commerce questions Flashcards
what are 4 characteristics of an entrepreneur
ability to identify and take advantage of an opportunity, establishing a shared vision, demonstrating initiative, innovation and resilience, appreciating the role of failure in success.
what are advantages of being an entrepreneur?
Be your own boss – independence.
Possibility of making a profit
Challenge, reward and satisfaction
Increase personal wealth.
Contribute to society.
Develop own creative ideas.
Overcome unemployment.
Achieve a better lifestyle.
Employ family members.
Possible tax advantages
what are disadvantages of being an entrepreneur?
· Hard work and long hours · Other ‘bosses’ – customers, suppliers, financiers · Income may fluctuate and be uncertain. · Risk of failure · Stress and worry · High levels of responsibility · Constantly solving problems · Difficulty in selling the business
types of market research
primary, secondary, qualitative, quantitative
what are demographic factors and why are they important
Demographic factors are population characteristics that affect customer spending and include age, ethnicity, gender, marital status, family size and income. An examination of a region’s demographic pattern will provide a clearer picture of a business’s possible customers.
define competition and competitors
Competition refers to rivalry among businesses that try to supply the needs and wants of a market. Competitors, therefore, are other businesses that offer rival products or services.
why should businesses aim to maintain a competitive advantage
Business owners should aim to achieve a sustainable competitive advantage over their competitors so they can capture a larger share of the market.
whats a sustainable competitive advantage
A sustainable competitive advantage refers to the ability of a business to develop strategies that will ensure it has an ‘edge’ over its competitors for a long period of time.
How can competition benefit a business?
It creates more productivity and better quality of products and services. They can satisfy consumer preferences and attain a better position in the market.
How can competition be detrimental to a business?
It can force lower prices to stay competitive, decreasing profit margins for each sale or service.
define target market
Target market refers to the group of customers to whom the business intends to sell its products
examples of unincorporated business entity
sole trader, partnership
examples of incorporated business entity
incorporated association, public company, private company
list five types of organisational structures
sole trader, partnership, private company, public company, incorporated business entity
What’s a sole trader?
A sole trader is a business that is owned and operated by one person.
Describe the advantages of establishing a sole trader business.
The owner gets to keep all profits, has maximum control over business decisions and activity, it’s easy to establish, and they choose their work hours.
Describe the disadvantages of establishing a sole trader business.
The owner has unlimited liability, they are prone to working all the time, limited access to finance the business, and the life of the business is limited.
What’s a partnership?
A partnership is a business usually owned and operated by between two and 20 people, called partners.
Describe advantages of a partnership.
There is more capital as all partners help finance the business, losses r shared, partners keep all the profit, more ppl to make decisions, and easier to borrow money
Describe disadvantages of a partnership.
partners share profit, may be disagreements, unlimited liability, all partners are responsible for actions of other partners, if a partner leaves or a new partner joins, then the partnership agreement must be renegotiated.
define private (proprietary) Company
A private company usually has between two and 50 private owners called shareholders. These businesses tend to be small to medium in size. Often, they are family-owned.
Note: Shares in private companies are offered only to those people the business wants as part-owners. This is why it is called a ‘private’ company.
advantages of a private company?
· If anything happens to the company, its members are not personally affected (limited liability); members are only liable for unpaid shares.
· Tax advantages: private companies pay corporation taxes on their taxable profits and tend to be exempt from higher personal income tax returns.
· Enjoy permanent succession because the company is its legal entity. Shareholders and employees act “as agents of the company” and therefore, do not affect the company if they leave.
- Private companies tend to have have fewer regulatory requirements than public companies,
-more control on decision-making giving them a greater drive
disadvantages of proprietary limited company?
· Shared profits
· Must pay taxes and insurance for their employees.
· Shareholders in are not able to sell or transfer their shares to the general public.
· Starting a private company can be quite complex, meaning that lawyers and accountants almost always need to be involved in the Company from the start, which can be costly.
· Lack of privacy: even though shares in a Private Limited Company cannot be publicly traded, information concerning the company is made public.
What’s a public company?
A public company can have an unlimited number of shareholders. The shares for public companies are listed on the Australian Securities Exchange (ASX), and the general public may buy and sell shares in those companies. Most public companies are large. Shareholders in public companies have limited liability.
Advantages of a public company?
· More capital (supplied by shareholders) available.
· Borrowing money is easier
· The liability of shareholders is limited
· It is a legal entity. It separates the company’s affairs from those of its owners, protecting owners’ personal assets, offering continuity despite changes in ownership, and allowing for greater flexibility in decision-making and financial management.
· Specialised people and shareholders can be
employed to run different elements of the business
Disadvantages of a public company?
· Many government regulations must be considered
· Limits are placed on the board of directors
· Ownership does not always equate to complete control over every aspect of the business, as decisions can be made by others within the organization.
· It can be expensive to set up, maintain and wind up.
· The company may become to large and inefficent
whats an incorporated association?
An incorporated association is an organisation incorporated under state or territory law, that is usually not-for-profit. Its structure establishes it as a legal entity separate from its individual members.
An incorporated association is a type of organization formed by a group of people (often for non-profit or community purposes) that has been legally registered and recognized by the government. Being “incorporated” means the group has a separate legal status, which provides certain benefits, like limited liability and the ability to enter contracts and own property in its name. It also usually means the group has to follow certain rules and regulations set by the government, which can vary depending on the country or region.
They can only conduct business in the state/s in which they are registered. These types of businesses are generally simpler and more affordable than a company structure.
Essentially, it’s a way for groups of individuals to work together more formally and have legal protections and obligations.
A group of five or more people may form an incorporated association in NSW by registering with NSW Fair Trading.
whats equity finance?
the owners or shareholders provide the capital needed using their own funds or profits already owned
ways to source equity finance
owners savings or assets, retained profits of the business
Advantages of equity?
It’s not debt, no interest!
what is Debt finance?
funds that are borrowed from external parties (i.e. bank) that need to be paid back with interest
Sources of debt finance are?
term loans, mortgages, bank overdrafts, credit cards, trade credit.
what are term loans?
loans for a fixed period of time to purchase assets.
What are mortgages?
the borrowers provide property as security for a loan.
what are bank overdrafts?
a business has permission to overdraw the funds in their accounts up to a specified limit to help finance everyday payments. overdrafts are short term and temporary usually when a business lacks sufficient funds
what are credit cards
a card issued by financial institutions to allow purchases to be made for payments at a later stage.
whats trade credit?
Trade credit is a financial arrangement between businesses where one party (usually a supplier or vendor) allows the other party (the buyer or customer) to purchase goods or services on credit, meaning the buyer can acquire the products or services and make payment at a later date. It allows a business to sell the goods before they have paid for them.
advantages of debt finance? why is it most common method of financing?
The main advantage of debt financing is that
-the owner does not have to sell any ownership in the business to raise funds.
-Also, debt financing has certain taxation advantages.
-immediately gain the money
For these two reasons, debt financing is the most popular source of finance used by business people when starting a new business.
whats a loan
A loan is an agreement to borrow a set amount of money that needs to be repaid within a certain period of time. This is called ‘the term’. The term of the loan can vary.
what are fixed and variable interest rates
Anyone who borrows money will need to pay interest on the amount they borrow. This interest may be at a fixed rate, where the interest rate is locked in for the term, or a variable rate, where the interest may go up or down over the term. While a fixed-rate loan offers the benefit of set repayments, if you want to make extra payments from time to time, you will usually have to pay an additional fee.
whats a secured loan?
A secured loan is where the borrower offers an asset as security (collateral), such as a car or a house, for the loan. If they don’t repay the loan, the lender may sell that asset to get their money back. Secured loans offer a lower interest rate but run the risk that the lender may have the right to sell the security if the borrower can’t pay.
whats an unsecured loan?
With an unsecured loan, the borrower does not need to have an asset to offer as security, but the interest rate is usually higher.
define a prospectus
A prospectus is a legal document issued by companies that are offering securities for sale.
Extra: If a public company offers securities for sale (for example, shares or debentures) then they must provide a disclosure document to potential investors. A prospectus is the most common type of disclosure document.
what must a prospectus contain?
A prospectus must contain all the information that investors and their professional advisors would reasonably require to make an informed decision about the following:
- the rights and liabilities attached to the offered securities
- the issuing company’s assets and liabilities, financial position and performace, and profits and losses.
It usually also includes:
· history of the business
· the company’s business model
· risk
· description of management
· how the company will use the proceeds
· financial institutions
· details of the offer
whats the role of a prospectus?
The role of the prospectus is to make investors aware of the risks of an investment. Without this information, they would basically have to make investments ‘sight unseen’. This disclosure also protects the company from future accusations that it did not fully disclose enough information about itself or the securities in question.
when is it better to start a new business?
It is better to start a new business than purchase an existing one when:
· A person has created something unique and starts a business to market their invention.
· An existing small business does not satisfy the needs of customers.
· The market has grown, and existing businesses cannot support additional customers.
what are the advanatges to starting from scratch?
The owner has the freedom to set up the business exactly as he or she wishes.
· The owner’s objectives can be matched more closely to the business.
· The owner is able to determine the pace of growth and change.
· The owner has more flexibility to select the location, target market, range of products and level of customer service.
· There is no goodwill for which the owner has to pay.
· If funds are limited, it is possible to begin on a smaller scale
disadv to starting from scratch?
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.
· Potential customers may be more difficult to attract than initially expected or unforeseen competition may appear, especially if the level of planning was inadequate.
Considerations when purchasing an existing business
· When an existing business is purchased, the business is already operating and everything associated with the business is included in the purchase — for example, stock and equipment, premises, existing customer base, staff, reputation and goodwill.
· It is important to find out why the business is for sale. It may be a struggling business with complex problems rather than an exciting, once-in-a-lifetime opportunity.
· Before signing a contract of sale, the buyer should get financial and legal advice.
advantages to purchasing an existing business
· Sales to existing customers will generate instant income.
· A good business history increases the likelihood of business success.
· Stock has already been acquired and is ready for sale.
· Equipment is available for immediate use.
· Existing employees can provide valuable assistance.
disadvantages to purchasing an existing business
- The existing image 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 which may be lost when the business is sold.
· It may be difficult to assess the value of goodwill with the likelihood of paying more than the business is worth. · Some employees may resent any change to the business operation.
describe Franchising
· Under a franchise agreement, a person (franchisee) buys the right to use the business name and distribute the goods or services of an existing business (the franchisor).
· People choose to start a franchise in the hope of avoiding many of the problems associated with starting a new business. For a set fee, the small business owner receives the benefits of a successful business formula, a well-recognised name and established trademarks. Franchises are the fastest growing area of small business.
· There are approximately 1120 franchisors in Australia and 79,000 franchisees.
advantages of franchising
· Products, equipment, premises design and marketing are usually established.
· The franchisor often provides training.
· There is less need for the franchisee to have previous business experience.
· The investment risk may be lower.
· There is an immediate benefit from the franchisor’s goodwill.
diasadvantages of franchising
· The franchisor usually controls everything to do with price, suppliers and health regulations.
· Profits must be shared with the franchisor.
· The franchisor often charges a service fee for advice.
· Contracts may be biased in favour of the franchisor.
· The franchisee may merely feel like an employee but without the benefits and security.
· The franchisee has to deal with day-to-day operations, and they are legally accountable.
Important planning considerations: Staffing.
why is staffing important?
· Successful business owners recognise that they rely on the quality of their employees to achieve their aims of improved profit, growth and increased market share since people are a business’s most valuable asset.
· Retaining good employees are crucial to ongoing business success.
· A high priority business owners must have is to develop good working relationships with staff and to motivate them to do their best in the workplace.
· Good staff provide the business with a competitive advantage, especially if the business offers a service where the customers come into direct contact with the employees. Therefore, the management of the staffing function — the recruiting, selecting, maintaining, training and separating of employees — must be undertaken with care.
· One mistake that some business owners often make is not providing enough time or financial resources to satisfactorily carry out the recruitment process.
· Good staff = customer satisfaction = good reputation
Equipping premises why is it important?
Business owners need to ensure they have the right equipment, fittings, furniture and technology so their employees can work efficiently. This is especially important for those businesses that rely on visual appeal to attract customers, such as a shop or restaurant.
Obtaining realistic valuations if purchasing an existing business
It is important that someone planning on purchasing an existing business determines the current worth of the business and its future prospects. There are many considerations that should be taken into account when estimating a business’s value including sales, costs, profits, assets, liabilities, tax and legal issues.
type of information you should seek when purchaisng an existing business
The type of information you should seek include:
· Business history
· Financial statements for the past few years
· Details of any assets the business owns such as machinery, equipment, stock etc.
· Details about goodwill.
· Staff, supplier, and customer information.
· Legal information including legal documents such as leases and insurance policies, as well as any registration papers
· Sales information
· Business policies and procedures
what are Keys to success of a business?
· Prior work experience in the field — knowledge of the business
· Ability to learn from mistakes
· Work with a strong team
· Access to information
· Entrepreneurial abilities
whatre barriers to success of a business?
· Unwilling to take risks
· Not enough time or energy
· Difficulty raising capital to finance the business venture
· Failure to plan
· Negative cash flow
· Inaccurate record keeping
federal gov obligations
· Payment of Pay As You Go (PAYG) income tax and fringe benefit tax, where applicable
· Deduction of income tax from employees who earn above the minimum taxable wage level
· Possible collection of goods and services tax (GST) on behalf of the Australian Taxation Office
· Provisions for employee superannuation
· Abiding by unfair dismissal laws when dismissing employees
· Not engaging in anti-competitive practices
· Ensuring employee working conditions abide by the National Employment Standards (annual leave, maximum number of working hours)
· Registration of the business name unless the business carries the name of the owner
· Protecting consumers from undesirable business practices
· Not engaging in misleading or deceptive advertising.
What are the forms of promotion?
Personal selling
Public relations
Advertisements
Relationship marketing
Sales promotions
Publicity
What is marketing?
Marketing is the process of meeting customer needs, creating value, and communicating that value to customers in order to achieve business goals through product or service promotion and sales.
What are the 4p’s?
Product, promotion, place, price.
What is the purpose of marketing?
To identify, create, communicate, and deliver value to customers in order to satisfy their needs and wants, ultimately leading to the achievement of business objectives such as sales, profitability and customer satisfaction.
Product– 4 p’s. Explain it.
Businesses must create products or services that meet customer needs and preferences, including features, quality and design.
Price– 4 p’s.
Setting the right price is crucial; businesses must choose from strategies like cost-based pricing, competition pricing, adjusting prices in response to market conditions and customer demand.
Place– 4 p’s.
Deciding how and where to make products or services available to customers, such as through retail stores, e-commerce, wholesales, or direct sales.
Promotion– 4 p’s.
Advertising & promotion: developing marketing campaigns, advertisements, and promotional activities to raise awareness and generate interest in the product or service.
Ways in which a business can be socially responsible?
- avoid conflicts of interest
- deal with employees honestly, fairly and with respect
- develop skills of employees
- work with suppliers to ensure they have socially responsible policies in place
- ensure the business is free of corruption
- ensure a fair price is paid for all materials
- minimise waste and pollution
-conserve the use of energy - protect the health and safety of customers
-become involved in the community
Benefits of ethical decision making and CSR?
- Improvement in staff turnover and absenteeism rates as staff feel more valued and motivated.
- Lower business costs (such as recruitment and training costs)
- Increase in employee productivity.
- Increase in sales as customers reward socially responsible businesses by purchasing more of their products.
- Improved business reputation.
- Marketing opportunities if the business receives publicity in the media.
- Attracting better employees who want to work for organisations that are socially responsible.
- Helping businesses achieve a sustainable competitive advantage.
what is difference between legal compliance and ethical responsibility.
Legal compliance refers to adhering to laws and regulations established by authorities, which are mandatory and enforceable by legal sanctions. Ethical responsibility, on the other hand, involves voluntarily following moral principles and values that may go beyond legal requirements, reflecting a company’s commitment to doing what is right and just, even when not explicitly mandated by law. While legal compliance is a minimum standard dictated by law, ethical responsibility represents a higher moral standard that guides behaviour beyond legal obligations.
What is the role of product promotion?
The inform, persuade and remind consumers about a business’s products.
What is the aim of product promotion?
-Attracting new customers by raising awareness of a particular product.
-Increasing brand royalty by reinforcing product image.
-Encouraging existing customers to buy more.
-Encouraging existing and new customers to buy new products.
What is a promotion mix?
A promotion mix is the various promotion strategies a business uses in its promotional campaign
What are the constituents of a promotion mix.
- Advertising is a paid, non-personal message communicated through a mass-medium.
- Personal selling involves the activities of a sales representative directed towards a customer in attempt to make a sale (example, Thermomix).
What is relationship marketing?
Relationship marketing sells products to customers on a personalised basis. Aim is to create customer loyalty by meeting the need of customers on an individual basis, thereby keeping customers coming back. Example is loyalty programs.
What are opinion leaders?
A person who influences others is an opinion leader. Their opinions are respected, and they are often sought out for advice.
What’s publicity?
Publicity is any free news story about a business.
What’s sales promotion?
Sales promotion is when the business provides direct inducement to customers in an attempt to sell more of its product.
Role of consumers in the circular flow model?
They purchase goods and services from businesses and pay taxes to the government. Their consumption determines the demand for goods and services, which drives production by businesses.
Role of businesses in the circular flow model?
They produce goods and services, employ labor, and provide income and taxes to the government. Their decisions on production, investment, and pricing are influenced by market conditions and government regulations.
Role of government in the circular flow model?
It provides public goods and services, regulates markets to protect consumers and promote competition, collects taxes, and redistributes income. Its policies and spending decisions impact economic growth, employment, and inflation.
Role of financial institutions in the circular flow model?
They facilitate the flow of funds between savers and borrowers, invest in businesses, and provide various financial services such as loans, insurance, and asset management. Their lending decisions affect interest rates and the availability of credit in the economy.
Role of overseas sector in the circular flow model?
It trades goods and services with the domestic economy, invests in domestic businesses, and provides financial flows such as foreign investment and remittances. Its activities affect exchange rates, exports, and imports.
Interdependence of governments, businesses and consumers in the economy?
The government protects consumers by regulating industries to prevent exploitation of consumers and ensuring the provision of safe goods and services. It also provides public goods and services that support business operations and consumer welfare.
Interdependence of financial institutions, businesses and consumers in the economy?
The financial sector facilitates business investment by providing capital and investment opportunities for businesses. It also channels household savings into productive investments that generate income and jobs.
Impact of business activities on the economy as a whole?
Businesses impact the economy by creating jobs, contributing to economic growth, and generating tax revenue. They also consume resources and produce waste that affect the environment and society.
Overseas sector interdependence business and domestic economy?
The overseas sector provides export markets for domestic businesses and imports goods and services that are not available domestically. It also affects the exchange rate and the international competitiveness of domestic businesses.
What is the business cycle?
The business cycle refers to the periodic fluctuations in economic activity, including expansion (growth), peak, contraction (recession), and trough.
Note: It is caused by changes in aggregate demand and supply, and is affected by various factors such as fiscal and monetary policies, technology, and global economic conditions.
Characteristics of expansion and peak business cycle.
During expansion and peak, the economy experiences
-growth,
-low unemployment, and
-increased economic activity. –Businesses
-expand production,
-hire more workers, and
-invest in new projects.
Consumers
-spend more and
-take out more loans.
Characteristics of contraction and trough business cycle.
During contraction and trough, the economy experiences
-decline,
-high unemployment, and
-decreased economic activity. Businesses
-cut production,
-lay off workers, and
-postpone investments.
Consumers
-spend less and
-save more.
What’s innovation and what does it lead to?
Innovation is the introduction of new ideas, products, processes, or technologies that improve existing systems or create new opportunities.
Innovation often leads to increased productivity, competitiveness, and market expansion.
What are the effects of Covid-19 on the economy?
-unemployment
-rapid shift towards online shopping
-Many businesses also faced liquidity problems and relied on government fiscal policy
-The Reserve Bank of Australia also implemented monetary policies, including lowering interest rates to provide financial support and stimulate economic recovery.
The COVID-19 pandemic had a profound impact on the Australian economy. Consumers experienced job losses, reduced spending, and a shift to online services, while businesses faced closures, supply chain challenges, and liquidity problems. The pandemic accelerated the digital transformation of businesses and reshaped consumer behaviour, leaving a lasting impact on the Australian economic landscape.
What are laws?
Laws are rules and regulations established by a governing authority. They are legally enforced and enforceable.
What are the aims of the law?
Establish order, protect people, ensure their freedoms and social cohesion.
What are characteristics of common law?
-Decisions given by judges
-Occur because a judge has to decide on a case where there is no existing law that regulates it.
-Record of these decisions is placed in books called Law Reports so they can be referred to when needed.
-These decisions known as legal precedents.
What are precedents?
-Judges give similar decisions in cases that are alike. This is known as an act of precedent.
What are characteristics of statute law?
-Made by parliament.
-Federal or Commonwealth parliament laws affect everyone, state parliament laws effect the state.
-Statue law will always succeed over common law and no court has the power to change it, except the High Court, which can only do so if the law is unconstituitional.
What are characteristics of civil law?
-A part of private law
-Deals with non-criminal matters
-Main areas include tort and contract law.
What are the areas of tort law?
The law of tort includes:
-Negligence—where a person fails to take reasonable care and, as a result, injures another.
-Defamation—where a person injures another person’s reputation.
-Nuisance—where a person causes unreasonable interference with another person’s right to quiet enjoyment of their property.
-Trespass—where a person interferes with another person, or that person’s property rights.
Criminal law info.
-A crime involves behaviour that is considered by the state to be unacceptable and deseringing of prosecution, conviction and punishment.
-A person can be prosecuted for committing an offence from ten years of age.
-This is considered the ‘age of criminal responsibility’.
-Indictable offenses are serious crimes, like armed robbery, homicide, sexual abuse, child abuse and murder.
-Indictable offenses heard in District and Supreme courts, and guilt of a defendant is determined by a judge and jury.
Define private law.
Private law deals with how individuals interact with other individuals; the rights and duties people have towards each other.
Define public law.
Public law is concerned with regulating people’s behaviour within a society as a whole and protects the freedom of an individual. It also deals with the conduct society expects from its government.
What’s domestic law?
The law or legal system established within a nation to govern events.
What’s the upper house of federal parliament?
The senate.
What’s the lower house of federal parliament?
House of representatives.
What’s the prime minister? (federal government)
Head of government.
What does the cabinet include? (federal government)
prime minister, senior ministers, makes decisions
Governor-General (fed gov)
Represents the British monarch, s/he’s Head of State.
Federal government controls those things which affect the whole nation, such as…
defense, immigration, foreign affairs, and trade.
NSW parliament consists of upper house. What’s it called?
Legislative council.
What’s the lower house of NSW parliament?
Legislative assembly.
Head of (state) government is the…
Premier
Head of state is the…
Governor.
State government obtains most of its income from…
federal gov (thru taxes)
State government controls things which affect…
citizens within their state. including education, healthcare, transport, and policing.
Local Government Area (LGA) operate under ___ government legislation
state
Local government can only make rules on local issues. They are called…
by-laws
Local governments are responsible for the needs of citizens in a ___
particular area, managing local services like waste management, planning and zoning, and community development.
Features of High Court?
*The highest court in the country and is responsible for interpreting and applying the Australian Constitution.
*Also hears appeals from lower courts and
-Resolves disputes between the federal government and state governments.
*It consists of seven judges: the Chief Justice and Six Justices.
*There is no jury.
Features of Supreme Court?
*Highest in NSW.
*Judgement is binding on all lower courts.
*This court deals with serious indictable offences.
*Most serious civil cases (over $750 000).
*Appeals from lower courts.
Features of District Court?
*Has a 12-person jury in criminal cases and 4-person in civil cases.
*Claims from $100 000-$750 000 in civil cases (for debt recovery or personal injury).
*Unlimited jurisdiction for other civil cases.
*Indictable offences other than murder and treason.
Features of Local Court?
*This is where all criminal cases begin.
*No jury, no judge but magistrate.
*Minor civil disputes up to $100 000.
*Summary offences.
*Decides over committal hearings (whether case should go to higher court).
*Issues arrest and search orders, hears bail applications, and AVOs.
