Topic 1 - The Nature of Business Flashcards
What is the role of business
To satisfy the needs and wants of the community by providing goods and / or services
Be a role model for society
Advantages of Businesses? (5)
- Provide large variety of goods and services
- Promotes individual choice
- If you own a business, personal wealth increases
- Businesses provide employment + income
- Businesses provide innovation
Disadvantages of Businesses? (5)
- Creates tension between competition and community
- Creates social inequality (materialistic)
- Cause environmental damage - pollution
- Big businesses exploit foreign workers (sweat shops)
- Large Businesses dominate markets - hard for new markets to compete
What is a SME?
Small to medium enterprise
What is a Local Business?
a business that provides to its local area. E.g. Jim’s mowing, corner shops, local news agency, fruit shops
What is a national business?
A business that sells products all over one single country
E.g. Woolworths, BHP, NAB, Commonwealth, Australia Post
What is a global business?
A business that produces products in one country and distributes it all around the world
E.g. Coca Cola, Tesla
What is a Transnational business? (TNC)
A business that operates in many countries. Goods and services are produced and sold in many countries while its headquarters is located in another country.
E.g. Apple, Toyota, Mcdonalds
What are the 3 industries?
- Primary
- Secondary
- Tertiary
- Quaternary
- Quinary
What is the Primary industry
Businesses in this industry collect + acquire Natural resources and Raw materials
E.g. Mining, fishing, farming, forestry
What is the secondary Industry
Businesses in this industry are the manufacturing sector, they take the raw materials and turn them into outputs
E.g. Food processing, oil refinery, manufacturing
What is the Tertiary sector
This is the SERVICE sector
What is the Quaternary Sector
This is the Knowledge based sector.
-Information and communication technologies (ICT), Finance + information
E.g. Giving Business Advice, ICT, Financial Advice
What is the Quinary Sector
This sector involves services that were Traditionally performed in the home.
E.g. Gardening, Cleaning, Car Wash, Mowing, Ironing, Cafe, Cooking - Restaurant
List the 4 legal strucutres
- Sole Trader
- Partnership
- Private Company
- Public Company
List Advantages for Sole Trader (4)
- All profits to Owner
- Cheap and Easy to Establish
- Freedom in Business
- Work for yourself (Flexible work times)
List Disadvantages for Sole Trader (4)
Unlimited Liability
Stress and Hard work
Pay income tax
Long Hours
List Advantages for Partnerships (4)
Partners bring money and Ideas
Workload is spread out
Less Stress on both partners
Debts are split
List Disadvantages for Partnerships (4)
Arguments - Disputes
Profits are splits
Decisions have to be agreed upon
Less freedom in the business
List Advantages for Private companies (3)
Limited Liability
Only invite trusted people to invest
Increased business size - likely to reach larger market
List Disadvantages for Private Companies (2)
- Arguments with investors about rights - can hurt family relationships
- Cost money to become a company - expensive
List Advantages for Public Companies (3)
Limited Liability
Raise money through selling shares - Capital Gain
Listed on the ASX
List Disadvantages for Public Companies (2)
Forced to release annual financial statements
Lack of Privacy
What is a government Enterprise?
A business that acts on behalf of the government
E.g. Australian Post
What does the term ‘Privatised’ Mean?
It’s when a government enterprise has been turned into a public company by switching owners and listing it on the ASX
How can size influence choice of legal structure
The size of a business can determine how much market share it has. A business owner may also have the choice of expanding their businesses into a different legal structure in the future.
How can Ownership influence choice of legal structure
How much a business owner wants to own will determine legal structure, the the owner doesn’t mind splitting ownership then they might transition to a partnership.
How can finance influence choice of legal structure
The business may have to transition to a partnership or private company to acquire funds without debt - equity finance
What is an Internal Influence?
things a business can control
What is an External Infleuence
Things a business can’t control
Name External Influences (3)
- Economic
- Technological
- Social Trends
Name Internal Influences (3)
- Type of Product Sold
- Location
- Management + Corperate Culture
How can the Economy influence a business?
- During a recession customers don’t spend money and businesses don’t produce goods as much
- During boom customers spend a lot of money, Businesses produce goods and employment rates are up
How can Technology influence a business?
- Increase efficiency
- Don’t pay wages
- Decrease Costs
Disadvantages:
- Staff Redundancies
- Lower staff morale
How can Social Trends influence a business
- Depending on the social trend the business may have to change products
E.g. Climate Change, Fashion Trends, Gender Roles
How can Location influence a business?
- Proximity to Competitors
- Cost of leasing / buying
- Customer Access - Parking / Visibility
- Proximity to Suppliers - Transportation time + costs
Name the stages of the business life cycle
- Establishment
- Growth
- Maturity
- Post Maturity
Name the stages of Post Maturity
- Renewal
- Steady State
- Decline
- Cesation
Identify Issues of the Establishment Stage (3)
- High Costs associated with establishment
- Sales low because no customer base
- Profit minimum because little sales, maybe even negative profit
Identify Goals in the Establishment Stage (3)
- Break even with day to day expenses
- Survival
- Increasing sales and reaching growth phase
How can we over come common challenges in the business life cycle?
- Budget (to avoid over unnecessary spending)
- Planning (forecasting)
- Management (skills)
Identify characteristics of the Growth Stage
- Sales start to increase rapidly
- Business should have enough money to cover day-to-day costs, short term expenses and to start paying off debts
- Business should have a good customer base
What are the considerations in the Growth Stage? (5)
- Budget
- Marketing
- Staffing
- Finance
- Structure
What are the Goals in the Growth Stage?
- Pay off business debts
- Grow business
What is a merger?
When 2 businesses combine resources and start a new organisation
What is an Acquisition?
When one business takes control of another buy purchasing majority share.
What are the characteristics of the Maturity stage
- Business growth and market share begin to slow
- Business faces increased competition
- Lack of innovation
What are the characteristics of Renewal?
- Business begins a second growth stage
- due to innovation
