AOS2 Internal business environment Flashcards
Internal and external environment
Internal - Factors over which the business has some degree of control over
External - factors over which the business has little control over.
Factors of internal environment
Employees: people who work for the business
Managers: people who have responsibility for achieving business goals
Location: where the business is located, accessible to customers
Legal business structure: sole trader, partnership, private or public company.
Factors of the external environment
Operating environment: Outside stakeholders that the business interacts with eg, suppliers, customers, special interest groups.
Macro environment : The broad condition and trends in the economy and society.
Eg, political factors, corporate social responsibility factors.
Relationship between the internal environment and the external environment
while businesses are influenced by factors in their external environment, such as economic conditions, regulatory changes, technological advancements, and social trends, they also have the ability to influence their surroundings to some extent.
Unincoperated business
- a type of business that has not been formally organized as a corporation
- operates usually under the ownership of one or more indivudals or partners
Unlimited liability
Business owner is responsible for all debts of their business, and may need to sell personal assets to meet debt.
Sole trader
A single individual who owns and operates a business.
Advantages and disadvantages of sole trader
A:
- low cost of entry
-complete control
- less costly to operate
- owner’s right to keep all profits
D:
- personal (unlimited) liability for business debts
- burden in management
-end of business when owner dies
-need to carry all losses
Factors to consider before being a sole trader
- Am I prepared to risk the unlimited liability of operating my business?
- Will I have enough finances, skills and expertise to establish and grow the business?
Partnership
Two or up to 20 max individuals who agree to share ownership and management responsibilities of a business
advantages and disadvantages of partnerships
A:
- low startup costs
- less costly to operate than a company
-shared workload and responsibiility
- pooled funds and talents
D:
- Personal unlimited liability
-liability for all debts including partner’s debts even before partnership has begun.
- possibility of disputes
Silent partner
Ones who contribute financially to a business but takes no part in running of the business.
Factors to consider when starting a partnership
- Are the owners prepared to risk the unlimited liability of operating their business?
- Do individuals believe that their partners will act in the best interests of the business
- Can the partners foresee disputes arising due to clash of personalities or opinions
Incorporation
The process that a business goes through to become a registered company and a seperate legal entity.
Limited Liability
Shareholders of a company cannot be held personally responsible for the debts of the business, because the business is a seperate legal entity.
Private company (propreitary)
- Common type of legal structure in aus
- Atleast 1 shareholder maximum 50
- Tend to be small-medium sized family owned businesses- family will own most of the shares in a private company.
- shares are offered only to those people whom the business wishes to have as part owners hence “private”
Public companies
- Large size and market a wide range of products
- shares for public companies are listed in the australian securities exchange
- min 1 shareholder no max
- must publish finance each yr in an annual report.
Factors to consider when choosing to operate as a public or private company
- Does the owner need the extra legal security offered by limited liability?
- Does the business require funding from the public, which can be obtained by becoming a publicly traded company?
- Will owners be okay with giving up control of their company to new investors by making it a publicly traded company?
Advantages and disadvantage’s of companies.
A:
- easier to attract finance
- limited liability
- easy transfer of ownership
- long life - perpetual succession
D:
- cost of formation
- double taxation , company+personal
-requirement to publish an annual report of audited accounts
- too much growth = potential inefficiencies
Online business
exists solely on the internet, with a small number of offices to support their online presence.
advantages and disadvantages of an online business.
a:
- can reach customers all over the globe
- avoid many of the costs of traditional businesses eg, rent and wages
d:
- expose customers to theft when making purchases online
- greater risk of unhappy customers, due to not being able to inspect prior to purchase.
advertising online business
- websites offer free access to people on the internet and generate revenue through advertising.
- other businesses may pay the website to feature their advertisements because it reaches their target market.
Freemium online business
- offers certain services for free, and will allow users to pay for upgrades for functionality or services.
Brokerage online business
- website that brings buyers and sellers together.
- a brokerage fee is paid when a sale is made, both parties will get half of the sale.
Merchant online business
- online seller who sells through their own website or uses an online platform such as ebay.
- will buy products from a wholesaler, or manufacturers and sell for profit.
Bricks and mortar
- businesses that have a physical location, such as a store in a shopping centre.
Advantages and disadvantages of bricks and mortar
A:
- offers customers a chance to touch, feel and try on a product
- face to face interaction when purchasing
- can benefit from mall culture and vibe
D:
- costs are much higher.
Bricks and clicks
bricks and mortar businesses offer customers, options in the online space eg, home delivery and click and collect.
Direct-to -consumer businesses
- sell their products directly to consumers without any intermediaries(retailers or wholesalers)
- can take in form of bricks and mortar, bricks and clicks, and online retail businesses.
Advantages and disadvantages of DTC business
A:
- strong focus on and connection with customers, which builds customer loyalty
- lower costs compared with models that rely on complicated networks to reach customers, because expensive real estate isnt required. -> lower costs allow business to be more competitive in terms of price
D:
- must master all steps required for each product to reach the customer, therefore time consuming and less efficient.
- if the business relies on online selling, it is exposed to risks associated with cyber security.
Franchise
- when someone buys the rights to sell a company’s products or services and uses their brand name and system
Franchisor
the business that owns the rights, providing the name, advertising, methods of doing buisness.
Franchisee
person who purchases the business. Providing the setup money, labour, operates the franchise and agrees to abide by the agreement
Advantages and disadvantages of franchises
A:
- successful business formula
- recgonized name/brand
- 3 x more likely to succeed than a start-up business
D:
- little control over decisions and operations
- shares of profits can favor the franchisor.
Import and export
- earns money from trading goods internationally.
imports: goods and services that are produced overseas and sold to nations consumers.
exports: goods and services that are produced in the nation and to be sold overseas
advantages and disadvantages of import
a:
- sources goods from overseas that will be competively priced in the market bc of superior quality, cheaper cost or lack in viable alternatives
- provides goods and services that are not readily available.
d:
- need to factor in cost of purchasing goods from international manufacturers, shippers.
- make sure goods are in consumers standards for health
Advantages and disadvantages of export
-a:
provides opportunity to grow and further expand a business
- allows business to reduce its dependence of local markets and open new markets, due to the business being able to sell its products overseas to greater number of customers
d:
- ensure that they are aware of legal requirements of the nation when they are exporting
- other risks: foreign exchange, politcal shipping
Good will
Monetary value attached to a reputation of a business
Benefits and costs of purchasing an existing business from scratch
B:
- instant income from sales to existing customers
-Proven business model increases chance of success
- Existing employees can give advice and provide knowledge
C:
- Existing image and policies may be difficult to change, especially if the reputation is poor
- Success of the business may have been due to the personality or personal contacts of the owner
- Goodwill may be hard to assess and the owner will want lots.
Benefits and costs of starting a business from scratch
B:
- you can set up your business however you want
- you can determine things like pace of change and growth
-no good will, no extra costs
C:
- bc of high risk and uncertainty, money lenders may be unwilling to provide finance
- time is needed to develop a customer base, getting employees recruited and securing trade credit from syppliers
- if the start is slow or small, profits might take time to generate.
Resources
Resources are all those people and objects needed for the business to function properly. When starting or planning a business, the owner must workout what they need to run the business.
Natural resources
Items used by the business that come from the natural environment eg land, water , raw materials
Things to consider before using natural resources
- are their products environmentally friendly, and how can they minimise wastage and environmental damage during the production process?
- are the raw materials planned to use in production, sustainable and reasonbly priced?
- where will they source their natural resources from?
Labour resources
- human resource
- people that provide their skills, effort, and knowledge to the business eg, employees, owners
- decisions abt this resource can have a dramatic effect on the lives of the people working for that business.
- business must ensure that it treats workers with respect and not just a resource that contributes to profitability.
Factors to consider before using labour resources
- How many workers will be needed and what kind of skills will they need?
- How will the business attract and retain these workers
- What kind of training should the business offer to its workers to help them grow and benefit the business?
Capital resources
The tools and machinery that are used to produce goods or peform services.
- important to maximise effciency of labour
Things to consider before using capital resources
- what kinds of tools and machinery will be needed?
-how will the business repair, maintain and replace its capital equipment when needed? - does the business have the right workers with the right skills to operate the machinery they need?
Shopping centres
- house a range of different retail businesses
- mostly indoors and have undercover parking and walkways
-commonly populated w franchise operations - convient but can be overcrowded
retail shopping strips
-located along major roads
- usually in the ‘centre’ of town, and close to public transport
- popular locations for after hour entertainment
advantages and disadvantages of retail shopping strips
A:
high visibility, and foot traffic from public transport
- lower cost of renting
D:
lack-of off street parking, not undercovered
- limited protection from the weather which reduces foot traffic
Online presence
- increasing in popularity as tech and digital literacy improves
- easy to access
- can be used for: info on products and services, online ordering/shopping, and accepting payments.
Home-based businesses
- Services to customers in their own home or someone elses home eg, plumber electrician
- improvement in info and communication tech, has allowed goods retailers to move to a home-based business model as well.
Visibility as a factor for deciding business location
- important factor for retail and service based businesses
- business wanting high visibility would locate in a prime shopping centre or main street
Cost as a factor for deciding business location
- business income needs to be able to cover the cost of the leasing or purchase of the premises
- lease in a busy shopping centre will be far more expensive but will have higher level visbility
proximity to customers and suppliers in deciding bus location
- can reduce costs of transport
- retail businesses want to be close for convience
-manufacturing businesses want to be close to suppliers to minimise costs of shipping.
Proximity to competitors in deciding bus location
- retailers and service providers, don’t want to be close to have more area, but in many instances being close to your competitors is preferable, because of increased foot traffic and comparison shopping.
Complementary business in deciding bus location
- can assist in brining customers to a new business
- offer goods or services aimed at the same customer eg doctor clinic and pharmacy
zoning
- locally governent zoning determines where some types of businesses can operate
- law affects the type of business you can open in certain areas.
What is Equity finance (internal)
funds contributed by the owner(s) of a business to start and build the business
Advantages of equity finance
- does not need to be repaid unless owner leaves the business
- cheaper as there are no interest payments
- an owner who contributed equity retains control over how the money is used
Disadvantages equity finance
- owner will expect a good return, but may not generate enough profit to do so
- smaller amount of money than external finance options
self funding (internal finance)
business owner uses their own money to finance the business
family or friends (internal)
money borrowed from family and friends, which may require a share in profits. It may affect relationships and should be entered into with caution
private investors (internal)
- investors may be willing to invest some money into the business for a share of ownership and/or profit.
- may mean business owner loses some of the control of the busienss
crowdfunding (internal finance)
use of online networks and social media to raise funds
Investors will usually get some benefit once the business takes off
External sources of finance
The funds provided by banks, other financial institutions, government and suppliers, which must be paid back over time
short term borrowing debt (external)
- usually used to finance short term shortages in cash or finance working capital.
- needs to be repaid within 1-2 years
Bank overdraft (short term debt)
- bank allows a business to overdraw on its account to an agreed amount
Bank bills (short term debt)
short term securities issued by a business and bought by a bank.
business recieves money and agree to pay back plus interest in future.
Long term borrowing
- for periods greater than two years
- can be secured or unsecured, and interest rates are usually variable
often used to finance real estate and equiptment
business loan, secured loan and unsecured loan (LTB)
loan intended for business purpose
-secured loan (mortgage): might come with lower interest rate, but owner will need to offer another asset eg home as security against the loan.
- unsecured loan: does not require any collateral, but it might have higher interest rate
Leasing (LTB)
- paying money to use equipment that is owned by another party, which enables business to use equipment without paying full cost
- common in businesses, particulary for machinery and vehicles
Government grants (external)
- goverments can provide finance to businesses in form of grants for business developments
- can be obtained to start a business through federal and state goverments
How does term of finance affect choice of finance
- they need to suit the purpose for which the funds are required
How does buisness structure affect the choice of finance
- larger businesses will generally have more options to obtain finance
How does the overall cost affect the choice of finance
- business must calculate the overall cost of obtaining and repaying the finance
how does flexibility affect choice of finance
- longer term arrangements should take into consideration the circumstances of a business can change dramatically, and often be out of control of the business
how does level of control affect choice of finance
- external finance can mean that the business loses some of the control they hold over their business.
Swot analysis
planning tool that identifies the businesses internal strengths and weaknesses, as well as any opportunities and threats from the external environment
Benefits of SWOT
-Can be used to evaluate the business’s current situation and interpret info about what the business might do well, where improvements can be made and where the business might be placed in the external environment
-allows the owner to become more familiar with the business
- assists the owner to developing goals and strategies for achieving these goals, which can be written in the business plan
strength factors to consider
- what is the business good at?
- is the product popular?
- are our customers loyal
weaknesses factors to consider
- do we have competent managers and staff?
- have we experienced past failures?
opportunity factors to consider
- what will new tech bring for us?
-what are our possible new markets - what other businesses can we acquire to expand the business?
threat factors to consider
- what trends have been evident in our market?
- are there new laws regulating what the business does
- new competitors?
Limitations of SWOT
- Only a small part of the business planning process- market research and a business plan should be completed when planning a business
- may generate a large amount of info that may not be useful
-Does not provide solutions to weaknesses or threats, nor does it help the owner choose which strengths or opportunities are the best options.
business plan
- written statement of the goals and objectives for a business, and the steps to be taken to achieve them
benefits of a business plan
- helps test viability of the business
- forces owner to justify their plans and actions
- assists in maintaning the business operation, especially focusing attention on goals and objectives.
Limitations of business plan
- simply a plan, does not guarantee sucess of a business
- business may spend more time preparing business plan rather then producing and selling products
-business plan needs to be implemented, you shouldnt neglect to follow it.
key elements in a business plan, and explain.
-Executive summary: describing the business and its objectives
-Operations plan: outlining how the business will be set up and human resources needs
-Financial plan: detailing how the business will be financed, projected cash flow, revenue, expenses and profit
-Marketing plan: outlining key info from the industry the business will be entering and how it fits in, and the marketing strategy.
