Nature of Business Flashcards
Define business
the organised effort of individuals to produce and sell, for a profit, the products that satisfy individuals needs and wants
What is the primary role of a business?
Production of goods and services
Name the 8 secondary business roles
profit, employment, income, choice, innovation, entrepreneurship, wealth creation, quality of life
4 ways businesses are classified
size, geographic location, industry, legal structure
Micro business?
less than 5 people
Small business?
more than 5 but less than 20 people
Medium business?
employing 20 or more people, but less than 200
Large business?
employing 200 or more people
Characteristics of an SME
closely controlled, local, personalised, capital comes from owner.
Local business?
within immediate environment
National business? (example)
operate throughout aus (coles)
Global business? (example)
conduct operations not only in Australia but also in other countries (BHP)
International - global?
produces products in one country and exports them to the global market
Transnational - global?
home country which operates in other countries
Define industry
consists of businesses which are involved in similar types of production
Primary industry
Extraction of raw materials and production of natural resources
Example of primary industry
farming, mining, fishing, grazing and forestry
Secondary industry
Transform raw materials into finished products – “manufacturing”
Example of secondary industry
iron ore into steel
Tertiary industry
Business that provides a service
Example of tertiary industry
retailers, dentists, solicitors
2 types of tertiary
quaternary, quinary
Quaternary meaning (example)
Transfer and processing of info
E.g. telecommunications, finance, education
Quinary meaning (example)
Domestic duties or services, traditionally performed at home
E.g. childcare, cleaning, maintenance
Sole trader
Business is owned and operated by one person
Provide all finances, decision – making and responsibility for the operation
Example of sole trader
Hairdresser, tutor and tradie
Type of liability (sole trader)
unlimited liability
Advantages of sole trader
make decisions for yourself, easy to create, gain all profit for yourself, minimal legal requirements
Disadvantages of sole trader
hold all legal responsibility, risk of revenue/start up costs, perform wide variety of tasks, pressure
Partnership
Owned and operated by between 2 and 20 people with the aim of making profit
Business can operate without legally binding agreement (verbally, in writing)
Type of liability (partnership)
unlimited liability
Advantages of partnership
shared responsibility, choice of employees
Disadvantages of partnership
amount of liability, provision of start-up costs, reliability on partner
Trust
Trustee carries out the operations of the business on behalf of the beneficiary
Private company
Has between 1 and 50 private shareholders (offer or invite must be approved by director).
Company must have ‘Pty Ltd’ after name
Type of liability (private)
limited liability
Advantages of private company
choice of shareholders, limited liability.
Disadvantages of private company
limited input in decisions, every decision must be approved by director, split profits
Public company
- Usually large in size with a range of products
- Seeking funding through selling ownership on stock exchange
- Word limited or Ltd in name
- Must publish a financial report each year
Advantages of public company
large (more successful/big impact), funding through selling of ownership, very limited liability.
Disadvantages of public company
less input, pay out dividends, no choice in who owns shares
Cooperative
Collection of businesses which join together to have stronger power in the market
Gov business enterprise
- Commonwealth entity that operates as a profit-making business
- Government owned and operated and are typically large employers
- Sometimes businesses are privatised in order to raise revenue from sale
Example of GBE
Qantas, Medibank
Franchise
License to operate an individually owned business as if it were part of a chain or outlet stores
Advantages of franchise
no need to advertise, expanding business, processes are already routine
Disadvantages of franchise
costs, application of license
Define external influence
factors which a business has little or no control.
List external influences
economic, financial, geographical, social, political, legal, institutional, technological, competitive situation, markets
Define internal influence
factors which the business has some degree of control e.g. products + business culture
List internal influences
products, resources, management + business culture
What is a stakeholder?
any individual or group who interacts with the business and who will be affected by business decisions
List types of stakeholders
- Managers
- Shareholders
- Employees
- Society
- Consumers
- Environment
4 stages of business life cycle
- Establishment
- Growth
- Maturity
- Post-maturity
Establishment phase
o Initial period in which a business is set up
o Costs will be high
o Sales will be low
o Business will rely on finance from owner
Growth phase
o Considerable rise in sales revenue + customer awareness
o Allow management skills and product/service quality to improve
o Growth in number and difficulty of tasks
o Need to seek support
Maturity phase
o ‘Plateauing’ of sales
o Emphasis on efficiency rather than growth
o Owners need to rethink future
Post maturity phase
Effort of managers to try to revitalise or renew the business
3 scenarios of post maturity
decline, steady state, renewal
Internal factors of decline
- Poor management
- Lack of management knowledge
- Inadequate planning
- Lack of finance + poor cash flow
- Poor location
External factors of decline
- Unexpected competition
- Government Policies
- Natural disasters/pandemics
Business cessation
period where business stops operating either voluntarily or involuntarily.
Reasons of voluntary cessation
Retirement, loss of interest/commitment
Reasons of involuntary cessation
- Bankruptcy (cannot pay debts)
- Death of owner
- Insolvency (inability to pay debts in long term)
What is voluntary administration
Individual appointed to operate business in hope of trading out of financial problems
What is liquidation
Independent third party is appointed to take control and sell company’s assets to pay creditors
