Small Business Decision Making - Chp 2 Flashcards
Service
A product that is intangible, meaning it cannot be held, or touched and is usually performed at the point of sale. For example you receive a haircut and pay for it at the time you receive it.
Good
A product that is tangible meaning that you can see, touch, and hold the item. An example is a car because you can see, touch and hold it.
What does a businesses success and failure depend on?
The owners abilities, resources, enthusiasm, initiative, level of expertise, decision making skills and motivation.
What are the three main reasons for people to start a business?
- Desire for independence
- To make a profit
- To fulfil a market need.
What is a business concept?
Describes the core activities of the business and the key specific features and values of the product it provides.
‘Gap in the market’
A demand not currently being satisfied in the particular market.
What are inspirations that business ideas can be generated from?
- listening to people
- reading books, magazines & the Internet
- visiting displays and exhibitions
- accessing government statistics
- identifying a gap in the market
- determining improvements on current products
Demand
The quantity of a product that consumers are prepared to purchase
Market research
A process is systematic collecting, recoding, and analysing information concerning a specific market.
Market conditions
The features of a market into which a new product or service is to be introduced, and include factors such as the number of potential customers, level of completion and potential growth.
What are the steps involving market research?
- Identifying what information to gather
- Gathering the relevant information from appropriate sources
- Analysing and interpreting the results to extract clear information which will assist in decision making.
Innovation
The press of creating a new or significantly improved product, service, or process.
Invention
The development of something that is totally new.
What doe innovation and invention have in common?
The both Reith in something totally unique being created, whether is be a product or process.
Research and Development (R&D)
A set of activities undertaken to: improve existing products, create new products and improve production.
Entrepreneurship
The ability and willingness to start, operate and assume the risk of a business venture in the hope of making a profit.
Business entity
Any organisation engaged in the production of goods and services
What are the 5 main types of legal structure?
- sole trader
- partnership
- company
- cooperative
- trust
What are the uncorporated business entities?
Sole traders and Partnerhips
Incorporation
The process that companies go through to become a separate entity from the owner(s)
What is an incorporated business?
A business that has its own legal existence. So regardless of what happens to individual owners of the commonly, the business can still continue to operate.
What is an unincorporated business?
A business that has no seepage legal existence from its owner(s)
Why is choosing the business structure the most fundamental decision?
As each different business legal structure has to cover different government regulations that will influence the operations of the business.
Sole trader
A business that is owners and operated by one person.
Unlimited liability
Refers to the business owner being personally responsible for all the debts of his or her business.
Partnership
An unincorporated legal business structure with a minimum of two and a maximum of 20 owners.
Silent partner / sleeping partner
A partner that contributes financially to the business but takes no part in the running of the business.
How can a partnership be made?
It can be made verbally, in writing or by implication.
Shareholders
The owners of a company
Limited liability
Refers to the fact that shareholders in a company cannot be held personally responsible for the debts of that business. This does not extend to the directors of a company.
Proprietary (Private) company
An incorporated business with a minimum of two and a maximum of 59 private shareholders.
These shares have to be personally offered to you by the business, and can be sold to only those whom the directors approve.
Tend to be medium sized family owned businesses.
Pty Ltd
Proprietary Limited. Outlines the type of business legal structure the company has.
Ltd
Limited. Prefers to the companies limited liability.
Public Company
Where the companies shares are listed in the Australian Securities Exchange, and the general public may buy and sell share in this companies. Public Companies trend to be large in size and market a range of products.
Cooperative
A democratic organisation owned and controlled by the people it serves, who join together for a common benefit.
Trusts
A business structure where a trustee holds property or carries out the business on behalf of the members of the trust. The main reason for this type of legal structure is to avoid taxes and to preserve family assets.
Trustee
A trustee is usually a company, and is therefore protected by limited liability.
Benefactors
Members of the trust are known as the benefactors.
Advantages of Sole Trader
- low costs of entry
- compete control
- less costly to operate
- no partner disputes
- simplest form
- owners right to keep all profits
- less gov regulations
- no tax on profits, only personal tax
Disadvantages of Sole trader
- personal unlimited liability
- end of business when owner dies
- difficult of operate when sick
- need to carry all losses
- burden of management
- need to preform wide variety of tasks
- difficulty is raising finance
Advantages of Partnership
- low startup cost
- less costly to operate
- shared responsibility and workload
- pooled funds and talents
- minimal government regulation
- no taxes of business profits
- on death of one partner, business can keep going
Disadvantages of partnership
- personal unlimited liability
- liability for all debts including partner
- possibility of disputes
- difficulty of finding a suitable partner
- divided loyalty and authority
Advantages of public companies
- easier to attract public finance
- limited liability
- easy transfer of ownership
- long life as a business
- experienced management
- greater spread of risk
- company tax rate lower that personal income tax rate
- growth potential
Disadvantages of public companies
- cost of formation
- double taxation, company and personal a tax
- personal liability on directors if they were aware of businesses incapability to pay loan
- required to publish annual report of audited accounts
- too much growth resulting in ineffectiveness
Separate legal entity
The company has a legal presence and is accountable in the name of the law.
What would be the reason for purchasing an established business?
The new owner will be purchasing an already operating business with all that it is associated to, such as stock, equipment, premises, employees, an existing customer base, reputation and goodwill.
Goodwill
The momentary value attached to the reputation of a particular business.
Advantages of purchasing an established business
- sales of existing customers generate instant income
- good business history increased the likelihood of success
- proven track record make sit easer to obtain finance
- stock acquired and ready for sale
- seller may offer advice and training
- equipment available for immediate use
- experiences employees can provide assistance
Disadvantages of purchasing an established business
- existing image may be difficult to change
- business success may be due to previous owners personality and contacts
- difficult to access the value of goodwill
- some employees may resent any changes to business operation
Advantages of setting up a new business
- the owner has freedom to set up the business exactly how they wish
- the owner can determine the pace of growth and change
- no goodwill to pay
- if funds are smaller, business can start at a smaller scale
Disadvantages of setting up a new business
- high risk involved and a measure of uncertainty
- may prove difficult to secure finance
- time needed to develop a customer base, employ staff, get suppliers
- profit start up is usually low, so profits may not be generated for some time
Franchise
An agreement for an individual to purchase the rights to operate from another business to distribute its products under its name.
Franchisor
The individual or organisation that grants franchise
Franchisee
The individual or organisation that purchases a franchise
What does the franchiser supply to a franchise?
The franchisor supplies the known business name, the required training and staff development, a method of doing business, management skills and materials.
What does the franchisee supply to a franchise?
The franchisee supply the start up money and labour. They operate the franchise business and abide by the terms and conditions of the franchise agreement.
Why do most people chose to buy a franchise?
Most people purchase a franchise in the hope of avoiding the many problems of staring up a new business. For they receive the benefits of a successful business formula, a well recognised name and established trade marks.
Advantages of buying a franchise
- three times the success rate that of an independent business
- immediate benefit due to franchisers good will
- franchisor provides training and management back up
- franchisee can succeed despite limited experience
- equipment and premises designers established
- well planned advertising
- cheaper stock due to volume buying
- business plan and methods already exist
Disadvantages of buying a franchise
- franchisor control operations
- little scope for individuality
- profits shared with the franchisor through ongoing payment of royalty
- franchisor changers for additional service fees & advice
- franchisee required to purchase stock from provides supplier
- contacts are biased to the franchisor
- franchisee share the burden of the franchisors mistakes
What are the different types of business locations?
Shopping centres, retail shopping strips, online presence, or a home based business.
Zoning
A means by which local councils allocate land for different uses, such as residential, commercial, recreational and industrial.
Why is there zoning?
Zoning is designed to keep business activities separate from residential areas and prevent households being disturbed by business operations.
What are the different factors affecting the Shiite of business locations?
- visibility
- cost
- proximity to customers and suppliers
- proximity to competitors
- complimentary businesses
Complementary businesses
A type of organisation that offer goods or services that are related to a different business and may be of use to the customers of that business.
What’s the basis a cooperative is formed ?
Formed on the basis of a common purpose such as: processing and marketing produce together to share costs, to participate in educational courses, and to pool their funds together and be able to lend each other.
Ways a business could conduct its activities online?
- using email to communicate with customers and suppliers
- using the Internet to find information, such as prices, business contact details, and different products and market trends
- setting up a website to provide information about available products and services, or a way customers can order online
- using the Internet for online banking and paying of bills.
Why do support services exist?
They are there to provide assistance to a business owner who lacks the expertise.
Legal and financial advice
Solicitors, accountants and bank managers
Technological Advice
ICT consultant regarding establishing an online business presence
Community based services
Service clubs, Business enterprise centres (BEC) Australia
Formal networks - private
Chambers of commerce, Victorian employers chamber of commerce and industry, trade associations.
Formal networks - federal, state and local governments
Federal - advice on business sizes, taxation, access of government departments.
State - information and support on starting a business
Local - advice on zoning, and development applications
Informal network advice
Ask advice from fellow business people, local business owners, colleagues, friends who are knowledgeable on business related issues.
