business Topic 1 (chapter 1-4) Flashcards
business
organisation that produce and sell products to satisfy individuals’ needs and wants for a profit
production
combination of resources to create products that satisfy customers’ needs and wants by business
8 roles of business QPEEIIWC
- quality of life (improve standard of living)
- profit (reward)
- employment
- incomes
- choice
- innovation (existing products improved, new products created)
- entrepreneurship & risk
- wealth
profit
remaining income after all expenses deducted from revenue
revenue
money businesses receive as payment for its products
income
money received by person for providing labour
wage
money received by workers on an hrly basis for services they provide to employer
salary
fixed regular payment on fortnightly/monthly basis
shareholders
part owners of a company because they own a number of shares
-owners of private/public companies
dividend
distribution of company’s profits (yrly/half-yrly) to shareholders, calculated a no. cents/share
choice
act of selecting among alternatives
innovation
creating new product, service, process/ improving existing one
entrepreneurship
ability & willingness to start, operate and assume risk of a business venture to make profit
-entrepreneur: someone who starts…
risk
possibility of loss
distribution of wealth created by business (SIGEL)
- Shareholders/bus. owners (dividends/profits)
- business Itself ( retained profits)
- governments (taxes)
- employees (salary, wage)
- lenders (loan repayments)
quality of life
overall wellbeing of individual, combination of material & non-material benefits
4 methods to classify business (GILS)
Geographical spread
Industry sector
Legal structure
Size
businesses in legal structure
GVT enterprise
public/private company
businesses in size (5, 20, 200) 10 mill
SME (small to medium enterprises): <200 full time employees/<$10 mill turnover
small: 5-19
medium: 20-199
large: 200/+
industry sector businesses PSTQQ
quinary
quaternary
tertiary
secondary
primary
geographical spread of diff business sizes
transnational corporations (TNCs)
local: restricted geographical spread
national
5 main industry sectors PSTQQ
Primary
Secondary
Tertiary
Quaternary
Quinary
industry
businesses involved in similar types of production
primary industry
businesses involved in collection of natural resources
secondary industry
businesses take raw material –> finished/semi-finished product
tertiary industry
people performing vast range of SERVICES to others
quaternary industry
services involve TRANSFER/processing of info and KNOWLEDGE (property, finance, education)
quinary industry 2
services traditionally performed in home (tourism, childcare)
paid/unpaid work
incorporated
process companies undergo to become separate legal entity from owner/s
regardless of what happens to shareholders, business continues operating
4 main legal structures of privately owned businesses SP, C(PP)
Sole trader, partnership (UNincorporated)
company - private/public (INcorporated)
sole trader
business owned & operated by 1 peep
provides all finance, makes decision, takes responsibility for business operations
partnership?
legal business structure owned & operated by 2-20 ppl to main profit
limited liability?
legal structure limits each owner’s financial liability to a fixed sum, most commonly amt person’s investment in a corporation
most money shareholder can lose is amt. they paid for shares
private company
incorporated business, usually 2-50 private shareholders
GVT enterprises or GBE?
GVT owned & operated businesses
aim increase value of their assets & returns shareholder (GVT)
owned & operated by all GVT levels (federal, state, local)
privatisation ?
transferring ownership of GVT business to private sector
3 most important factors that influence business owner upon legal structure choice (SOF)
size of business
ownership
finances
size (choice of legal structure)
as businesses expand, may wish to seek protection of LIMITED LIABILITY (choose private company)
ownership in choice of legal structure
- if owner wants complete control & ownership of business, sole trader
-share ownership –> partnership
-**private company **offers protection of limited liability (control who can become shareholder, usually only 50)
-degree of ownership directly related to no. shares owned (more shares more ownership, over 50% for owner to retain ownership of business)
finance (choice of legal structure)
-business expands requires injections of finance to purchase new equip, open new outlets, hire more staff, etc
-esp hard or sole traders/partnerships to obtain adequate finance (exposure to risk, unlimited liability)
business environmeny
surrounding conditions business operates
external environment FGSPLITECM
factors business has very lil control
economic
financial
geographic
social
legal
political
institutional
technological
competitive situation
markets
internal environment PLRMB
factors business some degree of control
products
location
resources
management
business culture
business cycles (ECONOMIC influence)
periods of growth (boom) and recession (bust) occur resulting from fluctuations in general lvl of eco activity
5 expansion key features
(consumer spending, bsuiness expectations, business investment, sales/profits, unemployment)
INCREASE consumer spending
business expectations increasingly OPTIMISTIC
INCREASING business investment
sales and profits RISING
unemployment FALLING
contraction key features
(consumer spending, business expectations, business investment, sales/profits, unemployment)
DECREASING consumer spending
business expectations increasingly PESSIMISTIC
DECREASING business investment
sales and profits FALLING
unemployment RISING
PEAKS four key features
(wages & salaries, business operating capacity, sales & profits), level of unemployment
wages and salaries at HIGH levels
business operating at FULL capacity
sales and profits HIGHEST levels
LOW level of unemployment
TROUGHS key features
(wages & salaries, business operating capacity, sales & profits), consumer spending level of unemployment
wages and salaries at LOW levels
business operating BELOW full capacity
sales and profits LOWEST levels
consumer spending LOWEST levels
HIGH level of unemployment
deregulation (FINANCIAL influence)
removal of GVT regulation from industry to increase efficiency & improve competition
how does GEOGRAPHY influences businesses? (LPDW)
LOCATION
-AUS businesses benefit from rapid eco growth in asian nations past decades, high profit (opportunity advantage for trade &expansion in asia-pacific region)
POPULATION GROWTH
-growing pop. benefits most by expanding potential market
DEMOGRAPHIC CHANGES
-characteristics of pop (age structure, cultural composition changes types of g&s demanded)
WEATHER/CLIMATE
- weather shortly impact revenue of businesses
-climate changes are long term in g&s demanded
FINANCIAL influences IDLE
interest rates, lending policies, deregulation, exchange rates
how do interest rates influence businesses?
- RISE –> repayments on BORROWING more EXPENSIVE –> less likely to use debt to finance expansion
- LOW –> encourage bus. BORROW funds for growth (apply for loan, banks assess potential to pay back debt)
how do LENDING POLICIES influence businesses?
depending on eco conditions, RISK (GVT policies, credit policies of banks & other lenders may be strict)
how does DEREGULATION influence businesses?
businesses explore borrowing options outside major banks (more competition in FINANCE sector & choice for potential borrowers
how do EXCHANGE RATES influence businesses?
AUD appreciates (3)
-repayments on foreign loans fall
-imports cheaper
-exports expensive (hurt AUS exporters)
AUD depreciates
-foreign loan repayments higher
-imports more expensive
-exports cheaper (benefit exporters)
what are the TECH influences in busniess 2 benefits, 2
opportunities to innovate g&s & make processes efficient (speed,cost)
high financial costs, risk of blitches/breakdown
what are the 4 key tech influences OMFH
Operations
-improve speed & accuracy of production processes, saving costs over time (reduce labour demand)
Finance
-make financial reports quicker to produce, accessible
Marketing
businesses connect with customers online (promote products, sell g&s, conduct research, receive feedback)
Human resources
allow employees work from home, speed up processes (payroll, leave applications)
what are INTERNAL influences PLRMC
Products
Location
Resources
Management
business Culture (corporate culture)
4 benefits of good corporate culture
- higher productivity
2.willing to embrace change - lower absenteeism & staff turnover
- project positive image to customers
what are stakeholders
person/group/organisation with interest/stake in decision making & activities of business
what are some stakeholders (6)
SCEEMS
- society
- customers
- environment
- employees
- managers
- shareholders
what are the 4 stages of the business life cycle? EGMP
- Establishment
- Growth
mergers & acquisitions - Maturity
- Post-Maturity
-renewal
-steady state
-decline
what is a merger?
business deal where 2 separate companies combine to form a new organisation
-business surnames combine
what is an ACQUISITION/takevoer
transaction where one company purchases and gains control over another
-a business makes offer to buy, owners of smaller leave and give all resources
-smaller business surname replaced by bigger
what are the 3 types of mergers & acquisitions? VIHID
Vertical integration
horizontal integration
diversification
what is vertical integration
business expands by taking interest in DIFFERENT but RELATED levels of production & marketing of product
eg. abattoir (slaughter animals to eat) merges with cattle farm (supplier of inputs) and/or butchery (distributor of output)
what is horizontal integration
business acquires/merges with another firm makes/sells SIMILAR products
eg. abattoir merges with another abattoir
what is diversification
business acquires/merges with business in UNRELATED industry
eg. abattoir purchases sports retailer
2 key features establishment stage
business needs** solid foundation**
enough sales to generate income to pay expenses and generate positive CASH FLOW
cash flow
money COMING into business in cash RECEIPTS and
money LEAVING business as cash PAYMENTS
MATURITY stage risks
biggest RISK is COMPLACENCY! too comfy!
-sales during GROWTH may give owners false SECURITY
-may lose dynamism from early success (slowdown in sales, esp with high competition)
maturity stage strategies
maintain high lvls CUSTOMER SERVICE
more efficient ways of OPERATING (service speed, reduce costs)
plan RENEWAL stage (introduce new products/services)
4 features of ESTABLISHMENT stage
-many decisions,
-large start up costs,
-customer base needs building
-generate INCOME on BUDGET
4 GROWTH stage features
- spend money to make more later
- new products/open outlets
- balance between attracting new customers and retain existing
- AVOID cash flow problems
POST MATURITY stage
STEADY State: continues operate same level as maturity phase
DECLINE: falling sales and profits –> business fails
RENEWAL: increase sales & profits, new growth
capital
- funds available for business to use (start-up, expand, new equip) common def
- funds contributed to business by owners
- factories, machinery, equip owned by business used in production (CAPITAL EQUIPMENT)
cash flow
money coming into business in receipts
and
money leaving business in payments
fixed costs
costs dont change with business’ level of production
eg rent
variable costs plus examples
go up & down as business changed level of output
(wage, stock, bills)
market niche
small target market
economics of scale (factories spread to make larger volumes)
cost advantages when increaseing production of product
toyota produce more cars increase variable costs (steel, wages)
fixed costs (factories, machinery) REMAINS SAME
hence average cost of producing 1 car decreases (fixed costs spread over larger volume of output)
delegation
managers/owners handing specific tasks/responsibilities to employees
specialisation
employee focuses on production of limited scope of goods to gain greater degree of efficiency
highly specialised same thing over and over
different tasks not highly specialised
2 product influences on businesses
- range, types of g&s for expansion
- some g&s require extensive preparation, some merely delivers
what is a business’ size based on?3
- range & type of g&s produced
- lvl of tech used
- volume of g&s produced
inflenced of location on business
affects total sales, how expensive to run
locating next to complementary businesses (sells similar range of g&s)
factors to consider when choosing location CSVC
- proximity to customers,
- visibility
3.proximity to suppliers - cost
RESOURCE influences on business HIPF
- human (employees, most important asset)
- information (knowledge, data eg. sales reports, market research)
- physical (equip, machinery, raw materials)
- financial (funds business uses to meet obligations to various creditors)
management style influenced by PENT
preference of manager
experience of employees (skills, values)
Time & other restraints eg. resources
Nature of tasks
corporate culture
values, ideas, expectations, beliefs shared by members of organisation
why do shareholders have a direct influence on a business
they have voting rights on major business decisions and companies need to maximise returns on shareholder’s investments
main challenge in establishment stage
get business on solid foundation by generating enough sales to create positive cash flow (detailed planning!)
what is the meaning of small businesses (sole trader/partnership) having unlimited liability?
owner personally responsible for all debts of business
what happens during growth stage SCNC
increased sales
regular customer base
develop new products
improves cash flow
What is an early warning sign of possible decline in maturity stage
rate of growth slows/eventually flattens
reasons for business decline PLGCC
inadequate planning
poor location
uncontrolled growth
ignorance of competition
increased competition
ASIC: 3 main reasons
inadequate cash flow/high cash use
trading losses
poor strategic management
2 MAIN Causes of bus decline/possible failure
lack of management expertise
undercapitalisation
when company doesnt have enough capital to conduct ordinary business operations
voluntary cessation
owner ceases to operate business of own accord
involuntary cessation
owner forced to cease trading by creditors of business
what happens when sole traders/partnerships voluntarily/involuntarily go into bankruptcy?
business/person unable to pay their debts
2 options company has facing financial difficulties
voluntary administration & voluntary/involuntary liquidationl
voluntary administration
independent administrator is appointed to operate business hope trading out present financial problems
voluntary/involuntary liquidation (voluntary own accord, involuntary forced by others)
process of appointed liquidator converting business’ assets to cash
why does liquidation occur
company is insolvent
creditos
ppol/businesses owed money and force involuntary cessation
bankruptcy
declaration that business/person unable to pay debts
voluntary/involuntary
realisation
converting assets of business into cash
administrator’s main tasks
- bring business and its creditors together
- examine financial affairs of business
liquidation
when independent, qualified person (liquidator) appointed to take contrl of business with intention of selling all company’s assets in orderly, fair way to pay creditors
three main features of liquidation BLI
can be regarded as equivalent of bankruptcy for company (corp)
results in life of company ending
occurs bc company unable to pay debts when due, became INSOLVENT
insolvent
company isnt able to pay debts when due
what are the4 main legal structures of privately owned businesses?
sole traders, partnerships, public/private companies
are all companies in/unincorporated?
incorporated
are sole traders/partnerships un/incorporated?
unicorporated
advantages of being a sole trader
complete control
owner’s right to keep all profits
no tax on business profits + less gvt regulation
4 sole trader disadvantages
unlimited liability for business debts
carry all losses
difficulty raising finance for expansion
burden of management/wide variety of tasks
4 advantages of partnership STC
shared responsibility and workload
no taxes on business profits/minimal gvt regulation
less costly than company
3 disadvantages of partnership
unlimited liability (all debts, including partners)
divided loyalty and authority/difficulty finding suitable partner
4 advantages of company
easier to attract public finance
greater spread of risk
limited liability (separate legal entity)
company tax rate < personal income tax rate
3 disadvantages of company
double taxation (company&personal)
public disclosure (reported info)
if directors knew business couldnt pay loans, personal liability
3 requirements of public company
at least one shareholder
ltd (limited) in name
publish audited financial reports annually
globalisation
process which world becoming increasingly interconnected due to massively increased trade & cultural exchange
what does globalisation involve?
reducing barriers limiting free movement of business / trade/ investment/ labour across national borders
4 globalisation impact on businesses
- increased competition
- consumers multitude of choice in market
-need continous product improvement to remain competitive - expanded markets
-internet/technology helps growth - greater customer expectations
-meet needs of quality, service, price - economies of scale
when production increased, fixed costs can spread over greater volume of sales –> firms lower costs –> improve efficiency, raise profits –> more competitive
why are social influences important (external)
**rapid identification & response to changes in tastes, fashions, culture –> sales & profit opportunities –> business growth
otherwise threatens business stability & viability
3 social influences
- environmental sustainability
operations should consume resources without compromising access for future gens
rewarded by products being purchased - growing desire for business to provide family-friendly workplaces
flexible hrs, - growing belief business must cater for workplace diversity
fair & equitable –> attract & retain staff
legal influences on businesses THEEAI
laws on taxation
industrial relations
work healthy & safety
equal employment opportunity
anti-discrimination
environmental protection
political influences on business
from state/federal gvt policies
;abour market reforms (free trade policies)
social reforms (paid parental leave)
environmental management
taxation (GST)
factors influencing business’ competitiveness
aims to achieve sustainable competitive advantage (strategies to ensure ‘edge’ over
comeptitors for long period)
- no. competitors (market concentration) in certain market
- ease of entry into market for new busienss
- local & foreign comp
institutions that influence business
gvt
regulatory bodies eg. trade unions, employer associations
