term 3 y11 Flashcards
Small medium enterprises (SME)
- a manufacturer employing fewer than 100 people
- a non-manufacturer employing fewer than 20 people
economic contributions of SMEs
- contributing to GDP (gross domestic product)
- creating employment
- innovation and invention
- balance of payments (overseas relations)
Some common reasons for small business success include:
(need at least 5)
a business plan which sets out goals
a good location
the owner(s) and management are flexible
enough finance to set up and operate the business
experience in the field of business they are in
management knowledge and experience
have a competitive advantage
Typical reasons for small business failure include:
(need at least 5)
lack of business planning
undercapitalisation
lack of experience in the industry by the owners
lack of skills in managing a business
new and/or more competitors
failure to keep good financial records
changes in the economic situation leading to a down- turn in demand for the business’s goods and services
entrepreneur
someone who identifies and develops a business idea,
who is willing and able to take a risk, and who devotes time, energy and
money to turning a new idea into a business reality.
personal qualities of entrepreneurs that lead to success
- Works well with people
- a skilled organiser
- a desire to succeed
- a decision maker
how are entrepreneurial skills developed?
(need at least 5)
- hobbies and interests
- background experience
- education (University, TAFE, Business College)
- work experience
- training (on the job, courses and conferences),
- reading and research e
Motivation
having a reason or purpose for doing something and
having a desire to do it.
motivations to start a business
- achieve a better lifestyle
- increase personal wealth through investment
- a lot more
sources of information
The Entrepreneur
Professional advisers – accountants, management consultants, solicitors
State Governments
Federal Government
Local Governments
Australian Bureau of Statistics (ABS) – information on social, economic, population trends
Electronic Information Services – Internet – quick research of information
Market analysis
collecting, summarising and analysing information
about the state of the market, customers, the threats and opportunities that the market presents, and any advantages or disadvantages that the business has over
its competitors.
4 price setting strategies
- percentage mark-ups
- recommended retail price (RRP)
- price leadership and competition
- what the market will bear
Percentage mark – ups
the cost price is increased by a fixed percentage to
obtain a selling price
recommended retail price (RRP)
the price recommended by the wholesaler or manufacturer of the goods being sold by the retail price.
The retailer however is not legally obliged to charge this price.
Price leadership and competition
to follow the prices set by another retailer is to acknowledge that business as a price leader
eg. in a shopping centre with a number of shops selling the same items, the prices set by the most competitive of the shops may be used as a guide by the other shops.
What the market will bear
the price where the consumer is willing to buy
the product and the seller is prepared to sell the product.
eg. auctions
Locations include:
- Shopping centre complexes eg. Bj
- Retail shopping strips eg. Campbell Parade Bondi
- Online presence
- Home – based businesses eg. plumbers, builders
Finance
the funds required to carry out the activities of a
business.
Advantages of Debt Finance
- Can be used to establish or expand the b. (further maximise profits) if the b. does not have sufficient equity funds.
- More assets can be acquired
- Can be quicker and easier to organise than equity finance.
- Interest repayments are tax deductible.
- Loan repayments can be matched to the b.s cash flow.
Disadvantages of Debt Finance
- May be difficult to obtain a loan in the establishment stage of the b – banks reluctant to lend a b. $.
- Penalties imposed for no/late repayment of loans = increases b. costs. If this is an ongoing problem a b. credit rating will deteriorate making it difficult to obtain debt in the future.
- Loans need to be repaid regardless of the profitability of the b. eg. If a b. uses borrowed $ to expand and the expansion fails, they still need to repay the debt.
- Debt needs to be serviced = increases cash outflows and expenses = lower profitability
2 Financial requirements
- establishment costs
- operating costs
Establishment costs (expenses)
include those costs involved in setting up the business eg. legal fees, furniture and equipment, stock, rent in advance.
Operating costs (expenses)
include those involved in the day - to - day running of the business eg. wages, advertising, insurance, interest on loans, motor vehicle running costs.
what does SWOT analysis do?
examines factors that the firm has control over and those
which it has no control over in the current position. These should all be addressed consistently over time.
what does SWOT stand for?
- STRENGTHS – what the firm does well that gives it a competitive advantage.
- WEAKNESSES – areas of the firm that need improvement
- OPPORTUNITES – changes that may present the
firm with a benefit and should be taken advantage of. - THREATS – changes in the external environment that may present problems
Vision
a broad statement about what and where the business wants to in the future
Example – NAB’s vision is “to be the world’s leading financial services provider”
Goals
specific objectives for a specific period of time - financial
(profit, profit maximisation, return on investment, survival, diversification), social (community service, employment, social justice, environment), personal
(financial security, status and power, reputation).
Financial Goals (def + at least 3 egs)
improve the financial situation of the business eg.
Return on capital
investment
Profit
Cost minimisation
Business survival
Share of the market
Sales maximisation
Diversification
Social goals (def + at least 3 egs)
improve the image of the business in the community/society eg.
Employment of specific groups
Ecological sustainability
Community service
Ethical conduct
Social justice
Operations
any activities in receiving and transforming inputs into
more refined products that may be finished products or intermediate products.
Business name registration
the business name needs to be registered with
the Australian Securities and Investment Commission (ASIC) if it is a company or the Department of Fair Trading (sole trader, partnership).
Zoning
Local governments control land use in their areas –
land is zoned for different uses - residential (housing),
commercial (office and retail), industrial (manufacturing) etc.
Health Regulations
local governments set requirements for operation of
businesses dealing with food (cafes, bakeries, butcher shops, restaurants etc) –license requirements for these businesses cover food storage, handling, display
etc.
Competition and Consumer Act 2010
a Federal Law which controls business activities and provides protection of consumers from unfair business
practices.
Patents
a business can protect a new product or process by
taking out a patent (exclusive right to make, use or sell) with the Federal Government Patent Office. Trademarks and logos can also be protected.
on – costs
The total cost of an employee is not only the wage or salary paid, but also other employee expenses, including workplace health and safety requirements, long service leave, sick leave, holiday pay and superannuation.
superannuation
financial contributions made by employer and employee to funds for the retirement of an employee.
PAYG (Fed.)
Pay As You Go – Paid by employees but collected and sent to the tax office by the business.
GST (Fed.)
Goods and Services Tax –10% paid on most goods
and services sold.
Company Tax (Fed.)
30% tax paid on profits of companies.
Stamp Duty (NSW)
paid on documents when assets are sold.
Payroll Tax (NSW)
6.2% tax paid on total value of wages over $600000.
Capital Gains Tax (Fed.)
Tax on profit made when assets are sold.
SWOT analysis
examines factors that the firm has control over and those
which it has no control over in the current position. These should all be addressed consistently over time.
what does SWOT stand for
STRENGTHS – what the firm does well that gives it a competitive advantage.
WEAKNESSES – areas of the firm that need improvement as they provide competitors with an advantage.
OPPORTUNITES – changes in the external environment that may present the firm with a benefit or opportunity for expansion or improvement and should
be taken advantage of.
THREATS – changes in the external environment that may present problems and action must be taken to address these.
Financial Goals
improve the financial situation of the business eg.
Return on capital
investment
Profit
Cost minimisation
Business survival
Share of the market
Sales maximisation
Diversification
Social Goals
improve the image of the business in the community/society eg.
Employment of specific
groups
Ecological sustainability
Community service
Ethical conduct
Social justice
Personal Goals
relate to an individual’s (business owners/managers) aspirations for their future and the future of the business. eg.
Influence & power
Job security
Personal success
Status & image
Total Revenue (TR) =
Price X Quantity
Fixed Costs (FC)
costs that do NOT change as production levels change eg. rent, insurance, salaries.
Variable Costs (VC)
costs that DO change as production levels change eg. raw materials, electricity, wages.
Total Costs (TC) =
Fixed Costs (FC) + Variable Costs (VC)
Total Profit =
Total Revenue (TR) – Total Costs (TC)
whats Break Even Output?
where Total Revenue = Total Costs (no profit but all
costs covered)
Break Even Output =
Fixed Costs/ (Selling Price – Variable Cost x unit)
Cash flow
the receipt of cash into the business and the payment of cash out of the business.
Closing Cash Balance formula
Opening Cash Balance + Cash inflows (receipts) – Cash outflows (payments)
