bus man booklet 1 Flashcards
Define unincorporated business
This is when the owner and the business are viewed as a single entity E.g. sole trader/partnerships
-Unincorporated business also have unlimited liability due to this
Define incorporated business
This is when the business becomes it’s own legal entity separate from it’s owners E.g. private limited company/public listed company
-incorporated businesses thus have limited liability
what are the 4 business types
sole trader, partnerships, private limited companies (Pty Ltd.) and public listed companies (LTD)
Define sole trader
A sole trader is an unincorporated business structure with only one owner who also operates the business
Characteristics: owned and operated by a single person, unlimited liability, owner has to source all fundings, retains all profits after personal income tax, may have employees
suitable when:
small business that the owner works in day to day E.g. Tradies, hairdressers, freelancers
Define the strengths of sole trader
low cost of set up, low level of government regulation,
centralized decision making= no conflict for the owner, owner retains all profit
Define the limitations of sole trader
unlimited liability=risk to personal assets, difficulty to raise funds-2 sources=owner investments or loans from banks, high level of responsibility for owner
define partnerships
A partnership is an unincorporated business structure owned by 2-20 owners
Characteristics: partners have shared responsibility, unlimited liability for business debts, source all funding for bus. , partners can divide and retain all profits
Suitable: small to medium business size businesses E.g. law firms, dental practices
Define the strengths of Partnerships
Low cost of set up
Low level of govt. regulation
Multiple ownerships= knowledge base/quality of decisions- different skill sets/area of expertise
Define the weakness of Partnerships
Unlimited liability= risk to personal assets
Difficult to raise funds= partner investment + loans from the bank
Potential conflict between partners
Define Private limited companies (Pty Ltd.)
A private limited companies is an incorporated business with at least 1-50 selected shareholders
Characteristics: business MUST be followed by Pty Ltd. (Proprietary limited), company is a separate legal entity, high level of control retained by shareholders, overseen by directors= decision makers, profits are taxed twice (company and personal income tax)
suitable: protection of incorporation and control is desired
E.g. 7-eleven, cotton on group
Define the strengths of Private limited companies
incorporation means that liability is limited to business= protection of shareholders
directors can be shareholders or can be appointed by shareholders= increased expertise
Revenue can be Increased by sharing shares in the organization
company tax rate is lower than personal income tax rate- so tax for the business is less
Define the limitations of Private limited companies
Profits are taxed twice- company and personal income tax
Cost of set up and level of government regulation are higher
Define Public listed companies
A private listed companies (LTD) is an incorporated business that can sell shares in an open market to an unlimited number of shareholders
Characteristics: bus. MUST be followed by LTD, company separate legal entity, shares sold on ASX (Australian securities exchange), shareholders have limited decision making influence but receive a share of profits dividends, strictest level of govt. regulation
Suitable: large business, move to when want to raise large amount of funds publicly E.g. Coles, Qantas
Define the strengths of LTD
incorporation means that liability is limited=protection of shareholders
increased capacity to raise funds through selling shares
provides prestigious profile
Define the limitations of LTD
Profits taxed twice
cost of set up and government regulation are the highest
greater public scrutiny
shareholders can lack patience on return investment results in bus. more focused on profit of risk fall in share prices
Define Business objectives
The goals a business intends to achieve
-if they are clear, specific and measurable they provide direction for decision making and planning
Define KPI (Key Performance Indicators)
It’s a criteria that measures how efficient and effective a business is at achieving business objectives
Define efficiency
How productively a business uses its resources when producing a good or service
–> less resources used for the same number of products=higher efficiency
Define effectiveness
The extent to which the business achieves its business objectives
Define the 5 business objectives
make a profit, meet shareholders expectations, increase market share, fulfil a social need, fulfil a market need
Define make a profit
What? when revenue (e.g. sales) are greater that expenses (E.g. wages, cost of resources, rent on property etc.)
Why? Profit=essential for survival
How used? returned to shareholders or owners or reinvested into the business)
How achieved? Any strategies that increases revenue or reduce expenses
Define increase market share
What? Increase control of the market to become more competitive
Why? Increased customer loyalty= increase customer stability–>increase profits
How achieved? Make price lower than competitor, provide a unique benefit of your product
Define meet shareholder expectation
What? Ensure a return of investment to shareholders through dividends and increased share prices
Why? Attract new shareholders b/c seen as strong investment + prevent conflict btw management and shareholders
How achieved? Increase profit
Define meet shareholder expectation
What? Ensure a return of investment to shareholders through dividends and increased share prices
Why? Attract new shareholders b/c seen as strong investment + prevent conflict btw management and shareholders
How achieved? Increase profit
Define Fulfil a market need
What? Provide good or service that meets the desires the desires of a group of customers
Why? Increases sales –> increases revenue –> increases profit + if the organization fulfilling a ‘gap in the market’ which increases customer loyalty
How achieved? Identify what needs the market is not currently meeting and develop a product or service to meet that need
Define Fulfil a social need
What? Improve the community or environment through business activities
Why? Improves reputation which can increase sales + market share OR b/c it’s the organizations purpose –> NB can make profit at the same time
How achieved? Consider social and environmental impact when making decisions OR supporting other organizations work
How are KPI’s be used by businesses?
Business base their decisions on data and objective information
- allows business to gather info about current performance, set objectives, inform and initiate change, evaluate change
note KPI’s do not tell what exactly to change/ also require an initial benchmark for comparison
What are the 5 KPI’s?
Percentage of market share, net profit figures, number of sales, level of wastage, rate of productivity growth
Define Number of sales
Total quantity of a particular product or service purchased during a defined time period
Indicates the measure success of marketing campaigns, sales training and product innovation/ the most popular or unpopular products
Define Percentage of Market share
A representation of the proportion of sales that a business has compared to the total sales for the industry or product, expressed as a percentage
Indicates the level of control in a market, if you have improved quality or price comp to comp, if sales dropped (issue with organization of market is shrinking), if sale rise (becoming more comp or increase in demaand)
Define Net profit
Net profit figures are calculated by deducing total expenses incurred from total revenues earned over a period of time
-determines a business long term success
Indicates capacity of organization to uses it’s resources to MAX., if selling price is right, increasing revenue or reducing costs
Define Rate of productivity growth?
Compares the amount of output produced to the amount of input (resources) going into production from one defined period to the next
Indicates the organization is using resources more efficiently, the organization is using fewer inputs to obtain the same level of output or more output from same input
Define Level of wastage
The amount of resources discarded by the business during the production process
Indicates reduction of waste means that an organization can cut costs leading to greater profits, high levels of waste can indicate negative impact on the environment
Define Macro factors
Macro factors are influences over which a business has no control. The external environment is dynamic and ever changing so a business must adapt to these factors to remain viable.
State the 3 Macro factors
legal + government regulations, societal attitudes and behaviors, economic conditions
Define legal + government regulations
refers to the business related legislation passed by local, state or federal governments, as well as decisions made by the courts, that protect consumers, the community and the environment while encouraging fair trade and competition
E.g. The Privacy Act 1988, contains rules about collecting, storing and use of personal information.
E.g.g of privacy breaches: 2016 red cross half a million blood donors’ data hacked
Define Societal attitudes + behaviors
Includes external and internal customers’ values, beliefs and customer trends. Incl. what people currently think about ways of working, how businesses should be operating and purchasing patters.
Define impacts of societal attitudes + behaviors
Positive
-adapting to social change means the business is constantly up to date and can offer products in line with customer wants and needs
-can create new profit generating opportunities
Negative
-social changes can occur frequently and it may not always be possible for businesses to respond, can be a disaster in competitive industries ‘
Define Economic Conditions
includes all things financial, meaning when planning businesses must take into account consideration interest rates, tax rates, business confidence and consumer confidence levels
E.g. low interest rates, unemployment and interest rates
State the impacts of Economic conditions
Positive
-strong economic growth=expands the customer base=more sales/revenue/profit
-greater levels of consumer confidence
Negative
-weak economic growth (recession)= reduces the consumer base=damage sales
-economic sanctions, restrictions etc. = increase costs
-increase unemployment=increase inflation=increase interest rates all affect demand
Define interest rates
the amount a lender charges a borrower and is a percentage of the principal (amount loaned).
also refers to the amount earned on savings
(The cost of borrowing)
Define inflation
the rise in prices, which can be translated as the decline of purchasing power over time.
The rise in price, often expressed as a percentage, means that a unit of currency effectively buys less than it did in prior periods
Define unemployment
a term that refers to a situation where a person is actively searching for employment but is unable to find work.
This is a key measure of the health of the economy
