commerce

An entrepreneur has an original idea for a product or service and goes to start, operate and assume the risk of a business venture.

The motivating force behind them is the hope of making a profit

The business owner’s personality, skills and ambitions need to be analyses because the future success of the businesses rest largely with the owner.

Reasons to be an entrepreneur: (advantages)

  • financial rewards

  • freedom to choose when and where they work and with whom

  • desire to be their own boss

  • have more control in their life

Disadvantages of an entrepreneur:

  • Business failure

  • Stress

  • Uncertain income

  • Risk

  • Responsibility

Characteristics of an entrepreneur

  1. The ability to see and take advantage of an opportunity 

  • Successful entrepreneurs are able to identify and take advantage of an opportunity 

  • Potential business owners are always seeking for opportunities including ideas for new products, new customers and new ways of running businesses

  • The source of a business may come from a person’s own experiences, interests, abilities and imagination

  • The successful identification of a gap in the market is key to establishing a new business. Breaking into a market that is already well served means that the new business has to do something exceptional.

  1. The ability to establish a shared vision

  • set objectives and have a vision

  • gives business a clear direction

  • organization’s goals

  1. Initiative, innovation and resilience

  • a successful entrepreneur demonstrates these 3

  • initiative refers to the ability to br resourceful and decide, in an independent way, what to do and when to do it

  • resilience refers to the ability to cope with the ups and downs, adapt well to change and bounce back from challenges

  • innovation generally refers to the process of creating a new or significantly improved product, service or process

  1. An appreciation of the role of failure in success

  • they appreciate the role of failure in success and view it as an opportunity to learn

  • embrace failure, learn from it snd grow

 

planning for success (s236 - s247)

The opportunities to run a small business include:

Market Research- 

  • level of demand = profit

  • collecting and analyzing information about customers and the business opportunities available.

  • understanding consumer behavior

The three steps of market research involve:

  1. determining the information needed

  2. collecting data from primary and secondary sources

  3. analyzing and interpreting data

Location

  • a good location can make the difference betwen sucess and failure

  • this is particularly true in retail businesses which generally need a constant flow of people walking past the store

  • good location = exposure to consumers = higher profits

Demographics

  • population characteristics that affect customer spending and include age, ethnicity, gender, marital status, family size and income

Competition

  • competitors are other businesses that offer similar products/services

  • businesses need to be mindful of the actions snd strategies implemented by their competitors as this can affect their sales

Target markets

  • once the target market has been identified, the business concentrates its marketing activities on that group.

key features of organizational structures (s249 - s263)

the five main legal structures are:

  • sole trader

  • partnership

  • private company

  • public company

  • incorporated association 

Sole trader is a business owned and operated by one person. It is the most common type of business in australia. It is the simplest and cheapest structure to establish. The sole trader receives all the profit and suffers all the losses. They have unlimited liability

Partnership is usually owned between 2 and 20 people, called partners. The partners share their profits and losses. They also have unlimited liability

Private company usually have between 2 and 50 private owners called shareholders. They are often family owned. Shares in private companies are offered only to those people the business wants as part owners. Shares in private companies are offered only to those people the business wants as owners. proprietary limited must be listed on a private company, abbreviated as ‘Pty Ltd’. Shareholders have limited liability

A public company can have an unlimited number of shareholders. The shares for public companies are listed on the Australian Securities exchange (ASX). The general may buy and sell shares in those companies. Shareholders in public companys have limited liability. A public company must have the word ‘Limited’ abbreviated to ‘Ltd’ after its name

A group of 5 or more people may form an incorporated association in NSW by registering with NSW fair trading. Incorporated associations are small scale, non profit and non commercial in nature. they can only conduct business in the state in which they are registered. They have their own legal identity.

The two main types of finance available to small business owners are debt and equity

Debt: other peoples money from banks, finance companies and trade supplies

Equity: The owners or shareholders contributions from capital, retained profits and ordinary shares

The main advantage of debt financing is that the owner does not have to sell any ownership in the business to raise funds. Also, debt financing has certain taxation advantages

Equity has an advantage over debt because it does not have to be repaid unless the owners leave the business. Its also cheaper than debt finance because there are no interest payments.

A loan is an agreement to borrow a set amount of money that needs to be repaid within a certain period of time. This is called ‘the term’ This interest may be a fixed rate or a variable rate.

A loan may be secured or unsecured

Secured loan

The borrower offers an asset as security for the loan. If they dont repay the loan, the lender may sell that asset to get their money back. They have a lower interest rate

Unsecured loan

The borrower does not need to have an asset to offer ss security but the interest rate is usually higher.

Prospectus

A prospectus is a legal document issued by companies that are offering securities for sale. The prospectus must contain all the information that investor’s and their professional advisors would reasonable require to make an informed decision about the following:

  • the rights and liabilities attached to the offered securities

  • the issuing company’s assets and liabilities, financial position and performance and their profits

The role of the prospectus is to make investors aware of the rusks of an investment. The disclosure also protects the company from future accusations that it did not fully disclose enough information about itself or the securities in questions.

Establishing a new business or purchasing an existing business (s266 - s278)

The 3 main ways of going into business:

  • setting up a new business

  • purchasing an existing business

  • purchasing a franchise

Usually it is better to start a new business than purchase an existing one when:

  • A person has created something unique and starts a business to market their invention

  • An existing small business does not satisfy the needs of customers

  • The market has grown and existing businesses cannot support additional customers

Purchasing an existing business

When an existing business is purchased, the business is already operating snd everything associated with the business is included in the purchase eg. reputation, stock and equipment and staff

Franchising

Under a franchise agreement a person (franchisee) buys the right to use the business name and distribute the goods and services of an existing business (franchisor)

Important planning considerations:

Staffing

Successful business owners recognize that they rely on the quality of their employees to achieve their aims- improve profit, growth snd increase market share. Developing good working relationships with staff and motivating them to do their best in the workplace must be a high priority for the business owner. Good staff = competitive advantage. Especially when the business offers a service where the customers come into direct contact with the employees (teaching, massage). One mistake that some business owners often make is not providing enough time or financial resources to satisfactorily carry out the recruitment process.

Identifying an appropriate location:

There are many factors to consider when choosing the best location:

  • Cost, how much will the premises cost?

  • Closeness to customers

  • Closeness to support services

  • Closeness to complementary businesses

  • Visibility, is it visible to foot and vehicle traffic?

  • Closeness to suppliers, the further you are from suppliers means longer delivery times and more expensive delivery costs

  • closeness to competitors

Equipping premises:

Ensuring you have the right equipment, fittings, furniture and technology so their employees can work efficiently

  • How much money is required ?

  • What sources of funding to use

  • where to rent/lease or purchase equipment

  • What training staff will need in order to use the equipment

  • How to maintain the equipment

Obtaining realistic valuations:

Its important to determine the current worth of the business and its future prospects including sales, costs, profits, assets, liabilities, tax and legal issues

The info you should seek:

  • Business history

  • Sales info

  • Staff, supplier and customer information

  • Financial statements for the past few years

  • Details about goodwill

Business operations (inclusive of 8.7.2 Regulations affecting business operations - three levels of government; work health and safety; taxation ; environmental regulations) (s281 - s29)

Regulations Affecting Business Operations

  • Small business owners may feel overwhelmed by legal obligations.

  • Legal obligations may be frustrating, especially when more than one level of government is involved.

  • All small business owners must be aware of the laws affecting their business, particularly regarding:

  • Regulations, licenses, and approvals required to operate legally.

  • Key point: All three levels of government (federal, state, and local) have regulations that small business owners must follow.

Federal Government Regulations

    •    PAYG income tax and fringe benefit tax, where applicable.

    •    Deduction of income tax from employees who earn above the minimum taxable wage level.

    •    Collection of GST on behalf of the ATO.

    •    Provisions for employee superannuation.

    •    Abiding by unfair dismissal laws when terminating employees.

    •    Ensuring compliance with employee working conditions.

    •    Not engaging in anti-competitive practices.

    •    Registration of the business name unless it carries the name of the owner.

    •    Protecting consumers from undesirable business practices.

    •    Not engaging in misleading or deceptive advertising.

State Government Regulations

    •    Provision of employee entitlements such as award rates of pay and conditions.

    •    Abiding by work health and safety regulations.

    •    Taking out workers’ compensation insurance.

    •    Abiding by pollution controls.

    •    Observing regulations regarding the sale of food, cigarettes, and alcohol.

    •    Ensuring adequate and non-deceptive labeling of foodstuffs and clothing.

Local government regulations

Many small businesses owners overlook the importance of local government regulations. Any business using premises or land must first seek local government approval.

Commencing trade before approval is obtained could result in the closure of the business. Local government have control over the following business activities:

  • Determining land zoning and approving new development applications

  • Fire regulations, especially fire prevention facilities

  • Parking regulations governing the number of spaces and need to be provided

  • Health regulations, especially the safe handling of food

  • The size, shape and location of business signs.

Three major regulations 

Work Health and Safety:

Growing community and worker awareness or safety issues, increasing levels of injuries and accidents at work and rising compensation costs in recent decades, prompted both federal and state governments to improve Work Health and Safety.

A business owner is legally responsible for implementing health and safety practices in the workplace when he or she establishes a business. In NSW, the WHS Act 2011 is the main law covering WHS. Some of the main obligations under the law include:

  • Employers must ensure the health, safety and welfare at work of all employees by providing a safe system of work

  • Employers must ensure that all employees are adequately trained in relation to WHS.

  • Employers must ensure that machinery and substances are used, handled, stored and transported safely.

  • All employers must take out workers’ compensation insurance.

  • Employers must take steps to ensure that all people on-site who are not employees are not exposed to risks.

  • Employees are required to take reasonable care for the health and safety of others, to cooperate with employers and comply with WHS requirements

  • Health and Safety committees must be established at workplaces with more than 20 employees

  • SafeWork NSW inspectors may inspect a workplace and issue improvement and prohibition notices

  • Corporations may be fined up to 3 million and individuals $300 000 and/or a five year prison sentence for serious breaches.

Taxation

Taxation is the compulsory payment of a proportion of earnings to the government. Taxation is a means by which the government finances its expenditure by collecting money from individuals and businesses. Tax can be imposed, for example, on income, on capital gains and on the provision of goods and services. Many different federal and state taxes apply to businesses, and it is important that a person starting a business becomes familiar with all the appropriate tax requirements. 

Environmental Regulations

Federal, state and territory governments, and local governments jointly administer environmental protection laws in Australia. The Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act) is the Federal government’s main environmental law. The EPBC Act is focussed on the protection of nine ‘matters of national environmental significance’. These matters include threatened species; World Heritage Sites; the Great Barrier Reef Marine Park; and water resources in relation to large coal mining and coal seam gas developments.

In NSW the Protection of the Environment Operations Act 1997 (POEO Act) is the main law regarding environmental protection. This law is administered and enforced by the Environment Protection Authority (EPA). The EPA partners with business, government and the community to reduce pollution and waste, protect human health, and prevent degradation of the environment. They are responsible for issuing and monitoring environment protection licences and have the power to fine or sue businesses and individuals who break the law.