aos 1: business foundations Flashcards
business
organisation where goods and/or services are exchanged for money
- provide employment
- aim to make profit
business sizes
the ABS classifies the size of business by the number of people they employ
ABS
the Australian bureau of statistics
what are the three business sizes
- small business
- medium business
- large business
small business
employs 20 or less
medium business
employs between 20-200
large business
employs 200+
sole trader
business structure owned and operated by one person
sole trader characteristics … listed
- simple and cost effective
- same legal entity (unincorporated)
- unlimited liability
- owner retains all profit
- can hire employees
sole trader advantages … listed
- simple and inexpensive to set up
- owner has complete control
- no disputes with partners
sole trader disadvantages … listed
- unlimited liability=personally responsible for all debts
- more difficult to gain finance
- often required to perform many different tasks=heavy reliance on owners skills
partnerships
type of business owned between 2 and 20 people
- owners=partners
partnerships characteristics .. listed
- simple and cost effective
- responsibilities and profits are shared
- same legal entity
- unlimited liability
- disputes can occur between partners
partnership advantages … listed
- simple and inexpensive to set up
- work load can be shared amongst partners
- different skills and expertise brought into business
partnership disadvantages … listed
- unlimited liability
- potential for disagreement over key decisions
- need to share profit amongst partners
the process of beginning a company structure is known as?
incorporation
company
owned by shares which are known as shareholders
company characteristics … listed
- limited liability
- business is registered with ASIC
ASIC
the Australian securities and investments comission
types of companies … listed
- private limited company
- public listed company
private limited company
incorporated business owned between 1 and 50 private shareholders
a private limited company is controlled by ????
board of directors
private limited company characteristics … listed
- seperate legal entity
- owners are called shareholders
- limited liability
- proprietary limited (pty ltd)
private limited company advantages … listed
- limited liability
- perpetuity
- can be easier to attract more capital than sole trader and partnerships
perpetuity
life of the company can live longer than the directors
private limited company disadvantages … listed
- more complex and expensive to establish
- more reporting requirements to the government
- shares cannot be traded freely
public listed company
incorporated business whose shares are freely traded on a public exchange to an unlimited number of shareholders
public listed company characteristics … listed
- initial public offering (IPO)
- purchase at share price on the ASX and earn dividends
- limited (Ltd)
- stricter government regulations
public listed company advantages … listed
- limited liability
- easier to raise capital by selling more shares to public
*life of the company can live longer than the directors (perpetuity)
public listed company disadvantages … listed
- highly complex and time consuming to establish
- high cost in establishment
- possible loss of control
social enterprise
business that exists primarily to fulfil a vision that BENEFITS THE COMMUNITY OR A SOCIAL NEED rather than shareholders
social enterprise characteristics … listed
- sell goods and/or services in order to make a profit
- can rely heavily on grants and donations
- reinvest profits to help further social/environmental causes
STREAT
aims to provide homeless and disadvantages youth with life skills, training and work experience
social enterprise advantages … listed
- meeting a social need can encourage community support=increasing profit
- improved morale within the business as employees value the work they are doing
social enterprise disadvantages … listed
- difficult to obtain finance to begin the business
- difficult to focus on financial AND social objectives
government business enterprise (GBE)
business that’s owned by the government
government business enterprise (GBE) characteristics … listed
- aim to fulfil government policies and offer services to the community
- aim to make a profit
- normally controlled by a board of directors
government business enterprise (GBE) examples … listed
- aus post
- VCAA
- vic roads
government business enterprise advantages .. listed
- provides healthy competition to private sector businesses and can lower prices in the market
- may be invest in areas that private companies may hesitate to invest
government business enterprise disadvantages .. listed
- strategic directions can change with changing governments
- can be political interference
unlimited liability
business owner must pay for any losses the business makes
unlimited liability example
if he/she doesn’t have enough money, then he/she would have to sell his/her house or car to pay the debt
business types with business unlimited liability … listed
- sole traders
- partnerships
limited liability
provides protection to the people investing in your company (the shareholders)
limited liability characteristics … listed
- can only lose the amount that they invested in the company - no more
- personal assets are protected (car, house, bank account)
types of businesses that have limited liability … listed
- private limited companies
- public listed companies
business objectives … listed
- make a profit
- increase market share
- improve efficiency
- improve effective ness
- fulfil a market need
- fulfil a social need
- meet shareholder expectations
business objective
goal that a business has set and is aiming to achieve in a specified period of time (clear specific measurable)
profit
the amount of money remaining after expenses have been deducted from revenue
market share
the proportion of sales that a business has compared to the total sales in the industry, expressed as a percentage
market share characteristics … listed
- to increase market share, means you steak it from someone else
- increase market share doesn’t always mean an increase in profit
efficiency
how well a business uses its resources (time, raw materials, labour, machinery, technology etc) when producing a good or service
improving efficiency could … listed
- allow the business to get products to the market quicker
- reduce costs in the business (improving profits)
- reduce the amount of waste, minimise impact on the environment
- allow the business to lower prices for customers
improve effectiveness
the extent to which a business achieves its stated objectives
improve effectiveness example
a business may set a target of increasing net profit by 10% in the coming year.
if it doesn’t increase profit by 10%, the business has been effective
if profit is increased by 8%, then it hasn’t been effective as it planned
market
specific group or industry that a business focuses selling its goods or services to
fulfil a market need
business fulfils market need by providing products and services which meet the desires of a group of customers with similar needs
gap in the market
needs or un met or unserved
fulfil a social need
business fulfils social need by improving the community and environment through its business activities
fulfil a social need example
profit earns is used to support a cause (social need) eg, thank you water
shareholders
those that have invested a sum of their own money into a business by purchasing company shares; they own a share of the business
they expect to make a return on their investment through capital gains and dividends
capital gains
value of the business increases
dividends
their share in the company profits
business strategies
the actions that a business takes to achieve specific objectives
business strategies example
a strategy to achieve the objective of increased profit may be the introduction of a new product range