Commerce (Semester 2) Flashcards
What is an entrepreneur?
someone who starts, operates and assumes the risk of a business venture in the hope of making a profit.
What are some of the skills that an entrepreneur should exhibit?
- Ability to set objectives and adjust according to market
- Have a vision
What are some of the characteristics that an entrepreneur should exhibit?
- Self motivated
- Risk taker
- Sets goals
- Leadership qualities
- Good communicator
- Willing to learn
- Desire to succeed
Why do people want to be self-employed?
You work for yourself, and have flexibility in controlling where and when you work.
What are some of the advantages of being self-employed?
- Independence: being your own boss
- 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 some of the disadvantages to being self-employed?
- 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
How do you identify a business opportunity?
Market research
What does market research allow an entrepreneur to do?
Make better decisions by understanding customer behaviour
What are the 5 factors to consider when identifying business opportunities?
- Location
- Market research
- Demographics
- Competition
- Target market
Why consider location when identifying business opportunities?
The location that your business is in can determine consumer traffic.
Physical businesses need constant consumer traffic, so should be located in a SHOPPING CENTRE, MALL OR MAIN STREET.
Online businesses need a prominent virtual location such as a high Google rank.
Define market research.
the action or activity of gathering information about consumers’ needs and preferences and analysing it.
Why consider market research when identifying business opportunities?
It allows entrepreneurs to make better decisions for a consumer.
What methods may be used for market research?
- Surveys
- Questionnaires
- Interviews
What questions may market research seek to answer?
Who are our customers?
What are they like?
Why do they buy our product?
Define demographics.
population characteristics that affect customer spending
Why consider demographics when identifying business opportunities?
Examining a region’s demographic patterns can help you tailor your product to your customers.
Why consider competition when identifying business opportunities?
The bigger the market, the more competition.
Goods can be targeted at a mass market or niche market.
Why consider target market when identifying business opportunities?
Focusing marketing activities on a target market can drive more sales.
Outline the three ways you can classify businesses, and provide detail for each.
- Size
- small (including micro)
- medium
- large
- Industry
- Primary
- Secondary
- Tertiary
- Quaternary
- Quinary
- Legal structure
- Unincorporated
- Sole trader
- Partnership
- Incorporated
- Private company
- Public company
- Unincorporated
What are micro businesses? Provide an example of one.
a business that employs less than 5 people including the owner
What are small businesses? Provide detail and an example of one.
businesses that has less than 20 people.
EXAMPLE: corner stores, local mechanic, hairdressing salons
- Generally owned by one / two people, who act as managers (usually)
- Cheap to set up
- Owners contribute most of startup capital
- high rates of failure
What are the common legal structures of small / micro businesses?
Sole trader / partnership
What are medium businesses? Provide detail and an example of one.
businesses that has 20 - 199 employees
EXAMPLES: motel / hotel, manufacturing factory
- generally owned by a few people or private shareholders
- owners responsible for majority of decisions - may be slower to implement due to influence of directors
- Owners / shareholders contribute capital and easier to access loans
What are the common legal structures of medium businesses?
Partnership / private company
What are large businesses? Provide detail and an example of one.
businesses that have 200 or more employees.
EXAMPLES: Woolworths, Qantas, NAB
- Likely to be owned by thousands of public shareholders and managed by different people (etc. board of directors)
- Generally less risky = easier to attract finance
What is the common legal structure of large businesses?
Public company
What is a sole trader company?
a business that is owned and operated by one person
- usually only has one person’s name in business name (etc. Greg’s Electrical Shop)
What are the advantages and disadvantages of a sole trader company?
ADVANTAGES - simplest and cheapest structure - owner receives all profit DISADVANTAGES - owner suffers all losses - has unlimited liability - owner can be forced to sell personal assets to pay business debts
What is a proprietary (private) company?
a company with private ownership
- MUST HAVE PTY LTD AFTER NAME
What are the advantages and disadvantages of a proprietary (private) company?
ADVANTAGES - Shareholders have limited liability - only investment is lost if business goes under - tax at fixed rate DISADVANTAGES - increased record keeping - more regulations
What is a partnership company?
a business in which two or more partners share the profits and liabilities of the venture
- tends to have names of partners in business names: etc. Harries and Davidson Accountants
What are the advantages and disadvantages of a partnership company?
ADVANTAGES
- Partners share profits and losses equally
- More startup capital available
- easy to change legal structure later if circumstances change
DISADVANTAGES
- Unlimited liability for debts for partners
- each partner equally liable
- each partner is liable for actions by other partners
What is a public company?
a company whose shares are traded freely on a stock exchange
- MUST HAVE LIMITED / LTD AFTER NAME
What are the advantages and disadvantages of a public company?
ADVANTAGES
- company is incorporated enterprise
- if shareholder leaves, business can continue
- able to raise large amounts of capital
DISADVANTAGES
- many regulations to protect shareholders
- possible mismanagement when business expands
- owners may lose control of the original company in the event of a dispute
What are the two main types of financing for businesses?
- Debt finance
2. Equity finance
Contrast debt finance and equity finance.
Debt finance: money obtained through loans
Equity finance: money received from raising capital
What are the advantages and disadvantages for debt finance?
ADVANTAGES
- Don’t have to sell ownership in business
- Taxation advantages: tax deductible
- Easier planning
DISADVANTAGES
- Need good credit rating
- Discipline
- Must not be overly dependent on debt, and make repayments on time
- Collateral
- Business assets may be at risk
- Personally guaranteeing loan puts your own assets at risk
What are the advantages and disadvantages for equity finance?
- Advantages
- No loan to repay
- Equity partners can expand your network
- No need for credit rating
- Disadvantages
- Cede some control to shareholders
- Profit must be shared
What are some of the issues that need to be considered when assessing finance for a business?
- if you have sufficient startup capital, so you can use equity finance
- if you need to borrow money, in which case you must find a loan with a low interest rate
What is the difference between a private company and a public company?
A private company is privately held by the shareholders. A public company lists some of its stock on the public market.
How can you identify if a company is public or private?
Private company: has Pty Ltd after name
Public company: has Ltd after name
Define incorporation.
when the company has become a separate legal entity from its owners (shareholders)
Define goodwill.
the monetary value of a business’s reputation
Define limited liability.
if the business cannot pay its debts, a shareholder generally loses only the money he or she invested in the business
Define niche market.
a very small segment of the total market
Define competitive advantage.
the ability of a business to develop strategies that ensure it has an ‘edge’ over its competitors
Define target market.
a group of customers to which the business intends to sell its products
Define unlimited liability.
when a business owner is personally responsible for all the debts of his or her business
Define mass market.
the market for goods that are produced in large quantities
What are some of the considerations to be considered when starting a business?
- Why am I getting into business?
- What type of business do I want to start? What structure?
- Where do I want my business to be in the future?
- How will I market my product in order to attract customers?
- What makes my business different from others?
What are the two main ways of going into business?
- Setting up a new business
2. Purchasing an existing business
What are the advantages of setting up a new business?
- Freedom to set up business your own way
- Freedom to determine pace of growth and change
- More flexibility in selecting location, target market, range of products and level of customer service
- No goodwill to pay
- If funds are limited, possible to begin on smaller scale
What are the disadvantages of setting up a new business?
- High risk and measure of uncertainty
- Without previous business reputation, may be difficult to secure finance
- Time needed to develop customer base, employ staff and develop lines of credit from suppliers
- If start-up period slow, profits may not be generated for some time
- Potential customers may be more difficult to attract than initially expected
- Competition
What is a franchise?
an authorisation granted by a company to an individual enabling them to carry out specified commercial activities
What are the advantages of setting up a franchise?
- Products, equipment, premises, design and marketing established
- Training provided
- Less need for franchisee to have previous business experience
- Lower investment risk
- Immediate benefit from the franchisor’s goodwill
What are the disadvantages of setting up a franchise?
- Franchisor controls operations
- Profits must be shared with franchisor
- Franchisor charges service fee for advice
- Contracts may be biased in favour of franchisor
- Franchisee may feel like an employee, but without benefits and security
What is marketing?
the action / business of promoting and selling products or services, including market research and advertising
What is involved in the marketing process?
- Analysis of the opportunities in the market
- Selection of the target market
- Development of marketing mix
- Management of marketing efforts
What is a marketing plan?
a document that outlines a company’s advertising and marketing efforts for a set timeframe
What should a marketing plan address?
It should address market research, competition, a budget, goals and analysis afterwards
Define market segments.
a group of people who share one or more common characteristics
Contrast selective and exclusive distribution.
Selective distribution: distribution of products limited to specific outlets (in an area)
Exclusive distribution: distribution of products limited to one outlet (in an area)
What are the 4 P’s?
- Product
- Price
- Promotion
- Place
How are the 4 P’s used by business when creating a product or service?
They are used to to define marketing options so that your offering meets a specific customer need or demand.
What does SWOT stand for?
Strengths, weaknesses, opportunities, threats
What is a SWOT analysis?
a study undertaken by an organisation to identify its internal strengths and weaknesses, as well as its external opportunities and threats
What can a SWOT tell us about a product?
It can tell us where your business stands in the market, and show strengths and weaknesses.
- It can show if the 4Ps have not been addressed appropriately.
- Subsequent analyses can measure progress.
What are product strategies?
The foundation of a product life-cycle and the execution plan for further development
What is advertising?
a means of communication with the potential users of a product or service
What are the different pricing strategies used by business?
Cost pricing
Market pricing
Competition based pricing
Discount pricing
What is cost pricing?
The normal price marked up by the amount of the profit the business wants to make.
What is market pricing?
The price that the marketplace determines for an asset / service.
What is competition based pricing?
A price that is based on what competitors are charging for similar products / services
What is discount pricing?
Price that is lowered to attract attention, or to sell stock.
What is promotion?
methods used by a business to inform, persuade and remind customers about its products
What is branding?
the marketing practice of creating a name, symbol or design that identifies and differentiates a product from other products
What is positioning?
a marketing strategy that aims to make a brand occupy a distinct position, relative to competing brands, in the mind of the customer
What sorts of techniques are successful in branding and advertising?
Advertising Product endorsements and sponsorships Event sponsorship and venue naming rights Product placements Guerrilla marketing Direct marketing and junk mail Special promotions Personal selling Publicity
What is guerrilla marketing?
when a competing company publicises its brand name at an event which is sponsored by a company (etc. tshirts)
What is direct marketing?
cold calls to householders personally via phone calls, letters or emailsn
What are some of the issues associated with marketing, advertising and promotion?
Promotions, ads and marketing may reflect stereotypical gender roles / use sexual themes and connotations to sell products.
- etc. male uses power tools, female in kitchen
Advertisements may appeal to personal desires by presenting unrealistic images.
- etc. exploiting insecurities (sex appeal) to suggest that a product may increase the charm of a user
- using unrealistically skinny model
What is capital?
the accumulated assets of a business that can be used to generate income for the business
Why do businesses need money?
In order to buy stock and promote products, in order to generate income
What are the ways business get money and finance?
- Debt finance
2. Equity finance
What are the two different types of loans in debt finance?
- Term loans
2. Mortgage loans
Contrast term loans and mortgage loans.
Term loans: loans for a fixed period of time (short usually)
Mortgage loans: long-term finance
Why do businesses keep financial records?
- In order to track the success of their business
- For taxation purposes
What is a revenue / profit or loss income statement?
a financial statement that measures a company’s sales and expenses over a specified period of time
Define revenue.
the income earned by a business
Define COGs (cost of goods sold).
the direct costs attributable to the production of the goods sold by a company
Define gross profit.
amount remaining when the cost of goods sold is deducted from revenue
Define net profit.
amount remaining when operating expenses are deducted from gross profit
How should a revenue statement be written?
- Record the revenue
- Record the expenses, and break them down
- Calculate the profit or loss.
What can a revenue statement tell us about a business?
It can tell us its profitability, and whether expenditure is abnormally high in comparison to profits.
What is the accounting equation?
Assets = Liabilities + Shareholder Equity
What is a balance sheet?
a financial statement that summarizes a company’s assets, liabilities and shareholders’ equity at a specific point in time
What does a balance sheet tell us about a business?
- Value of assets (can be divided into two different types)
- current assets: used up within one year (etc. cash at bank, stock)
- non-current assets: last for longer than a year (etc. equipment, car)
- Value of liabilities: debts owed by a business to others
- Owner’s equity / proprietorship: value of business to owners
Contrast current and non-current.
Current: short-term / usable within a year.
Non-current: long-term
Define owner’s equity.
the value of the business to the owner
Define mortgage.
a debt instrument, secured by the collateral of specified real estate property that the borrower is obliged to pay back with a predetermined set of payments
Contrast accounts receivable and accounts payable.
Accounts receivable: money owed to a company by its debtors
Accounts payable: money owed by a company to its creditors
Define liabilities.
the debts owed by a business to others
Define overdraft.
a deficit in a bank account caused by drawing more money than the account holds
Define goodwill.
the value of a company’s brand, customer base / relations and patents
an intangible asset that arises as a result of the acquisition of one company by another for a premium value
What is a cash flow statement?
a summary of the movement of cash receipts and payments over a period of time
What is liquidity?
the ability of a business to pay its debts on time
Why is liquidity important?
The quicker an asset can be converted to cash, the greater the profit for the business.
What does cash flow tell us about a business?
- a positive cash flow indicates that a company’s liquid assets are increasing, representing a growing business
- a negative cash flow indicates that a company’s liquid assets are decreasing, representing an unstable business
Provide examples of cash inflows and cash outflows in a business.
- cash inflows
- money from sales
- donations
- cash outflows
- payments for expenses
- write-offs
What type of regulations affect business and the running of business?
Federal, state and local government regulations.
How do businesses respond to various regulations?
Businesses must comply with the regulations, and when needed seek approval from the government for specified activities.
What are the federal government obligations?
- Payment of PAYG income tax and fringe benefit tax
- Deduction of income tax from employees who earn above the minimum taxable wage level
- Collection of GST
- Provisions for employee superannuation
- Following unfair dismissal laws when dismissing employees
- Not engaging in anti-competitive practices.
What are the state government obligations?
- Registration of the business name
- Provision of employee entitlements etc.
- Worker’s compensation
- OHS
- award rates of pay and conditions
- Not engaging in misleading or deceptive advertising
- Abiding by any pollution controls
- Observing regulations relating to the sale of food, cigarettes and alcohol
- Adequate and non-deceptive labelling of all foods and clothing
What are the local government obligations?
- Determining land use and approving new development applications
- Fire regulations
- Parking regulations (governing number of spaces that need to be provided)
- Health regulations (safe handling of food)
- Size, shape and location of business signs
