BM U1 AoS 2 Notes

Question 1

The relationship between the internal and the external environment of a business

Answer 1

-The surrounding conditions in which the business operates are called the business environment.
-This can be divided into two broad categories: internal and external.
The internal environment includes those factors over which the business has some control.
-The external environment consists of all the elements outside a business that may act as pressures or forces on business operations.
-The external environment may be further divided into the operating environment and the macro environment.

Question 2

internal environment

Answer 2

the internal environment is made up of elements created by the people within the business. Over time, these forces interact with each other to give each business its unique characteristics.

-employees and managers
-legal business structure
-type of business model
-business location
-sources of finance
-business support services

Question 3

The main elements that make up the internal environment:

Answer 3

EMPLOYEES: These are the people working for a business who expect to be paid fairly, trained properly and treated ethically in return for their contribution to production.

MANAGERS: These are the people who have the responsibility for successfully achieving the objectives of the business.

LOCATION: The location of the business will determine whether or not the business is visible and accessible to potential customers.

LEGAL BUSINESS STRUCTURE: One of the main decisions that the business owner will need to make is about the most appropriate legal structure to use. The four main structures include sole trader, partnership, private limited company or public listed company.

Question 4

OPERATING ENVIRONMENT

Answer 4

A business’s operating environment is made up of stakeholders external to the business which have a direct impact on the operation of the business.

-suppliers
-competitors
-customers
-special interest groups

The business has less control over these factors than internal environment factors.

Question 5

four main stakeholders in the operating environment are:

Answer 5

CUSTOMERS: The people who purchase goods and services from the business, expecting high quality at competitive prices

COMPETITORS: Other businesses or individuals who produce and sell rival, or competing, goods or services to the ones offered by the business

SUPPLIERS: The businesses or individuals that supply materials and other resources that the business needs to conduct its operations

SPECIAL INTEREST GROUPS: The groups of people who attempt to directly influence or persuade a business to adopt particular policies or procedures, including lobby groups, business associations and unions

Question 6

the macro environment

Answer 6

Changes in the macro environment can affect all businesses. This environment comprises the broad forces, conditions and trends in the economy and society within which the business operates.

-corporate social responsibility
-global issues
-economic conditions
-legal and government regulations
-societal attitudes and behaviour
-technological considerations

The business has no control over these factors.

Question 7

The main factors that make up the macro environment are:

Answer 7

LEGAL AND GOVERNMENT REGULATIONS: The laws or regulations made by parliaments and courts, which affect how businesses operate and behave.

SOCIETAL ATTITUDES AND BEHAVIOUR: The factors relating to changes in the attitudes, behaviour, tastes and lifestyles of communities on a local, national and international scale.

ECONOMIC CONDITIONS: The set of influences that relate to economic activity, including interest rates, wages, unemployment, exchange rates and inflation

TECHNOLOGICAL CONSIDERATIONS: The issues related to the growing use of tools, techniques or systems

GLOBAL CONSIDERATIONS: The pressures that arise as a result of businesses operating in worldwide markets and competing on a global scale

CORPORATE SOCIAL RESPONSIBILITY CONSIDERATIONS: The pressures on a business to take into account environmental considerations to ensure broader social welfare

Question 8

The ways in which the external environment affects the internal environment of a business

Answer 8

-The external environment has a much greater influence on the internal environment of a business than the internal environment has on the external environment of a business and can affect the decisions made when planning a business.

-Because of this imbalance of influence, a business often finds itself at the mercy of factors from the external environment.
-To increase its chances of success, a business must take a proactive approach to planning for, and responding to, such external factors.

Question 9

The ways in which the internal environment of a business can affect the external environment

Answer 9

-While the internal environment of a business is greatly affected by the external environment, it is not a one-way street.
-Businesses can have an impact on the various aspects of their operating environment and, in rare instances, can even affect the macro environment to a small degree.

Question 10

Businesses can affect the external environment in the following ways:

Answer 10

(factor from the internal environment: impact on external environment)

CUSTOMERS: Often, the products and how they are marketed can affect a business’s customers. For example, smartphones and social media applications have changed the way humans think and behave.

SUPPLIERS: Businesses can implement supplier policies that ensure that suppliers source their raw materials in accordance with the values of the business.

COMPETITORS: In the quest for greater market share, competing businesses will regularly respond to each other’s behaviour. (e.g. lowering price)

THE LOCAL COMMUNITY: While businesses often create jobs for people living in the local community, in some cases, they can also cause pollution, increased traffic and noise. This may affect how the community feels about the business.

TECHNOLOGICAL DEVELOPMENTS: While the internal environment of most businesses will have no noticeable effect on the macro environment, there are rare instances where innovations from within a company can drive widespread change. Many technological developments come from the internal environment of businesses.

Question 11

Different types of legal structure

Answer 11

-unincorporated business entities: sole traders and partnerships

-incorporated business entities: privately and publicly owned companies, and Government business enterprise (GBE).

Question 12

incorporated businesses

Answer 12

-Incorporation refers to the process that companies go through to become a separate legal entity from the owner/s. An incorporated business has its own separate legal existence.
-Regardless of what happens to individual owners (shareholders) of the company, the business can continue to operate.

Question 13

unincorporated businesses

Answer 13

-An unincorporated business has no separate legal existence from its owner(s), and will be either a sole trader or partnership.
-The most common legal structure for businesses in Australia is the unincorporated enterprise, because this structure is the easiest and cheapest to establish.

Question 14

sole trader (unincorporated)

Answer 14

-Has one person who owns and runs the business. The owner may employ other people but the sole trader finances the business and makes all of the decisions and is responsible for operating the business. Subject to unlimited liability.

• easy to establish, as the only legal requirement for a sole trader is that the name of the business be registered with the Australian Securities and Investments Commission (ASIC) — but this is only if the business name is different from the name of the owner.

Question 15

sole trader
advantages and disadvantages

Answer 15

ADVANTAGES:
-Low cost of entry
-Simplest form
-Complete control
-Less costly to operate
-No partner disputes
-Owner’s right to keep all profits
-Less government regulation
-No tax on profits, only on personal income

DISADVANTAGES:
-Personal (unlimited) liability for business debts
-End of business when owner dies
-Difficult to operate if sick
-Need to carry all losses
-Burden of management
-Need to perform a wide variety of tasks
-Difficulty in raising finance for expansion

Question 16

partnership (unicorperated)

Answer 16

Owned by two or more people. Usually no more than 20 partners. All partners are responsible for the operating, decision making of the business. Subject to unlimited liability.

Question 17

partnership (unicorperated)
advantages and disadvantages

Answer 17

advantages:
- Low start-up costs
- Less costly to operate than a company
- Shared responsibility and workload
- Pooled funds and talent
- Minimal government regulation
- No taxes on business profits, only on personal income
- On death of one partner, business can keep going

disadvantages:
- Personal unlimited liability
- Liability for all debts, including partner’s debts, even before the partnership has begun
- Possibility of disputes
- Difficulty in finding a suitable partner
- Divided loyalty and authority

Question 18

Incorporation

Answer 18

• is the process that businesses go through to become a registered company and a separate legal entity.
• These businesses are called a ‘company’ and have the benefit of limited liability.
• The most a shareholder/owner can lose is their initial investment.
  -The letters ‘Ltd’ signify limited liability. A company can be either private or public.

Question 19

Private limited companies

Answer 19

• the most common type of company structure in Australia
• Usually has between 2 and 50 shareholders
• Usually small to medium sized
• Shares in a private company are offered to only those people the business wishes and can only be sold to people who are approved by the directors
• It is not listed on and its shares are not sold through the stock exchange

Question 20

Public listed companies

Answer 20

• Listed on the stock exchange
• General public may buy and sell shares
• Usually large in size

Question 21

Public listed companies
advantages and disadvantages

Answer 21

advantages:
- Easier to attract public finance
- Limited liability - separate legal entry
- Easy transfer of ownership
- A long life - perpetual succession
- Experienced management - board of directors
- Greater spread of risk
- Company tax rate lower than personal income tax rate
- Growth potential
- Ability to have only one shareholder and one director

disadvantages:
- Cost of formation
- Double taxation - company and personal
- Personal liability for business debts if directors knew at the time that the business could not pay loans
- Requirement to publish an annual report of audited accounts
- Public disclosure - reporting of certain information
- Too much growth, resulting in inefficiencies

Question 22

Types of business model

Answer 22

A business model is the way in which the business will run its operations to generate a profit.
It acts as a general framework for how the business will earn its income and function on a day-to-day basis.

The following key elements may be considered as part of planning a business model:
- What is the main goal of the business
- What type of goods and services will the business offer
- How will the business sell these goods and services
- Who are the target customers
- What types of costs will the business expect to incur

Question 23

types of business models
-online business

Answer 23

• Since the rapid growth of the internet some businesses exist solely on the internet as well as having a small number of offices to support their online presence.
• For example Facebook, Youtube and Google.
  -Online businesses have an advantage as they can reach customers across the globe via the internet.
  -They also avoid many expenses associated with having a physical store such as rent and wages for shop staff.
  -The disadvantages could be that they expose customers to risks of theft due to online ordering as well as unsatisfied customers who were not able to inspect the product.

Question 24

types of business models
-bricks and mortar

Answer 24

-Refers to businesses that have a physical location and offer face-to-face customer interaction as well as being able to inspect the product prior to purchase.
-Bricks and mortar businesses are often more expensive to operate.

Question 25

types of business models
-direct to consumer bussinesses

Answer 25

-Direct-to-consumer businesses (DTC) are businesses that sell their products directly to consumers without any intermediaries, such as retailers or wholesales.
-These businesses can take the form of bricks and motor or online businesses.
- Examples of DTC businesses are Who Gives a Crap, Koala and Koh.
-Advantages of a DTC are lower costs, customer loyalty although disadvantages can be that it is less efficient and time consuming than selling to retail and possible risks associated with cybersecurity.

Question 26

types of business models
-franchise

Answer 26

-Under a franchise agreement a person buys the rights to use the business name and distribute the goods or services of an existing business.
-The franchisee provides the start up money and labour and agrees to abide by the terms and conditions of the agreement.
- The franchisor supplies a known and advertised business name, the required training and method of doing business.
-Purchasing a franchise can avoid many problems of starting a new business.
-Disadvantages include less control and sharing the profit.

Question 27

types of business models
-import and export

Answer 27

-Import and export businesses are those that earn their income by trading goods internationally.
-Imports are goods and services that are produced overseas and sold to Australian consumers.
-Advantages of this include cheaper products, better quality products and providing goods that are not available in Australia.
-Exports are goods and services that are produced in Australia to be sold overseas. Advantages include expanding the market which means more customers to sell to.

Question 28

Purchasing an existing business

Answer 28

• In this case the business is already operating and everything associated with the business is included in the purchase – stock and equipment, business premises, employees, an existing customer base and reputation and goodwill.

Question 29

Purchasing an existing business
benefits and costs

Answer 29

BENEFITS:
-Sales to existing customers generate instant income.
- A good business history increases the likelihood of business success.
- A proven track record makes it easier to obtain finance.
- Stock has already been acquired and is ready for sale.
- The seller may offer advice and training.
- Equipment is available for immediate use.
- Existing employees can provide valuable assistance

COSTS:
-The existing image and policies of the business may be difficult to change, especially if the business has a poor reputation.
- The success of the business may have been due to the previous owner’s personality and contacts, so may be lost when the business is sold.
- It may be difficult to assess the value of goodwill, with the likelihood of the new owner paying more than the goodwill is worth.
- Some employees may resent any change to the business operation.

Question 30

Starting a new business from scratch
benefits and costs

Answer 30

Benefits:
-The owner has the freedom to set up the business exactly as he or she wishes.
- the owner can determine the pace of growth and change.
- There is no goodwill for which the owner has to pay.
- If funds are limited, it is possible to begin on a smaller scale.

costs:
-There is a high risk and a measure of uncertainty.
- Without a previous business reputation, it may prove difficult to secure finance.
- Time is needed to develop a customer base, employ staff and develop lines of credit from suppliers.
- If the start-up period is slow, then profits may not be generated for some time.

Question 31

Business resource needs

Answer 31

Resources are all those people and objects needed for the business to function properly. There are three main categories of resources: natural, labour and capital.

Question 32

business resource needs
natural

Answer 32

-Natural resources are items used by the business that come from the natural environment.
-These include land, water and raw materials.
-Businesses should use its natural resources wisely to ensure it doesn’t harm the environment.

• Businesses should consider the following factors when planning for their natural resource needs:
  -Are their products environmentally friendly?
• How can they reduce wastage and environmental damage?
• Are the raw materials they use in production sustainable?
• Are shops/factory designed in an environmentally friendly way?
• Where will they source their natural resources from?

Question 33

business resource needs
labour

Answer 33

-Labour resources refer to the people that provide their skills, effort and knowledge to the business.
-Although technology has taken the place of some labour it continues to be an important part of how businesses operate. - A business must ensure that it treats its workers with respect and not just as another resource.

Businesses should consider the following factors when planning for their labour resources needs:
- 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?
- What are the legal responsibilities of the business towards its employees?
- How will the business resolve any disputes that arise with employees?

Question 34

business resource needs
capital

Answer 34

-Capital resources refer to the tools and machinery that are used to produce goods or perform services.
-Capital resources are important as they maximise the efficiency of labour.

Business should consider the following factors when planning for their capital resource needs:
-What kind of tools and machinery will be needed?
- How will the business repair, maintain and replace its capital equipment
- Does the business have the right workers with the right skills to operate the machinery they need?

Question 35

Different types of business location

Answer 35

-Different types of business will be suited to different locations, and the business owner must consider a number of factors when determining the most appropriate location for their particular business.
- Local government zoning determines where some types of businesses can operate.
-Zoning is designed to keep business activities separate from residential areas and prevent householders being disturbed by businesses operating late at night.

Question 36

Different types of business location

Question 37

Different types of business location
-shopping centres

Answer 37

• often have one or more supermarkets and a number of small specialist stores such as hairdressers, clothing stores, cafes.
  -They have large carparks, access to public transport and is usually undercover.
  -A shopping centre is an excellent option for purchasing an existing business.
  -A new business needs to be aware of competition. However leasing a store in a shopping centre can be expensive and must remain open during the shopping centres hours which may be 7 days a week.

Question 38

Different types of business location
-retail shopping strips

Answer 38

-Offer an advantage of high visibility for passing traffic and costs are often less than a shopping centre.
-Many shopping strips suffer from a lack of parking and offer customers limited protection from the weather, which can reduce foot traffic.

Question 39

Different types of business location
-online presence

Answer 39

-Many businesses establish themselves as an online-only presence which means they don’t need a physical store.
-This keeps their costs down.
-Other businesses have added online sales in order to keep up with the completion whilst maintaining their physical store.

Businesses use the internet for many different tasks such as:
-keeping in contact with customers and suppliers, maintaining a website, online sales, accepting payments and online advertising. Online costs can be a disadvantage.

Question 40

Different types of business location
-home-based businesses

Answer 40

-Many tradespeople and other service providers have traditionally run their businesses from home.
-They do not need a dedicated business location as they provide services in the customers’ own home or business premises.
-ICT has helped with this. Locating a business at home reduces costs provides flexibility and can reduce commuting time. However it can be difficult for the owner to keep work and home life separate.

Question 41

Factors affecting choice of business location

Answer 41

Visibility:
-Visibility is one of the most important factors for a retail or service-based business.

Cost:
- Leasing or purchasing a location in a busy shopping centre will be far more expensive than a location with lower levels of passing customer traffic.

Proximity to customers and suppliers:
- Retail businesses must be convenient for their customers on the other hand manufacturing businesses require access to transport networks to allow for distribution.

Proximity to competitors:
- Proximity to competitors is an issue for retailers and service providers. It would be unwise to establish a new business that already has one or more businesses of that type in the same spot.

Complementary businesses:
- Complementary businesses offer goods or services aimed a the same customers. The proximity of complementary businesses such as a doctor’s surgery and a pharmacy can assist in bringing in customers to a new business.

Question 42

Sources of finance
Equity - Internal sources of finance

Answer 42

-Equity refers to the funds contributed by the business owners to start and then expand the business.
- An advantage of this is that it does not have to be paid back until the owner leaves the business. It is also cheaper than other sources of finance.
- A disadvantage is that the owner may expect a good return on their investment but the business may only generate a low profit.

Question 43

Sources of finance
Equity - Internal sources of finance
TYPES OF EQUITY

Answer 43

Types of equity:
Self funding :
-This is where the business owner uses their personal finance to fund the business. There is a risk the owner will lose all of their investment should the business fail.

Family or friends:
- Can provide finance for the business. They may expect a share of the profit. There is a danger that relationships may be adversely affected. Should put details of the arrangement in writing.

Private investors:
- The investor may contribute funds in return for a share of the profit and equity. (Sharktank)

Shares :
- A business may raise funds by selling shares in the business. Only companies (private or public) can do this.

Crowdfunding:
- Raising finance by using online and social media networks. For example GoFundMe.

Question 44

Sources of finance
External sources of finance – Debt finance

Answer 44

• Most external sources of finance are in the form of debt, which refers to the funds provided by banks, other financial institutions, government and suppliers.
• Debt must be paid back over time with interest.
• There is a higher risk using debt for finance as the interest and government charges have to be paid on top of the principal amount borrowed.
• Australia’s tax system a number of generous tax deductions for interest payments in order to encourage borrowing and business growth.

Question 45

Sources of finance
Short term funding

Answer 45

Bank overdraft:
- Very common. The bank allows a business to overdraw their bank account to an agreed limit. The costs are minimal and interest rates are normally lower than other forms of borrowing.

Bank bills:
- are short-term securities issued by a business and bought by a bank. Usually over $100,000 for a period of 90-180 days. The borrower pays the sum of money back with interest.

Trade credit:
- when a supplier provides products to a business with an agreement to charge for the goods or services later. Usually 30-90 days.

Question 46

Sources of finance
Long term funding

Answer 46

Loan:
- funds borrowed from a bank usually in the form of a business loan. The borrower pays it back overtime with interest.

Leasing:
- Paying money to use equipment that is owned by an another party. Leasing of machinery and motor vehicles in common.

Question 47

Sources of finance
grants

Answer 47

• Governments can provide finance to business in the form of grants, usually for business development, especially exporting.
• Both federal and state governments offer grants and advise on setting up and running a business.
• Grants are usually used for a specific purpose.

Question 48

Sources of finance
-Factors affecting the choice of finance:

Answer 48

Terms of finance:
- needs to suit the purpose for which the funds are required. For example when does it need to be paid back by.

The business structure:
- Large businesses have more opportunities for equity capital than small businesses.

Overall cost:
– It’s important to weigh up how much the finance will cost overall and then make a decision as to which source of finance is the most suitable.

Flexibility :
– The situation of a business might change and therefore it would be important to have flexibility with the borrowed funds. The business may be charged significant fees if they want to change the terms of the finance.

Level of control :
– If a business owner wishes to stay in full control then it is risky to borrow from external sources.

Question 49

Business support services

Answer 49

-A variety of support services exist to provide assistance to a business owner with their business planning.
-Some of them are free while others are provided by other businesses which charge for their services.

Question 50

Business support services

Answer 50

Legal and Financial advice:
– These include solicitors, accountants and bank managers. They can offer advice on establishing a business and the ongoing operation of the business.

Technological advice:
– Today more than ever businesses use a large amount of technology. Businesses may consult experts to help them integrate technology in all parts of the business.

Community-based services :
– These provide businesses with the opportunity to engage in community service projects and may be able to put business owners in touch with other local businesses.

Formal networks – Private :
– There is a large number of professional organisations that can offer advice such as: Victorian Chamber of Commerce and Industry (VCCI), Small Business Association of Australia and Trade associations.

Formal networks – Government :
– All levels of government provide a range of services to businesses such as the Australian Tax Office (ATO), The Australian Bureau of Statistics (ABS) and Austrade.

Informal networks :
– Using friends and colleagues as well as other local businesses to get help and advice.

Business Mentors :
– A business owner may seek advice from a person who is experienced or knowledgeable in a field.

Question 51

Planning tools and business plans
-market research

Answer 51

-Involves collecting and analysing data and information to assist he business in its understanding of potential customer and competitors.
-This helps a business to adjust its products and marketing strategies to target unmet consumer demands.
-Preliminary market research can establish whether or not there is room in the market for the business.

Question 52

Planning tools and business plans
SWOT analysis

Answer 52

STRENGTHS
WEAKNESSES
OPPORTUNITIES
THREATS

-A SWOT analysis is relatively low cost, fairly simple and straightforward to use.
-It allows the business owner to become familiar with the business as they are making decisions.
-It assists the owner to develop goals and strategies for achieving them which can then be written into a business plan.
-A SWOT analysis should be conducted in conjunction with market research and a business plan.
-On its own it can produce a lot of information that is not useful.
-It does not provide solutions to weaknesses or threats nor does it help to choose which strengths or opportunities are the best options.

Question 53

Planning tools and business plans
business plans

Answer 53

• A business plan should be a living document it should change as the business changes.
• The planning process acts as a link or bridge between the business owner’s ideas and the actual operation of the business.
• Any business with a plan has direction which ultimately save money, time and effort and also increases the likelihood of success.

Question 54

Corporate social responsibility management issues regarding business planning

Answer 54

-When planning a business a business owner needs to consider corporate social responsibility management issues.
-To be socially responsible a business must not simply abide by the laws and generate the largest profit possible.
-It needs to consider how it can go above and beyond its basic legal requirements to improve welfare of its stakeholders including its employees, customer and the wider community.

Question 55

Corporate social responsibility management issues regarding business planning
- Why be socially responsible?

Answer 55

Customers are more and more conscious of the effects businesses have on the wider community.
Employees are a businesses most important asset. Dissatisfied employees may leave to low staff morale and issues with turnover and low productivity

Question 56

Corporate social responsibility management issues regarding business planning
- How to be socially responsible

Answer 56

Environmental issues :
– energy use, waste management, using sustainable resources.

Customer issues :
– high quality products, reliable and safe aiming for high customer satisfaction.

Staffing issues :
– good pay and conditions over and above the award, safety is a priority, employing disadvantaged groups.