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The Nature of BusinessRole of businessThe nature of businessProducing goods and servicesInputProductionOutput (goods and services)A business will add value to the inputs transforming them into an output, the more value added the more expensive a good or service will beGood: tangible item (can be seen or touched) e.g. car, phone etc.Function DefinitionInternal FactorsExternal FactorsExamples ProfitAmount of revenue gained by a business which exceeds operating cost-Expenses-store location-decision making-Market-trends-inflation -laws/regulations-Apple-ANZ-QANTAS-Coca ColaIncomeAmount of money received by a person for providing their labour or services for a business from a return on its investment or sale of goods/services-Employees-shareholders-innovation-Demand for product -cost of producing product-innovation-Apple-Samsung-IKEA-QANTASEntrepreneurship and riskThe drive and willingness to develop, organise and manage a business along with all the risks in order to make a profit-motivation and determination-level of risk-resources-competition- demand- skill level-Tesla-PayPal-Snapchat-FacebookChoiceProviding alternatives in order to satisfy consumer needs and wants as well as boost sales-skills of employees -cost of production-location-demand of good/service-trends -expenses-EBay-Amazon-Mars-NestleEmploymentPaid agreement between employer and employee that the employee will provide services/skills to job-minimum wage-workplace culture-candidates-employment- legislation-poaching-economic -conditions-Woolworths-Google-Coles (Wesfarmers)-McDonaldsWealthGeneration of money for Australian economy by production of goods and services from individual businesses-skills -management-investment-range of goods and services-pricing-demand-tax rate-competitors-Apple-Amazon-ANZ-CBAInnovationImprovement on something already established in the marketcritical thinking-resources available-cost-time-government policies -skills -consumer trends -competitors-Apple-Samsung-Tesla-AmazonQuality of lifeOverall well-being of an individual and is both material and non-material benefits such as health, comfort and happiness-working environment-choice of products-wages and salary of employees-social expectations and trends-economic condition-profit levels-Unilever-QANTAS-Woolworths-Coles-163830306705PIECEWIQ00PIECEWIQService: intangible item, provided by an individual or organization e.g. hairdresser, plumber (improved by qualifications and experienceTypes of businessClassification of businessSizeBusinesses can be classified by size and usually into three main categories- small, medium and large. Micro businesses also exist and are defined as having less than 5 employees. We classify the size by the number of employees but there are other factors we can use. SmallMediumLargeNumber of employeesLess than 2020-199200 or moreOwnershipIndependently owned and usually operated by 1-2 peopleOwned and operated by a few people/private shareholdersOwned by thousands of public shareholdersLegal structureSole traderPartnershipPartnershipPrivate companyPublic companyDecision making- Usually by owner- Simple and quick implementation of decision- Owner is responsible for most decision- More complicated process- Slower implementation- Complex decision making due to board- Senior and middle management- Slower implementationsFinanceOwner (from savings or loan), difficult to access a loanOwners/partners own savings or loan and/or private shareholders, easier accessibility to loansMany sources:- Cash reserves- Retained profit- Sale of shares- LoansMarket shareSmall, usually in a local areaMedium, dominance in geographic regionLarge, esp. for multinational corporationsExamples- Corner store- Local mechanic- Hairdressing salon- Services club- Motel/hotel- Factory- QUANTAS- Westpac- WoolworthsLocal, national and globalLocalA business that has very restricted geographical spreadUsually small to medium businessServes surrounding areaE.g. newsagent, corner store, pharmacyNational A business that solely operates in one countryAs it expands, it will eventually run out of new customers to sell toDomestic market can become saturatedCan decide to export products to other countriesE.g. Woolworths, ColesGlobalA business that is very large and has branches in many different countriesAlso known as multinational corporation or transnational corporationConduct a large percentage of their business outside their home businessE.g. Coco-Cola, McDonalds, Mazda, NikeIndustryLegal structureLegal StructureDefinitionAdvantagesDisadvantagesConsiderationsExtraSole Trader-A business owned and operated by one person-Simplest structure and inexpensive to set up-Liable for all debts (unlimited liability)-Lower cost of entry-Operated by their own-Do not pay payroll tax or superannuation -Make all the decisions-Less government regulations-End of business with owner dies-Hard to raise finance-Burden of management -Long hours-Lack of expertise-High stress levels-Lack of borrowing capacity-Affordability to cover costs-High responsibility-Innovative mind-Ability to take risks-Location of business-Finance-Must know law regulations-Small enterprises-Mainly tertiary business-Unincorporated (business and owner are the same entity)-E.g. Pendle Hill Bakery, Uber drivers, Trott’s FloristsPartnership-Formed between 2 and 20 people-In a limited partnership, liable for the debt to the amount invested-In an unlimited partnership, liable to pay debts off whether or not they go over investment amount-Will outline all responsibilities, decisions, expectations-Shared and equal responsibility -Low start-up costs-Shared contribution of finance-Greater access to ideas-Shared decisions-Greater borrowing capacity-Reduced government rules-Finding a suitable partner-Disputes-Loyalty among partners-Unlimited liability-Profit has to be split-Some partners may not share responsibilities-Liable to the debt of the business-Would it be better off to be sole trader and make all decisions?-Who to be a partner with-Finance-Partnership agreement-Borrowing capacity-Local-Small to medium-Mainly service industries-Unincorporated-E.g. medical, vets etc.; Smith Hancock Chartered Accountants, Decision One Pty Ltd, Tresband Scientific Pty LtdLegal StructureDefinitionAdvantagesDisadvantagesConsiderationsExtraPrivate Company-Not on the ASX-Pty Ltd after business name-Between 2 and 50 private shareholders-Shareholders have to be asked to join-Owners and business are separate-Provides limited liability protection to shareholders-Much more organised because only people the business trusts are elected as shareholders (max 50)-Doesn’t follow restrictions the government puts on public companies-Less resources (only 50 members)-Shareholders can’t leave easily-More partners the less control-Lack of public confidence as its affairs and unknown-Poor protection for minor shareholders-Not required to publicly disclose financial info-Don’t need all shareholder approval for decisions-Where to set up company-How many shareholders to have and who-Can focus on long-term growth rather than focusing shareholders-Local, national-Most industries-Incorporated (Inc.)-E.g. Ecosave Pty Ltd, Fire Protection and Design Management Pty Ltd, W Griffiths & Co Pty LtdPublic Company-A company with securities (equity and debt) owned and traded by the general public through the public capital markets-Shares are openly traded and distributed-Ownership between shareholders, board and management-Sells shares to public to generate finance-Well known and reputable-Extra finance created through offerings which involves the creation and sale of shares (floats)-Risk is spread-Able to receive dividends-Expensive to start on ASX ($500 000 min)-More requirements-Disclose data about business and performance publicly-Vulnerable to takeovers-Must hold board meetings-Share prices change-Is it better form of structure when so expensive to list on ASX?-Set Up-Will a partnership or private company allow us to reach our objective?-National-Can be part of global company-Large-All industries-Incorporated-E.g. Google Inc., Mazda, QUANTAS, JBHI, Myer, ColesFranchise-Buy the rights and brand name of a business-Franchisor is the person you buy the brand off-Franchisee where you buy into the franchise-Little growth risk-Established brand-Established plans-High success rate-Support from franchisor-Management training provided-Can’t use own ideas-Expensive business to establish-Formal agreement for set period of time-Bad franchisees can affect reputation of the franchise-What are the benefits of franchising?-Do I have enough funds?-Length of contract-High expectations from franchisor -National-Fastest growing set-up structure in Australia-Mostly in tertiary (quinary) industry-E.g. Subway, McDonalds, Boost Juice, KFCGovernment-Government owned and operated-Provide essential community services-Large number of jobs for people in public sector-Reliable-Recognised-Secure funding-Contributing to Australian economy-Large market share-Strict rules and regulations-Less innovation-Not as profitable as privately owned-Little power and control as have to follow Government procedures-How much should be retained or sold-How much to sell for-Hard to invest into from Government-Back lash may happen-National-Large-RailCorp, Australia Post, Defence Housing Australia, Sydney TrainsFactors influencing choice of legal structureSizeGenerally, moves from an unincorporated business to an incorporated business as the business grows e.g. a small business would usually be a sole trader or partnershipA business that has expanded may also list as a public company to raise finance through floating of sharesOwnership structureDepends on the amount of control the owner wants to have over the businessSole trader: total controlPartnership: control is shared between partnersPrivate company: to raise funds still high degree of controlPublic company: once shares have floated the ownership and control becomes fragmented into many thousands of partsFinanceWhere are you going to obtain the finance from?Sole traders and partnerships may find it difficult to obtain financeA company can always offer new floatsVenture capital (investors take an equity position (own part of it) and provide supplementary finance) is a way for small businesses to gain financeInfluences in the business environmentExternal influencesEconomicBusinesses are dependent on the economic environment and conditionsBoom: high business confidence with spending and employment Bust (recession): poor confidence and thus limited spending and high unemployment The economy goes through cyclesHow a business responds to the cycles will result in their survival or notFinancialRelates to the financial systems of banks, borrowing and lendingGlobalisation and deregulation of the financial sector have resulted in more competition from international financial institutions entering AustraliaAffects a business’s ability to raise funds and make wise investment decisionsGeographicAn enormous impact on business activity are Australia’s geographic location within the Asia–Pacific region Further changes that are likely to have a profound effect on business activity in Australia originate from changing demographic factors. Demography is the study of particular features of the population, including the size of the population, age, sex, income, cultural background and family size. Changes in any of these factors can lead to changes in demand levels and the nature of products and services. Another important geographical influence is that of globalisation. The Earth is a global community whose individual members are linked through the mechanism of international trade: the buying and selling of goods and services between nations.SocialRelates to the people and groups in our society and the way they interact and behave towards each otherAttitudes, values and lifestylesExamples:Multiculturalism and equal opportunityIncreased number of women in the workplaceEnvironmental awarenessLegalBoth State and Federal Governments mandate these influences through statue lawStatue law is the law made by the GovernmentAll businesses must adhere to these lawsThere is often a lot of bureaucracy when doing businessThe laws that affect a business range from workplace health and safety, industrial relations, marketing, taxation, equal employment opportunityExamples:Competition and Consumer Act 2010 (Cwlth), this Act replaced Trade Practice Act 1974 (Cwlth)Australian Consumer Law 2011 (Cwlth)Work Health and Safety Act 2011 (Cwlth)Fair Work Act 2009 (Cwlth)Sex Discrimination Act 1984 (Cwlth)Anti- discrimination Act 1977 (Cwlth)PoliticalPolitical factors relate to the activities and decisions of three levels of government- local, state and federal- and to some degree international protocols. The decisions and activities of governments often result in laws or regulations, so there is a strong connection between political and legal ernment policies have a considerate impact on the business environment. Major political change can lead to a business uncertainty or lack of confidence InstitutionalRegulatory bodiesOrganisations that monitor and review the actions of businesses and consumers in relation to certain issues and the appropriate legislationEnsure that businesses conduct themselves fairly in relation to the consumer, the community and other businessesExamples:Australian Competition and Consumer Commission (Federal)Australian Securities and Investment Commission (Federal)Office of Fair Trading (NSW)Department of Environment and Conservation (NSW)Trade UnionNational body that represents employees in employment matters and industrial disputesExamples:Transport Workers UnionTeachers Federation Employer associationNational body that represents the employer in an industrial disputeExamples:Australian Chamber of Commerce and IndustryNational Farmers FederationAustralian Industry groupTechnological Technological change is constant in the ever-changing business environment. If a business does not respond to technological change appropriately then they will fall behind the competition who does quickly. Forms of technology that can influence a business’ success or failure:Apps i.e. InstagramOperational systemsE-ProcurementRobotsCAD (Computer Aided Design)CAM (Computer Aided Manufacturing)Self-servePayment methods i.e. PayPal, pay passE-commerceReasons to implement technology ReliabilityCost savingReaching larger target marketEfficienciesGreater Economies of Scale (cheaper to produce bulk rather than 1 or 2)CommunicationsReduces lead times (wait times)Safer Perfection; eliminates errors/mistakesMaintaining quality and consistencyIncrease productivityReasons against implementing technologyLack of fundsResistance to technology (older workers and those who don’t have knowledge)Lack of experienceLosses in jobs -> unemployment -> redundantBusiness on people and still need themTechnology will become obsolete and continually updates making it costlyCompetitive situationSustainable competitive advantage (strategies over competitors)A sustainable competitive advantage refers to the ability of a business to develop strategies that will ensure it has an ‘edge’ over its competitors for a long period of time. Market concentration (number of firms within an industry)Market concentration refers to the number of competitors in a particular market. There are four main types of market concentration: Monopoly, Oligopoly, Monopolistic competition and Perfect competition.Types of market concentration:MonopolyOligopolyMonopolistic competitionPerfect competition5215497100Changing nature of markets Changes in financial/ capital marketsFinance is more readily available and flows easier between countriesMuch easier for individuals and businesses to access overseas share markets and purchase equity in foreign companiesChanges in labour marketsCompanies now employ migrants and expatriatesEmployment has become globalChanges in consumer marketsIncrease in globalisation consumers have more range of products and services offered to themImproved technologies and communications have changed the marketsInternet people are able to purchase a greater range of products and businesses are able to access a greater marketInternal InfluencesProductsProduct influences affect a range of internal structures and operations with the business.The range of goods and services refers to the number produced by the business. The larger the number, the more internal impact it will have on the business as it will need to expand operations and internal structures to accommodate the changes.Product influence will be reflected in the type of business (service, manufacturer or retailer).The size of the business will influence the range of products and services offered by the business and the level of technology used.LocationCustomer convenienceVisibilityProximity to suppliersCustomersSupport servicesResourcesHumanThese are the employees of the business and are generally its most important asset. InformationThese include the knowledge and data required by the business such as market research, sales reports, economic forecasts, technical material and legal advicePhysicalIncludes equipment, machinery, buildings and raw materialsFinancialThese are the funds the business uses to meet its obligations to various creditorsManagement Advancements in technology as well as an increase in competition due to globalisation has led to the removal of management levelsBusinesses are therefore able to adapt quickly to changing consumer needs and wantsReducing the levels of management has given greater responsibility to employeesBusiness has moved away from traditional classical scientific approach to a behavioural approach Business CultureRefers to the values, ideas, expectations and beliefs shared by members of the organisationBusiness culture can therefore significantly influence how a business operates through the values, symbols, rituals, rights and celebrations, and heroesStakeholdersA stakeholder is someone (or group) which has a vested interest into a business. The stakeholders can be both internal and external, internal within the business and external, outside the business. In business, there are many stakeholders who all have different interests into a business for a variety of reasons. StakeholderReason of interestBusiness responsibility to the stakeholderPotential causes of conflictEmployeeIncome/ moneyWorkWant promotion/ Pay rises if they are skilledIncrease their skillsFair working conditionsEntitlements Job security Provide a safe working environmentUnfair working conditionsPay disputesWorking conditionsLeavesHoursFlexibilityManagers/OwnersPayJobPromotionSkill developmentReputationProvide workTreat employees correctlyAbide by regulationsConflict of ideas between management and the businessUnfair working conditions Pay disputes Working hours Work load Legal obligations: Red TapeCustomersPriceThey want the business to produce high quality products at reasonable prices.To have excellent customer serviceTheir good/service is of good qualityProvide the customer of a productListen to customer feedbackReaching the target marketMisleading and deceptive marketingPoor qualityDelivery issuesDissatisfaction with productSafetyNegligence under civil law Price too highSocietyChoice of goods and servicesPrice of goods and servicesWhere products are made i.e Made in AustraliaExploitation of labourEnvironmental friendly productsFair and honest business practicesCustomer feedbackRespond to societal needsSocial AwarenessMarketing Good customer serviceReturning items as stated on receiptBusiness policies and practicesPolitical ConflictsEthical IssuesEnvironmental issuesBusinesses are going overseas- no jobs in AustraliaEnvironmentAnimal crueltySocial TrendsEthically sourcing resources Climate Change Meet ethical standardsFollow legislationConsider environment in business decisionsSustainable palm oilBreaking environmental lawsProtests from environmentalistsFinancial investment Being environmentally friendly can be more expensive ?Shareholders/ InvestorsGrowth of the companyMoney from dividend Keep the business operatingSustain the business in an economic trough.Provide clear financial status of the businessDividendto hold an annual general meeting to give the shareholders the opportunity to ask questions of the Board of Directorsto allow shareholders to buy and sell their shares as they wishto divide surplus assets upon the company’s closure.No dividendsShare prices dropsOwners want to retain more ownershipNo meetings with shareholdersThe reputation of the business fallsBoard of directors make a bad decisionRestrictions are made on the sale of sharesBusiness fails to listen to its shareholdersShareholders selling large amounts of shares to untrustworthy peopleBusiness growth and declineStages in the business life cycleCharacteristicsChallengesMarketing strategies usedExternal influences impactingExamplesEstablishmentSlow sales, sometimes erratic and smallCustomer base, takes a lot of time to operateLearning about business operation as you goBusiness is not known in the market, lack of reputationHigh vulnerability and failure rate within the first five yearsDetailed planning requiredLong hoursFinancial - start off with no profit and limited financeCompetition - which will be hard as they are not a very well-knownGeographical location - Physical businesses need to choose their location wisely, to ensure they have a large enough customer baseEconomy - Businesses need to take the economy into account, as it governs spending habitsSocial – staying up to date as possible to attract consumers? Flyers? Posters? Word of mouth? Emails ?? Most inexpensive forms of advertising are employed by small businesses as they are usually all the business can afford.Financial status: availability of funds Geographic location: high consumer traffic is required as the company is not as well known Competition from both small and large businessesEconomicMiniso (Australia)Kaufland (Australia)TK Maxx (Australia)Lidl (Australia)GrowthMaking sure there is enough supply to meet demandGenerating a consistent source of income and taking on new customersHigh level of marketing strategiesPutting more staff onNew ideas and ranges of productsGrowth strategies including: take overs, acquisitions, mergers, diversification, integration (backward and forward)Dealing with increasing revenueIncreasing customers Accounting managementEffective managementMeeting increasing demandRunning out of money and market competitionDividing time between new demandsCelebrity endorsements Television commercialsInterviews EventsPublicityOffersWord of mouth? Competition? Technology? Markets? Financial? EconomicMinisoAtlassianTK MaxxJim’s servicesAmazonAlibabaMaturityIncreased levels of structured planning which could lead to the restructuring of the businessFormal organisational structureComplacency Sales are increasing but at a much slower rate than growth? Reorganisation and rethinking of operations and future? Trying to maintain profits at previous levels? Keeping costs to a minimum? Maintain customer loyalty from increasing number of competitors? Incentives to keep best employees from leaving to the competition? Emails ? Loyalty programs? Advertising, TV and print? Offers? Word of mouth? Technology? Competitors? Changing markets? Social? Economic? Woolworths? Coles? Qantas? CBA? NABRenewalA company attempts to tap into new areas of growth and expanding the range of services and products the business offersAims to increase market share and move into new markets in order to find new profit channels and increase its profits.Similar to establishment, because the new products and services which the business may offer may unsuccessful and disastrous. ? This phase requires careful planning and investments to succeed and help the business expand. ? Preventing decline and to sustain its profit which can be a huge challenge for the business when there are a number of competitors competing.? Finding the extra finance to invest into R and D ? Adopting a culture of change amongst your employees, a new direction? Not meeting expected sales levels? Alternatives names are Regeneration and RevivalAdvertising including TV and printOffersPublicityPublic RelationsWord of mouth? Competition? Changing markets (consumer tastes and trends)? Social? Economical? Financial ? Fairfax Media and Nine (Merger)? Pizza Hut? WoolworthsSteadyNeither declining nor expandingCannot remain steady forever?Main goal -?satisfying consumer demands and maintaining profit levelsDoesn’t continue expenditure on research and development?Just managing to cover operational costsLoss of competitive advantageLoss of skillsBusiness can become unsustainableFollowing trends and keeping up with customer needsAverage strategiesWord of mouthExisting strategies from maturityNo new forms or growth of strategiesCompetitionEconomicFinancialChanging markets? Coles? IGA? Cotton OnDeclineDecrease in sales? and preference for the product fails Lower profits Cost of production increase Decrease in advertising as money goes into other products Market will decline Lose customers to newer and better products/services Falling sales and profits Sales will fall and so profits too will fall Lack of profits results in a lack of funding for advertising and thus will result in a loss of their market share Product withdrawal Products have to be withdrawn to prevent the further loss of profits Reducing prices Selective distribution Withdrawing unprofitable products Repositioning or reinvigorating product/service Reducing advertising to reduce spending whilst still reaching existing/loyal customers Changing technology Economy Competition GeographicalBusinesses which produce in other countries are advantaged as they can attain cheaper labour costs. Doughnut Time MyersAvon CosmeticsOrotonPumpkin PatchHard copy of newspapers i.e. SHM, Daily Telegraph Growth StrategiesMergers: Merging with another business that is similar to combine all of their resources to create a new business i.e. Nine and Fairfax, BHP and Billiton. (Similar levels of controls between the companies)Takeovers: One business takes control of another business by purchasing part of it and controlling an interest into it. E.g. Richman Pty Ltd Editing takeover a share in Poorman Pty Ltd Producing to create Richman Editing and Producing Pty LtdVertical Integration: A business will expand at different but related levels in the production of a product. Backward vertical integration is when a business goes backwards to supply an input. (cheaper, quality, don’t have to rely on other companies) Forward vertical Integration is where you invest in a place to sell a product. Horizontal Integration: A takeover or a merger of another business who produces similar products.Diversification: Merger or takeover in a totally different industryFactors that can contribute to business declineThere is not just one factor that contributes to the decline of a business, rather several factors. The ever-competitive business environment is a key factor but all business is not limited to this.The two main factors are:Undercapitalization: not enough money invested into the businessLack of management: not having the skills or resources to effectively manage the businessVoluntary and involuntary cessation- liquidationCessation refers to the closure of a business. The owner may decide to cease the operations of a business for a number of reasons. The cessation of the business may be a voluntary decision made by the owner. Alternatively, the closure may be forced on the business by external interests, this is known as involuntary cessation.The cessation (closure) of a business differs for a sole trader, partnership and companies.Sole trader/ partnershipPrivate/ public companiesBankruptcy: where a business is unable to pay its debtsVoluntary: own accordInvoluntary: forced outVoluntary administration: An external third party comes in to operate the business hoping to rectify the situationLiquidation: Selling a business’ assets to convert into cash (usually to pay off debts)VoluntaryInvoluntaryBusiness ManagementNature of managementFeatures of effective managementPlan- they must be good at planning, considering long-term goals and short-term objectivesOrganised- makes decisions to organise resources in the most efficient and productive combinationsLead- motivates staff using the most appropriate methods and styles of leadershipControl- controls the business and takes corrective action if it deviates from the business plan. Key decisions of a manager Skills of managementInterpersonalThese are the skills that are needed to work, communicate and relate with others. It also incorporates the ability to understand their needs. CommunicationThis is the exchange of information between people. Communication can be verbal and non-verbal. It is important that a manager is able to pick on the non-verbal cues.Strategic thinkingStrategic thinking allows the manager to see the business as a whole rather than in small parts- seeing the broad long-term view of the organisation- ‘the big picture’. It involves thinking about the future direction a business wants to go and what goals the business wants to achieveVisionIs the clear, shared sense of direction that allows a business to attain a common goal. Vision is the essential element in management- without vision there can be no sense of cooperation and commitment towards achieving business goals. A leader is the driver of visionProblem solvingThis is a broad set of activities involved in searching for, identifying and then implementing a course of action to correct an unworkable situationDecision makingThis is the process of identifying the options available and then choosing a specific course of action to solve the problem. Managers today are often confronted with complex, challenging and stressful decision-making demandsFlexibility and adaptability to changeFlexibility refers to the activity of a manager to be flexible to changing circumstances- they can go with the flow. An ineffective manager is not able to be flexible and will resist changing circumstances. A manager needs to be proactive- thinking in a positive frame of mind with forward planning.Reconciling the conflicting interests of stakeholdersThere are a number of stakeholders in a business that we have identified previously. A manager must be able to reconcile conflicting interests between these groups. A number of the previous skills will be used by a manager to overcome the conflict, for the best outcome for all. Achieving business goalsSMART goalsSpecificMeasurableAchievableRelevantTime-boundProfitsA major indication of a business’s success is the size of their profitProfit maximisation occurs when there is a maximum difference between the total revenue (that is the number of sales made multiplied by the price) coming into the business and total costs being paid outA way to maximise profit is to increase salesLowering the priceMarketing campaignInnovative productsBetter servicesMarket shareMarket share refers to the business’s share of the total industry sales for a particular productUsually a goal for only large businessesIncreasing market share is an important goal for businesses that dominate the market because small market gains often translate into large profitsA strategy to increase market share is promotionMethods used by a business to inform, persuade and remind a market about the business’s productsCan be used to convince new customers to try a productMaintaining established partners loyaltyGrowthUsually businesses want to growInternal growthEmploying more peopleIncreasing salesIntroducing innovative productsPurchasing new equipmentEstablishing more outletsExternal growthMerging with or acquiring other businessesMaximising growth is a goal for both SMEs and large businessesSmall business owners are content to maintain the existing size of their business to:Avoid the added pressures of expansion/ desire for quiet life or particular lifestyleKeep control over the business’s operationsMaintain personal contact with the customersShare priceA share is a part ownership of a public companyReasons to buy shares:Purchase shares in the hope of selling them for a higher priceOwning shares entitles an investor to a part of the company’s profits (dividends)For companies to be successful they need to maximise the returns of their shareholdersAchieved by keeping the share price rising and paying back healthy dividendsSocialCommunity serviceBusiness sponsorship of a wide range of community events, promotions and programsProvision of employmentMost large businesses do not regard employment of people as a main goalMany small business owners look at the continuity of their business e.g. employing family members who otherwise might be unemployedSocial justiceA business may be concerned for social justice such as adopting a set of policies to ensure employees and other community members are treated equally and fairlyEnvironmentalEnlightened businesses are adopting practices of ‘recycle, renew and regenerate’, as well as adopting a ‘green’ attitude, and developing products and creating ideas that are environmentally friendlyAchieving a mix of the above goalsIt is difficult for a business to achieve all its financial goals simultaneously as the links between the goals make some of them incompatibleMaximising profit is often considered the business’s main goal however this may not be achievable or appropriate due to the following reasons:Present profit levels may be maximised by eliminating some expenses but this may reduce long term profitsA decision to reduce the amount spent on advertising may reduce expenses in the current period but it may reduce the level of sales in the long termIf profits are maximised due to higher prices than lower costs, managers may prefer lower profits to discourage potential competitors from entering the industryManagers may decide to limit profits by keeping prices down to maintain good customer relations Businesses should be careful regarding how they got about achieving the goal of profit maximisationShouldn’t involve short-term exploitationIn large public companies the shareholders do not usually decide how production is to be organised. The shareholders gain the profits, but it is the directors and managers who make the operational decisions resulting in management pursuing other goalsStaff involvementStaff involvement means involving employees in the decision-making process and giving them the necessary skills and rewardsA work environment that maximised employee involvement and satisfaction has high levels of labour productivityInnovationBusinesses should encourage an innovative business culture by recognising and encouraging one of the most important sources of innovative ideas: employeesAn intrapreneur is an innovate employee who takes on the entrepreneurial roles within a businessMotivationRefers to the individual, internal process that directs, energises and sustains a person’s behaviourIndividual employees respond differently to various motivational techniquesGood managers should be good motivatorsMentoringProcess of developing another individual by offering tutoring, coaching and modelling good behaviourTeaching new employees what the business expects of them helps strengthen their dedication and commitment to the businessTrainingEmployee training generally refers to the process of teaching staff how to perform their job more efficiently and effectively by boosting their knowledge and skillsThe goal of training is to improve employee productivityManagement ApproachesClassical ApproachManagement as:Planning: the preparation of a predetermined course of action for a businessStrategic (long term): Planning for the following three to five years. This level of planning will assist in determining where in the market the business wants to be, and what it wants to achieve in relation to its competitors.Tactical (mid-term): Planning is flexible, adaptable planning, usually over one to two years, that assists in implementing the strategic plan. Tactical planning allows the business to respond quickly to changes. The emphasis is on how the goals will be achieved through the allocation of resources. Operational (day to day): Planning provides specific details about the way in which the business will operate in the short term. Management controls the day-to-day operations that contribute to achieving short-term actions and goals. Examples of operational plans are daily and weekly production schedules. OrganisingDetermining the work activities: Work activities required to achieve management objectives must be determined.Classifying and grouping activities: similar activities can be grouped together to improve efficiencyAssigning work and delegating authority: determine who is to carry out what work and who has the responsibility to ensure that the work is carried out. Delegation involves ensuring that the person who has been given responsibility does carry out the processes.ControllingEstablish standards in line with the firm’s goals and influences from employees, management, industry and governmentMeasure performance and determine how comparisons will be made against standards or benchmarksTake corrective action - changing activities, processes and personnel to ensure that the goals of the business have been met.Hierarchical organisational structureDivision of labourChain of command (how many levels- long or short)Span of control (how many- narrow or wide)Autocratic leadership style1363242-19200Behavioural Approach Management as:LeadingA leadership style refers to a leader’s behaviour characteristics when directing, motivating, guiding and managing a group of people. Different managers will all have different understanding and characteristics in their leadership style. A behaviourist leader will delegate and form teams to give control to their workers in teams. The shift moved management from a production orientation (classical leadership theory) to a leadership style focused on the workers' human needs for work-related satisfaction and good working conditions.MotivatingMotivation is defined as the force that causes an individual to behave in a specific way: a highly motivated person works hard at a job; an unmotivated person does not.Factors such as trust, respect for the individual, positive reinforcement, empowerment, enhancing self-esteem, employee participation, rewarding team performance and employee encouragement help to motivate employees.Whether there is an autocratic or democratic management style, it is important to implement motivation methods:Energising and encouraging employees to achieve the business’s goals Introducing teamwork and splitting the workloadEstablishing a routineFriendly competitionProviding an effective reward systemRedesigning jobs:job enlargement (increases the variety of tasks a job)job rotation (assigns people to different jobs or tasks temporarily)job enrichment (provides an employee with more responsibility and authority.)Creating flexibilitySome people are motivated by the stick (punishment) whilst others are motivated by a carrot (reward) approach. An effective manager who understands this will gain the greatest output of their workers. CommunicatingManagers must be able to receive accurate information to determine plans, and they must be able to send accurate information for the plans to be implemented. When information is accurately sent and received, everyone in an organization can be informed.Provides Clarity: Effective communication reduces the cost associated with conflicts, misunderstandings, and mistakes. Builds Relationships: A business that promotes open communication reduces tensions between employees. People are more likely to seek help with problems and suggest solutions and improvements.Creates Commitment: When employees feel like Defines Expectations: Gives Direction for both management and the employees of what they are to do in the organisation to achieve the overall strategic goals of the businessTeamsOrganisations rely less on traditional pyramid structures, but more on collaborationThis ideal represents the nature of leadership in a flat organisationAn even playing field allows organisations to leverage employee talent, passions and expertise to better apply these to business challengesParticipative/democratic leadership styleInviting employees to take part in organizational decision makingThe main principles of a participative/democratic leadership style:Facilitate the conversationOpenly share information and knowledgeEncourage people to share their ideasSynthesise all the available informationTake the best possible decisionCommunicate their decision back to the groupCollectiveAll decisions are taken by the group. During the decision-making phase, the group usually develops responsibilities of each member AutocraticThis style of leadership revolves around the idea that although possible solutions are discussed between employees, the final decision is still made by the leader, alone. ConsensusThe leader gives up control and responsibility of decision-making, which in turn, leaves the responsibility entirely to the group, or employees. DemocraticThis leadership style encourages participation in discussion, however, the final decision is taken solely by the leader. The leader usually communicates it back to the group, which may work on discussing and resolving any possible objections. Contingency approachAdapting to change circumstancesKnown as the “backup” planthere is no universal or best way to manage a business. A business organisation and its subsystems must fit with the environment in which it operates and to be flexible and adaptable to the changes in that environment. When a manager makes a decision, they must take into consideration not only the aspects of the current environment but also prepare from things that result from an uncertain futureA business that can meet customers’ needs more effectively than its competitors, it market share increases, the value of the business grows and its share price improvesManagement ProcessCoordinating key business functions and resourcesIn successful, competitive flexible businesses the various business functions (Marketing IT, HR, Finance, R&D, Operations) are effectively coordinated. Coordination involves making sure different parts of a business work together effectively and that resources are organised to allow for this. Coordinating is about making sure all of the functions are working towards common goals.Each function is interdependent of each other- that is they need to work together and not in isolation. OperationsGoods and servicesOperations management is concerned with the producing and manufacturing of an output- good or serviceThere are three main aspects of operations managementInputsThe resources which are needed to carry out the transformation processThere are two main types of inputsTransformed (changed in the transformation process) (materials, information, customers)Transforming (those carry out the transformation process) (facilities, human labour)The main inputs can be classified as:MaterialsCapital equipmentLabourInformationTimefinancialTransformationTaking STM to make an ETMDifferent products/services have a different processThe more elaborate the product generally the more transformation is neededEfficient and cost leadership businesses will produce EOSOutputsMost businesses today will sell both goods and servicesThe production processesQuality management Concerned with the outputs of a business, in that they are meeting customers’ expectationsConsumers are significantly influenced by businesses which have high levels of quality Businesses which don’t implement quality management practices into their inputs and transformation processes will notice that they may have a high number of issuesImplementing quality management is important for the following reasons:ReputationMinimise wasteIncrease selling costsIncreased efficiencyReduced variationReduced complaintsReduced warranty claimsHigher levels of productivity Main aspects of quality control:ControlTests and inspections throughout the production processMinimise defaults AssuranceCorrect systems and procedures in place to enable the business to meet standardsImprovement Ongoing, business wide commitment to excellence that is applied to every aspect of the business operationEmployee empowerment (giving employees a voice) through quality circles Quality circles are groups of workers who meet to solve problems relating to qualityContinuous improvement involves an ongoing commitment to perfectionMarketingThe culmination of various activities to meet the needs of current and potential consumers and to also make the product/service known to consumersResearchPromotingPlacingDesigning productsPricingMeeting consumer needsForecastingPlanningCoordinating Developing strategiesIdentification of the target marketA target market is the main group of consumers a business will direct its marketing strategies toA primary target market is the group of customers that the strategies are directed toA secondary target market can also be influences by their strategies but aren’t specific to this marketTo identify a target market a business will break the total market into smaller markets (market segmentation)DemographicGeographicPsychographicsBehavioural-Age-Religion-Sex-Income-Education-Ethnicity-Rural-Urban-Suburban-Climate-Landforms-Size-Motives-Behaviours-Lifestyle choices-Personality-Socioeconomic groups-Loyalty-Usage-Price sensitivityTarget market Use its marketing resources more efficientlyBetter understand the consumer buying behaviour of the target marketCollect data more effectively and make comparisons within the target market over timeRefine marketing strategies used to influence consumer choice Niche Narrowly selected target market segment Marketing mixThe marketing mix refers to the combination of the four P’s ProductA consumer will keep purchasing a product if it meets their needs and wants and provides them with a sense of security Businesses hope to establish a relationship with their customers to be a repeat customer in purchasing their productPositioning plays a role in product, it is how the product is able to gain an image in the consumers mindThe business needs to determine the products:QualityDesignNameWarranty and guaranteePackaging LabellingExclusive featuresProduct positioning refers to the development of a product imageCustomer service also is highly important for a business and gives a business an upper advantage compared to other competitorsAn important development is the brand and associated brand logo PriceOften difficult to determine a price of a product: a price which is not too high or too low affecting the positioning of the product There are four methods which a business can use:CompetitionSelecting a price at, below or above your competitorsCost plusAdding the total cost of production and then a mark-up for a profit Marketing supply and demandThe interaction between the quantity and quality of the product available (short supply = high price, high supply = low price)Discount pricingOffering a discounted price to get demand for the product or to sell quicklyPromotionThe point of promotional strategies is to:Raise awareness of a product/serviceInform consumersPersuade you against the competitionMaintain customer loyaltySelecting the correct promotional strategies to your target market is key The main forms of promotion are:Personal sellingA sales assistant outlines the features of the good or service to the customerSales promotionActivities and materials are used to attract interest and support for the good or service E.g. free samples, coupons with cash coupons, loyalty programsPublicity Enhance the image of the product, highlight a business’s favourable features and help reduce any negative image that may have been createdAdvertising Print or electronic mass media are used to communicate a message about the productUsed to attract potential customers, create a demand for the product and communicate essential informationChanges in technology are having a significant impact on how businesses promote their products The internet has become an effective advertising tool used by businesses to deliver specific messages to its target marketPlaceInvolves the distribution channel, channel choice and transportation of product/serviceBusinesses have to decide how to transport and store the product and then which outlets will be selling their productsThere are three main distribution channels:Producer to consumer- This involves no intermediaries (no middleman). Markets, car repairs.Producer to retailer to customer- The retailer is the intermediary who buys from the producer and resells to the customer. Furniture store, fruit.Producer to wholesaler to retailer to customer- Most common method. A wholesaler is an intermediary who buys in bulk from a producer, then sells in smaller quantities to retailers. Supermarkets are an example.The more channels a product goes through, generally the more expensive the cost of the productChannel choice of locations that a product will be sold:Intensive: saturating the market and can be found in various locations. i.e. Coca Cola.Selective: Using only a moderate proportion of possible outlets. The customer is prepared to travel and seek out a specific retail outlet that stocks a certain brand. i.e. Calvin Klein.Exclusive: This is the use of only one retail outlet for a product in a large geographic area. This method of distribution is commonly used for expensive products. i.e Tesla.FinanceFinance is concerned with providing and managing funds that will enable goods and services to be produced Accounting is the information that can be provided by analysis and interpretation of financial data Accounting is a managerial and administrative tool that involves the recoring of finacial transactions, so that a clear summary of what has happened to the money coming in and going out can be traced over timeThe three-main accounting/financial reports or statements are:Accounting is useful as it provides information in statements about each of the following as it relates to the business:Financial statusCash statusFinancing or funding informationCash flowsProfitability and return on investment Trends in earnings, borrowings and sales that together indicate the risks the business facesCash flow statementShows the movement of cash receipts and cash payments Vital for the business to assess whether money inflows can match money outflowsCash flow statements are closely related to budgets which are estimates of anticipated future cash flows Income statement Summary of the income earned and the expenses incurred over a period of tradingSales/ Revenue/ IncomeCOGS = Cost of Goods Sold (inventory that has been purchased to sell) (OS + P - CS) (Opening Stock + Purchases - Closing Stock)Gross Profit: the profit before all expenses and taxes have been taken out (Sales – COGS)Expenses?Net profit: the profit after all expenses and taxes have been taken out?(Gross profit – expenses)?Balance sheet Financial termDescriptionCash flow statementA statement which shows all of the inflows and outflows of a business, and also the cash remaining at the end of the monthWorking capitalCurrent assets less current liabilities.IntangibleAn asset that is not a material object: it cannot be seenstockResources owned by a business that can be used to generate income.SundryItems that need not be specified.Good willThe value of favourable attitude that a business generates from all sources: customers, employees and others.Accounts payableMoney that is owed to another business/ person.AssetsValue of goods for sale at a certain time.CapitalThe amount of money that a person invests into the business.CreditorA person who money is owed to.Current assetsAn asset that will be converted into cash within a 12-month period.MortgageMoney raised to buy a fixed asset: the security for the loan is the asset itself.Current liabilityA liability that has to be met within 12 months.Equity financeFinance which is sourced from inside in the business, generally in the form of retained profits or capital.Balance sheetA statement that shows at a certain date, what a business owns and what it owes.DebtorA person who owes money.OverdraftAn overdrawing of your account up to a certain limit.Drawings Money or goods taken from a business by the owner in lieu of profitThe amount left over after taking into account revenues from all sources, and expenses and losses of all kinds.Gross profitThe difference between the cost of goods sold and the amount of money received from the sale of those goods.Non-current assetsAssets held over a long period in order to earn revenue.Debt An amount owed.Debt financeA source of finance which is sourced from outside the business from external lenders, including banks (mortgage).BudgetA plan of future income and spending.Fixed assetsFixed assets, investments and intangibles.Revenue statementA financial report of income and expenditure determining net profit.Non-current liabilitiesMortgages and other long-term loans. Accounts receivableMoney which is owed to the business by customersThe balance sheet is used to help owners to keep a watch on their debt and equity levels, compare financial performance and assist with financial performance AssetsItems of value to the organisation that can be given a monetary valueCurrent assetsItems whose value is expected to be used up, or tuned over within 12 monthsE.g. bank savings, cash on hands, debtors, stockNon-current assetsItems that have an expected life of three to five years or longer E.g. buildings, land, machinery, technology, vehiclesIntangible itemsThings of worth that have no physical substanceE.g. goodwill, trademarks, designs, copyright and patentsLiabilitiesItems of debt owed to outside parties and organisations and include loans, accounts due to be paid by the business, mortgages, credit card debt and accumulated expensesCurrent liabilitiesThose in which the debt is expected to be repaid in the short term (12 months or less)E.g. bank overdrafts, credit card debts, accounts payable, accrued expensesNon-current liabilitiesLong term debt items E.g. mortgages, leases, debentures, retirement benefit fundsOwner’s equityThe owners give a business money for it to acquire resources and begin operating Over time a successful business will have its owner’s equity amount increase in valueOwner’s equity is considered to be a liability from the point of view of the business because it is a type of debt the business carriesHuman ResourcesConcerned with maintaining the employment relationship between the employers and the employeeRecruitmentProcess of gaining potential candidates for a jobJob analysisStudying the job in detail to understand what goes into the job description and behaviours required in the jobJob descriptionWhat roles and responsibilities will be completed in the job role Job specificationsWhat qualifications and experience is needed to be able to complete the job successfully SelectionSelecting the best candidate from the pool of candidates through the recruitments processTrainingTrainingProviding opportunities to develop new skillsDevelopmentDeveloping upon current skillsNumber of training and development methods available:Informal on-the-jobWhereby an employee learns by doing the work whilst supervised by an experienced employeeCosts the business little money and resources, thus the reason lower skilled jobs use this methodFormal off-the-jobWhereby employees will go to experienced organisations that specialise in training the skillsFull-time employees will generally go on this form of training and development and is often used for highly technical and skilled employeesConferences and seminarsExperts and learners meet together to discuss new methods, evaluate research papers, discuss problems and exchange ideasInductionThe process that introduces a new employee to the systems and procedures of the organisationEmployment contractsMaintenanceInvolves an organisation remunerating and compensating their employees for the work that they have doneRemunerationMonetary Non-monetary A business will use a combination of the two rewards to retain their most efficient and productive workers When developing a remuneration package an organisation must consider:The employee performance (efficient, effective, KPIs, set targets)Qualifications i.e. PhD, degrees, diplomas?Financial situation of the business i.e. making profits or notEconomic conditions?Recessions → cut down, reduced bonusesBooms → increases in wages, bonuses, commission?Global conditions (FDI, exchange rates, interest rates)Competition?SeparationSeparation is the ending of the employment relationshipVoluntaryOccurs when an employee chooses to leave the business of their own free willThere are three types:Retirement Occurs when an employee decides to give up full-time or part-time work ResignationThe voluntary ending of the employment relationshipPeople resign for a variety of reasons including:Offer of a promotion with another businessTo start their own businessBoredom with their present jobChange of lifestyleRedundancy When a particular job a person is doing is no longer required to be performedVoluntary redundancy occurs when the business wishes to reduce either the size or nature of its workforce and decides how many employees should be ‘let go’. Employees are then informed of the situation and given the opportunity to nominate themselves for voluntary redundancy. Employees who choose voluntary redundancy are offered a redundancy package InvoluntaryOccurs when an employee is asked to leave the business against his or her willThere are three types:Retrenchment When a business dismisses an employee because there is not enough work to justify paying him or herDismissalOccurs when the behaviour of an employee is unacceptable and it then becomes necessary for a business to terminate the employee’s employment contractUnfair dismissal occurs when an employee dismisses an employee for discriminatory reasons. Some examples of discrimination under Commonwealth workplace relations laws include dismissal because of:Absence from work due to illnessEither belonging or not belonging to a trade unionRace, colour, sex, sexual preference, age, disability, marital status, family responsibilities, pregnancy, religion, political opinions, ethnicity RedundancyIf no employees volunteer to become redundant, then the business may be forced to decide which employees will be made redundantMaintenance: Legal LegislationFair Work?Work Health and SafetyWorkers CompensationAnti- discriminationAffirmative Action (Equal Employment Opportunity)State or Federal LegislationFederal?State (NSW)State (NSW)State(NSW)FederalName and Year of the Act Fair Work Act 2009?The Work Health and Safety Act 2011?The Work Health and Safety Act 2011 (NSW)Anti-Discrimination Act 1977Affirmative Action (Equal Employment Opportunity for Women) Act 1986Main aspects of the ern employee/employer relationships, providing a safe environment for both parties. It provides a net of minimum conditions, including minimum wages in awards.??Provides a framework to protect the health, safety and welfare of all workers at work. It also protects the health and safety of all other people who might be affected by the work.All workplaces must take out workers compensation insurance. It covers employees who have been injured at work, an employee must notify their employer as immediately if they have been injured at work.Workplace discrimination including: race, colour, gender, age, religion, marital statusRacial vilificationSex Discrimination/ Sexual HarassmentAge DiscriminationAn organisation that has over 100 employees must have an affirmative action programPromote gender equality in the workplaceImprove workforce participation, particularly for womenRecognise the importance of equal remuneration?Who administers the Act?Fair Work OmbudsmanNSW State GovernmentWorkCover NSWNSW Department of JusticeEqual Opportunity for Women in the Workplace AgencyFair Work OmbudsmanWhat are the employer requirements as part of the Act?Must provide award rates and entitlements to their employees.They must be up to date with the national minimum wage standards as well.?They must treat all their employees fairly and must not discriminate on the grounds of sex, age etc. in terms of the Anti-Discrimination Act 1977.??- The workplace itself, or the workplace layout does not put workers at risk areas?- Facilities for workers - such as kitchen, toilet, washing and changing facilities if required- Development of safety procedures within the workplace- Must setup a WHS Committee if there are over 20 employeesPay workers compensation insuranceKeep a register of injuries at the workplaceNotify insurer of injuries within 48 hoursEstablish an injury management plan for the injured worker to return to dutyPass on compensation remuneration to the injured workerEmployers must not discriminate against their employees or potential employees and must also not allow discrimination and harassment to occur with their organisationsEmployers must not limit the employee’s access, to opportunities for promotion, transfer or training, or to any other benefits associated with employment. They must not subject employees to detriment.?To develop an affirmative action program if they have over 100 employeesDeveloping a policy statement informing all staff members to inform all staff members that an AA policy has been setMust comply with the discrimination provisions in the Fair Work ActWhat are the employee requirements as part of the Act?To know and understand their rights, especially the 10 National Minimum Standards’Understand the appropriate Award they should be remunerated underTo act in good faith and not to do any activity that may harm oneself or other employeesFollow instructionsUndertake appropriate levels of trainingNotify employer immediately of any injury that has occurred at the workplaceTo provide truth in all information provided to Worker CoverTo communicate to the employer progress of the injuryTo provide medical information to WorkCover and employer if requiredTo follow the guidelines of the act and not to intentionally discriminate against colleaguesTo follow workplace policies in regards to discriminationTo notify employers of discrimination in the workplaceTo avoid discrimination of women in the workplaceTo notify employers of sexist remarks/ dicrimination in the workplaceTo follow the guidelines in the AA program/ policy of the organisationCurrent case relating to the legislation being breached?A case of racial abuse at Australia Post in June 2017; a supervisor made highly offensive and distressing racist comments to a delivery driver“The driver alleged that he was subjected to racial discrimination. He therefore had to satisfy the court that he had been treated less favourably than others and had suffered some loss or harm because of his race.The case was heard by the Federal Circuit Court of Australia, which found that the racist comments were made and that they were racial discrimination under the Act.”Samantha Gaye Curran and Skilled Engineering Ltd. (2004)She said that she was treated unfairly compared to a man in the same position as her. She claims that the employer said during an interview that she didn’t get hired because she was a woman. The job in questions was trades assistant.The outcome was that the case was dismissed.?Management and ChangeTypes of changeTransformational change often results in a complete restructure throughout the whole organisationIncremental change results in minor changes, usually involving only a few employeesStructural change refers to changes in the business’s structureOutsourcingContracting of some organisational operations to outsides suppliers. Outsourcing has a profound impact on businesses. Many businesses have rearranged their workforces to employ a minimum full-time staff and use as many people from outside the business as possible to keep costs low.?Flat structuresGreater levels of accountability and responsibility are transferred to frontline staff. Businesses with flat structures are characterised by fewer formal reporting controls, sharing of best practice methods, learning focused on the business’s needs, a supportive learning environment and focus on continuous improvement.Work teamsTeamwork allows businesses to be more flexible and responsive. Teams also motivate employees to be more creative, to develop a broader view of goals, and to contribute across the entire business.?To manage change there are a number of steps a business can take to manage it successfully:Identify the need for changeSet achievable goals(Minimising) resistance to change (financial, change, inertia of management, staffing (deskilling, redundancies, acquiring new skills))Management consultants and change agents (someone who is experienced in initiating change, usually an external person)EthicsEthics are standards that define what is acceptable and what is not. Business ethics are the application of moral standards to business behaviour (it is not concerned with the legal obligations, but what is right and wrong)Many businesses will have a Corporate Code of Conduct which sets the ethical standards for all managers and employees.The more ethically responsible a business is, generally the greater the reputation they will have, thus increasing sales and profits.CHAPTER 3: BUSINESS PLANNING3.1) SMALL TO MEDIUM ENTERPRISESDEFINITION: 20 or fewer employees if the organisation is non-manufacturing (services) Fewer than 100 employees if involved in the manufacturing of goodsMicrobusiness: less than 5 employeesROLEProduction: 50% of all products Research & development: 20%Exports: increasing amount Employment: 73% of private sectorECONOMIC CONTRIBUTIONGDP: 50% of total output is provided by SME’s Created 80% of Australia’s employment gains in the past 10 yearsBOP Inventions and innovationsSUCCESS/FAILURE5 common keys to SME successFlexibilityReputation Entrepreneurial activities/abilitiesAccess to informationFocus on market niche Reasons for failure Failure to plan Economic downturn Leadership crisisIllnessPoor customer service 3.2) INFLUENCES IN ESTABLISHING A SMALL TO MEDIUM ENTERPRISEPERSONAL QUALITIES QualificationsNo qualifications are necessary, but some do require official qualifications to operateMotivationPersonal drive and desire to achieveEntrepreneurshipAssuming the risk of starting a businessCultural BackgroundArising from your community’s traditions and beliefsArising from your community’s long held experience in a particulartrade or commercial operationGenderWomen are now setting up more small businesses than men Skills SOURCES OF INFORMATION Professional advisors AccountantsSolicitors Bank managersManagement consultants Trade associations Unis and TAFES Community based services THE BUSINESS IDEAConcept developed by individual or group that has possibility of being implemented into the establishment of a profitable business COMPETITIONMaking an assessment of competition by identifying how successful competitors are in terms of competitive advantage, market share, new products, services etcESTABLISHMENT OPTIONS Establishment OptionDefinitionAdvantagesDisadvantagesStarting from scratchWhen one has created something unique, and recognises a gap in the market?Owner has freedom to set up as preferredOwner can determine pace of growth?High risk and uncertainty?Time is needed to set upStart-up is slowBuying an existing businessEverything associated with the business is purchased Purchaser needs to know WHY the business is for sale?Sales to existing customers generate incomeGood business history = success?Image may be hard to changeEmployee resentmentFranchiseAvoids many problems when starting a new business An established business formula?Immediate benefits from franchisor’s goodwillFranchisor often offers trainingLittle scope for individualityMARKET CONSIDERATIONSGOOD OR SERVICE?PRICE Percentage markup - add a % to the cost RRP - price recommended by wholesaler or manufacturer Price leadership and competition - following a major business who sets a price What the market will bear - auction - auction reading consumer sentiment LOCATIONShopping centre vs shopping strip ONLINE Email, internet research, website, online banking FINANCEFinance refers to the funds required to carry out the activities of a business1838325161925SOURCES Equity - funds contributed by the ownersDebt - money obtained through loansHow much will depend on the type, the source and the length (term)No interest on equity but profit is paid to ownersUnlimited vs limited liability can be considered the cost of equity financeShort Term DebtMedium Term DebtLong term debtBank overdraftTerm LoanMortgageTrade creditPersonal loans Bank BillsLeasing COST How much will it cost to start the business?Establishment costs - expenses in setting up the business E.g - legal fees, furniture, equipment, phone and electricity connection Operating costs - the running costs of the business over a year E.g - wages, advertising, insurance, interest repayments, vehicle running costs LEGALBUSINESS NAMESole traders can operate under their own name Business name registration service is managed and administered by ASIC (Australian Securities and Investments Commission)ZONINGSmall businesses in the establishment stage are influenced by zoning of land within the Local Government Area Zoning policy ensures that structures that business erect comply with that policy and also with state and local government environmental planning policies Ensures that business carried in a particular planning zone is an appropriate use HEALTH & OTHER REGULATIONSLocal councils often oversee building supervision, including management and removal of asbestos, food hygiene, litter control, noise control and pollution Workplace safety for both employer and employees that work in the business - SWA (Safe Work Australia) oversees WHS regulations HUMAN RESOURCES MAIN SOURCES OF EMPLOYEES FOR A BUSINESSTemporary/casual services TAFE/Uni/Schools Internal searches Word of mouthPrivate employment/ recruitment agencies Job services AdvertisementsSKILLSGeneral: skills transferable from one workplace to anotherSpecific: skills often required by law to perform a particular job COSTS Wage: business needs to observe any legal requirements such as enterprise agreements or contractual arrangements Employee benefits - leave, superannuation scheme etc Business will have to ensure the employees against accidents or illnesses Non wage: providing rewards to staff that aren't financial (eg: personal satisfaction, job enrichment, positive work environment) TAXATION TaxLeveledIncome Tax Taken from employee’s salary/wage directly Federal government Fringe Benefits Tax Provision of benefits to an employee (eg: cars) IN PLACE of salary/wageFederal governmentGoods & Services Tax 10% of most goods and services in AusFederal government Company Tax Paid on earnings of a company Federal government Capital gains Tax Calculated on profit made on sale of assetsFederal governmentStamp Duty Documents that give evidence to transactionsNSW governmentLand Tax If land is higher than $376kNSW government Payroll Tax Payable on wages paid to employer over $638kNSW government 3.3) BUSINESS PLANNING PROCESSA business plan is the ‘roadmap’ for future growth and development within a business. It sets out the desired goals and direction of the businessELEMENTS OF BUSINESS PLAN Executive summaryGoals Strategies Business description and outlook - situational analysis Management and ownership Operation plans Marketing plans Financial plans HR plans BENEFITS OF DEVELOPING A BUSINESS PLAN Tests viability of a business Assists a business to be productive rather than reactiveAssists in maintaining business operation especially focus on goals and objectives Indicating owner’s ability and level of commitment Forces the small business owner justify his or her own plans and actions Identifies the business’ strengths weaknesses SOURCES OF PLANNING IDEASInfo for planning can come from many resources:Internal sources (management & employees)External sources (economical, political, social, technological, geographical sources have impact on business) Specialists can also help (accountants, bank, solicitors) SWOT ANALYSIS Strengths, weaknesses, opportunities, threats VISION A vision statement broadly states what the business aspires to become in the future.1347788180975GOALS / OBJECTIVES Long term growth - maintaining profits over time by continually expanding Does not happen by accident - requires comprehensive, strategic planning Exploiting the business’ competitive advantage Strategies can include: Customer feedback Supplier + customer partnerships Product innovation Sigma sis - a management approachORGANISING RESOURCES Organising is determining what is to be done, who is to do it and is to be done STEP 1 - DEVELOP PLANS AND ESTABLISH GOALS STEP 2 - DETERMINE ACTIVITIES STEP 3 - GROUP ACTIVITIES (in terms of finance, hr, marketing, operations)When you establish a business you need to know what resources you need, what activities you need and how it relates to the key business functions.FORECASTING TOTAL REVENUETotal amount received from sales calculated by multiplying the price by quantity soldP x Q = TR TOTAL COST Sum of fixed (stay that way no matter) costs and variable (costs that change) costs Fixed costs: costs that do not vary regardless of how many units you produce Variable costs: costs that depend on the numbers of goods and services produced FC + VC = TCBREAK EVEN ANALYSIS Used to determine the level of sales that need to be generated to cover the total cost of production 1700213190500BEQ = FC / (P - VC(p.u))*Break even point is units sold not moneyCASH FLOW PROJECTIONSMost important financial tool available to a business Shows the changes to the cash position brought about by the operating, investing and financial activities of the business Month by month projections of cash inflows and outflows Tells the managers how much cash and capital is needed and when Different from cash flow statement in that one projects into the future while one states what has happened in the past MONITORING AND EVALUATIONS Monitoring: the process of measuring actual performance against planned performanceEvaluating: the process of assessing whether the business has achieved stated goals - has the business achieved goal, if not, where and why not You can monitor and evaluate sales, budgets and profitCORRECTIVE ACTIONIf goals aren’t achieved, something needs to changeAre standards too unrealistic?Have external influences changed?Goals and standards, product, material, management practices, marketing strategies, personnel changes 3.4) CRITICAL ISSUES IN BUSINESS SUCCESS AND FAILURE IMPORTANCE OF A BUSINESS PLAN Helps test viability of the businessAssists business to be proactive rather than reactiveAssists in maintaining the business operation, especially focusing attention on the goals and objectives Indicates the owner’s ability and level of commitment Forces the small business owner to justify his or her plans and actions Identifies the business’ strengths and weaknesses MANAGEMENT - STAFFING AND TEAMSModern definition of management: working with and through other people to achieve business goals in a changing environmentManagers are crucial to the success of the businessBusiness must employ the right peopleStrategies to improve staffing:External recruitment to find the right people to employ Conducting a skills audit Keep a skills inventory Teams can have greater benefits than individual work Development and training of team leaders and team members IDENTIFYING AND SUSTAINING COMPETITIVE ADVANTAGERefers to the strategies used by a business to gain an ‘edge’ over its competitionStrategy 1 - Price/cost strategy Leading on costs - lower prices Efficiency of operation - streamlining production processLow cost - finding the cheapest labour to do the work in your business Economies of scale - reducing the costs of input by increasing the level of output Technology - replacing expensive workers with cheaper machines Strategy 2 - Differentiation Offering something not already offered by rivals High product quality Innovative design Positive brand image Top quality service Evaluating long term successSustaining the competitive advantage is crucial for long term success A business can protect itself by: Research + development Intellectual property rights (patent, trademark) Exclusive contracts with suppliersLobbying government to limit foreign competition Dynamic management to stay ahead of competition AVOIDING OVEREXTENSION OF RESOURCES Excessive expenditure at startup that is financed through debt is dangerous. Strategies to avoid financial overextension Leasing instead of purchasing Planning and forecasting Raise capital instead of borrowing Start small and then growStrategies to avoid stock and employee overextension Appropriate inventory management systems Use technology instead of workers; outsourcing USING TECHNOLOGY Leading edge technology: newness means problems can arise from choosing wrong product or applicationEstablished technology: cost, performance and servicing of technology is readily available (eg: internet usage)ECONOMIC CONDITIONSBusinesses must be able to respond to changes in economic conditions and also be aware of potential changes Can place businesses and entrepreneurs at economic risk If change is not managed, the business can fail ................
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