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.
