Business Planning Exam Notes Term 3

Question 1

Small medium enterprises can be defined as:

Answer 1

1. a manufacturer employing fewer than 100 people
2. a non-manufacturer (rural and services sectors) employing fewer than 20 people

Question 2

Small and medium businesses contribute the following to the economy:

Answer 2

• Areas of innovation
• Source of government revenue eg. paying the Goods and Services Tax (GST), company tax
• Competition – lower prices, greater range of goods and services for consumers and drives innovation
• Starting point for new ventures
• Provider of goods and services to satisfy consumer wants
• Produce outputs and sell exports overseas
• Specialised products and services eg. many accounting and law firms are small businesses.
• Distribution outlets for larger businesses eg. Coke sells its products through many small businesses such as local cafes, corner shops etc.
• Employment and income for individuals.
• Services for large businesses eg. accountants, caterers.

Question 3

Economic contributions of SME’s

Answer 3

1. Contributions to GDP (the goods and services produced by a nation): The higher the GDP of a nation the “wealthier” that nation is and the higher the standard of living.
2. Contributions to employment: (SME’s employ 7.5 million people). High employment is needed for a good economy as it increases the demand and amount of money being spent on goods and services.
3. Contributions to innovations and invention: This leads to more jobs and wealth and higher standards of living in an economy.
4. Contributions to the balance of payments (BOP): Balance of payments is the financial record of the transactions between Australia and overseas nations. Exporting more than you import leads to a favourable balance of payments.

Question 4

Entrepreneurial skill:

Answer 4

An entrepreneur is someone who identifies and develops a business idea, who is willing and able to take a risk, and who devotes time, energy and money to turning a new idea into a business reality.

Question 5

Reasons for starting and operating a business

Answer 5

make profit, create income
create employment- for self & family
achieve better lifestyle
allow choice, job, location, schedule
increase wealth
be your own boss
improve social status
personal goals
develop own ideas

Question 6

Establishment options

Answer 6

1. Set up a new business – “from scratch”.
2. Buy an existing business.
3. Buy into a franchise. A franchise is an independently owned business (franchisee) with a license to use the name, products, business methods, brands and trademarks etc of another business (franchisor). Examples are:- Subway, Boost, 7-Eleven, McDonalds.

Question 7

Where business ideas and opportunities come from:

Answer 7

The Entrepreneur – hobbies and interests, skills and experience, research and reading, networking with other business people, dissatisfaction with existing products etc
Professional advisers – accountants, management consultants, solicitors
State Governments – agencies such as the Business Enterprise Centre
Federal Government – advice services, financial grants, software programs
Local Governments – local area/suburb advice
Australian Bureau of Statistics (ABS) – information on social, economic, population trends
Electronic Information Services – Internet – quick research of information

Question 8

Market analysis involves:

Answer 8

collecting, summarising and analysing information about the state of the market, customers, the threats and opportunities that the market presents, and any advantages or disadvantages that the business has over its competitors

Question 9

A business can use 4 price-setting strategies:

Answer 9

1. Percentage markups: the cost price is increased by a fixed percentage to obtain a selling price eg. if a sporting goods retailer (shop) has a 100% markup, a tennis racquet that is bought for $200 is sold for $400. The percentage markup is usually calculated so that it will allow the business to cover costs as well as make a profit.
2. Recommended retail price (RRP): is the price recommended by the wholesaler or manufacturer of the goods being sold by the retail price. The retailer however is not legally obliged to charge this price.
3. Price leadership and competition: to follow the prices set by another retailer is to acknowledge that business as a price leader eg. in a shopping centre with a number of shops selling the same items, the prices set by the most competitive of the shops may be used as a guide by the other shops.
4. What the market will bear: the price where the consumer is willing to buy the product and the seller is prepared to sell the product. The most common example of this approach is at an auction. Often it is hard to determine the value of a house, painting or racehorse, so an auction will be held and the people bidding for the item being auctioned determine its value.

Question 10

Funds borrowed from banks, finance companies etc – Debt finance:

Answer 10

There are different types of debt finance - borrowed for; months (short term) using a bank overdraft, credit card and/or trade credit to pay bills and purchase stock, a few years (medium term) through leasing/renting equipment, machinery and/or premises or many years (long term) by taking out a mortgage on land and/or a building.

Question 11

Funds contributed by owner(s) – Equity finance:

Answer 11

Equity finance is usually made available to the business for a long time (long term) and is used to finance assets the business will have for a long period of time (eg. machinery and equipment, buildings.

Question 12

Gearing:

Answer 12

the level of debt a business has (compared to the level of equity). High gearing means a high level of debt

Question 13

Financial requirements

Answer 13

1. Establishment costs (expenses): include those costs involved in setting up the business eg. legal fees, furniture and equipment, stock, and rent in advance.
2. Operating costs (expenses): include those involved in the day-to-day running of the business eg. wages, advertising, insurance, interest on loans, motor vehicle running costs.

Question 14

Legal Requirements

Answer 14

Business name registration, zoning, health regulations, Competition & Consumer act 2010, Patents

Question 15

Business name registration

Answer 15

the business name needs to be registered with the Australian Securities and Investment Commission (ASIC) if it is a company or the Department of Fair Trading (sole trader, partnership).

Question 16

Zoning

Answer 16

Local governments control land use in their areas – land is zoned for different uses - residential (housing), commercial (office and retail), industrial (manufacturing) etc.

Question 17

Health Regulations

Answer 17

local governments set requirements for operation of businesses dealing with food (cafes, bakeries, butcher shops, restaurants etc) – license requirements for these businesses cover food storage, handling, display etc.

Question 18

Competition and Consumer Act 2010

Answer 18

a Federal Law which controls business activities and provides protection of consumers from unfair business practices.

Question 19

Patents

Answer 19

a business can protect a new product or process by taking out a patent (exclusive right to make, use or sell) with the Federal Government Patent Office. Trademarks and logos can also be protected.

Question 20

Main on–costs include

Answer 20

workplace health and safety requirements, long service leave, sick leave, holiday pay and superannuation. Superannuation refers to financial contributions made by employer and employee to funds for the retirement of an employee.

Question 21

PAYG (Fed.)

Answer 21

Pay As You Go
Paid by employees but collected and sent to the tax office by the business.

Question 22

GST (Fed.)

Answer 22

Goods and Services Tax
10% paid on most goods and services sold.

Question 23

Company Tax (Fed.)

Answer 23

26% tax paid on profits of companies.

Question 24

Stamp Duty (NSW)

Answer 24

paid on documents when assets are sold.

Question 25

Payroll Tax (NSW)

Answer 25

tax paid on total value of wages over a certain amount.

Question 26

Capital Gains Tax (Fed.)

Answer 26

Tax on profit made when assets are sold.

Question 27

SWOT analysis

Answer 27

examines factors that the firm has control over (internal factors – strengths and weaknesses) and those which it has no control over in the current position (external factors – opportunities and threats). These should all be addressed consistently over time.

Question 28

Organising resources categories

Answer 28

Operations, marketing, finance, human resources

Question 29

*Total Revenue

Answer 29

$1000 (TR) = Price $200 X Quantity (or Output) 5 pairs of jeans

Question 30

Fixed Costs (FC)

Answer 30

costs that do NOT change as production levels change eg. rent, insurance, salaries.

Question 31

Variable Costs (VC)

Answer 31

costs that DO change as production levels change eg. raw materials, electricity, wages.

Question 32

Total Costs (TC)

Answer 32

= Fixed Costs (FC) + Variable Costs (VC)

Question 33

Total Profit

Answer 33

Total Revenue (TR) – Total Costs (TC)

Question 34

Break Even Analysis:

Answer 34

predicts the level of production or sales necessary to cover costs (fixed and variable) and start making profits

Question 35

Break Even Output

Answer 35

is where Total Revenue = Total Costs (no profit but all costs covered)

*Break Even Output 80 units = Fixed Costs$12 000
///////Selling Price $200 – Variable Cost/unit $50

Question 36

Sales Reports

Answer 36

compare actual and planned cash and credit sales.

Question 37

Profit Reports

Answer 37

• analysis of revenue/income
• check expenses/costs

Question 38

Budgets

Answer 38

• estimates of revenues/income and expenses
• check expected costs and benefits

Question 39

A business plan

Answer 39

written document detailing the goals and desired direction of the business. A business plan is important for success and necessary to arrange finance. It shows that a business is well organised and managed. It provides information about the businesses:
- prime function/s (main activity)
- mission (purpose)
- vision (for the future)
- goals (specific aims or objectives) and strategies (methods of achieving goals)
- plans for operations (production), finance and accounting, human resource management and marketing – key business functions.

Question 40

strategies that allow Business to have a competitive advantage

Answer 40

1. a cost strategy – efficient production processes, bulk buying of inputs, use of technology and lower cost labour may help to reduce production costs and allow a business to price its products lower than competitors
2. a differentiation strategy (product differentiation) – making a product different from competitors through high quality, innovative design, positive image, extra services etc.

Question 41

Overextending finance:

Answer 41

borrowing too much and spending too much to buy assets (premises, equipment, machinery, vehicles etc) to start the business – this increases the risk of failure.
Planning ahead and “starting small” is the way to avoid financial overextension.

It is also possible to overextend on resources such as stock (supplies and raw materials) and staff. Stock should be minimised and ordered regularly. Staff are expensive – a business could outsource, use technology or employ on a casual or part time basis to reduce this cost.

Question 42

The term e-commerce

Answer 42

electronic commerce) has a narrower meaning than that of e business. It refers to the buying and selling of goods and services via the internet — it is a part of e-business. Today consumers expect a business to have an online presence.