U3 AOS 1 Flashcards
Define Sole Trader
A sole trader is an unincorporated business structure with only one owner who also operates the business
Characteristics of a Sole Trader
Owned and operated by a single person
Owners has unlimited liability for all business debts
Owner has to source all funding for the business
Owner retains all profits after personal income tax (not subject to company tax)
May have employees but owner is the only one responsible for making decisions for the business (therefore has to manage a wide variety of tasks)
Advantages of Sole Trader
Low cost of set up
Low level of government regulation (= easy to set up and run)
Centralised decision making = no conflict for owner
Owner retains all profits (can decide to reinvest into business but has control)
Disadvantages of Sole Trader
Unlimited liability = risk for personal assets (e.g. house)
Difficult to raise funds – 2 sources = owner investment or loans from banks
High level of responsibility for owner – needs to manage all facets of the organisation
Define Partnerships
A partnership is an unincorporated business structure owned by two to 20 owners
Characteristics of Partnerships
Partners share responsibility for the organisation
Partners have unlimited liability for all business debts
Partners have to source all funding for the business
Partners and divide and retain all profits after personal income tax (not subject to company tax)
Advantages of Partnerships
Low cost of set up
Low level of government regulation (= easy to set up and run)
Multiple ownership = knowledge base/quality of decisions – different skill sets/areas of expertise
Disadvantages of Partnerships
Unlimited liability = risk for personal assets (e.g. house)
Difficult to raise funds = partner investment + loans from banks
Potential for conflict between partners
Definition of Private Limited Company
: A private limited company is an incorporated business with at least 1 and up to 50 selected shareholders
Characteristics of Private Limited Companies
Business name MUST always followed by Pty LTD
The company is a separate legal entity
High level of control retained by shareholders as new shareholders are selected by the board
Overseen by directors (can be 1 or a board of directors) = decision makers
Profits are subject to company tax before shareholders receive a return on their investment. Shareholders are then subject to personal income tax on profit they individual receive
Advantages of Private Limited Companies
Incorporation means that liability is limited to the business = protection of shareholders
Directors can be shareholders or can be appointed by shareholders = increased expertise
Revenue can be raised by selling shares in the organisation
Company tax rate is lower than personal income tax rate – so tax for business itself is less
Employees can be provided a share in the business
Disadvantages of Private limited Companies
Profits are taxed twice – company tax and then personal income tax
Cost of set up and level of government regulation are higher – must have a set of ‘company rules’ + pay a registration fee to ASIC + annual renewal fee
Define Public Companies
A public listed company is an incorporated business that can sell shares in an open market to an unlimited number of shareholders.
Characteristics of Public Companies
Business name MUST always be followed LTD.
The company is a separate legal entity
Shares are sold on the Australian Securities eXchange (ASX) – price of shares based on market value (not controlled by the business
Shareholders have limited decision making influence but receive a share of profit through dividends
Decisions made by Board of Directors
Strictest level of government regulation – minimum of 3 directors, requirement for a public annual report on business’s financial accounts
Advantages of Public Companies
Incorporation means that liability is limited to the business = protection of shareholders
Increased capacity to raise funds through selling shares funds growth of the business
Opportunity to acquire other businesses by offering shares to company that you are attempting to purchase
Can provide a prestigious profile
Employees can be provided a share in the business
Disadvantages of Public Company
Profits are taxed twice – company tax and then personal income tax
Cost of set up and level of government regulation highest – must have a set of ‘company rules’ + pay a registration fee to ASIC + annual renewal fee + reporting requirements
Potential for loss of control – shareholders are external to the organisation but directors are accountable to them
Financial markets will govern the value of the company through the trading of the company’s shares, and will represent the market’s view of the company’s performance over time
Greater public scrutiny of the company’s financial performance and actions
Shareholders can lack patience of return on investment is not evident and so the business has to become more focused on profit or risk fall in share prices
Define Social Enterprises
A social enterprise is a business that aims to make a profit and improve the community or environment
Characteristics of a Social Enterprise
Aim to generate a profit IN ORDER to use that profit for a community or environmental cause
Profits are therefore either reinvested into the company or donated to charitable causes there is no return distributed to owners or shareholders
Whether it has limited or unlimited liability depends on whether it is run as a sole trader/partnership OR private limited company
Strengths of Social Enterprises
Funds community benefit by making a profit rather than relying on donations = more sustainable model of making a difference e.g. Who Gives a Crap = sustainable toilet paper w/ profits used to fund sanitary projects in Cambodia
Can attract customers due to use of profit
Operation of business can provide employment for sectors of community they are trying to assist – e.g. STREAT runs cafes, bakeries and catering – staffed by disadvantaged you people who are trained by STREAT – enables them to find employment elsewhere after training
Limitations of Social Enterprises
Set up relies on ‘angel’ investor(s) – people willing to invest without obtaining return on investment OR for people to pay for product before it has been produced
Sometimes can lack efficiencies as profit motive is not front and centre = potential for unnecessary expenses
Definition of Government Business Enterprise
A government business enterprise is a profit driven business that is owned by but managed separately from the government (i.e. own board of directors/management team)
Characteristics of Government Business Enterprise
Fulfils a specific purpose outlined by the government – often a large scale public service – e.g. transport or communication which caters to essential public needs
Remains profitable – therefore is self-funded (does not rely on government funding BUT government may own infrastructure)
Government retains interest in performance and can propose changes in strategic directions
GBEs = accountable to government and public
Profits are reinvested into the business or distributed to the Australian government
Managed by a Board of Directors
Strengths of Government Business Enterprise
Requirement to fund itself improves efficiencies
Provide services where maximisation of profit would be detrimental to the public
Prevents the creation of private monopolies in market segments that are key to public
Limitations of Government Business Enterprise
Difficult to create competitive market –> lack of competition which can lead to inefficiencies within the business
Define Business Objectives
A business objective is a goal which an organisation sets out to achieve in a given time period
Define Key Performance Indicator
criteria that measure how efficient and effective a business is at achieving business objectives
Define efficiency
how productively a business uses its resources when producing a good or service (e.g. how many people do they need, how much time or how much raw material) less resources used for the same number of products = higher efficiency
Define effectiveness
the extent to which the business achieves its business objectives
Define the objective to ‘make a profit’
The goal to generate more revenue than expenses from running a business
Define the objective to ‘increase market share’
grow the proportion of sales of a business within a particular industry (control more of the market)
Define the objective to ‘meet shareholder expectations’
The goal to provide a return on the money they have invested into the business
Define the objective to ‘fulfil a market need’
To goal to provide customers with a good or service that is desired and meets their expectations
Define the objective to ‘fulfil a social need’
The goal to conduct business activities that improve the community and environment
Why do businesses have the objective ‘to make a profit’
- either to return to owners or shareholders
OR - to reinvest into the business - enables growth
All types of business have this objective b/c profit is essential for survival
How can businesses pursue the objective of making a profit?
Either seek to increase revenue - e.g. marketing campaign/new product/improved quality
OR
Reduce expenses - eliminate waste, lower number of staff (e.g. Aldi) or cheaper materials
How can businesses pursue increased market share
- make prices lower than competitors
- loyalty schemes
- increased quality
- increased flexibility (e.g. faster service or more tailored)
- market based on other customer value - e.g. sustainability or doing something positive for the community
What do shareholders expect and how can their expectations be met?
- an income from the business through dividends - any strategy that generates profit
- hope to sell their share for a higher price in the future - any strategy that helps the business to grow
How can businesses meet fulfil a market need?
Identify a gap in the market - what is something that customers need but can’t get
+ develop product or service that meets that need
How can a business fulfil a social need?
Consider social and environmental impact when making decisions
e.g. sponsorship or local clubs
OR using renewable energy
OR reducing packaging
Why do businesses want to fulfil a social need
EITHER
it’s their purpose
OR
it’s a way of increasing reputation t/f attracting customers - thus allows them to achieve other aims (profit or market share)
Define Number of Sales
Total quantity of a particular product or service purchased during a defined time period
Define Percentage of Market Share
A representation of the portion of sales that a business has compared to the total sales for the industry or product, over a set time period expressed as a percentage.
Define Net Profit
Net profit figures are calculated by deducting total expenses incurred from total revenues earned over a period of time.
Define Rate of Productivity Growth
Rate of productivity growth compares the amount of output produced to the amount of input (resources) going into production from one defined time period (e.g. year) to the next
Rate of Productivity Growth = ((inputs/outputs now)-(inputs/outputs previous))÷(inputs/outputs previous) x 100
Define number of customer complaints
The amount of consumers that are unhappy with the business and/or its products, have expressed their concerns to the business and had their concerns recorded, in a set time period
Define level of wastage
The amount of resources discarded by the business during the production process in a set time period
Define number of workplace accidents
The number of unplanned events interrupting workflow that may or may not include injury or property damage in a set time period
Define rates of staff absenteeism
A percentage indicating the number of workdays lost due to unscheduled staff absence from work in a set time period
Define Level of Staff Turnover
The number of staff who are leaving the organisation and need to be replaced /number of staff within a given time period
Who are owners, as stakeholders, and what is their vested interest in the business?
Who? individuals that have full or part ownership of the business
Vested interests:
- fulfilment of business vision
- return on investment through profits
Who are shareholders, as stakeholders, and what is their vested interest in the business?
Who? individuals who invested in the organisation in return for part ownership
Vested interest:
- return on investment through dividends or increased share price
Who are managers, as stakeholders, and what is their vested interest in the business?
Who? individuals in charge of entire business or an area of management (department)
Vested interests:
- pay that matches responsibility of managing business
- status and recognition for work by achieving objectives
- opportunities for career advancement
- feel personal values align w/ the org = fulfilment/purpose
Who are employees, as stakeholders, and what is their vested interest in the business?
Who? individuals who work for a business by completing allocated tasks in return for pay
Vested interests:
- fair pay and work conditions
- opportunities for professional development and promotion
- long term job security
- feel personal values align with org = fulfilment/purpose
Who are customers, as stakeholders, and what is their vested interest in the business?
Who? People who purchase goods or services from a business
Vested interests?
- a product or service that is quality and value for money
- a safe product/service
- a product/service that reflects personal values (pride in purchase)
Who are suppliers, as stakeholders, and what is their vested interest in the business?
Who? businesses that sell raw materials and resources to other businesses for their production
Vested interests:
- earn a profit by selling to business
- on time payment
- repeat custom
- protection of reputation of their business
Who are the general community, as stakeholders, and what is their vested interest in the business?
Who? Individuals and groups who do not directly interact with the business but are impacted by business activities
Vested interest:
- business activities that improve the community and environment; e.g. provide local employment, purchase from local suppliers, sponsor local community groups, recycling/waste policies
Situational Factors that influence Management style used
Nature of task
Time
Experience of employees
Manager preference
Characteristics of Autocratic Style
Decision making = Centralised - manager makes the decisions with no staff input
Communication = One way - top down, and very clear directions given. Employees are told what to do.
Situations when Autocratic is appropriate
Nature of task = High risk or crisis situation, large groups of employees working on a task simple in nature
Time = Limited
Experience of employees = Lack the skills, knowledge and experience to complete the task
Manager preference = Prefers to maintain control, can fear delegating/lacks faith in staff
Advantages of Autocratic Style
High level of clarity = clearly defined procedures = consistency in outcome
Employees’ roles and expectations set out plainly = performance can be monitored + staff held accountable
Decisions made quickly = highly responsive in time of crisis
Disadvantages of Autocratic Style
Doesn’t allow the manager to access staff knowledge/ideas = potential that best decisions not made
Employees = no power = no chance to develop skills + feel undervalued = decrease morale low job satisfaction high staff turnover
An ‘us and them’ mentality may develop = lack of employee pride in performance = meet expectations but don’t go above = lower overall business performance
Characteristics of Persuasive Style
Decision making = Centralised- Manager makes the decisions, however, they try to convince the employees it’s the right decision rather than just telling them.
Communication = One way, however, there is more information provided to the employees that autocratic. Employees are told what to do and why.
Situations where Persuasive Style is appropriate
Nature of task = Large groups of employees working on a task simple in nature, high risk decision (where information leaking prior to decision being made could be detrimental)
Time = Limited (not crisis)
Experience of employees = Inexperienced → management understand more about the task than the employees do
•
Manager preference = Prefer to have control, however, still feel the need to convince/educate employees
Advantages of Persuasive style
Management can gain trust through persuasion
Decisions made quickly
Instruction and explanations remain clear and constant à consistent output
Some acceptance of negative situations when benefits of management decisions are explained = less impact on morale
Providing reasons can increase staff understanding of organisation à development
Disadvantages of Persuasive Style
Doesn’t allow the manager to access staff knowledge/ideas = potential that best decisions not made
Employees = frustrated b/c denied participation in decision-making
If done poorly = negative trust in management
Lack of employee development
Characteristics of Consultative Styles
Decision making = Decisions made by management (centralised) after discussion with employees to obtain their opinion
Communication = Two way communication
Control = Manager maintain ultimate control, however greater importance is placed on employee involvement + some control over information flow is passed over during decision making process
Situations when consultative style is appropriate
Nature of task = More complex/creative tasks, when there are elements of the task where employees have more knowledge than the manager, when there are a wide variety of considerations to be taken into account (e.g. different interests from different stakeholders)
Time = Limited time pressure- it takes time to consult employees
Experience of employees = Higher levels of experience and skills – employees may have very detailed knowledge of elements of area decision being made about but not knowledge of the “big picture”
Manager preference = Likes to include employees and values input, however, still makes final decision
Advantages of Consultative style
Greater variety of ideas = improved management decisions = improved business performance
Employees have some ownership = increased motivation and commitment
Employee development/learning through consultation process + enables management to identify high potential staff based on input = increase employee development
Disadvantages of Consultative Style
Slow due to time to consult
Some employees may not want to be consulted on decisions OR some employees may not have knowledge and skills to be able to contribute meaningfully
Conflict or resentment b/c some ideas have to be ignored
Sensitive information can become common knowledge b4 decision = increase fear amongst employees
Characteristics of the Participative Style
Decision making = Decentralised- the manager and employees share decision making = shared decision making
Communication = Two way communication- sharing idea and feedback is encouraged
Importance placed on = Employee contribution and sense of ownership + belief employee involvement leads to better decision making
Control = Shared between manager and employees
Situations where Participative Style is appropriate
Nature of task = Complex/creative tasks, problem solving task w/ multiple different approaches that are valid
Time = Ample time available – no immediate time pressure
Experience of employees = High level of experience – employees may have more knowledge of aspects of the task AND have an understanding of the ‘big picture’ (although may be not as well developed as manager)
Manager preference = Prefers collaborating, values the skills and knowledge of their employees, is comfortable delegating control.
Advantages of Participative Style
Increased motivation and job satisfaction b/c of sense of value and ownership of business decisons
Positive Employee/Employer relationships
Greater opportunity for employees to acquire skills which could lead to career advancement and/or improve their performance within the organisation
Potential for better decisions due to the increased pool of resources
Disadvantages of Participative Style
Decision making is time consuming
Quality of decisions can suffer due to compromise OR if employees are given decision making power without sufficient knowledge
Directions can lack decisiveness and clarity
Role of management may be weakened or undermined
Employees can have too much power = conflict of interests t/fore may not make best decision for organisation
Internal conflict can result from disagreement
Characteristics of Laissez-Faire Style
Decision making = Decentralised- Authority to make decisions is handed over to employees
Communication = Two way- The manager makes the objectives and time constraints clear, then the employee team report on progress
Importance placed on = Autonomy - allowing staff to select their own way to achieve a defined outcome
Control = Manager hands control over to the employees and monitors progress towards objectives
Situations where Laissez-Faire is appropriate
Nature of task
Simple with no requirement for uniformity - where employees don’t need supervision
Complex – highly dependent on employee skills – where solution may not be known – e.g. research
Time
Extend time period to make decisions
Experience of employees
High level of expertise/experience – employees may have more experience than management in specifics of the task at hand (as a whole)
Manager preference
Prefers to delegate to employees, comfortable with a hands off approach, sometimes lacks sense of personal responsibility
Advantages of Laissez-Faire
Employees feel a sense of ownership, which can promote outstanding results
Continual encouragement for creativity
Delegation enables management to focus on other elements of organisation
Employees able to respond quickly to issues that arise as they are empowered to make decisions à don’t need to run decisions past management
Disadvantages of Laissez-Faire Style
Complete loss of control by management Can lead to management becoming disconnected; therefore, lack ability to intervene when required
Potential for misuse of organisation’s resources (e.g. time and money) employees may act in own best interests rather than interests of organisation
Can breed personal conflicts whereby individuals do not cooperate and management is not there to direct or negotiate
Can lead to sense of lack of direction for staff – not clear what is wanted or expected of them = lowers motivation
Define planning
The ability to establish objectives and strategies to achieve them
Define decision-making
The ability to determine a suitable course of action for the business from a range of alternatives
Define communicating
The ability to effectively transfer information from a sender to a receiver, and to listen to feedback, to produce the required response.
Define delegating
the ability to transfer authority and responsibility to employees for defined tasks
Define interpersonal
The ability to deal or liaise with people and build positive relationships with staff
Define Leading
Leading is the ability to influence or motivate people to work towards the achievement of business objectives.
Define corporate culture
shared values and beliefs of the people in an organisation. These can be real or official.
Difference between official and real culture
Official = desired culture a business wishes to establish (i.e. what an organisation says it stands for)
Visible through company documents – e.g. mission and vision statements or slogans and logos
Real = The actual or prevailing culture that exists within a business – i.e. essentially how things ACTUALLY operate – e.g. how to managers communicate with employees? How to employees relate to each other? What is time and money spent on?
