Business management 1 Flashcards
Business motivations
The reason why someone chose to start a business
Source of business opportunities
Where or how the opportunity arose for them to start their own business
4 business motivations
1) Financial independence
2) Personal independence
3) Fulfil a social/ marked need
4) Make a profit
Financial independence
Being able to support yourself without relying on other people/ a job
Personal independence
Being able to make your own decisions, deicide your role, working hours, holidays, etc.
Make a profit
To benefit financially from capitalising on a business opportunity
Fulfil a market and/or social need
Create a product to met customer demand or improve on an existing product to better meet the needs of customers
4 sources of business opportunties
1) Innovation
2) Entrepreneurship
3) Market opportunities
4) Changing customer needs
Innovation definition and characterisitics
Is transforming into reality a new idea about a product or a service, or it could be a new way of doing things
- New efficient processes can save time, money and create less waste
- Allow business to grow
- Helps business to adapt to the changing marketplace
- Gives a competitive advantage
Entrepreneurship definition and characteristics
Refers to the concept of developing and managing a business venture in order to gain profit by taking several risks
- Seeks out new opportunities
- Manages business activities
- Takes calculated financial risks
- Experiences business success
Makert opportunities definition
Refers to chances to increase trade caused by the changing trends in the market.
The key is to be able to recognise a market trend.
This could also be an opportunity where there is a gap in the market.
Gap in market
Identified something that customers need, but isn’t currently available
Could be completely unique, an improvement on an existing idea or a way to introduce something to a different market.
Changing customer needs
1) Busy:
- Wants convenience
- Wants 24/7 trade
- Wants supporting home services such as cooking, cleaning, childcare
2) Technological savvy
- Has access to info
- Compares to competitors
- Shop online
- Is able to give reviews and use social media
3) Demanding
- Has high expectations of corporate social responsibility to people and the environment
- Has high expectations of excellence in the product quality
- Is health and safety conscious
- Is aware of consumer laws and rights when shopping
Unincorporated
An unincorporated business is when the owner and the business are viewed as a single legal entity
Both the business and the owner are responsible for debt (unlimited liability)
Incorporated
A business becomes its own legal entity separate from its owners
Debt is limited to the business only (limited liability)
4 Business types
Sole trader
Partnership
Private limited company
Public listed company
Sole trader definition and characteristics
Sole trader is an unincorporated business structure with only one owner who also operates the business
- Owned and operated by a single person (can have employees)
- Unlimited liability for all business debts
- Owner has to source all funding for the business
- Owner retains all profits after personal income tax (not subject to company tax)
- May have employees but the owner is the only one responsible for making decisions for the business (manages a wide variety of tasks)
Sole trader strengths
- Low costs of set up
- Low level of government regulation (easy to set up and run)
- Centralised decision making (no conflict for owner)
- Owner retains all profits (can decide to reinvest into business but has control)
Sole trader limitations
- Unlimited liability = risk for personal assets
- Difficult to raise funds (2 sources owner investment OR loans from banks)
- High level of responsibility for owner (needs to manage all facets of the organisation)
Partnerships definitions and characteristics
An unincorporated business structure owned by 2-20 owners
- Partners share responsibility for the organisation
- Partners have unlimited liability for all business debts
- Partners have to source all funding for the business
- Partners can divide and retain all profits after personal income tax (not subject to company tax)
3 strengths of partnership
- Low cost of set up
- Low level of government regulation (easy to set up and run)
- Multiple ownership = knowledge base/quality of decisions - different skill sets/areas of expertise
3 limitations of partnership
- Difficult to raise funds (partner investment or loans from bank)
- Potential for conflict between partners -> delay in decision making
- Unlimited liability = risk for personal assets (e.g house)
Definition and characteristics of private limited company
Is an incorporated business with at least 1 and up to 50 selected shareholders
- Must always be followed by Pty Ltd
- The company is a separate legal entity
- High level of control is retained by shareholders as new shareholders are selected by the board
- Overseen by directors = decision-makers
- Profits are subject to company tax before shareholders receive a return on their investment. SH are then subject to personal income tax on the profit they individually received
4 Strengths of private limited companies
- Incorporated means that liability is limited to the business = protection of shareholders
- Directors can be shareholders or can be appointed by shareholders = increase expertise
- Revenue can be raised by selling shared in the organisation (not on ASX)
- Company tax is lower than personal income tax rate - so tax for business itself is less
2 Limitations of private limited companies
- Profits are taxed twice - company tax and then personal income tax
- Cost of set up and level of government regulation are higher - must have a set of ‘company rules’ and pay a registration fee to ASIC + annual renewal fee
Definition and characteristics of public listed companies
Is an incorporated business that can sell shares in an open market to an unlimited number of shareholders
- MUST always be followed by LTD
- The company is a separate legal entity
- Shares are sold on the ASX - the price of shares based on market value (not controlled by bus)
- Decisions made by the board of directors
- SHs have limited decision-making influence but receive a share of profit through dividends
- Strictest level of government regulation - minimum of 3 directors, requirement for a public annual report on business’s financial accounts
3 strengths of public listed companies
- Incorporation means that liability is limited to the business = protection of shareholders
- Increased capacity to raise funds through selling shares -> funds growth of the business
- Can provide a prestigious profile
4 limitations of public listed companies
- Profits are taxed twice - company tac and then personal income tax
- Cost of set up and level of government regulation highest - must have a set of ‘company rules’ + pay a registration fee to ASIC + annual renewal fee + reporting requirements
- Greater public scrutiny of the company’s financial performance and action
- Shareholders can lack the patience of return on investment is not evident so the business has to become more focused on profit or risk fall in share prices
Share
Piece of ownership of a business
Dividend
Annual payment made to shareholders, calculated as a percentage of their profit
Share capital
Funds that the business raises through selling shares on the ASX
Business objectives
Goals a business intends to achieve
KPI
Criteria that measure how efficient and effective a business is at achieving business objectives
Efficiency
How productively a business uses its resources when producing a good or service
Effectiveness
Extent to which the business achieves its business objectives
5 Business objectives
1) Make a profit
2) Increase market share
3) Fulfil a market need
4) Fulfil a social need
5) Meet shareholder’s expectations
Make a profit
What? Why? How used? How achieved?
When revenue is more than expenses
Essential for survival
Returned to owners or shareholders OR reinvested into the business -> enables growth
Any strategy that will increase revenue OR reduce expenses
Increase market share
What? Why? How achieved?
Increase control of the market to become more competitive
Increased customer loyalty = increased stability - can lead to increased profit
Make price lower than competitors, provide a unique benefit of your product
Meet shareholder expectations
What? Why? How achieved?
Ensure a return of investment to shareholders through dividends and increased share price
Attract new shareholders b/c seen as strong investment + prevent conflict bw management and shareholders
Increase profit
Fulfil a market need
What? Why? How achieved?
Provide a good or service that meets the desires of a group of customer
Increases sales -> increases revenue -> increases profit and if only organisation fulfilling a gap in market then creates customer loyalty
Identify what needs the market is not currently meeting and develop a product or service to meet that need
Fulfil a social need
What? Why? How achieved?
Improve the community or environment through business activities
Improve reputation which can increase sales + market share OR because its the organisations purpose (can make profit at same time
Consider social and environmental impact when making decisions OR supporting other organisations work
5 KPIs
Percentage of market share
Net profit
Number of sales
Level of wastage
Rate of productivity growth
KPI allows businesses to:
Gather information about the current performance of the business
Set objectives
Inform and initiate change
Evalutate change
Considerations of KPIs
- Essential that performance indicators relate to, and can be traced back to, objectives and strategies
- KPIs won’t tell you exactly what to change they will provide an indication as to where and what managers need to investigate
- KPIs require an initial benchmark for comparison
Number of sales definitions and indicates
The total quantity of a particular product or service purchased during a defined time period
Measure the success of marketing campaigns, sales training and product innovation. The most popular or unpopular products
Percentage of market share definition and indicates
A representation of the portion of sales that a business has compared to the total sales for the industry or product, expressed as a percentage
Indication of their level of control in a marketplace & that you have improved your quality or price compared to your competitors
Net profit definition and indications
Net profit figures are calculated by deducting total expenses incurred from total revenues earned over a period of time
The capacity of organisation to use its resources to maximise profits
Whether selling price is right
Increasing revenue
Rate of productivity growth definition and indication
Compares the amount of output produced to the amount of input (resources) going into production from one defined time period to the next
This indicates that the organisation is using resources more efficiently
The organisation is using fewer inputs to obtain the same level of output OR more output is produced from the same input
Level of wastage definition and indication
Amount of resources discarded by the business during the production process
Reduction of waste means that an org can cut costs leading to greater profit
High lvls of waste can indicate a neg impact on the environment
What are macro factors
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.
4 Macro factors
Legal & government regulation
Economic
Societal attitudes and behaviour
Technological issues
Legal and government regulations
Refers to the business-related legislation (laws) passed by local (Council), state (Victorian) or federal (Australian) governments, as well as decisions made by the courts, that protect consumers, the community and the environment while encouraging fair trade and competition
Societal attitudes and behaviour
includes external and internal customers’ (workers, suppliers) values, beliefs and customer trends. It includes what people currently think about ways of working, how businesses should be operating and purchasing patterns.
The positive impact of societal attitudes and behaviour
- 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 for businesses
Negative impacts of societal attitudes and behaviour
- Social changes can occur frequently and it may not always be possible for the business to
respond, this could be a disaster in competitive industries
Economic conditions
Includes all things financial, meaning when planning, businesses must take into consideration interest rates, tax rates, business confidence and consumer confidence levels.
E.g. Low-interest rates, unemployment, inflation.
Positive impacts of economic conditions
- Strong economic growth = expands the customer base = more sales/revenue/profit
- Greater levels of consumer confidence
Negative impacts of economic conditions
- Weak economic growth (i.e Recession) = reduces the customer base = damages sales
- Economic sanctions, restrictions, etc = lead to increased costs
- Increased unemployment, increased inflation, and increased interest rates all affect demand
Operating factors
Operating factors are external to the business, however, they have some control over them and are still
required to respond to
4 operating factors
Customer needs & expectations
Competitors behaviour
Special interest groups
Suppliers & supply chain
Customer needs & expectations
A business must consider the needs and expectations of its customers and how these change over time. If a business does not respond to the changing needs then the customer will go elsewhere and the business will lose out on sales
Competitors behaviour
Competitors behaviour can influence a business’ decisions as if they are more suitable meeting the needs of customers, this could result in a fall in sales for us
If a competitor releases a product or develops a new idea this means we need to respond it order to remain competitive
Special interest groups
A special interest group (SIG) is a group of members with shared interests
They can put pressure on a business to act in line with their interests
SIG’s: ENVIRONMENTAL LOBBY GROUPS
Environmental lobby groups are special interest groups that promote environmental issues to the public,
government and businesses
SIG’s: BUSINESS ASSOCIATIONS
Business associations are organisations that support businesses through the provision of training and
education programs, advice and information
SIG’s: UNIONS
Unions are organisations formed to represent and protect the rights of workers/employees in a particular
industry
SIG’s: CONSUMER GROUPS
Consumer groups are a specific type of lobby group that monitors a business in terms of its product
safety, packaging and advertising
Suppliers & Supply Chain
Suppliers can impact the business in a number of ways. Without an effective supply chain, a business will fail to attract, delight and hold on to its customers
E.g. Raw material sourcing, CSR issues like Fair Trade, production processes, and distribution channels.
