Nature of Business Topic 1 Flashcards
Everything learnt during topic 1 Nature of Business
What is a business?
The organised effort of individuals to produce and sell, for a profit, the products (goods and services) that satisfy individuals’ needs and wants
Why are businesses important?
- Exports products, which generates income for Australians and helps reduce our trade deficit
- Assists in the development and use of new technology
- Provides employment and income for employees
- Pays taxes to governments (company tax and payroll tax)
- Undertakes investment, which leads to economic growth
- Produces a wide range of products giving consumers greater choice
- Improves our quality of life
- Provides a training ground for future businesspeople (entrepreneurs)
- Creates value, which encourages economic growth
- Encourages competition, which results in cheaper products
- Provides income for business owners
- Encourages research and development into new products (invention) and improved products (innovation)
- Helps provide owners with challenges and rewards
E.g Small to medium enterprises (SMEs) make up over 98% of all businesses in Australia.
SMEs provide employment for about 64% of all employees within the private sector.
List three examples of products.
- Foods
- Clothing
- Electronics
List three examples of services.
- Haircuts
- Car repairs
- Cleaning services
What is the primary role of a business?
To satisfy needs and wants by providing goods and services.
What is production?
Creating products that are demanded by customers.
What are the main activities a business undertakes?
- Production
- Management
- Organizing resources
- Distributing goods and services
- Planning finances
- Forecasting sales
- Controlling production
- Marketing products
What is one role of businesses in the economy?
Providing employment for millions of people.
What is meant by ‘small to medium enterprises’ (SMEs)?
Businesses that are classified as small or medium-sized and play an important role in the economy.
How can businesses be classified?
- Size
- Industry sector
- Geographical spread
- Legal structure
What are the three sizes of businesses?
- Small
- Medium
- Large
What is a micro business?
A very small business, often with no more than a few employees.
True or False: A micro business sells only miniature products.
False
True or False: SMEs do not play an especially important role within the Australian economy.
False
According to the ABS, a business with fewer than ___ employees is classified as a medium-sized business.
200
What is one characteristic of small businesses?
They are independently owned and operated.
What is the importance of goods and services provided by businesses?
They provide consumers with a vast amount of choice.
What is the purpose of marketing in a business?
To promote products and attract customers.
Fill in the blank: The total output of all businesses adds considerably to the economic ______ of Australia.
wealth
What are the advantages of leasing equipment for a business?
- Lower initial costs
- Flexibility
- Up-to-date technology
What are the disadvantages of buying equipment for a business?
- Higher initial costs
- Maintenance responsibility
- Depreciation
What factors can contribute to business decline?
- Poor management
- Changes in consumer preferences
- Economic downturns
What is classified as a medium-sized business in terms of employee count?
A business with fewer than 200/300 employees.
What is a common feature of all small businesses?
They are independently/interdependently owned and operated.
How is the management structure of small businesses typically characterized?
Small businesses have a complex/simple management structure with few/many rules and regulations.
The number of employees in a business is what type of measure?
Quantitative/qualitative measure.
What type of market share does a small business usually have?
A small market share.
What market does a small business usually serve?
The local market.
Give an example of a small business.
Blue Hills Convenience Store.
Most small businesses are classified as what type of entity?
Sole traders/public companies.
What does geographical spread mean when classifying businesses?
The classification of businesses based on their geographical reach.
What are the three main classifications of geographical spread?
- Local
- National
- Global
Summarize the classification of businesses by geographical spread.
Local businesses operate in a specific area, national businesses operate across the country, and global businesses operate internationally.
What are the four main reasons for businesses expanding, particularly overseas?
What is the rapid growth in the tertiary industry over the last three decades resulted in?
The subdivision into quaternary and quinary sectors.
List the three main types of industry sectors.
- Primary
- Secondary
- Tertiary
Define the primary industry sector.
Involves the extraction of natural resources.
Provide an example of the primary industry sector.
Define the secondary industry sector.
Involves manufacturing and construction.
Provide an example of the secondary industry sector.
Define the tertiary industry sector.
Involves services rather than goods.
Provide an example of the tertiary industry sector.
Define the quaternary industry sector.
Involves knowledge-based services.
Provide an example of the quaternary industry sector.
Define the quinary industry sector.
Involves high-level decision making and services.
Provide an example of the quinary industry sector.
What does the legal structure of a business refer to?
How the ownership of the business is registered.
Distinguish between unincorporated and incorporated businesses.
- Unincorporated: Sole trader or partnership
- Incorporated: Privately and publicly owned companies
What is a sole trader?
An individual who owns and operates a business.
What is a partnership?
A business structure where two or more individuals manage and operate a business.
Why is it better to have a written partnership agreement?
List three key components a partnership must contain.
- Terms of the partnership
- Responsibilities of partners
- Profit-sharing arrangements
What is a limited partnership?
A partnership where some partners have limited liability.
What is the concept of a separate legal entity referred to as?
The ‘veil of incorporation’.
What does limited liability mean?
Owners are not personally responsible for the business’s debts.
What is the most common type of company structure in Australia?
Private company.
What is the typical range of private shareholders in a private company?
Between 1 and 50 private shareholders.
What are the key features of public companies?
What are government enterprises?
Businesses owned and operated by the government.
Give examples of government enterprises.
- AUSSAT
- Qantas
- Commonwealth Bank
- Telstra
What is the rationale behind the privatisation of government enterprises?
Economic efficiency is increased by transferring enterprises to the private sector.
What does a franchise agreement allow a person to do?
Buy the right to use the business name and distribute goods or services.
Distinguish between a franchisor and franchisee.
- Franchisor: Provides the franchise, has established the brand
- Franchisee: Purchases the right to operate under the brand
Why is franchising often more successful than starting an independent business?
Summarize the advantages of franchising for a franchisor.
Summarize the advantages of franchising for a franchisee.
Summarize the disadvantages of franchising for a franchisor.
Summarize the disadvantages of franchising for a franchisee.
What is venture capital?
Funds provided to startups and small businesses with perceived long-term growth potential.
What is a mnemonic?
A pattern of letters, ideas or associations that assists in remembering something.
Provide an example of a mnemonic.
Never Eat Soggy Weetbix.
What are acronyms?
The first letter of each word creates another word.
What are acrostics?
The first letter of each word in a sentence provides a clue to recall information.
What does RIPS stand for?
Roles, Influences, Processes, Strategies
What is an acrostic?
The first letter of each word in a sentence provides the clue that helps students recall information.
Give an example of an acrostic.
My Very Elderly Mother Just Served Us Nachos = The Order of the Planets in the Milky Way (Mercury, Venus, Earth, Mars…)
What is one use of rhyming in mnemonics?
Some mnemonics employ a rhyme to help them be recalled easily.
Provide an example of a rhyme used in mnemonics.
‘i’ before ‘e’ except after ‘c’
What is the connection method in mnemonics?
Students connect the information they want to memorize to something they already know.
What is a tip for creating mnemonics?
Use images as well as text.
Why are funny mnemonics easier to remember?
Funny mnemonics are easier to remember than normal ones.
What are everyday symbols that can be used in mnemonics?
Red traffic lights, road signs, pointing fingers, etc.
Why is knowing the syllabus important in Business Studies?
Knowing the syllabus is the key to success.
What must businesses do in response to external influences?
Businesses must keep ‘in tune’ with the changes and adapt its operations accordingly.
What is the external business environment?
The factors that can impact a business that managers cannot control.
What can political changes lead to in the business environment?
Business uncertainty or business confidence.
What are the three main institutional influences on business?
- Government regulatory bodies such as the ACCC and Fair Trading
- Trade unions
- Employer associations
What does deregulation mean?
The removal of government regulation from industry.
What does privatisation involve?
The transfer of ownership from the public sector to the private sector.
What is the role of regulatory bodies?
To ensure that businesses conduct themselves fairly in relation to the consumer, the community and other businesses.
Name a major factor that impacts business activity in Australia.
Australia’s geographic location within the Asia–Pacific region.
What is globalisation?
The buying and selling of goods and services between nations.
What has significantly impacted globalisation in recent years?
The technological revolution in communications and computers.
What legal responsibilities do businesses have?
Businesses must abide by the laws of a country.
What is the business cycle?
The periods of growth and recession that occur due to fluctuations in the general level of economic activity.
What are boom and bust periods in economic terms?
- Boom: Period of economic growth
- Bust: Period of economic decline
What happens during a recession?
Business activity gradually slows down.
What can technological advancements lead to in businesses?
Increased efficiency and productivity.
What can happen if a business doesn’t adapt to changing technologies?
It may fall behind competitors.
What is the potential influence of social changes on businesses?
Failure to respond to social changes can threaten business stability and viability.
What is financial deregulation?
The removal of government regulation from the financial industry.
What is deregulation?
The removal of government regulation from industry to increase efficiency and improve competition.
When did the deregulation of Australia’s financial system begin?
In 1983.
What approach does the deregulation of the financial sector lead to?
A more flexible, market-oriented approach.
What has enabled global financial transactions?
Developments in communications technology.
What is the financial influence concerned with?
The market in which to acquire finance, not how much money a business has.
What are the three markets identified that influence businesses?
- Financial/Capital Markets
- Labour Market
- Consumer Market
How do changes in financial/capital markets influence businesses?
They affect the availability and cost of finance.
How do changes in labour markets influence businesses?
They affect the availability and cost of workers.
How do changes in consumer markets influence businesses?
They affect demand for products and services.
What is competition between firms aimed at?
Being the market leader or winning customer loyalty.
What benefits does competition provide to consumers?
- More choices
- A range of qualities
- A variety of prices
What is a sustainable competitive advantage?
An advantage that allows a business to outperform its competitors consistently.
What does the number of competitors refer to?
The size and number of firms that exist within an industry (market concentration).
What are the four main types of market concentration?
- Perfect competition
- Monopolistic competition
- Oligopoly
- Monopoly
What does ‘ease of entry’ mean?
The difficulty or simplicity with which new competitors can enter a market.
Which types of market concentration are easiest to enter?
Perfect competition.
Which types of market concentration are most difficult to enter?
Monopoly.
What are local competitors?
Businesses that operate in the same geographic area.
What are foreign competitors?
Businesses that operate in different countries but compete in the same market.
What type of advertising may provide greater market exposure?
Television advertising.
What influences the type and extent of marketing for a business?
- Size of the market
- Size of the business
- Number of competitors
- Nature of the product
What are internal influences on a business?
Factors within the business that affect its operations and decisions.
What type of product influences affect a business?
The type of goods and services produced.
What are the four types of resources in a business?
- Human Resources
- Information Resources
- Physical Resources
- Financial Resources
Why is proper resource management important for a business?
It ensures resources are used efficiently and effectively.
What are the two types of management structures?
- Traditional Pyramid Approach
- New, Flatter Approach
What is business culture?
The shared values, beliefs, and practices within a business.
What are the four elements of business culture?
- Values
- Symbols
- Rituals, Rites, Celebrations
- Heroes
How can business culture be shown formally?
Through official policies and procedures.
How can business culture be shown informally?
Through everyday interactions and behaviors.
What are the four elements of business culture?
- Values
- Symbols
- Rituals, Rites, Celebrations
- Heroes
Each element contributes to the overall culture within an organization.
How can organisational structure influence business culture?
Organisational structure can dictate communication patterns, decision-making processes, and employee engagement, thereby shaping the business culture.
A strong structure can promote a positive culture, while a poor one can lead to misunderstandings and low morale.
What is the business culture like at Google?
Google’s business culture is known for its innovation, openness, and employee empowerment.
The company encourages creativity and collaboration among its employees.
What effect would a good business culture have on employees and their performance?
A good business culture can lead to higher employee satisfaction, increased productivity, and lower turnover rates.
Employees are more likely to feel valued and engaged in a positive culture.
True or False: A poor teacher/class can negatively impact student productivity.
True
Poor classroom culture often results in disengaged and unproductive students.
What is a stakeholder?
A stakeholder is any individual or group that has an interest in the success or performance of a business.
This includes employees, customers, shareholders, and the community.
List the primary stakeholders in businesses.
- Shareholders
- Managers
- Employees
- Consumers
- Society
- The Environment
Each stakeholder group has unique interests and responsibilities towards the business.
What are two main responsibilities a business has towards its employees?
- Providing fair compensation
- Ensuring a safe work environment
Responsibilities can vary depending on the stakeholder group.
What is the business life cycle?
The business life cycle refers to the stages a business goes through from establishment to decline.
Stages include establishment, growth, maturity, and post-maturity.
What are the stages of the Business Life Cycle?
- Establishment
- Growth
- Maturity
- Post-Maturity
Each stage presents unique challenges and characteristics.
What is the difference between a merger and an acquisition?
- Merger: Two companies combine to form a new entity
- Acquisition: One company purchases another company
Mergers often involve mutual agreement, while acquisitions may be hostile.
What is vertical integration?
Vertical integration is a business strategy where a company acquires control over its suppliers or distributors.
This can lead to greater efficiency and reduced costs.
Fill in the blank: The final stage of the business life cycle is called _______.
Post-Maturity
In this stage, businesses face challenges such as decline or renewal.
What are the three possible outcomes a business can face in the post-maturity stage?
- Steady State
- Decline
- Renewal
Each outcome requires different strategies to manage.
What can contribute to business decline?
- Lack of Management Expertise
- Lack of Sufficient Money
These factors can severely impact a business’s ability to operate effectively.
What is the definition of cessation?
Cessation is the process of a business stopping its operations.
It can be voluntary or involuntary.
What is voluntary cessation?
Voluntary cessation occurs when the owners of a business decide to close it down on their own terms.
This can happen for various reasons, including retirement or pursuing other opportunities.
What is involuntary cessation?
Involuntary cessation happens when a business is forced to close, often due to bankruptcy or legal issues.
This type of cessation is typically not within the control of the business owners.
What is ‘receivership’?
Receivership is a legal process where a receiver is appointed to manage a company’s assets due to insolvency.
It is different from liquidation, as the goal may be to restructure rather than dissolve the company.
What are the main features of liquidation?
- Equivalent to bankruptcy for a corporation
- Results in the company’s end
- Occurs due to inability to pay debts
Liquidation can be initiated voluntarily or through court orders.
How do liquidation problems affect stakeholders?
- Company Directors
- Creditors
- Employees
- Shareholders
- Society/Economy
Liquidation impacts various stakeholders, leading to financial and emotional consequences.
What is the definition of a creditor?
A creditor is an individual or institution to whom money is owed.
Creditors can include banks, suppliers, and other businesses.
What is the average number of people personally affected by one company insolvency?
30 to 40 people
List the groups that are affected by company insolvency.
- Company Directors
- Creditors
- Employees
- Shareholders
- Society/Economy
What is a business?
The organised effort of individuals to produce and sell, for a profit, goods and services
Who is referred to as an entrepreneur?
The person who risks his or her time, energy, and money to start a business
Give an example of a secondary industry.
Plastics Manufacturing Ltd
What is the most common type of business entity in Australia?
Sole trader
National Foods Limited would most likely be categorized as a:
Public company
In which phase does complacency among management normally occur?
Maturity phase
What does a business’s operating environment refer to?
The specific external stakeholders with whom the business conducts its business
Why are businesses important to the Australian economy?
- Provide goods and services to satisfy consumers’ wants
- Provide employment for millions of people
- Contribute to Australia’s Gross Domestic Product
Which legislation is designed to protect the interests of both consumers and businesses?
The Trade Practices Act
What does social and ethical responsibility of a business refer to?
A business’s responsibility to both its internal and external stakeholders
What is the main function of business?
To produce and sell goods and services for a profit
Define the term ‘entrepreneur’.
A person who risks time, energy, and money to start a business
Identify two quantitative measures used to determine the size of a business.
- Revenue
- Number of employees
Distinguish between a small and a large business.
A small business typically has fewer employees and lower revenue than a large business
What are two advantages of a sole trader?
- Full control
- Simplicity in setup
What are two disadvantages of a partnership?
- Shared profits
- Potential for disputes
Define the term ‘business environment’.
The combination of internal and external factors that influence a business
Identify four external influences that can affect a business.
- Economic conditions
- Competition
- Regulations
- Technology
What is the term for the main problems that arise for stakeholders when companies go into liquidation?
Loss of investments and jobs
Define the term ‘profit’.
The financial gain after all expenses have been subtracted from revenue
Explain the relationship between sales revenue and profit.
Profit is derived from sales revenue after deducting costs
What are the four main stages of the business life cycle?
- Establishment
- Growth
- Maturity
- Renewal/Decline
What is undercapitalisation?
A situation where a business does not have enough capital to sustain its operations
What is the difference between voluntary administration and liquidation?
Voluntary administration is a process to help a company restructure its debts, while liquidation is the process of winding up the company and selling its assets
Assess the impact of technological influences on retail businesses.
Technological influences can enhance efficiency, improve customer experience, and expand market reach
