

Employee Contracts
Legally binding formal agreements between employee and employer.

Employer obligations: Provide work · Pay income · Provide reasonable safety care · Meet industrial relations legislation
Employee obligations: Obey lawful commands · Use care and skill · Act in good faith

Minimum Employment Standards (2010) — 10 Standards:
Hours of work · Parental leave · Flexible work for parents · Annual leave · Personal leave · Public holidays · Community service leave · Workplace information · Long service leave · Notice of termination/redundancy

Types of Employment Contracts:

• Awards — outline minimum pay and conditions

• Enterprise agreements — negotiated between employer and union or group of employees

• Individual common law contracts — right to sue for compensation if either party defaults

Monetary/Financial benefits: Wages/salary · Commissions · Bonuses · Royalties · Discounted staff purchases · Profit sharing · Employee share allocation

Non-monetary benefits: Flexible working hours · Rostered days off · Study support/exam leave · Employee recognition · Flexible leave

Separation (Ending Employment)

Voluntary: Employee chooses to leave of own free will

• Retirement — employee decides to give up work

• Redundancy — job no longer required (technology, merger/takeover)

Involuntary: Employee asked to leave against their will

• Retrenchment — not enough work to justify paying the employee

• Dismissal — unacceptable employee behaviour; employment contract terminated

Ethical Business Behaviour

• Ethics = standards defining acceptable and unacceptable behaviour

• Business ethics = application of moral standards to business behaviour

• Unethical behaviour leads to: lawsuits, wasted time, ruined careers, scandals

Application of moral standards includes:

• Fair and honest business practices

• Decent workplace relations

• Conflict of interest situations

• Accurate financial management

• Truthful communication

Triple Bottom Line (TBL):
Businesses focusing on ethical and social responsibility are often rewarded with increased performance.

Management and Change

Responding to Internal and External Influences

Internal influences on change:

• Management — key drivers; must ensure change leads to success and ↑ profit

• Employees — can recommend changes to policies/processes; some resist change due to fear of job loss, mistrust, or fear of failing to adapt

External influences on change:

• Competition — must be aware of competitors' activities

• Legislation — must comply with new legislative requirements (eg. COVID-19 laws 2020)

• Technology — must adapt to maintain competitive advantage

• Social — must adapt to changing attitudes and values

Managing Change Effectively

Key strategies: communication · employee involvement · training · support · negotiation

Identifying the Need for Change

• Don't change for the sake of it; link change to vision and future direction

• Reasons for change: remain productive, maintain competitive advantage, legal compliance, resolve disputes

Business Information System (BIS)

• Gathers, organises, summarises, and converts data into practical information for managers

• Critical for accurately identifying what needs to change

Setting Achievable Goals

• Re-assess goals when external environment changes significantly

• Goals must be SMART: Specific, Measurable, Achievable, Realistic, Time-bound

Resistance to Change

• Personal change is difficult; achieved with considerable effort; often stressful

• Sources of resistance:

  • Financial costs (new equipment, redundancy payouts, retraining, plant reorganisation)

  • Inertia (fear of the unknown) among managers and owners

  • Cultural incompatibility in mergers/takeovers

  • Staffing issues (deskilling, new skills, loss of promotion prospects)

Strategies to Reduce Resistance:

• Creating a culture of change — supportive environment that reduces fear

• Effective communication — communicate with stakeholders about need for change and its progress

• Positive leadership — high expectations of employees' abilities; trust and support

Management Consultants

• Help businesses improve performance and assist with change management

• Hired for: wide range of business experience · specialised knowledge/skills · external (objective) viewpoint

• Functions: problem solving · making recommendations · assisting with change management

Topic 3 — Business Planning

Small to Medium Enterprises (SMEs)

Definition

• Defined by the ABS as a firm with fewer than 200 full-time equivalent employees and/or less than $10 million in total revenue

• Quantitative measures = measurable/number-based (profit, revenue, sales)

• Qualitative measures = descriptive/behaviour-based (reputation)

Role

• SMEs are the "engine room" of the Australian economy

• Employ 70% of people working in the private sector

• Make 55% of all goods

• Account for 20% of all money spent

Economic Contribution

• GDP: Contribute approximately 50% of Australia's GDP

• Employment: Around 8 million people; ~70% of total private sector employment (47% small + 23% medium). Major generator of new jobs over the last 20 years.

• Balance of payments: If exports > imports → balance of payments surplus and economic growth

• Innovation: Main source of invention and innovation in Australia; account for 20% of R&D spending

Success Factors

• Access to up-to-date information

• Reputation for quality service

• Focus on a market niche

• Flexibility and adaptability

• Entrepreneurial ability (driven and motivated attitude)

Failure Factors

• Poor financial management and performance

• Unrealistic expectations

• Ineffective leadership style

• Inadequate market research

• Wrong strategies

• Insufficient capital

• Lack of financial reporting

SME Failure Rates:

• After 1 year: 25%

• After 2 years: 42%

• After 3 years: 54%

• After 4 years: 64%

• After 5 years: 71%

Influences in Establishing an SME

Personal Qualities

An entrepreneur needs: enthusiasm · initiative · decision-making skills · motivation

Qualifications

• Few/no formal requirements for some SMEs; formal education lowers failure rate

• TAFE courses for entrepreneurship; university degrees suit large business/firm work

Skills — obtained through:

1. Experience — on-the-job training; exposure to different aspects of business; understanding demands and expectations of running a business

2. Education/Training — expensive and time-consuming but available through online and government agencies

Motivation

• Personal drive, determination, desire to achieve a goal

• Many entrepreneurs attracted to transforming an idea into a successful product

Entrepreneurship

• Someone who starts, operates and assumes the risk of a business venture in the hope of making a profit

• Uses a range of personal characteristics to achieve success

Cultural Background

• Traditions, beliefs, knowledge used to establish a business

• Particularly important for global businesses (different cultures, different customs)

Gender

• More likely to engage in different sectors based on gender; increasing number of women starting businesses

• ABS data: approximately one third of entrepreneurs are women; networks identified as a key success factor for women specifically

Age

• An entrepreneur's age can impact: their ability to "start again" if the business fails; their family structure (caring responsibilities vs. flexibility); their level of experience; the size/experience of their professional network

Sources of Information

SME owners need a variety of skills (marketing, HR, finance, administration, PR):

1. Personal advisors — bank managers, accountants, solicitors

2. Government agencies — local, state, federal (eg. the council)

3. Other sources — chamber of commerce, trade associations

The Business Idea

• Can come from personal experience, interests, abilities or imagination

• Must: appeal to the target market; identify a gap in the market; be innovative; attract customers

Competition

• Competition = a rivalry among businesses seeking to satisfy a market

• Entrepreneur must be competitive:

  • Sell at lowest possible price (produce at low cost)

  • Differentiate product/service to make it unique (extra service, added software)

• Direct competitors = sell the same/very similar product to the same market; indirect competitors = satisfy the same customer need with a different product

• A business opportunity may look attractive until competitors (direct and indirect) are properly evaluated

• Social enterprises are a common growth area in the current competitive landscape

• Government regulation changes affect competitive conditions, particularly:

  • Tariff — a tax on imported goods; raises government revenue and increases the import's price, making it less attractive vs. locally made alternatives

  • Quota — a limit on the quantity of a product that can be imported; a trade barrier that reduces competition faced by a domestic producer

Establishment Options

1. New Business (Starting from Scratch)
Most common; most challenging; riskiest option.

Reasons for starting new: unique new product developed; market has grown beyond current supply; current customers not satisfied.

2. Purchase an Existing Business
Buying an already-operating business with all stock, customer base, location, reputation, equipment.

Considerations: Why is it for sale? · Financial records and health · Business reputation

3. Buying a Franchise
Paying for the right to use an established business name and concept.

• Franchisor = the business that sells the rights

• Franchisee = the person who runs the franchise

Only around 12% of franchises fail, vs. much higher SME failure rates generally (see failure rates above) — the proven-formula effect is a real, quantified risk reduction.

Market

When determining the market to enter, an entrepreneur must consider:

1. What goods/services will be sold?

2. What is the most suitable price?

3. What is the most appropriate location?

Goods and/or Services

• Product must have competitive advantage through effective operational and marketing strategies

Price

• Determining price is vital for profitability

• Must consider: total production cost; competitor pricing; perceived quality; market demand; desired image

• Pricing methods: cost-based · market-based · competition-based

Location

• Must justify the expense/cost of the location (shopping centre vs strip mall vs online)

• Locational factors: proximity to customers and suppliers · visibility · pedestrian flow · adequate parking · location of competitors · expansion potential · economic/climatic conditions · future plans for the area

Finance

Sources of Finance:

Debt Financing = borrowed funds from external financial institutions; must repay principal + interest.

Equity Financing = capital contributed by owners (personal savings, selling shares).

Cost of Finance

• Cost = interest or fees charged for using the chosen finance source

• Depends on: type of finance · source · term (length/duration)

• Short-term (overdraft) → higher interest rate; Long-term (mortgage) → lower interest rate

• Equity financing → no debt/interest but owners have a "say" and receive profit share

Legal

Business Name

• All businesses in Australia must register their business name with ASIC (except where owner's name = business name)

• ASIC prohibits more than one business registering the same name

• All businesses must have an Australian Business Number (ABN)

Zoning

• Land is zoned by local government (residential, commercial, industrial, agricultural, recreational)

• New SMEs must find out zoning regulations for their chosen location

Health Regulations

• Public Health Act 2010 (NSW) allows local governments to impose health regulations on food businesses (cafes, restaurants, butchers, bakeries)

• Must meet standards to receive a licence to serve/sell food

• Health inspectors can arrive unannounced to check: food storage temperature · kitchen layout · food handling · food storage time

Human Resources

Skills

• Recruitment must attract the most qualified and suitable applicants

• Skilled employees are more productive and create wealth (through sales)

• Skill base of existing employees must be regularly assessed

Costs

• A business only employs someone if the return > the cost

• Total cost of a worker = wage/salary + on-costs (additional expenses per employee)

• On-costs include: sick/carer's leave · long service leave · superannuation · annual leave · maternity leave · workers compensation

Taxation

Taxation = compulsory payment of a proportion of earnings to the government.

Federal Taxes:

• PAYG (Pay As You Go) — employer withholds part of wages for tax

• Fringe Benefits Tax (FBT) — tax on fringe benefits (eg. company car)

• GST (Goods and Services Tax) — 10% tax on most goods and services; businesses collect on behalf of government and pay to ATO; average rate of taxation has fallen since GST's introduction in 2000

• Company tax — proportion of company earnings. Since 2018 tax changes, rate depends on business size: 30% on profit for businesses with revenue over $50m p.a.; 27.5% for businesses under $50m p.a., reduced to 25% ("small business" rate) more recently

• Capital Gains Tax — tax on income from selling assets (eg. property)

• Business Activity Statement (BAS) — paperwork required to comply with taxation law; calculates PAYG tax for employees, fringe benefits withholding, and GST owed/collected

State Tax:

• Payroll tax — tax on wages paid by employers, collected by state governments. In NSW, the rate is 5.45%, applied once a business's total yearly wage bill exceeds $1,200,000. Religious institutions, charities, schools, and non-profit hospitals are exempt. Other state taxes that may apply: stamp duty, gaming machine taxes, land tax, car registration

Local Government Rates and Charges:

• Water, sewerage, and waste management services

• Development/building approval fees · Inspector fees · Parking fees

The Business Planning Process

Business Plan = a written summary and evaluation of the business idea; identifies goals and steps to achieve them.

• Most important tool for a business owner

• Developed before establishing a business; assists in arranging finance

• Working document — must be referred to and amended to reflect changes

• All plans are unique (depend on product, market, size, location)

Elements of a Business Plan:

1. Executive summary

2. Goals

3. Strategies

4. Business description and outlook

5. Management and ownership

6. Operational plans

7. Marketing plans

8. Financial plans

9. Human resource plan

Sources of Planning Ideas / Situational Analysis

Internal sources — within the direct control of the business owner
External sources — over which the business has little control

SWOT Analysis = technique for gathering information for the business plan

• Enables analysis of both internal decisions and external competitive environment

• Generates large amounts of information; does NOT provide solutions to weaknesses/threats

Market Analysis (a second situational-analysis tool, alongside SWOT)

• Looks at the market the firm already operates in or intends to enter; aims to identify the target market, the needs of the customer, and how those needs are currently being met by firms in the market

• Market research = collecting and interpreting information about the market, enabling the firm to supply the right type, quality, and quantity of product

• Market research examines trends in: fashion/social trends · economic conditions · competitors' actions · government policy · technology · international influences

• Considers both internal factors (e.g. resources, competitive situation, financial position, business culture) and external factors (e.g. economic, technological, political)

Vision, Goals and Objectives

Vision Statement

• States what the owners see the business as in the future (often a 10-year horizon) — the overall inspirational, memorable image of what they wish the business to achieve and where it should be positioned

• Must be: concise · creative · focused · realistic; typically three to four sentences

• Purpose: guide and direct owners, managers, employees; create culture within the business; assists strategic planning

Mission Statement (distinct from vision)

• Outlines clearly what the main goals of the business are and what it hopes to achieve for its stakeholders

• Identifies how the business will get to what it wants to be — makes its purpose and ambition clearer

• Example (Nike): Mission — "to do everything possible to expand human potential... by creating groundbreaking sport innovations, by making our products more sustainably, by building a creative and diverse global team and by making a positive impact in communities where we live and work." Vision — "to bring inspiration and innovation to every athlete in the world."

• Example (Alzheimer's Association): Mission — "to eliminate Alzheimer's disease through the advancement of research; to provide and enhance care and support for all affected; and to reduce the risk of dementia through the promotion of brain health." Vision — "a world without Alzheimer's."

Business Goals
Goals motivate the business to achieve its vision; objectives detail what is needed to accomplish the vision.

Goals must be SMART: Specific · Measurable · Achievable · Realistic · Timed

Categories of Goals:

• Financial goals: maximising profits, increasing market share, growth/diversification, share price

• Social goals: community service, provision of employment, social justice, ecological sustainability

• Personal goals: job promotion, higher income, training and development

Long-Term Growth
Growth = increase in size of a business.

Strategies for long-term growth:

• Lean manufacturing and production

• Customer feedback

• Product modification and innovation

• Supply chain management

• Utilising latest technology

• Outsourcing

Organising Resources

Resource allocation = distribution of resources to successfully meet the business's established goals.

Forecasting

Forecasting = projecting and predicting the future (quantitative planning tool).

• Needed for effective planning; most businesses focus on financial forecasting

Total Revenue and Total Costs

• Total Revenue (TR) = Price × Quantity of units sold

• Fixed costs (FC) = do not vary regardless of units sold

• Variable costs (VC) = depend on the number of goods/services produced

• Total Costs (TC) = Fixed Costs + Variable Costs

Break-Even Analysis

• Break-even = Total Revenue equals Total Costs (profit = zero)

• Above break-even → profit; below break-even → loss

• Formula: Break-even output = Fixed Costs ÷ (Selling Price − Variable Cost per unit)

• After break-even point, every additional product sold = more profit

Cash Flow Projections

• Shows expected cash inflows (receipts) and outflows (payments) over a future period

• Differs from a cash flow statement (which shows the past)

• Usually month-by-month (periodic obligations)

• Excess cash available for extended period → manager may invest in short-term investments

Monitoring and Evaluating

Every business must regularly monitor and evaluate — a static business plan is not enough; it must evolve.

Monitoring = checking business performance by comparing actual vs planned performance.

• Focus questions: What does the business want to achieve? Are the goals being achieved?

• Data used: budgets, sales, costs

Evaluating = investigating the difference between actual and planned performance and making judgements.

• Questions: How is the business performing in terms of profit? Has performance improved over time? Where and why did it fail?

• If desired results achieved → identify successful strategies and re-use them

Sales

• Monitored through a sales report; compares actual sales with planned sales

• Corrective action taken when sales are below forecast

Budget

• Estimate of a business's revenue and expenses over a period

• Planning tool for financial resources; monitors sales trends, market share, stock levels

• Corrective action when actual and estimated figures vary

Profit

• Main financial and strategic objective

• To ensure profit: maximise sales and minimise operating costs

• Profit = source of reinvestment finance for the business

Taking Corrective Action

Corrective action = deciding on actions required to correct performance that deviates from the business plan.

Requires: ongoing monitoring and evaluating

Modifications could involve:

• Changing input materials or form of outputs

• Management practices

• Delivery of products

• Human resources used

Modification = changing existing plans and using updated information to shape future plans.

Writing a Business Report — Tips

• Always structured with headings

• Covers two key functions (tests application of understanding)

• Must start with an executive summary (one paragraph — overview of what will be included; be specific; start strong)

• Sub-headings should mirror each question in the report

• Think of the report as 3 long short-answers; answer each in detail

• Read the stimulus carefully — underline important information (the business usually has problems or wants to grow)

• Use the business name in the response — shows the marker you are engaging with the stimulus; failing to engage caps your mark at 12/20

• Underline keywords — if question asks for strategies, underline them and lead the marker

• Logical understanding of the type of business is important

• Conclusion must be forward-looking (eg. "This business should regularly monitor changes in both the internal and external environment...")