Business Management U1 Notes
Business Management U1 Notes
Business Management U1 Notes
BUSINESS MANAGEMENT
UNIT 1: AOS 1 THE BUSINESS IDEA
UNIT 1: PLANNING A BUSINESS
Businesses of all sizes are major contributors to the economic and social wellbeing of a nation. Therefore, how businesses
are formed and the fostering of conditions under which new business ideas can emerge are vital for a nation’s wellbeing.
Taking a business idea and planning how to make it a reality are the cornerstones of economic and social development. In
this unit students explore the factors affecting business ideas and the internal and external environments within which
businesses operate, and the effect of these on planning a business.
CHAPTER 1 SUMMARY
A. Distinction between Businesses
i. Number of employees
1. Small: Less than 20
2. Medium: 20-199
3. Large: 200 or more
ii. Type of ownership
1. Small: Independently owned, usually operated by 1-2 people
2. Medium: Owned and operated by a few people, and/or private shareholders.
3. Large: Usually owned by unlimited public shareholders (public company) or owned by up to 50
private shareholders (private company) or government owned (local, state or federal).
iii. Legal structure
1. Small: Sole trader or partnership
2. Medium: Partnership or private company
3. Large: Company – public, private or government.
iv. Decision making
1. Small: Owner is responsible for all decisions.
2. Medium: Owner(s) responsible. Can be slower if not everyone agrees, more complex decisions
than small businesses.
3. Large: More complex decision making due to many levels of management and directors.
v. Sources of finance – access to funs
1. Small: Owner’s savings, difficulty in accessing loans.
2. Medium: Owner’s/Partner’s savings, loan or private shareholders. Easier access to loans.
3. Large: Many sources including cash reserves, retained profit, sale of shares and loans from
domestic and overseas institutions.
vi. Market share
1. Small: Small, usually local area, not dominant in industry.
2. Medium: Medium, regional area, some market dominance.
3. Large: Large market share, especially for multinational corporations (branches in many
countries)
vii. Others factors – where is the business based?
1. Small: One business not several
2. Medium: Can be more than one, can be state based.
3. Large: Usually more than one, usually state.
B. Stakeholders
i. Customers
1. People who buy businesses goods/services
2. Want good service and want to be able to purchase the best quality product at the best price.
ii. Suppliers
1. Supply resources to the business allowing it to conduct operations.
2. Want a successful business so that they can continue to supply goods/services into the future to
ensure continued income stream.
iii. Government
1. Local, state and federal levels of government
2. Collect taxation revenue which assists government budgets and providing infrastructure to society.
iv. Shareholders
1. Not usually involved in day to day activities, however will have voting rights.
2. Want organization to maximize its profits to ensure a return on their investment.
v. Employees
1. Work for the business
2. Want fair wages, reasonable conditions and remuneration, a safe work place and ongoing
employment.
vi. Society
1. People other than employees and customers who are affected by the businesses actions.
2. Employment opportunities to community, waste disposal, location and opening hours.
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C. Ethical Issues – doing what’s morally right
i. Behaving fairly and honestly in business
1. Society expects businesses to tell the truth and not mislead consumers. Customers and suppliers
expect to be dealt with fairly and with honesty
ii. Truthful communication
1. Advertising presents many ethical dilemmas. Misleading advertising is unethical and illegal.
Businesses must be careful and ethical when advertising
iii. Dealing with employees ethically
1. The way a business communicates and treats their employees often raises ethical eyebrows.
iv. Conflict of interest
1. This is where a piece of information can be used to one person’s advantage and they gain from
this, other examples include manager’s being offered gifts or payments to persuade them to choose
a particular supplier.
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i. A goal describes what a business expects to achieve over a set period of time. Without a goal, a
business has no defined purpose. Goals provide a business with direction, and helps to measure
results. They can help a business owner develop and implement ideas.
ii. S: goals should be clear and focused e.g. ‘obtain 500 new customers in the market’.
M: goals should be measurable, i.e. they should contain numbers to allow the business owner to
know whether they are on track, just as a sport game has a scoreboard/scorekeeper.
A: goals should be challenging but realistic. An attainable goal usually addresses the question ‘how
can the goal be accomplished?’
R: goals should be worthwhile, support other goals and be based on current market conditions.
T: a deadline or time limit should be set.
B. Goal setting in business
i. Financial goals
1. To make profit
2. Increase sales
3. Increase market share
4. Expand the business
5. Maximising the return on investment: The return on investment is a positive or negative
percentage that relates the money gained or lost on an investment to the cost of that
investment. It’s usually taken to mean that the return on the investment occurs over a 12-
month period.
ii. Social goals
1. Community service: business sponsorship
2. Provision of employment
3. Social justice: making sure anyone involved in the business is treated equally and fairly.
4. Ecological sustainability: protecting the environment, leading to policies for conservation,
recycling and restoration.
iii. Personal Goals
1. To earn a higher income
2. Not normally made public but still extremely important.
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iv. No set checklist that guarantees success, however the following characteristics are helpful in
managing a business:
1. Am I self-motivated, with a desire to succeed?
2. Am I self-disciplined enough to start and follow through long-term projects?
3. Am I healthy enough to withstand the extra workload and stress involved?
4. Do I have leadership qualities to assist in managing and motivating others?
5. Do I have good organisational and administrative skills?
6. Am I willing to take managed risks?
7. Do I have the ability and willingness to learn new skills?
8. Can I make decisions based on logic rather than emotions?
9. Am I able to listen to others’ advice as well as communicate my ideas to others?
10. Am I reasonably at ease in my relationships with people, and sensitive to the needs of
others, especially employees and customers?
11. Am I prepared to work long hours?
12. Am I prepared to receive lower financial returns in the early years than I would receive if
I worked for someone else?
B. Characteristics of successful business entrepreneurs
i. Willing to seize opportunities to start and operate a business as well as take risks to try and make a
profit.
1. Demonstrate initiative, innovation and enterprise.
2. Motivation can come from unexplored markets.
ii. Entrepreneurs tend to have:
1. A shared vision: everyone works together toward the same goal.
2. Enterprise: the effort made by somebody to creatively achieve something new.
ii. Market conditions: the features of a market into which a new good or service is to be introduced,
and include such factors as the:
1. Number of potential customers
2. Level of competition
3. Potential for growth
iii. Market conditions for a particular good or service can often be determined by finding answers to the
following questions:
1. Is the business concept entirely new or does it already exist?
2. Who will buy the product?
3. Why will they buy the product?
4. What needs and wants have to be satisfied?
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5. How big is the market?
6. Where is the market?
7. Who are the competitors?
8. What makes this product different from what already exists?
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SCHOOL-BASED EDUCATIONAL PROGRAMS IN ENTREPRENEURSHIP, AND
THE CREATION OF REGIONAL BUSINESS START-UP HUBS
Methods for fostering a culture of business innovation and entrepreneurship in a nation 2.8
i. Promotion of innovation and entrepreneurship – Businesses such as Google and Apple nurture
innovation and entrepreneurship through the use of collaboration, new technology, active support
systems, time provided for creativity and by not shunning failure. Similarly, a nation may encourage
a culture of business innovation and entrepreneurship. Businesses can do this through their activities,
but governments at all levels can also promote innovation and entrepreneurship through policy and
financial assistance.
B. KEEPING IDEAS/CONCEPTS IN AUSTRALIA, HELPING OUR ECONOMY THROUGH THE USE OF:
C. Government investment in research and development
i. Is expensive, but state and federal governments support businesses through:
1. Direct funding
2. Tax incentives
3. Funding is provided to universities and agencies like the CSIRO and businesses.
D. Council grants for new businesses
i. Local councils facilitate information sessions and small business grants.
ii. Objective is to encourage establishment,
1. Growth and retention of creative and sustainable businesses.
E. Business mentorships
i. A business mentor is a person with extensive business experience and knowledge who can guide a
business owner with less experience.
1. Advice, help set goals, maintain perspective, expand their networks and grow.
ii. Business mentorship refers to relationship between mentor and mentee.
1. Can be formal or informal.
F. School-based educational programs in entrepreneurship
i. Awareness of entrepreneurship can be improved through education and information programs.
Schools teach courses in economics and business, including VCE Business Management, so that
students have some knowledge of entrepreneurship. Many programs also allow students to
experience entrepreneurship.
ii. Each program differs slightly but all are centered around developing business ideas and
testing/examining the viability of these ideas within a given market.
iii. Awareness of entrepreneurship can be improved through education and information programs such
as the $20 Boss program, the Getting Down to Business program and I Plan a Business (iPAB)
competition.
G. Creation of regional business start-up hubs
i. Small Business Centers Victoria (SBVC) provides a range of small business services in Victoria.
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They provide subsidized (reduced cost) premises, advices, services and support to new and emerging
businesses to assist them in becoming profitable. Because they are locally based they have an
understanding of regional issues affecting individual businesses and is able to tailor their advice to
suit the business.
1. Getting started
2. Business management skills
3. Financial management skills
4. Business planning
5. Mentoring for business
6. General business advice
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i. Covers protection and management of matters of national environmental significance.
ii. In Victoria, it applies to noise emission, preventing pollution and damage to air, water and land.
G. Laws related to location
i. Will be influenced by local government zoning and building regulations, as well as regulations relating to
position and size of large signage.
ii. Also includes fire regulations and parking regulations.
H. Health regulations
i. Factors a business must meet to obtain a license to operate:
1. Temperature for food storage
2. Kitchen layout
3. Employee clothing requirements
4. Correct food handling
I. Work health and safety regulations
i. Securing health, safety and welfare of employees
ii. Eliminating risks to health, safety or welfare
iii. Ensuring health and safety of public isn’t at risk by conduct of undertakings by employers
iv. Providing for involvement in the formulation and implementation of health, safety and welfare standards.
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C. Trends
i. The general direction in which people’s attitudes or behaviour in society is developing or changing.
ii. Businesses should consider their demographic (characteristics of the human population e.g. age,
wealth) , as businesses who plan for changing demographics are more likely to be successful.
iii. Another trend is the demand for business to provide family-friendly workplaces, growing belief for
catering for workplace diversity – e.g. employing someone with a disability, it’s expected that the
business would take the necessary steps to ensure the needs of the employee are met in order for
them to perform their job appropriately.
i. Refers to issues relating to the growing use of tools, techniques or systems by businesses to solve problems or
serve a purpose. (macro environment)
ii. Appropriate technology can improve efficiency and productivity, create new products and improve
quality and the range of goods and services available.
1. Businesses must adapt and monitor tech innovation, helps to keep competitive advantage and
reduces chances of products falling out of favour.
2. Failure to detect and adopt new tech can result in a business becoming rapidly obsolete.
B. Development in technology
i. Upsides:
1. Increase chances of consistent quality and completes tasks humans struggle to.
2. Technology has made communication instant.
3. Business owner must consider benefits and limitations
4. New tech allows businesses to transfer info, opening up opportunities for global markets.
ii. Downsides:
1. Leads to decrease in number of employees
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2. Life cycle of products is shorter because they need to be updated and upgraded regularly.
3. Businesses spend more money on r&d to stay ahead of competition.
i. Includes overseas competitors and markets, offshoring labour, exchange rates, protection of IP at a global
level and online sales.
ii. Refers to a business expanding and operating worldwide.
iii. Creates chances to buy/sell internationally and create a level playing field.
B. Overseas competitors and markets
i. Business going overseas will need to establish a competitive edge
ii. Requires extensive knowledge – strategies and SWOT
iii. Innovating is important
iv. Selling overseas spreads risk and allows rapid growth
v. Distribution and transportation can be an issue
C. Offshoring labour
i. Refers to moving parts of a business process to the same or another business located in another country.
ii. Contentious issue in modern society, must be considered carefully
iii. Done because it’s usually cheaper.
D. Exchange rates
i. The price of one country’s currency expressed in terms of another country’s currency.
ii. Affected by:
1. Interest rates
2. Inflation
3. Balance of trade
4. Political stability
5. General state of economy
6. Quality of governance
iii. A depreciation (fall in value of country’s currency) will make exports cheaper and imports more expensive.
iv. Affects:
1. Financial transactions
2. Demand for products
3. Price of imported materials
E. Protection of IP globally
i. Patents, trademarks, copyright.
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F. Online sales
i. Reduce long term costs as business no longer pays for physical location, water and electricity.
ii. Will reach wider market
iii. Can be expensive to maintain a well-run website, websites can crash.
iv. Not going online could result in the business becoming uncompetitive.
i. Businesses should constantly think about their triple bottom line – where they consider profit, impact upon
society and the environment.
ii. Businesses who are socially responsible have improved business performance
iii. Customers actively support businesses that are csr
iv. These businesses tend to have better relationships with stakeholders: (customers, suppliers, competitors,
employees, shareholders and owners)
1. Other businesses
2. Government
3. Media
4. Suppliers
5. Broader community
v. THE TRIPLE BOTTOM LINE REFERS TO THE ECONOMIC, ENIVRONMENTAL AND SOCIAL
PERFORMANCE OF A BUSINESS.
B. How can a business be socially responsible?
i. Not just about helping the local community
1. Avoid conflicts of interest
2. Develop employee skills
3. Ensure fair price is paid for all materials
4. Minimise waste and pollution
5. Conserve use of energy
6. Protect health and safety of customers
7. Become community involved
8. Ensure business is free of corruption
9. Work with suppliers to ensure they’ve got socially responsible policies in place
10. Deal with employees honestly, fairly and with respect.
ii. CSR is also about the welfare of the environment and employees.
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17. CUSTOMER NEEDS AND EXPECTATIONS
Customers and competitors 3.8
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OUTCOME 3
On completion of this unit students should be able to describe the internal business environment and analyse how
factors from within it may affect business planning.
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21. BUSINESS RESOURCE NEEDS AND THE FACTORA AFFECTING THEIR
CHOICE: NATURAL LABOUR AND CAPITAL RESOURCES
Internal factors affecting business planning: resource needs 4.1
A. Natural
i. Items used by the business that come from the natural environment.
ii. Businesses should consider the following factors when planning for their resource needs:
1. Are their products designed environmentally friendly, and how can they minimize the negative
effect of their products on the environment?
2. How can they reduce wastage and environmental damage during the production process?
3. Are the raw materials that they plan to use in production sustainable, accessible and reasonably
priced?
4. Are the shops, offices or factories of the business designed in a sustainable way that minimizes
energy usage?
5. Where will they source their natural resources from?
B. Labour
i. Refers to the people that provide their skills, effort and knowledge to the business. A business can also hire a
subcontractor.
1. How many workers will be needed and what kind of skills will they need?
2. How will the business attract and retain these workers?
3. What kind of training should the business offer to its workers to help them grow and benefit the
business?
4. How will the business provide fair pay and healthy working conditions for its employees?
5. What are the legal responsibilities of the business towards its employees?
6. How will the business resolve any disputes that arise with employees?
7. Does the location of the business allow access to the types of workers that it needs?
C. Capital
i. Refers to the tools and machinery that are used to produce goods or perform services.
1. What kind of tools and machinery will be needed?
2. How will the business repair, maintain and replace its capital equipment when needed?
3. Does the business have the right workers with the right skills to operate the machinery they need?
ii. Important because they maximise efficiency of labour.
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i. Different businesses will be suited to different location. Local government zoning determines where some
types of businesses can operate. Designed to keep business activities separate from residential areas. Sets
aside commercial and industrial zones and it is in these areas that most businesses will operate.
ii. Shopping centres
1. What are the downfalls/benefits of having your business located in a shopping center?
a. Lots of parking, many different types of stores.
iii. Retail shopping strips
1. Busiest strips located near public transport, offer high visibility, popular because open later than
shopping centers.
2. Lack of parking
iv. Online presence
1. Setting up and maintaining website to provide info about available products/services or how
customers can order online.
2. Using online sales platforms such as eBay
3. Accepting online payments
4. Making sure customers can find the website through paid online advertising and Search Engine
Optimisation (SEO) tools.
5. Can be convenient, but is risky due to cyber criminals.
v. Home-based businesses
1. Plumbers, electricians and painters don’t need a physical location as they provide services in the
customer’s home/business.
B. Factors affecting choice of business location
i. Zoning
1. Local government zoning dictates where some types of businesses can operate.
2. Sets aside residential, commercial and industrial zones.
ii. Visibility
1. If a business wants high visibility, they should locate their business in a prime shopping area, e.g.
shopping centre or main street.
2. Businesses such as manufactures don’t need highly visible as they transport their goods to outlets.
3. Prime location = Customer convenience + Visibility
iii. Cost
1. Leasing/purchasing a central location in a busy shopping centre will be far more expensive than a
location with lower levels of passing customer traffic.
2. For a café/food outlet, passing traffic is a major source of customer so cutting costs by choosing a
less visible location can be counterproductive.
iv. Proximity to customers and suppliers
1. Must be convenient for customers, so a convenient location is key.
v. Proximity to competitors
1. Unwise to establish new business near businesses of the same type, unless customer demand isn’t
being satisfied.
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vi. Complementary businesses
1. Offer goods/services targeted at the same customers e.g. an doctors and a pharmacy.
A. Equity
i. Refers to the funds contributed by the business owners to start and then expand the business.
ii. If it’s a company, is referred to as shareholder’s equity.
iii. Doesn’t have to be repaid unless owners leave business.
iv. Cheaper because no interest has to be paid
v. Disadvantage is that owner expects good return, but may only generate low profits.
B. Debt (External)
i. Is the funds contributed by the owner(s) of a business to start and build the business.
ii. Must be repaid with interest
iii. Sourcing funds from outside the business should result in increased earnings and profits
iv. Higher risk source of finance as interest and government charges have to be paid on top.
v. Used to finance temporary shortages in cash flow or finance capital.
vi. Finance capital is the funds available for the short-term financial commitments of a business.
vii. Generally has to be repaid within 1-2 years.
C. Short-term borrowing
i. Provided by financial institutions through bank overdrafts, bank (commercial) bills and bank loans. This type
of borrowing is used to finance shortages in cash flow or finance working capital.
ii. Working capital is the funds available for the short-term financial commitments of a business.
iii. Generally paid back in 1-2 years.
D. Bank overdraft
i. Refers to the bank allowing a business or individual to overdraw their account up to an agreed limit got a
specified time, to help overcome a temporary cash shortfall.
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ii. One of the most common types of short-term borrowing.
iii. Costs are minimal and interest rates are lower than other forms of borrowing.
iv. Interest rates are generally variable meaning it’s paid on the outstanding balance daily.
v. This type on interest rate allows a business to flexibly manage their finance.
vi. Banks require the agreed limits to the overdraft to be maintained at a high level and require some security.
vii. Repayable on demand, but not common.
E. Bank Bills
i. Short-term securities issued by a business and bought by a bank.
ii. Borrower receives money immediately, promises to pay back the sum of money and interest at a future time.
iii. Type of bill exchange and are given for large amounts, usually over $100,000 for a period of 90-180 days.
iv. The bank acting as an agent guarantees that the money will be repaid when it is due.
F. Trade Credit
i. Exists when a supplier provides products to a business with agreement to charge for them later.
ii. 30-90 days until payment required, no interest, easy to obtain.
G. Long-term borrowing
i. Relates to funds borrowed for periods longer than 2 years.
ii. Can be secured or unsecured, interest rates usually variable, most common long-term in a mortgage.
H. Mortgage
i. A loan secured by the property of the borrower (the business)
ii. Repaid over an agreed time, such as 15 years.
iii. The property mortgaged cannot be sold or used as security for further borrowing until the mortgage is repaid.
iv. Used to finance property purchases, such as new premises, a factory or an office.
I. Leasing
i. A way of financing the purchase of assets without a large initial capital outlay.
ii. The lessee is the person or business to whom a lease is granted.
iii. A lessor is the owner of an asset that is leased under an agreement to the lessee.
iv. Leasing machinery and vehicles is common in a business.
v. Interest rates may be higher
vi. Advantages include:
1. Provides long-term financing without reducing control of ownership
2. Permits 100% financing of assets
3. Lease payments are a tax deduction
4. Repayments of the lease are fixed for a specific period so cash flow can more easily be monitored.
J. External sources of finance: grants
i. Government can also provide finance to businesses in the form of grants for development, especially to
promote exports.
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ii. Grants can be obtained through state and federal governments, however federal government grants must meet
conditions imposed and be used for a specific purpose.
K. Factors affecting choice of finance
i. Terms of finance: the amount of the repayments and frequency at which they must be made.
ii. Business structure: large businesses have more opportunities for equity capital than small businesses who
have to raise equity from private sources or by taking on a partner.
iii. Overall cost: overall cost of each alternative source of finance helps make a decision when planning for
financial needs.
iv. Flexibility: circumstances can change rapidly, so a business needs to be able to adjust.
v. Level of control: owners wish to retain as much control over their business as possible.
A good business history increases likelihood of Success of business may have been due to previous
business success owner’s personality and contacts, so may be lost
when sold
A proven track record makes it easier to obtain May be difficult to assess the value of goodwill with
finance likelihood of new owner paying more than the
goodwill is worth
Stock has already been acquired and is ready for Some employees may resent any change to business
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sale operation
Owner can determine pace of growth and change Time is needed to develop a customer base, employ
staff and develop lines of credit from suppliers
If funds are limited it’s possible to begin on a If the start-up period is slow then profits may not be
smaller scale generated for some time
iv. Incorporation refers to the process that companies go through to become a separate legal entity from the
owner(s)
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v. An incorporated business has its own separate legal existence. Regardless of what happens to owner(s),
business can continue to operate.
vi. An unincorporated business has no separate legal existence from owner and will either be a sole trader or
partnership.
vii. Most common legal structure in Australia is the unincorporated enterprise, because this is the easiest and
cheapest to establish.
B. Sole trader business
i. A business owned and operated by one person.
ii. Unlimited liability is when the business owner is personally responsible of all the debts of their business.
iii. Factors to consider include:
1. Is the owner prepared to risk the unlimited liability of operating their business?
2. Will the owner have enough finances, skills and expertise to establish and grow the business?
3. Is the owner prepared to take complete responsibility of the business in exchange for complete
control and the right to keep all profits?
4. Does the lower cost of establishing and maintaining a business as a sole trader outweigh the
benefits of incorporation?
Advantages Disadvantages
Low cost of entry Personal (unlimited) liability for business debts
Simplest form End of business when owner dies
Complete control Hard to operate if sick
No partner disputes Need to carry all losses
Owner’s right to keep all profits Burden of management
Less government regulation Must perform wide variety of tasks
No tax on profits only personal income Difficulty in raising finance for expansion
C. Partnership
i. Requires minimum of 2 and maximum of 20 partners
ii. Some exceptions:
1. Medical practioners & stockbrokers: 50 partners
2. Vets, architects & chemist: up to 100 partners
3. Solicitors & accountants: up to 400 partners
iii. No separate legal entity
iv. Partners are financially responsible for any debts (unlimited liability)
v. Partnership agreement can be made verbally, written is not compulsory.
vi. Limited partnerships: were introduced to allow one or more partners contribute financially to business but
take no part in running partnership. Referred to as silent or sleeping partner.
Advantages Disadvantages
Low start-up costs Personal unlimited liability
Less costly than a company Liability for all debts including partner’s debt’s,
even before partnership has begun
Shared responsibility and workload Possibility of disputes
Pooled funds and talent Difficulty in finding a suitable partner
Minimal government regulation Divided loyalty and authority
No taxes on profit, only wages
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On death of 1 partner, business can keep going.
vii. Factors to consider:
1. Are the owners prepared to risk unlimited liability of operating their business?
2. Will the prospective partners have enough finance skills and expertise to establish and grow the
business?
3. Do individuals believe that prospective partners will act in best interests of business?
4. Is each individual certain that their prospective partners will not expose them to personal debts?
5. Can prospective partners foresee disputes arising due to a clash of personalities/opinions?
i. As a business grows, there are advantages to changing ownership structure to become a company. This is
known as incorporation.
ii. Results in company having a separate legal entity, to its owners who are now shareholders.
iii. Results in limited liability for shareholders – not personally responsible for the debts of the business unlike
sole trader/partnerships.
iv. This protection does not extend to the directors of a company, as they have an obligation to ensure company
obeys law, and acts in interests of shareholders.
v. Ltd means a business has limited liability. A business can be organised as either:
1. A proprietary (private) or pty
2. Public company
B. Private companies
i. Most common company structure is 2-50 private shareholders
1. Usually a small-medium business, likely family owned businesses.
ii. Shares are only offered to those people the business wishes to have as part owners.
C. Public Companies
i. Listed on the ASX (Australian Stock Exchange), general public may buy/sell shares.
ii. A public company has:
1. Minimum of 5 shareholders, no maximum
2. No restrictions on transfer of shares or raising of money from the public via share offers.
3. Requirement to issue a prospectus when selling shares for the first time. (legal document that
provides details about investment in the company).
4. Minimum requirement of 3 directors, 2 who must live in Australia.
5. The word ‘limited’ or ‘ltd’ in its name.
iii. Advantages/Disadvantages
Advantages Disadvantages
Easier to attract public finance Cost of formation
Limited liability – separate legal entity Double taxation – company and personal
Easy transfer of ownership Personal liability for business debts if directors
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knew at the time the business couldn’t pay loans
Long life – perpetual succession Requirement to publish annual report of audited
accounts
Experienced managers - directors Public disclosure – reporting of certain info
Greater spread of risk Too much growth – resulting in inefficiencies.
Company tax rate lower than personal income tax
rate
Growth potential
As per cent legislation, ability to have only one
shareholder and one director
iv. Factors to consider:
1. Does the owner need the extra legal security offered by limited liability?
2. Will the business need public finance, as is possible with a public company?
3. Will the owners be willing to relinquish control of the company to unknown investors by going
public?
4. Is it worth extra costs associated with establishing a company and preparing separate yearly tax
returns?
i. A business model is a plan that outlines how the business will run its operations to generate a profit.
ii. Elements to consider when planning a business model:
1. What is the main goal of the business?
2. What type of goods/services will the business offer?
3. How will the business sell these goods/services?
4. Who are the target customers?
5. What types of costs will the business expect to incur?
6. Will a new business be established or will a franchise agreement be entered into?
B. Online businesses
i. Due to the rapid growth of the internet recently, businesses have evolved into online businesses, meaning
their goods/services and other info is listed online. Some of the fastest growing and most successful
businesses no longer have factories, warehouses, shops or face-to-face customers and are based solely online,
or are able to take advantage of new business opportunities through technology such as apps.
ii. Able to reach customers around the world, avoid many expenses involved with having a physical store.
iii. Exposes customers to online theft, unsatisfied customers who weren’t able to physically inspect products
before purchase.
C. Advertising-based websites
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i. Offer free access to people and generate revenue through advertising. Other business will pay a website to
feature their advertisements because it reaches their target markets. This is how many blogs have grown into
successful businesses. (Sponsorships?)
D. Freemium
i. Websites and applicant that provide free services and gain profit through subscriptions such as Spotify.
E. Brokerage
i. Websites such as eBay brings buyers and sellers together in exchange for a brokerage fee when sales are
made.
F. Merchant
i. Online sellers who use their own websites or brokerages (eBay). Usually buy in bulk from
wholesalers/manufacturers and sell products to customers to make a profit.
G. Bricks and Mortar
i. Are businesses that have a physical location such as a store or shopping centre.
ii. Chosen model for many of the world’s biggest retail, manufacturing and wholesale businesses.
iii. Offers face-to-face interaction and security of physically inspecting & paying.
iv. More expensive to establish and maintain which makes it difficult to keep competitive prices.
v. Many b&m businesses have adapted online presences to complement physical stores. Referred to as ‘bricks
and clicks’.
H. Import and Export
i. Earn their income by trading goods internationally.
ii. Source goods from overseas that will be competitively priced on Australian market due to superior quality,
cheaper cost of purchasing (from overseas manufactures).
iii. Shipping, distribution, taxes on imports known as tariffs.
I. Franchise
i. An agreement thereby the franchisor grants the franchisee the rights to use its business name and distribute its
goods/services.
Advantages Disadvantages
Avoid problems of starting a new business Little scope for making independent decisions
Well recognized name and established trademarks Profits and fees and are favourable to the franchisor
Success rate is 3x of an independent business Franchisee’s business forgoes the possibility of
expanding an original brand as a franchisor.
Back up by managerial expertise
J. Social Enterprise
i. Aims to improve well-being of others (rather than focus on profits through its business activities)
ii. Still needs to earn enough to fund the business.
iii. Operates by relying on volunteers to run the business, receive donations and grants, crowd funding to raise
money.
Advantages Disadvantages
Relies on assistance from government and local Relies on donations.
community
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28. BUSINESS SUPPORT SERVICES SUCH AS LEGAL, FINANCIAL,
TECHNOLOGICAL, COMMUNITY-BASED, FORMAL AND INFORMAL
NETWORKS AND BUSINESS MENTORS
Business support services 4.8
i. Strengths, weaknesses, opportunities and threats as well as any opportunities and threats from the external
environment.
STRENGTHS WEAKNESSES OPPORTUNITIES THREATS
What are our strengths? What are our weaknesses? What are our opportunities? What are our threats?
What is the business good at? Do we have competent managers What will new tech bring for us? What trends have been evident
Is our product popular? and staff? Is the national economy strong? in our markets?
Are our customers loyal? Is our computer system obsolete? Are interest rates low? Are there new laws regulating
Do we have a skilled and Have we experienced past What are our possible new what we do?
motivated workforce? failures? markets? Are there new competitors?
Do we function efficiently? Have we been upgrading our What other businesses can we Are current competitors taking
Are we in a solid financial facilities to keep peace with acquire to expand the business? over our market share?
position? others?
Is our equipment state of the
art?
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30. FEATURES AND CONSTRUCTION OF BUSINESS PLANS AND THE
BENEFITS OF USING THEM
Planning tools and business plans 4.9
A. Market research
i. Collecting and analysing data (quantitative) and information (qualitative) to assist business in understanding
customers and competitors.
ii. Business can conduct prior to starting the business to establish whether there is room in the market for the
business.
B. SWOT analysis
i. Strengths, weaknesses, opportunities and threats.
C. Business Plans
i. Map/guide which business journey can be plotted
ii. Is a written statement of goals/objectives and steps taken to achieve them.
iii. Best results come from effective management and detailed planning.
iv. Will assist business in accessing finance – shows business is organised.
v. Living document – change as the business changes.
D. How to plan
i. Is a process, series of actions to achieve an objective, any business with a plan has direction, ultimately saves
money, time, effort and increases chances of success.
E. Business plan elements
F. Executive summary
i. Usually prepared at the end of plan writing process.
1. Registered business name
2. Business legal structure
3. ABN and ACN if applicable
4. Location
5. Date established
6. Owner names, relevant experience and qualifications
7. Products/services
8. Business goals and objectives
9. Target market and outline of marketing strategy
10. Financial plan outline including sales, profits forecast, startup capital required
11. Mission/vision statement
G. Operations Plan
i. Outlines how business will be set up and the hr needs. People and processes business will use to achieve
objectives.
1. Suppliers
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2. Plant and equipment required including costs (cars, computers)
3. Current items of inventory (stock)
4. Tech and software required including cost
5. Trading hours including details of peak trading periods
6. Payment methods accepted
7. Credit policy
8. Warranties and refunds
9. Membership and affiliations e.g. industry associations
H. Financial Plan
i. Details how business will be financed, projected cash flow, revenue, expenses and profit.
1. Balance sheet (net assets & liabilities of business)
2. Expected volume of sales
3. Estimated profits and losses
4. 5 year forecast of expected cash flow
5. Break even analysis – calculates at what point business should start making a profit.
I. Marketing Plan
1. Description of market
2. Industry analysis or evaluation
3. SWOT
4. Pricing
5. Methods of sales and distribution
6. Profile of customers
J. Following 11 sections should be included:
1. Title or cover page
2. Executive summary
3. Business profile and details
4. Legal details and considerations
5. Insurance and risk management
6. Sustainability plan
7. Products/services
8. Operations plan
9. Marketing plan
10. Financial section
11. Appendices
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