U3 AOS1: Business foundations Flashcards
What are the 5 types of businesses
Sole trader
Partnerships
Companies
Social enterprises
Government business enterprises
What are shareholders?
The owners of a company
Unlimited liability
Refers to when the business owner is personally responsible for all the debts of their business
Limited liability
Refers to when the shareholders in a company will not be held personally responsible for the debts of that business
Sole trader
A business owned and operated by one person
- Name of business must be registered with ASIC (unless name is same as owner)
Advantages of a sole trader
- Easy to set up
- Low cost of entry
- Complete control
- Keep all profits
- Less govt. regulation
- Profit is taxed as personal income
Disadvantages of a sole trader
- Unlimited liability
- No perpetuity
- Burden of management
- Perform wide variety of tasks
- Work long hours
Partnership
A business owned by two or more people (generally a max of 20)
- Partners share the profit
Advantages of a partnership
- Low cost of entry
- Low cost of operating
- Shared responsibility and workload
- Pooled funds and talent
- Less govt. regulation
- Perpetuity
Disadvantages of a partnership
- Unlimited liability
- Possibility of disputes
- Difficulty of finding suitable partners
- Divided loyalty and authority
What is incorporation?
The process that businesses go through to become a registered company and a separate legal entity from the owner/shareholder
- Allows shareholders the benefits of limited liability
What is a director?
The ppl who have overall responsibility for managing the companys’ business activities
Private limited companies (Pty ltd)
- Incorporated business
- 1-50 non-employee shareholders
- Shares only offered to those by business
- At least 1 director
- Required to publish its audited financial accounts each year
- Small to medium sized
Public listed companies (Ltd)
- Incorporated business
- Min of 1 shareholder, no max
- Shares openly traded on the ASX
- Min 3 directors (2 must live in AUS)
- No restrictions on transfer of shares
- ‘Ltd’ or ‘Limited’ in name
- Required to publish its audited financial accounts each year
- Large sized
Advantages of companies
- Easier to attract finance
- Limited liability
- Easy transfer of ownership
- Perpetual succession
- Experienced management
- Company tax rate lower than personal income tax
- Growth potential
Disadvantages of companies
- Cost of formation
- Tax on all profits and dividends
- Tax on all income from the company to shareholder
- Requirement to produce an annual report of audited accounts
- Public disclosure - must report certain information
What is liquidation?
Process of selling off assets of business to repay creditors
- Remaining assets to be distributed amongst shareholders
- If company enters liquidation, shareholders cannot be forced to sell personal assets
Social enterprises
A business with the objective of fulfilling a social need.
- Provide opportunities to unemployed
- Provide training opportunities for disadvantaged individuals
- Create accessibility for better quality of life
- Provide essential services to disadvantaged individuals
- Waste minimisation and recycling
Advantages of social enterprises
- Can open up new markets (meet need that commercial businesses choose not to)
- Can subsequently have +ve effect on profit and market share
Disadvantages of social enterprises
- Obtaining capital to start business
- High operation costs
- Difficulty focusing on both social and financial objectives
Government business enterprises (GBE’s)
A type of business that is government owned and operated.
Advantages of GBE’s
- Can operate with some independence from govt.
- Deliver community services in areas where private sector businesses may hesitate to invest
Disadvantages of GBE’s
- Political interference
- Inefficiencies caused by excessive regulation/conformity to rules
- Less accountability in GBE, resulting in less productivity
What is a business objective?
A desired outcome or specific result that a business intends to achieve
Objective: to make a profit
- Central to most businesses
- Returned to shareholders/owners
- Main reason of investing/starting a business
- Other objectives may simultaneously help achieve this objective
Objective: to increase market share
MS is the proportion of total sales in a market/industry that is controlled/held by a business, calculated for a specific period of time
- Pie chart can be used to visualise business performance against competitors
Objective: to improve efficiency
Refers to how well a business uses resources to achieve objectives
- High efficiency = waste minimisation + output maximisation
- Can be done via technology, skilled workers, quality inputs, etc.
Objective: to improve effectiveness
Is the degree to which a business has achieved its stated objectives.
Objective: to fulfil a market need
Refers to being specific and targeting particular unmet needs in a market
- Geographical areas
- Demographics (Groups of people)
- Niche markets (specialised products)
Objective: to fulfil a social need
Refers to the purpose of making the world a better place through operations
- May generate income
- Primary purpose is the common good
- Can include improvement of wellbeing, animal welfare, environmental needs, waste minimisation, etc.
Objective: to meet shareholder expectations
Shareholders expect a ROI
- Expect business to profit (as they receive dividends)
- Incr. profit = Incr. share value
- Can include combination of other objective
Where do businesses communicate their objectives?
Vision and mission statement
Vision statement
States what the business aspires to become.
Mission statement
Expresses why the business exists, its purpose and how it will operate.
What is a business strategy
Strategy = actions business take to achieve specific objectives
- Successful bus. develop range of diff strategies to achieve objectives in diff areas of management
How is performance analysed?
Can be done via KPI’s. Business can identify and investigate discrepancies within their objectives.
Key performance indicators (KPI’s)
Refers to specific criteria used to measure the efficiency and/or effectiveness of the business’s performance.
- Precisely analyses performance
Examples of KPI’s
Objective = make a profit > KPI = net profit figures
Objective = increase market share > KPI = % of market share
Objective = fulfil social need > KPI = level of wastage
What is a stakeholder?
Groups and individuals who have a vested interest in a business and its activities
Internal stakeholders
- Owners
- Managers
- Employees
External stakeholders
- Customers
- Suppliers
- General community
Owner’s interest in a business
- Want business to make profit (may depend on success of business for income)
- Shareholders want ROI
- Want business to conduct itself in socially responsible manner
Managers interest in a business
- Want business to perform, in return expect to be fairly remunerated
- Act socially responsible (lead to increased sales)
- Satisfy as many stakeholders to secure position
Employees interest in a business
- Fair pay, proper training, ethical treatment in return for contribution to production
- Job security
Suppliers interest in a business
- Provide quality materials that are delivered reliably
- Be paid promptly and in full
Customers interest in a business
- Purchase quality products at reasonable prices
- High levels of service
- Socially responsible businesses
The general community’s interest in a business
- Give back to society
- Concern for environment
- Concern of future welfare
Potential conflicts between stakeholders
Expectations between stakeholders may be incompatible, thus satisfying one stakeholder will dissatisfy the opposing stakeholder.
Examples
Employees and owners/shareholders
- Employees require safe working conditions and reasonable wages, but this may reduce the business’s profit and dividends to owners/shareholders
Management and customers
- Management could attempt to maintain profit and a high dividend to satisfy shareholders by raising the prices of products, but this will upset customers who expect reasonably priced products
Suppliers and the general community
- Suppliers expect to be paid fairly and promptly, but they might reduce costs by using unethical or socially irresponsible practices, which can upset members of the community
Corporate social responsibility (CSR)
The obligations a business has over and above its legal responsibilities to the wellbeing of employees and customers, shareholders and the community, as well as the environment.
Management style
The behaviour and attitude of the manager when making decisions, when directing and motivating staff, and when implementing plans to achieve business objectives.
Continuum of management styles (from most to least control)
- Autocratic
- Persuasive
- Consultative
- Participative
- Laissez-faire
Autocratic management
One where the manager tells staff what decisions have been made.
“do it the way I tell you”
Characteristics of autocratic management
- Motivation through disciplinary actions
- Expects compliance and obedience from staff
- One way communication
Advantages of autocratic management
- Clearly defined directions and procedures
- Roles and expectations are detailed
- Control centralised at top management level > time is used efficiently
Disadvantages of autocratic management
- No employee input > lose sense of value
- Lose job satisfaction, impacts absenteeism and staff turnover
- Potential for conflict (workers seeking/competing for management approval)
Persuasive management
One where the manager attempts to ‘sell’ decisions made.
“I think it is best if you do it this way”
Characteristics of persuasive management
- Authority and control remain centralised
- Management attempt to convince employees to accept objectives and plans of business
- Convince employees that decisions are made in their best interest
- One-way communication
- Employees may be given opportunities to share ideas
Advantages of persuasive management
- Potential to gain trust and support from employees
- Employees believe that their feelings are being considered
- Instructions and explanations clear and constant
Disadvantages of persuasive management
- Employees denied full participation in decision-making (frustration)
- Communication limited to top-to-bottom, one-way system
- Attitudes and trust remain -ve
Consultative management
One where the manager consults employees before making decisions.
Characteristics of consultative management
- Seek opinions of employees
- Hold information sharing meetings
- Recognise good performance
- Two-way communication
Advantages of consultative management
- Greater variety of ideas, improves quality of decisions
- Employees gain vested interest, reflected in their levels of motivation/commitment
- Decisions that are discussed/tuned before implementation efficiently product results
Disadvantages of consultative management
- Time taken to consult
- Some issues are not fit for consultation, if process isn’t consistent, it may confuse staff about their role within business
- Some ideas may be overlooked in final decision, causing potential conflict or resentment
Participative management
One where the manager unites with staff to make decisions together
Characteristics of participative management
- Two-way communication
- Employee commitment to business objectives
- Staff strengths recognised
When is participative management effective?
- Most effective when business is operating in environment undergoing rapid change
- Individual employees accept responsibility for and can implement change, making business more responsive to change (more ideas = better decisions made)
Advantages of participative management
- +ve employee/employer relations
- less disputes
- acceptance of management decisions
- job motivation + satisfaction
- employees gain skills
- high levels of trust = high performance
Disadvantages of participative management
- time consuming to reach decisions
- quality of decisions may suffer due to compromises
- role of management can be weakened/undermined
- internal conflict may arise
Laissez-faire management
One where the employees assume total responsibility for, and control of workplace operations
Characteristics of laissez-faire management
- Management has no central role/decision making power
- Management to set objectives, but employees take responsibility for the means of achieving the objectives
- Management still responsible for performance of business
Advantages of laissez-faire management
- Employees feel sense of ownership
- Continual encouragement of creativity, contributes to dynamic working environment
- Open communication of ideas
Disadvantages of laissez-faire management
- Loss of control by management
- Potential misuse of resources (time and money)
- Individuals may only implement own ideas
- Focus of meeting business objectives may be eroded
Appropriateness of management styles: the nature of the task
When business undergoes change and quick decisions need to be made, autocratic style will be adopted.
If a business has experienced employees, then a consultative style may be opted for.
Appropriateness of management styles: time
Tighter deadline = autocratic
Extended timeframe with various resources = more participative
Appropriateness of management styles: experience of employees
Inexperienced staff = autocratic
Experienced staff = consultative/participative
Appropriateness of management styles: manager preferences
Personality, experience, values, beliefs and skills are contributing factors to which management style to use.
Contingency management theory (situational management)
- Stresses need for flexibility and adaptation of management style to suit situations
Management skills
The abilities or competencies that managers use to achieve business objectives
What are the 6 management skills?
- Communication
- Delegation
- Planning
- Leadership
- Decision-making
- Interpersonal
Communication
The ability to transfer information from a sender to a receiver, and to listen to feedback
What are the 2 types of communication
Non-verbal = body language, visual
Verbal = written, oral
Effective communication
Clear, articulate and concise, helps maintains good relationships.
- Outline possible business changes
- Inform staff of expectations
- Answer questions
- Listen to feedback
Barriers to effective communication
- Credibility of manager
- Environment for communication
- Clear + conciseness
- Language barriers
Delegation
The ability to transfer authority and responsibility from a manager to an employee to carry out specific activities
Benefits of delegation
- Time is freed up
- Reduces stress
- Increase in employee motivation
- Practical experience in different areas for employees, learn skills needed for senior positions
- Increased prospects of advancement
Risks of delegation
Subordinate employee may misuse power (share confidential info, unethical practices)
Planning
The ability to define business objectives and decide on the methods or strategies to achieve them
What are the 3 levels of planning?
- Operational (short term) planning = day to day
- Tactical (medium term) planning = 1-2 years
- Strategic (long term) planning = 2-5 years
Planning process
- Define objective
- Analyse environment (SWOT)
- Develop strategies
- Implement strategy
- Monitor and seek feedback on the implemented strategy
SWOT analysis
The identification and analysis of the internal strengths and weaknesses of the business, and the opportunities in, and threats from, the external environment.
Strengths = internal, helpful
Weaknesses = internal, harmful
Opportunities = external, helpful
Threats = external, harmful
Leadership
The ability to influence or motivate people to work towards the achievement of business objectives
Attributes of good leaders
- Lead by example (model good practice)
- Encourage and praise good performance
- Actively listen
- Remain calm
Types of leaders
Transactional leaders = provide rewards in return for compliance
Transformational leaders = treat staff well, inspire them to reach common vision
Decision making
The ability to identify the options available and then choose a specific course of action from the alternatives
Decision making process
- Develop objectives and criteria
- Outline the facts
- Identify alternative solutions
- Analyse the alternatives
- Choose one alternative and implement it
Interpersonal
The ability to deal or liaise with people and build positive relationships with staff
Interpersonal manager considerations
- How others are feeling (empathy)
- How others view and think about things
- How others view manager actions (be self aware)
Good interpersonal skills
- Create positive communication
- Build trust and respect
- Make staff feel valued
Relationship between autocratic management and management skills
Planning = frequent
Decision making = frequent
Communication = sometimes
Delegation = infrequent
Interpersonal = infrequent
Leadership = infrequent
Relationship between persuasive management and management skills
Planning = frequent
Decision making = frequent
Communication = sometimes
Delegation = sometimes
Interpersonal = sometimes
Leadership = infrequent
Relationship between consultative management and management skills
Planning = frequent
Decision making = frequent
Communication = frequent
Delegation = sometimes
Interpersonal = sometimes
Leadership = sometimes
Relationship between participative management and management skills
Planning = infrequent
Decision making = sometimes
Communication = frequent
Delegation = sometimes
Interpersonal = frequent
Leadership = frequent
Relationship between laissez-faire management and management skills
Planning = infrequent
Decision making = infrequent
Communication = frequent
Delegation = frequent
Interpersonal = sometimes
Leadership = frequent
Corporate culture
The shared values, ideas, expectations and beliefs of a business
Real corporate culture
The actual values and beliefs present in a company - observable from dress, behaviour, and the way employees and managers relate to each other
Official corporate culture
Values and beliefs that a company attempts to convey to the public (how they want to be seen).
Usually observed in mission statements, logos, slogans and symbols
What are the 4 elements of corporate culture?
- Values and practices
- Symbols
- Rituals, rites and celebrations
- Heroes
Values and practices
The way things are done in the business
Eg. honesty, hard work, teamwork, quality customer service, employee participation + innovation
Symbols
The events or objects that represent something the business believes to be important
Eg. slogans, uniform, dress code, visual symbols (posters)
Rituals, rites and celebrations
Routine behavioural patterns in a business’s everyday life.
Eg. regular social gatherings to help develop sense of belonging
Heroes
The business’s successful employees who reflect its values and act as an example for others.
Eg. employee of the month
