mod 1: business planning Flashcards
transformation process
the business process that involves adding value through transformation of inputs to outputs
transformation
the conversion of inputs (resources) into outputs (G+S)
value adding
the creation of extra or added value as inputs are transformed to output
goods inputs
entrepreneurship, natural resources, human resources, capital, technology
services inputs
materials, skill, education, time, qualification
business goals include…
profit maximization, market share, growth, share price, social goals, environmental goals
economic contribution of businesses
employment and development of human capital, provision of income, wealth creation, quality of life
commercial contribution of businesses
innovation, invention
entrepreneur
a person who sets up a business or businesses, taking on financial risk in the hope of profit
entrepreneurship
the activity of setting up a business or businesses, taking on financial risks in hopes of profit
effects of entrepreneurship
creates new businesses, contributes to national income, generates social change, forms community development, steers government policy making
CSR
the open and accountable business actions based on respect for people, community/society and the broader environment, placing value on the Triple Bottom Line
Triple Bottom Line
financial returns, social responsibility, environmental sustainability
in business a tension exists between
what is most cost effective/profitable and what is right/what society expects business to do
examples of CSR
planting trees, sustainable power sources, donating money
personal qualities of an entrepreneur
motivated, logical, risk-taking, strong work ethic, innovation, perseverant
benefits of business ownership
overcome unemployment, profit, security, better lifestyle, capital gain, wider overall choice
qualifications
the conditions that must be fulfilled before a right can be acquired
skills
ability/capacity to carry out tasks correctly
motivation
personal drive and factors that fuel drive
cultural background
the religious, family and social upbringing that contributes to fostering entrepreneurial abilities
sources of business advice
trade associations, TAFE colleges, solicitors, universities, accountants, government
trends
patterns of consumer behaviour. Business owners need to analyse market trends to plan ahead, take advantage of opportunities and protect the business from changes which may reduce their success.
what factors cause trends to change
advancement in technology, change in competitive positioning, change in tastes and preferences, cost of production, incomes, seasons
sources of short term debt finance
overdraft, commercial bills, factoring
long term debt finance
mortgage, debentures, unsecured notes, leasing
external equity finance
ordinary shares, private equity
owners equity
equity contributed by owners
retained profits/earnings
profits from business activities that haven’t been distributed to owners
overdraft
negotiated use of bank funds to a specified amount on a cheque account which allows businesses to draw on more funds than what are available
commercial bills
bank-issued short term loans that allow businesses to utilise up to $100,000 in an agreed time
factoring
the business sells its debtors (accounts receivable) to a factor (debt collector) eg. Victor
credit sales
when businesses sell products to customers and they pay at a future date eg. “put it on my tab” in US movies
mortgage
a legal agreement by which a bank lends money at interest in exchange for the title of the debtors property
debentures
debt securities issued by public companies
unsecured notes
similar to debentures but offer a higher rate of return to the buyer as they aren’t secured by company assets
float shares
finance raised by a company through inviting new owners who have voting rights and dividends
private equity
money invested into private companies by invitation of new owners to fund expansion
laws that businesses need to comply with
copyright, consumer protection, employment of people, safe food handling, taxation, registration
business names
firms have to register their business name with ASIC to prevent other businesses from trading under a similar name. They must comply or risk fines and the right to continue trading. Registering name doesn’t give ownership of name.
zoning
local governments control zoning which ensures that factories and residential areas aren’t located together. A new business must enquire with local council regarding the local of business.
health compliance
must be compliant with the Public Health Act (2010) and the Food Act (2003) which aim to ensure businesses dealing with food sell safe products.
Competition Consumer Act (2010)
protects consumers and other businesses from undesirable and misleading practices eg. misleading product, bait advertising
taxation
compulsory payment of a proportion of earnings to the government
different tax include
income tax, GST, company tax, payroll tax
general skills
skills looked for in every employee (employability skills) eg. work ethic, confidence, motivation, communication
specific skills
skills specific to a particular job eg. customer service for a front counter crew member
overriding recruiting objective is to…
attract a pool of qualified applicants with the most suitable skills. Skilled employees are more productive and generate income and wealth for a business.
employment
the type of employment a business offers is important as it has implications on both wage and non-wage costs.
full-time employment
work at least 38 hours per week and are usually employed on a permanent basis. Entitled to leave, 4 weeks holiday pay at 17.5% holiday loading
different types of leave
maternity, family and DV, carers, long service, annual
part-time employment
permanently employed, work less that 38 hours per week and hours are regular. Entitled to prorate (part of full time benefits based on hours)
casual employment
a job from an employer with no advanced commitment from an employer. No entitlements, but have a high hourly rate, businesses have minimum obligations to notify termination.
awards
legal documents outlining minimum pay rates and conditions of employment
enterprise agreement
set out minimum employment terms and conditions
common law contract
pay and conditions determined in relation to specific tasks/jobs
unincorporated business
business and business owner are one legal entity, business owner has unlimited liability
sole trader
one owner who operates the business under their own name or a Registered Business Name (RBN). Unincorporated, but may employ others.
benefits of sole trader
owner has total control, easy to establish cost-wise, no legal requirements to disclose finances, less govt. regulation
disadvantages of sole trader
unlimited liability, total commitment by the owner, higher taxation, harder to get debt finance
partnership
business owned by 2-20 people with partnership agreements to establish conditions, making individuals jointly liable for business debts. unincorporated
benefits of partnership
shared commitment/labour, low admin. costs, minimal govt. regulation
disadvantages of partnership
unlimited liability, shared income, taxed higher than companies, disagreements/disputes between owners
incorporated business
the process that a business has gone through to become a separate legal entity from its owners, therefore the company exists in its own right.
private company
company registered with ASIC where 1-50 shareholders appoint directors to run the company. It operates under a company name and ASIC, but isn’t listed on the ASX.
benefits of private company
limited liability, extra capital can be obtained (shares), ownership and management are separate, lower company tax rate
disadvantages of private company
must submit annual return to Australian Security Commission (ASC), slower decision-making, annual return to ASIC, higher admin cost due to ASC
public company
a company with an unlimited amount of shareholders as shares can be sold on the ASX, meaning they hold an IPO (initial public offering). It has an ACN and is ASIC registered.
benefits public company
limited liability, extra capital can be obtained (shares), easily transferrable shares
disadvantages public company
higher complexity and establishment cost, more government scrutiny, legal obligation to shar finances, more paperwork
micro business
a business with 0-4 employees typically unincorporated sole trader or partnership, They are quite niche to local area, typically run by women from home and use equity.
small business
a business with 2-20 employees typically unincorporated sole trader or partnership with one or more shareholders. Market share in the local govt. area and use equity and small amounts of debt finance.
medium business
a business with 20-199 employees typically incorporated private company with one or more shareholders. Market share in suburb/region and use equity and debt finance. People on BOD appoint director.
large business
a business with 200+ employees owned by unlimited amount of people, typically incorporated public or private company. People on the BOD appoint directors and have international/national market share.
primary sector
those involved in collecting natural resources which marks the beginning of value adding eg. fishing, forestry
secondary sector
involves taking raw materials from the primary sector and turning it into a semi-finished or finished product eg. iron to steel to car.
tertiary sector
provides services which is done by combining skills and expertise with other physical imputs eg. trade, medicine, financial services.
quaternary sector
subset of tertiary sector and is a service industry which specialises in the transfer of information and knowledge eg. NGS, internet, Real Estate.
quinary sector
subset of tertiary sector and is a service industry which performs duties that were typically performed in the home eg. daycare, Hellofresh, cleaner.
local business
businesses that generally serve the local area and are restricted by geographical spread except for online presence. They share a percentage of their specific market within their area eg. hairdresser, mechanic.
national business
a rare type of business that operates within just one country eg. Coles, Sportsgirl, David Jones.
international business
AKA Multinational corporations with branches and subsidiaries in different countries. They often have headquarters in developed countries and manufacture in less developed countries.
factors affecting legal structure of business
size of business, ownership, finance
to health laws businesses must comply with
Public Health Act (2010) and the Food Act (2003)
Competition and Consumer Act 2010
Protects consumers and other business from undesirable and misleading practices eg. deceptive products, false/misleading representation, bait advertising
profit maximisation
Profit is an indicator of business success as it reflects the level of sales revenue, relative to the expertise required to lower costs. Businesses will seek to maximize profits as this will create the largest return on their investment and assist in funding the growth of the business in the future.
market share
the business’s share of the total industry sales for a particular product.
growth
an increase in the net worth (value) and or physical expansion of a business.
share price
A share is a part ownership of a company. The share price reflects the value of a company at a given point in time. Businesses will seek to maximise the share price by performing well. A business that is profitable and has a good reputation, will attract investors.
social goals
Business’ responsibilities to individuals and society.
environmental goals
Businesses now understand that customers expect environmentally sustainable production decisions. A business will pursue this goal as it contributes to a positive brand image, increased sales and higher profits.
competitive positioning
An effort to influence consumer perception of a brand, product or business relative to the perception of competing brands, products or businesses.
buying an existing business advantages
Business can be purchased as a turnkey operation, goodwill already exists, easier to obtain debt finance due to business’ history.
buying an existing business disadvantage
existing limitations eg. size, existing brand image which can be hard to change, existing contracts must be adhered to, past success may have been reliant of previous owner.
franchise
a franchisee buys the rights to sell the franchisors goods or services under an existing business model and trademark.
advantages of franchising
lowered failure rates, immediate benefit from goodwill, all supplies already established, well-established and profitable product
disadvantages of franchising
franchisor controls overall operations, threat of franchise termination at the end of contract, may cost more than starting a new business, poor products from one outlet with affect other outlets
total revenue
sales*price
total cost (TC)
fixed costs (FC) + variable costs (VC)
break even
total revenue (TR) = total costs (TC)
profit
total revenue (TR) is more than total cost (TC)
loss
total revenue (TR) is less than total cost (TC)
business plan
a written statement of a business’ goals and the steps to be taken to achieve them. It is a summary and an evaluation of a business idea in written form that should be updated regularly, making it a living/working document.
benefits of business planning
helps to prioritise and provide clarity, provides oversight and control over business, vital when sourcing finance.
practical applications of a business plan
tests business viablity, assists the business to be proactive rather than reactive to external change, reference point to guide management and staff when running a business
Market research
testing who potential customers are likely to be and what motivates them. They test products to see if they are commercially viable which helps to identify market gaps and establish a strong primary market.
two types of market research
primary market research: gathering first hand information for a specific purpose
secondary market research: info already gathered for another purpose
common components of business plans
exec. summary, goals, strategies, business description and outlook, management and outlook, operational plans, marketing plans, financial plans, human resource plans
business plan: executive summary
brief overview of plan
business plan: goals
what the business hopes to achieve
business plan: strategies
overview as to how the business will attempt to achieve goals
business plan: business description and outlook
an overview of the industry the business will operate in including situational analysis
business plan: management and outlook
the nature and type of organisation structure
business plan: operational plans
details the production process and people required now and in the future
business plan: marketing plans
product, price, promotions and distribution details
business plan: financial plans
financial needs and methods to evaluate performance
business plan: human resource plans
details present and future staff requirements
breakdown of goals triangle
Vision
Strategic: long-term goals
Tactical: short term goals
Operational: day-to-day
long term strategic business goals
growth, share price, social goals, environmental goals, market share, profit maximisation
short term tactical business goals
operations: quality, cost, dependability, customisation, speed, flexibility, speed
finance: liquidity, profitability, efficiency, growth, solvency
marketing: sales, brand awareness, market share, social-ethical accountability, legal compliance
human resources: maximised profitability, minimised cost, ethical-social responsibility, legal compliance
SWOT analysis or situational analysis
involves the identification and analysis of internal strengths and weaknesses of a business, and the opportunities and threats from the external environment. It is a planning and analysis tool used by businesses to identify objectives, goals and align strategies to achieve them.
SWOT acronym
Strengths- champion them
Weaknesses- fix them
Opportunities- maximise them
Threats- minimise them
internal business environment
factors that a business can control or change including Strengths and Weaknesses
external business environment
factors that are outside of a business’ control including Opportunities and Threats
business vision
broadly states what the business aspires to become and is often expressed in their vision statement
mission statement
highlights specific goals, objectives and strategies that are intended to achieve the vision. It is common for businesses to include their values or virtues as part of these statements.
goals
specific statements of intent of what is intended to be achieved
objectives
specific statements (break down of goals) detailing what a business or individual needs in order to accomplish its vision.
objectives
specific statements (break down of goals) detailing what a business or individual needs in order to accomplish its vision.
visions, mission and goals are important as they:
direct and guide business owners, management and employees. They foster culture, cohesion and purpose within the business that is used to rationalise decisions.
cost leadership
involves aiming to have the lowest costs and to be the most price-competitive in the market, whilst maximising profit
product/service differentiation
developing and promoting differences between a business’ products to those of its competitors
competitive advantage
where a business’ goods or services appear superior or more favourable to competitors
cost leadership strategies
control product costs and expenses, economies of scale, technology, R + D
product/service differentiation strategies
product features, service, price, brand image, cross-branding
operation objectives that achieve product/service differentiation
cost, quality, speed, customisation, flexibility, dependability
link between product/service differentiation and competitive advantage
product/service differentiation achieves competitive advantage, leading to profit maximisation and profit
