Topic 2 Business management - aceh.b-cdn.net
Business Studies NotesTopic 1: Nature of business Role of businessThe nature of a business Producing Goods and Services Business- An organisation that produces and provides goods and services to consumers, satisfying customers wants and needs in exchange/aim for a profit. ?A Business; Provides our community with a ride range of goods and services Provides employment and income for employees Provides tax for the government to spend on communal wants and needs for our society Creates wealth for our country Assists in the development and use of new technology Encourages research and development of new products Improves our quality of life Stimulates investment which leads to economic growth Increases our GDP Develops skills in our workforce Encourages competition which results in cheaper products ?What is a 'good'?A good in tangible, meaning you can physically touch the product E.g. A chocolate ?What is a 'service'? A service is intangible, meaning it is unable to be touched and does not have a physical presence E.g. A hairdresser ?What is Production? Transformation of raw materials into a finished or semi-finished (intermediary product) that is sold to consumers for a profit ?Stages of Production; Inputs Idea, design, raw material, capital Transformation Process Factory/manufactures, machines, labour Outputs Finished product, sold to consumers (retail or wholesale) Value Added At each stage of production, there is an increase in value as it passes through the process. At each stage of production, the business needs to make a profit Profit, employment, incomes, choice, innovation, entrepreneurship and risk, wealth and quality of life Profit Profit is what remains after all business expenses have been deducted from the businesses sales revenue A business receives money from its customers in exchange for products. if the business’ sales revenue is greater than its operating expenses, it has earned a profit SALES – EXPENSES = PROFIT GROSS PROFIT = SALES – COST OF GOODS SOLD NET PROFIT = GROSS PRFOIT – EXPENSES It provides a return on investment It’s essential for success It provides wealth for the owner Profit provides tax income for the government Employment To be able to purchase products, consumers need money, they usually earn that money by working at jobs provided by businesses. The number of employees hired by a business will depend on the nature of the products and the number of customers who wish to purchase the products. Generally, the more that is sold, the more employees a business will hire. The SME (small-medium enterprise) sector is a major source of employment in Australia, accounting for 70% of all private (non-government) sector employment Incomes An important function of a business is to provide income Income is the amount of money received for providing a labour Employees provide their labour in return for either a; WAGE: Money received on an hourly/weekly basis SALARY: Fixed amount of money paid on regular basis to a permanent employee A business receives money from the sale of its products (sales revenue), expenses are then deducted and the amount that remains is the business’ profit, this then becomes the business’ income Usually the company’s profit is dived among shareholders (public company), this type of income is then called a dividend Businesses generate income for; Employees (wages and salaries) Business owners (profit) Shareholders (dividends) Choice In our society, consumers have freedom of choice and the opportunity to purchase a variety of products and competitive prices Freedom of choice exists when consumers can shop and select from a range of products 780415-1065974500Innovation Innovation is either creating a new product, service or process, or significantly improving an existing one Research and development leads to innovation Entrepreneurship and Risk A person who sets up a business, taking on financial risks in the hope of a profit They are prepared to take the risk of starting and operating a business venture If a business fails, its owner may lose all or part of the money he or she has put into it Entrepreneurs innovate new products and business ideas acceptable to the public Wealth Business is a major creator of wealth within the Australian economy The more that is produced the more wealth is generated within the Australian economy Profit is redistributed to employees, governments, lenders, owners/shareholders and the business itself Quality of Life Businesses produce a cast range of products that enable us to satisfy many and varied wants, which result to higher standard of living Quality of life refers to the wellbeing of an individual, and is a combination of material and non-material benefits Businesses improve our quality of life by; Providing goods and services Providing job skills and income Support government tax which provides community with basic facilities Types of businessesClassification of businessLegal structure- sole trader, partnership, private company, public company, government enterprise CLASSIFICATION BY LEGAL STRUCTURE There are TWO types of legal structures; UNINCORPORATED BUSINESSES INCORPORATED BUSINESSES Owner and business are one The owner’s assets are linked to the business assets Owner has unlimited liability- if the owner goes bankrupt, the creditors can take the owners personal assets and sell them to receive money for debt EXAMPLES: Sole Trader and Partnerships The business owner and the business are separate entities The business assets and owner’s personal assets are separate Incorporated businesses have limited liability- owners can only lose what they have invested in the business Business is its own entity- it can be sued/it can sign contracts etc. Owners are called shareholders (part owner of a business) EXAMPLES: Private Companies (Pty Ltd) and Public Companies (Ltd) SOLE TRADER Business that is owned and operated by only one person An UNINCOPORATED business entity Owner may employ people to work in the business Owner provides finance, makes decisions and takes responsibility for operation of business NOT regarded as a separate legal entity; THE OWNER AND BUSINESS IS REGARDED AS THE SAME (e.g. business is sued owner is sued) UNLIMITED LIABILITY- Business owner is personally responsible for all the debts of the business, creditors can sell owners assets to receive money for debt PARTNERSHIP Legal business structure that is owned and operated between 2 and 20 people with the aim of making a profit An UNINCOPORATED business entity The owner and the business are regarded as the same Partners in business are subject to UNLIMITED LIABILITY The partnership can be made verbally or in writing or by implication PRIVATE COMPANY (Pty Ltd)(proprietary company) An incorporated business and usually has between 1 and 50 private shareholders Must have words ‘proprietary limited’ (Pty Ltd) after its name Investments offered to those people the business wishes to have as part (family, friends, etc.) LIMITED LIABILITY- Share holders and business are separate entity’s. They can only lose amount they invested into the business Private company has to have director Has to pay 28.5% of flat tax PUBLIC COMPANY (Ltd) A company whose shares are traded freely on stock exchange. 5 to unlimited shareholders Investors are the general public (>18 years of age) General public may buy and sell shares in those companies LIMITED LIABILITY Shares for the company are listed on the Australian Securities Exchange Must have the word ‘limited’ or ‘Ltd’ after its name Has to pay 30% of flat tax GOVERNMENT ENTERPRISES Government-owned and operated businesses that provide essential community services Owned and operated by all levels of government E.g. NSW trains, Medibank Private, Australian Post Often referred as public sector businesses Due to privatisation some government enterprises have become public companies Industry- primary, secondary, tertiary, quaternary, quinary CLASSIFICATION BY INDUSTRY SECTOR PRIMARY INDUSTRY Industries that exploit natural resources (grown, dug or caught) and produce raw materials e.g. cotton, fruit, gold, coal, fish, prawns, birds SECONDARY INDUSTRY Industries that process raw materials into a finished or semi-finished product e.g. thread, flour, fruitcake, bread, furniture, jewellery TERTIARY INDUSTRY Products that are sold to retailers, that are then sold to consumers (industries that distribute foods and provide services) QUATERNARY INDUSTRY Industries that provide information based services e.g. journalism, teaching, banking QUINARY INDSUTRY Industries that provide household services e.g. carpet cleaners, childcare, restaurant 1087822-76600Local, national, global CLASSIFICATION BY GEOGRAPHICAL SPREAD THERE ARE 3 GEOGRAPHICAL LOCATIONS; LOCAL Has a very restricted geographical spread; it serves the surrounding area Local business is very restricted Serves a suburb Personal relationship with customers Majority of local businesses are SME E.g. local chemist NATIONAL Operates within just one country Operates in one country Well known by most Australian’s Operates in all Australian states E.g. Commonwealth Bank GLOBAL (transnational/multinations) Large company that has branches in many different countries Commonly known as a transnational business Has offices in many countries around the world Head office is based in their home country E.g. McDonalds Size- small to medium enterprises (SMEs), large CLASSIFICATION BY SIZE CHARACTERISTICS SMALL MEDIUM LARGE Business type Corner store Local mechanic Hairdressing salon Services club Motel/hotel Engineering factory Woolworths Qantas National Australia Bank Number of employees Fewer than 20 employees 20-199 employees 200 or more employees Type of ownership Independently owned and operated by usually one or two people Owned and operated by a few people and/or private shareholders Owned usually by thousands of shareholders Most common legal structure Sole trader Partnership Partnership Private company Public company Decision making Owner responsible for majority of decisions; simple and quick implementation of decisions Owner responsible for majority of decisions Complex decision making, due to division of responsibilities and layers of management Sources of finance Equity finance (owner own savings/funds raised by own owner)Debt finance (obtained from financial institutions; loan) – difficulty in accessing loans Owners/partners own savings or a loan and/or private shareholders Equity and debt finance Many sources including cash reserves, retained profit, sale of shares, and loans from domestic and overseas institutions Market share Small, usually local area, not dominant in the industry Medium due to dominance within a geographic region, some market dominance Large, especially for multinational corporations that dominate the markets of many countries Factors influencing choice of legal structure Size, ownership, finance SIZE Relationship between the size of a business and the most important legal structure OWNERSHIP Legal structure of the business FINANCE when a business expands it will require injections of finance Small, medium (SMEs) Sole trader,Partnership Private company Limited availability of debt finance Mainly equity finance (own capital Large Private Company Public company External equity finance- shareholders need for large fund injection Debt finance easier to obtain Influences in the business environment Business environmentBusinesses always dealing with an ever-changing environment in which they operate all business decisions interrelateChanges in larger business environment has direct influences on other firms. A successful business manages understands the environment in which business operates enables to respond resiliently to prepare for the impact such changes will have on business operations.E.g interest rates increase businesses won’t be able to purchase new equipment311594531496000E.g alternatively, reduced competition in market will result to businesses increasing their individual market share & profitability.Business environment: surrounding conditions in which the business operates, subdivided 2 broad categoriesExternal environments: factors over which the business has little control E.g government policy, technology, economic conditions, social attitudesInternal environment: factors in which business maintains some degree of controlE.g products, location, resources, management, business cultureExternal Influences351987131708400Changes in external environment make it necessary for managers to make adjustment to business operation. Perhaps introduction of new gov. regulations, requiring the business to make adjustmentsE.g carbon reduction scheme result in organisations paying for carbon pollution they generate in order to reduce carbon pollution eventually creating more sustainable economyEconomic influencesEconomy: is a system where governments, businesses, consumers and other relevant associations interact to satisfy the needs of societyBusiness can be regarded as the engine that drives production, employment, price changes and our standard of livingThe economic cycle refers to the changes in consumer and business spending over a period of time, influencingThe level of employment and investment in an economyThe profitability of businessThe amount of goods and services producesThe fluctuations are measured using the real domestic product2512103233200057152603500a) Employment:If employees have security they are likely to spend more of their income on consumer goods. spending encourages business to employ more labour so it can produce more goods and services.An increase in consumer demand is often the main reason why goods and services are provided. This is known as economic growth. b) Inflation: When prices rise, the cost of living increases. To compensate for this, employees will seek higher wages from their employer. Higher wages increase the costs of production. In response, businesses may need to reduce the size of their workforce, and the remaining employees may need to accept a greater workload.27305035122Recession/trough: -falling production of G&S-falling levels of consumption and investment-rising unemployment-falling income levels-falling quality of life-low interest ratesExpansion:-phase of business cycle when economy moves from trough to peak -period when business activity surges and gross domestic product expands until it reaches a peak-unemployment is minimum as people start to regain work -inflation slowly rising -interest is slowly rising-also known as “economic recovery”Book/peak:-increasing production of G&S-rising levels of consumption and investment -falling unemployment-rising income levels-rising quality of life-high interest ratesContraction-phase of the business cycle in which the economy as whole is in decline-occurs after business cycle peaks but before it becomes a trough -can be source of economic hardship; as the economy plunges into a contraction, people start losing their jobs-difficult to assess just how long a downtrend will continue before it reverses-unemployment is increasing as people are starting to lose their work -Inflation slowly dropping-Interest slowly dropping Depression:-sustained and severe recession-extreme fall in economic activity lasting for a number of years, whereas depression normal lasting period of months-unemployment extremely high-interest rates very low-inflation very low00Recession/trough: -falling production of G&S-falling levels of consumption and investment-rising unemployment-falling income levels-falling quality of life-low interest ratesExpansion:-phase of business cycle when economy moves from trough to peak -period when business activity surges and gross domestic product expands until it reaches a peak-unemployment is minimum as people start to regain work -inflation slowly rising -interest is slowly rising-also known as “economic recovery”Book/peak:-increasing production of G&S-rising levels of consumption and investment -falling unemployment-rising income levels-rising quality of life-high interest ratesContraction-phase of the business cycle in which the economy as whole is in decline-occurs after business cycle peaks but before it becomes a trough -can be source of economic hardship; as the economy plunges into a contraction, people start losing their jobs-difficult to assess just how long a downtrend will continue before it reverses-unemployment is increasing as people are starting to lose their work -Inflation slowly dropping-Interest slowly dropping Depression:-sustained and severe recession-extreme fall in economic activity lasting for a number of years, whereas depression normal lasting period of months-unemployment extremely high-interest rates very low-inflation very lowState of economy has great impact on business policies implemented by the government are aimed at keeping the economy growing steadily, without putting pressure on inflation (prices) & wages.E.g Continuous growth/development of china’s economy has benefited Australian businesses in relation to exports business’ supplying raw materials (coal) and finished product.When economic problems appear: consumers cautious how money is spent overall confidence begins to fall reduced spending impacts business’, profits will fall, and cost cutting takes place retrenches workersFinancial influencesBusiness environment in which market competitors are controlled more by market forces rather than by government regulation. In the 1980s financial institutions were permitted to offer a wider range of new services, allowing commercial banks to compete more effectively with nonbank financial companies and more overseas financial institutions.Due to globalisation of the world's financial markets, it is no longer necessary for many large Australian businesses to use only domestic financial institutions for the raising of finance.Deregulation: Is the removal of government regulation from industry with the aim of increasing efficiency and improving competition. Geographic influencesAustralia’s demographic location within the Asia-Pacific region and the economic growth in a number of Asian nations have provided opportunities for business expansion, sales and profitDemographic factors: changes likely to have a profound effect on business activity. Study of particular features of population; population size, age, sex, income, cultural backgroundChanges in these factors can lead to changes in demand levels and the nature of products and services. Major demographic issue is changes in age structure of our population large section of workforce retire skill shortages as well as increase in demand for a age-related services e.g health and aged careGlobalisation: Another essential geographical influence world is not limited by national borders globalization assisted by technological revolution in communications and computers, is radically altering the shape of world markets & nature of business Increased competitionExpanded marketsGreater customer expectationEconomies of scaleLocational flexibilityCheaper materialsDiversificationAccess to better labourSocial influencesRapid identification to tastes in fashion/culture result sales, profit opportunities, business growthAwareness of change and quick response is detrimental or business’ may deteriorate.Consumer demand : environmental sustainability & family friendly workplacesLegal influencesBusinesses of small to medium characteristics face similar regulations to those facing large businesses.Time consuming and costlybusinesses want a removal of some of these regulationsNew statues introduced major impact on business conduct:Legislation includes; laws on taxationIndustrial relationsOccupational health and safetyEqual employment opportunityAnti-discrimination and protection of the environment,e.g Trade Practices Act 1974 (Cwlth), administered by the Australian Competition and Consumer Commission (ACCC), ACCC is an independent statutory authority, dealing with competition and consumer protection laws.Political influencesPolitical change can lead to uncertainty to business confidence. eg labour or liberalThese include:Labour market reforms: Decentralisation of wage determination Taxations – Good and services tax GST (10% on the supply of goods)Social reforms – paid parental leaveEnvironmental management- emissions trading scheme (etc)8566155651500Institutional influencesINSTITUTION: Organisations in our society who play a significant role in influencing societal issues e.g. government, regulation bodies, parliament, education, churches etc. 3 main institutional influences on a business; GOVERNMENT REGULATORY BODIES OTHER Federal State Local EPA NSW fair trading ASIC ACCC Employer associations Trade and industry associations ASX GOVERNMENT FEDERAL STATE LOCAL Obligations include; Payment of taxes for employees and for businesses with company tax and GST Provision of employee superannuation Observance of customs regulations Abiding by relevant legislation that would affect business operations Obligations include; Provision of employee entitlements (work compensation, work health and safety requirements, award rates and entitlements Payment of payroll taxes Abiding by relevant state legislation e.g. health, employment Abiding by pollution controls Have control over following business activities; Approving new development and alteration Fire regulations Parking regulations Size, location and shape of business signs REGULATORY BODIES Set up to monitor and review actions of businesses and consumers in relation to certain issues and the appropriate legislation. This is to ensure that businesses conduct themselves fairly in relation to the consumer, community and competitors OTHER INSTITUTIONAL INFLUENCES Affect how businesses operate in Australia EXAMPLES TRADE UNIONS Raise new demands on behalf of employees e.g. negotiate wages and working conditions and help settle disputes EMPLOYER ASSOCIATIONS Represents interest of employers e.g. formulate policies in line with union activities and promote industry, trade and commerce Technological influencesNew communications tech enables information to be rapidly transmitted to an ever-increasing number of customers -> speed makes communication instantaneousBusiness wanting to be locally, nationally , globally competitive must adopt appropriate technology develop sustainable competitive advantageE.g ride-sharing company uber transformed taxi industry through innovate use of tech.Tech could make 40% of aus jobs redundant in 10-15 petitive situation influencesCompetition between businesses to win customer loyalty can benefit consumer and the business It can provide consumer with more choices, a range of qualities and variety of prices Competition can stimulate greater efficiency in production and usually results in better quality product at lowest cost to business Each business aims to have a sustainable competitive advantage over its competition in order to capture a larger portion of the market 57158981900EASY OF ENTRYMARKETING STRATEGIESAbility of a person to establish a business within a particular industryEase of entry is determined by type of market concentration DIFFICULT: When market is saturated and when there is small amount of demand for product EASY: If shortage of business in area, if there is niche market or you have new innovative productType of marketing will depend on; Size of market: number of existing and potential customers Size of business: large business invest in range of marketing activities small business simple marketing Number of competitors: more competitors greater need for marketing Nature of product: type of product and whether it requires extensive marketing e.g. necessities earphonesFOREIGN COMPETITIONNUMBER OF COMPETITIONForeign competition can take away from local businesses getting into the market Takes market share away from other businesses e.g. Aldi vs. Coles Foreign businesses can produce products cheaper because of labourMONOPOLY One major business dominates in the market e.g. city rail OLIGOPOLY Only a few businesses in the market that dominate e.g. Coles, Woollies, Aldi, IGA PERFECT COMPEITION Large number of small businesses competing in the market. All have a small share e.g. fruit & veg growers MarketsHOW HAVE MARKETS CHANGED OVER TIME-: Globalisation has increased- introduction of free trade and movement of goods and services E-commerce has helped with globalisation process; reduction in retail trade Financial markets have become more global. After 1983, Australia deregulated Australian financial market, allowing foreign banks in Australia e.g. ING, HSBC, ARAB BANKDifferent types of markets can include:financial/capital marketslabour marketsconsumer marketsOther external influences include changes in financial, labour and consumer markets.Type of market concentrationFeatures/characteristicsExamplesMonopoly Complete concentration by one firm in the industryFirm has the ability to decide the price of the good or service because there are no competitors (i.e. the firm is the price maker)Customer has no influence over the price charged. i.e. the customer is the price taker.Australia PostSydney TrainsOligopoly Consists of a small number of larger firms that dominate the marketAre able to stay in control of the market because they spend large amounts of money on advertising and this enables them to restrict the entry of new competitors to the market.BanksOil companiesCar ManufacturersMonopolistic competition Most common type of market in AustraliaLarge number of buyers and sellersThe goods and services sold are differentiated from competitors using methods such as packaging, advertising, brand names and quality.Clothing manufacturersLocal retailingPerfect competition Large number of small businesses that sell products that are the same or similarVery little advertising is used to increase market shareThe only way to achieve market share is through price competition.Fruit and vegetable growers Internal influences on businessRelates to specific factors within the business that will affect its operationsThese factors can be identified and adjusted via feedback and evaluation processes that provide the business within information for change Product influencesAffect a range of internal structures and operations within the business, main product influences:The type and range of goods and services produced.Type: If the goods are physically large or require many raw material inputs, there will need to be structures in place to organise and monitor the processes involved in production.Range; 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.the type of business (service, manufacturer or retailer) will internally influence the structure of the business.Internally, a service provider will be structured differently to a manufacturer or retailer, and the influences will vary. Some goods or services require extensive preparation, while others are merely deliverers.The size of the business will be based on the range and type of goods and services produced, the level of technology utilised, and the volume of goods and services produced.Location influencesPrime location = Customer convenience + VisibilityLocation can make the difference between success and failure before doors even openLocation is very important as it affects many aspects of how a business operates, such as total sales and how expensive it is to runParticularly true for retail and service-oriented businesses which need a constant flow of people walking past the store- the passing trade- and thus need to be located in a shopping centre, or main streetLocating next to complementary businesses is beneficial as more customers will be attracted to a single site demonstrated by the clustering of retail outletsBad location is a liability that adversely affects sales and profitsThe factors to consider when selecting a location are:VisibilityIf a business is not visible, customers may not make the effort to find the business , hence optimum customer flow will not be achieved.Business wanting high visibility would locate in a prime shopping area such as a shopping center or main street, whereas companies concerned with manufacturing wouldn’t consider this to be a crucial consideration choose low-visibility location & advertise location to appropriate customers.e.g mechanics, car yards, equipment hire, even solicitors and doctors.CostLeasing or purchasing a central location in a busy shopping center will be far more expensive than a location with lower levels of passing customer trafficBusiness’ such as retail, cafes, fast food outlets rely on maximum exposure and passing customer traffic, so this factor is unavoidableLocation may not be a key consideration if the business does not rely on passing customer trafficGiven rapid technological advancements businesses don’t consider their location as important at all ability to communicate with their customer base through the internet fastest growing avenue for consumer salesE.g telemarketers/businesses that sell their products via internetProximity to suppliersMain issue is size and quanitity of raw materials needed for production/size of the finished goods to be supplied. Logging companys and steel manufacturers are reliant on bulky raw materials/finished goods, have significant transport costs. Hence will locate closer to supplier in an attempt to reduce costsFlorists, bakeries, shore retailers don’t transport bulky goods proximity to suppliers is not a major consideration.Proximity to customersImportance of factor dependent on type of business being establishedRetail must locate close to customer base convenienceEasy access parkingShopping sentencesManufacturing/wholesaling business more cost effective to transport product to customer Other location cost factors could include leasing costs in ‘prime shopping centre areas’, incentives offered by local councils and general overheads such as rates or utilitiesProximity to support servicesSupport services are the activities needed to assist the core operations or prime function of a business. eg accountants, solicitors and government agencies Small businesses traditionally tend to use external services medium-sized and larger businesses often provide their own support services internallyAdvancements in technology have enabled all businesses to access a range of support services through the use of computers FaxesMobile phonesPhone and video conferencesEmailResource influencesThe four main resources available to a business are:Human resources: employees of the business, it’s most important assetInformation resources: knowledge and data required by the business example market research, sales reports, economic forecasts, technical material and legal advicePhysical resources: include equipment, machinery, buildings, raw materialsFinancial resources: funds the business utilises to meet its obligations to various creditorsCreditors: individuals/businesses who are owed money e.g suppliers, employeesA knowledgeable and efficient manager will gather, select and coordinate the appropriate resources from a complex array.Skills/expertise of management team in coordinating the business’s resources will largely determine whether objectives of business are achieved & profit is made Management influencesToday business structures are flat due to significant pressures on businesses from increased competition due to forces of globalization Collaborative workplaces allow for a more cohesive and inclusive business culture27084042418000The management style the business adopts depends on size and main activity Example retail, manufacturing or service.Such businesses can adapt quickly to meet changing consumer needs and market conditions because there are fewer managers who need to approve decisions Businesses that adopt a flatter organisational structure reduce the number of levels of management, giving greater responsibility to individuals in the businessBusiness cultureAll businesses have their own business (corporate) culture – the values, ideas, expectations and beliefs shared by the staff and managers.The style or character of a business is consequently reflected in its cultureThe business culture can be revealed officially:in the policies, goals or slogans of a businessUnofficially:Unwritten or informal rules that guide how individuals in the business behave such as staff dress code, language staff use and the way that staff treat each other and customers.Having a business culture assists in initiating a change to routine or proceduresResearch has shown businesses with a healthy, well developed, strong culture are more likely to be successful Business culture: refers to the values, ideas, expectations and beliefs shared by members of the organisation Each business develops its own particular way of doing things reflected in its culture Culture is evident in organisational structure Business culture can; Be revealed in policies, goals or slogans of business Seen in the unwritten or informal rules that guide employees to behave Way staff dress Language staff use Way staff treat each other and customers Elements of business culture; VALUES Businesses basic beliefs shared among employees SYMBOLS Consist of events/objects that are used to represent something the business believes is important RITUALS Routine behaviour patterns in businesses everyday life HEROES Businesses successful employees who reflect its values act as example for others Management must ensure staff members are given sufficient training to reflect values of business Senior management must role model for staff in those important values Democratic leadership style Members of group take participative role in decision making process Autocratic leadership style Individual takes control over all decisions and takes little input from group members Culture and organisational structuresA business’ culture evident in its organisational structureFormal business with an emphasis on bureaucracy, line authority, hierarchical management structures, and defined job titles and areas of responsibility often have prevailing cultures that emphasis accountability, communication and corporationTend to conform to a culture of loyalty and respect for superiorsCulture that values and expects defined career pathways may be evident in formal organisationsLess formal businesses flatter management structures, less departmentalization, fewer defined spans of control exhibit highly flexible, innovative, risk-taking cultures.E.g Apple Inc. values innovation. Steve Jobs, created the atmosphere of innovation allowed company to successfully introduce new products ac, ipod, iphone, ipadManagement’s role in developing a business cultureManagement takes place once a positive business culture is established and needs to be kept aliveEnsures that staff members are given sufficient training to reflect the values of the businessFor a successful and sustainable change in business culture, vital senior management must continually reinforce what the values are by communicating with staff, rewarding employees who display the appropriate values.2931870-12900StakeholdersStakeholders: the individuals and groups that interact in some way with the business and have vested interest in its activitiesBusinesses are expected to practice ethical management and do the ‘right’ thing in the interests of all stakeholdersstrive to be recognized as being good corporate citizens & that they increase success when the goals they purse align with the interests and expectations of their main stakeholders.Must be aware of & take into account the needs of the stakeholderInternal stakeholder: has direct influence on a business e.g employees, shareholdersExternal shareholders: still have interest in the business, but don’t have direct influence in the business ShareholdersPartial owners as they purchase shares in a companyAnnual general meeting: shareholders voice concerns, ask the Board of Directors questions hence have direct influence on businessCompanies need to ensure they maximise the return on their shareholders investment. Shareholders want the company they’ve invested in to be profitable as they receive a proportion of the profits (dividends)They also make capital gain if the value of an organisation’s shares increasesCapital gain: A profit from the sale of property or an investmentShareholders desire immediate returns & profits hence company feels greater pressure to generate revenue quicklyHence influence manager’s decisions affect grown/long-term expansion plans of company.ManagersResponsibility of running a profitable or successful organisation. Managers will influence organisational policies, procedures and employees’ productivity Ethical and socially responsible activities should lead to increased sales.EmployeesEmployees influence organisation as their skill/commitment to the process of manufacturing a product, affects the quality of the product the organisation anisation treat them ethically (provide for their needs) more inclined to put effort into work tasks & more motivated to meet customer expectations.CustomersTo ensure future viability, business should consider the needs of their customersConsumer is a powerful stakeholder in the external operating environment they are astute, better educated, informed increasingly prepared to seek compensation if unfairly treated/ purchased a product that did not perform as promise.Demand for ‘clean, green and safe’ productse.g consumer backlash against manufacture of sports shoes that was perceived to be exploiting cheap labour in a developing countrySocietycommunity increasingly expect businesses to show environmental concern using valuable land , showing disregard for carbon emissions or future welfare through their own employment within organisations.Therefore socially responsible businesses will participate in a range of community projects/activities.E.g NAB recognised as one of Australia’s best performing companies in terms of ethical business strategies. aims ‘to make a positive and sustainable impact on the lives of customers, people, shareholders, communities and environment’s in which they operate.Spent $7.3 billion in financing activities to address climate change & $49 million in community investment.EnvironmentPressure for businesses to adopt ecologically sustainable operating practicesOccurs when economic growth meets the needs of present population without endangering the ability of future generations to meet their needsThrough communication/training, businesses should ensure all employees/contractors are environmentally aware Business growth and declineThe business life cycle refers to the stages of growth and development a business can experienceThe stages are: establishment, growth, maturity and post-maturity’In each stage, a business is confronted with new challenges and presented with different opportunitiesBusiness life cycle Refers to the stages of growth and development a business can experience 4 MAIN STAGES ESTABLISHMENT GROWTH MATURTIY POST-MATURITY RENEWAL STEADY STATE DECLINE CESSATION24875-381000Stages of the business life cycle and responding to challenges at each stageEstablishment stage Birth of business, needs to establish a solid foundation The main challenge at the establishment stage is to get the business on a solid foundation by generating enough sales to create a positive cash flow, build up a customer base/relationship and succeed in sales and profits Number of challenges need to be responded at this stage detailed planning can help greatly reduce the risk of failing Slow sales because of lack of customers Business may run at a loss High costs in establishing the business such as purchasing equipment, raw materials and leasing the building Owner has to hire and train staff Needs to establish a relationship with their customers and build up a customer base Cash flows maybe erratic, more money maybe flowing out of the business than flowing in Mistakes will be made because of inefficiencies and lack of experience High failure rate, up to 33% of businesses fail within the first year of trading GoalsSurvival, and setting a firm foundations for figure growth SalesNormally begin slowly and are somewhat erratic Marketing Highlight product advantages by accentuating the products strength Profit Usually slow to begin with, occasionally a loss Financial management Greatest source of start up capital is from owners personal savings Costs Very high fixed costs (premises, equipment, raw materials and insurance) Customers Need to develop positive relationship with customers Employees Normally only a few. Owner establish work routines and building up relationships Growth stage Time of accelerating growth. Sales increase and the cash flow is normally positive Customer base has been established with regular clients accounting for a large percentage of total sales Business undertakes development of new products to satisfy different market segments Sales will start to increase New products may be introduced Business will start to see a profit Business will start to build a reliable customer base Employees will become abler to do their jobs efficiently Costs should start to decrease as the business uses its resources more efficiently Less chance of business failure, but the owner still needs to keep an eye on cash flows Cash flows improve Main problem is that the business may grow too quickly and lose control of business direction Goals To constantly increase the average level of sales, continue growing business Sales Rapid increase, especially in the early stages of the growth phase Marketing Development of new products to satisfy market niches; price discounts due to lower production costs Profit Should increase due to rising sales and falling production costs Financial management Use of sophisticates, computerised accounting procedures and systems Costs Production of costs tend to decrease due to economics od scale Customers Concentration on satisfying existing customer base, whilst tapping into new market (domestic and overseas) Employees Increased specialisation of workforce requiring formal and informal training Growth stageTime of accelerating growth: sales increase, cash flow usually positiveDuring the growth stage the business has increased sales, a regular customer base, develops new products and improves its cash flowWith growth comes complexity and responsibility, which creates the need for long-term planning3479913-5152200Business growth & expansion can occur through integration with other businesses through a merger or acquisitionMerger: when the owners of two separate businesses agree to combine their resources and form a new organisation. Acquisition (takeover) occurs when one business takes control of another business by purchasing a controlling interest in it Merger/acquisitions are effective ways a company quickly increasing its range of products, eliminating competition in the marketplaceSeveral different types of mergers or acquisitions:Vertical integration: occurs when a business expands at different but related levels in the production and marketing of a product333057554500Backward vertical integration: When a business integrates with one of its suppliers e.g bakery acquiring a wheat farmForward vertical integration: when a business integrates with a firm it sells to e.g the bakery could merge with a supermarket chain that sells its breadHorizontal integration: when a business acquires or merges with another firm that makes/sells similar products e.g if a bakery merges with/acquired by another bakery.Maturity stage This is when the business has stabilised and is making steady sales and profits Requires a more professional approach to planningRate of growth slows and eventually flattens out; an early warning sign of possible declineSense of complacency often envelops the businessManagers may need to restructure/reorganize the businessDifficulty is introducing changes without destroying entrepreneurial spirit that laid the foundation for the business’s successSTABLE Cash flows are steady Good relationship with customers; reliability and loyalty Stabilized costs AREAS OF CONCERN Competition becomes more aggressive Obsolete products (products go out of date) Technology New products in the market Need to look at external influences Changes in economy, democratic, laws, competition, technology etc. Post-maturity stage Once a business reaches post-maturity, there are 3 possible outcomes; RENEWAL Increase in sales/profits; new products developed and expansion of business through merger/takeover MERGER: Two businesses join together TAKEOVER: One business buys out another business STEADY-STATE Continues to operate at the level it has been during the maturity phase DECLINE/CESSATION Business is losing business because; Competition more aggressive Failure to respond to external influences Declining sales/profits Factors that can contribute to business declineTwo main causes of business decline:Lack of management expertise : business fails to prepare business plan as the environment changes if owner does not fulfil roles/characteristics of a manager business decline as they are not fulfilling their important role Lack of sufficient money: undercapitalization. Many small businesses start out on a ‘shoestring’ budget without sufficient capital & positive cash flow business unable to purchase stock and materials. Inevitably results in lost sales and falling profitsUndercapitalisaiton: occurs when there is a lack of sufficient funds to operate a business normallyPoor location Poor marketing Obsolete product Lack of planning Lack of experiences Uncontrolled growth Having too little/much of product Poor financial management Voluntary and involuntary cessation - liquidation393974724701500Business may cease operating, voluntarily or involuntarily. The difference between the two depends on who instigates the process:Voluntary cessationA business could cease operations and voluntarily wind up its affairsAll assets owned by the business are soldStops operating as owner may wish to retire, wan a change of lifestyle or died (only in case of sole trader)Increasing debts and a negative cash flow owner realizes business underperforming.To prevent accumulation of debt owner will need to cease operating the business of their own accord; that is, undergo voluntary cessationVoluntary cessation: occurs when the owner ceases to operate the business of their own accord41300401622500Involuntary cessationOwner is forced to cease trading by the creditors of the business; that is undergo involuntary cessationCreditors: individuals/businesses who are owed money e.g suppliers, employeesInvoluntary cessation: occurs when the owner is forced to cease trading by the creditors of the businessAs a business continues its decline, creditors become worried about $$ they are owed and force the business owner into winding up the businessBankruptcyBankruptcy: is a declaration that a business, or person, is unable to pay their debtsSole Traders and partnerships could end up being declared bankruptCan either be voluntary or involuntary either business owner or a creditor applying to a court for bankruptcy order to be made. Court then appoints a representative to collect any money owed to the business this money (along with money raised from sale of any assets of the business, and some personal assets of the owner), is divided between creditors.Realisation: The process of converting the(se) assets of a business into cash is called Voluntary administrationWhen a company (public/proprietary) is experiencing financial difficulties, it can be placed in voluntary administrationVoluntary administration: occurs when an independent administrator is appointed to operate the business, in hope of trading out of the present financial problems. Administrator’s main tasks is to bring the business and its creditors together, examine the financial affairs of the business. Usually has combined experiences of; receiver, chartered accountant and investigator If successful, the business may resume normal trading if unsuccessful the business goes into liquidationLiquidationIf a company is in financial difficulty it’s shareholders, creditors, court can put company into liquidation.Liquidation: occurs when an independent and suitably qualified person – the liquidator – is appointed to take control of the business, with the intention of selling all the company’s assets in an orderly & fairly way in order to pay the creditors.Once creditors have been paid, any surplus cash is paid to the owners of the companyCompany in liquidation can also be in receivershipReceivership: is where a business has a receiver appointed by creditors or the Courts to take charge of the affairs of the business. Unlike liquidation though the business may not necessarily be wound upMain features of liquidation are that it:Can be regarded as the equivalent of bankruptcy for a company (corporation)Results in the life of a company coming to an end (cessation)Has become insolventInsolvent: occurs when a company is not able to pay its debts as and when they fall dueTwo types of insolvent liquidation:Creditors’ (voluntary) liquidation: most common type of liquidation process can come about in 2 methodsFirst method involves creditors voting for liquidation, following a voluntary administration Second method involves the company’s shareholders agreeing to liquidate the company and appoint a liquidatorCourt (involuntary) liquidation: in this situation court appoint a liquidator to wind up the company usually after an allocation has been made from either a creditor, shareholder, company director, or some circumstances, the Australian Securities and Investments Commission (ASIC)When a company is being liquidated because it is insolvent, the liquidator’s prime responsibility is to the company’s creditors. Liquidator is not required to do any work unless there are enough assets to pay their costs Liquidators main functions are to:Take possession of & realise – convert into cash – the company’s assetsInvestigate & report to creditors about the company’s financial and related business affairsDetermine debts owed by the company and pay the company’s creditorsScrutinize the reason for the company failureReport possible offences by people involved with the company to ASICFinally, to deregister or dissolve the companyIdentify problems that arise for stakeholders when companies go into liquidationEvery year hundreds of aus companies placed into liquidation impacts wider community. Average of 30 – 40 individuals personally affected by one company insolvency Main problems that arise for stakeholders:StakeholderMain problems arising from company liquidationCompany directorsPossible disqualification as a directorPossible loss of personal assets to pay for the company’s debtsPossibility of fine, imprisonmentCreditors (unsecured)May not recover any of the money owedIf there are funds leftover after payment of costs of liquidation and to other priority creditors e.g employees may be possible to receive part payment for the money owed; for example,5 cents for every dollar owedEmployeesLoss of jobsHave the right, if funds left over after payment of liquidator’s fee, to be paid outstanding wages and superannuationShareholdersRank behind the creditors, unlikely to receive any paymentLiquidator can reuest that holders of unpaid or partly paid share in the company pay the outstanding amount on those sharesSociety/economyLoss of production from the liquidated companiesSocial and personal difficulties associated with job lossesLoss of economic confidence9932278281200Bankruptcy Voluntary or forces declaration that a business, sole trader and partnerships are unable to pay their debts Realisation When assets are sold to try and pay a businesses debts Receiver Independent person appointed to try and sort out the financial problems of a business, if this isn’t possible, business will be liquidated Liquidator Occurs when an independent person sells off assets of a company to try and obtain capital to pay creditors Solvent Positive cash flows/ ability to pay debt Insolvent Negative cash flows/ inability to pay bills Creditors Include banks and their suppliers Topic 2 Business management nature of managementIntroductionManaging is an essential skill all need to developIn world of business, management is a fundamental activity, what makes the business functionImportant characteristics of management:Having the ability to analyse information, attend meetings and communicate with a wide range of individuals inside and outside the businessPossessing the skills to manage change effectively Having the vision to see how things could be, rather than just accepting things the way they areProviding leadership through the desire to encourage, motivate, guide employeesUnderstanding roles & responsibilities in order to achieve the goals of the businessTraditional definition of management: is the process of coordinating a business’s resources to achieve its goals The 4 main resources available to a business are:Human resources: Information resources:Physical resources:Financial resources:Therefore a manager is an individual who coordinates the business’s limited resources in order to achieve specific goals.Contemporary definitionIn the past few years there has been a subtle, however significant modification of the meaning of the term management:Contemporary definition of management: views management as the process of working with and through other people to achieve business goals in a changing environment. Crucial to this process is the effective and efficient use of limited resourcesManagement requires:Working with and through others: managers that do not interact and communicate well with employees fail to achieve high levels of commitment from staffAchieving the goals of the business: goals are necessary as without them the business would rapidly loose direction and employees wouldn’t understand the ultimate purpose of their work and managers would not be able to measure performance. Effectiveness measures the degree to which a goal has been achievedGetting the most from the limited resources: Managers need to coordinate resources efficiently to face the problem of limited resources/scarcity. Efficiency compares the resources needed to achieve a goal (the costs) against what was actually achieved (the benefits)Balancing efficiency and effectiveness: Managers balance efficiency and effectiveness of their decisions correct balance between efficiency & effectiveness is the key to achieving a competitive position in today’s challenging business environment Coping with a rapidly changing environment: Successful managers are those who anticipate & adjust to changing circumstancesManagement within the businessObservations made of modern managers’ work patterns suggest that management is a difficult and demanding job and that there is a gap between how individuals view role of a manager and reality, myths and realities of management are outlined: MythRealityThe effective manager is a methodical planner, reflects on what has been achieved, with time to systematically work through problems encountered throughout the dayThe typical manager is constantly interrupted, no more than approximately 10 minutes spent on any one activity. The manager takes on a great deal and has little time for reflectioneffective manager has no regular activities to carry out. It is all a matter of coordinating other people’s responsibilities and then sitting back to watch others do the workAlthough managers’ days are constantly interrupted by trivialities and crises, still have regular duties to perform must interpret & analyse information, attend meetings and communicate regularly with other parts of the businessManagement is a science and, as such, can be reduced to a formula and set of ‘laws’, that if followed, result in goals being achievedManager’s job is more art than science they rely heavily on judgement, past experience, perception and intuition.The features of effective management Effective management is a fundamental activity that makes the business functionManagement is the process of Coordinating a business’s resources to achieve its goalsWorking with and through other people to achieve business goals in a changing environmentWhether goals of a business are achieved, significantly is dependent on the skills and expertise of the management team in coordinating the business’s resourcesPLANNING Setting objectives and deciding on the methods to achieve them ORGANISING Structuring the organisation to translate plans and goals into actions LEADING Process of influencing/motivating individuals to work towards the achievement of the organisation’s objectives CONTROLLING Compares what was intended to happen with what has actually occurred The role of effective management is to assure joint efforts of employees are directed towards achieving the goals of the business producing all G+S demanded by consumers involves combined efforts of many individuals. Combined effort must be effectively coordinated so that the greatest amount of goods and services can be produced for the least cost – effectively.Businesses do more than meets the needs of individuals; they must also meet the needs of all the stakeholders in generalMost important: the ability of these managers to achieve the business’s goalsTo do this effectively a manager must possess a range of skillsSkills of managementManagers employ their skills to achieve success & business goalsSkill: is the ability that comes from the knowledge, practice and talent to do complete a task effectivelyEffective managers are those who:Possess a range of specific management skillshave the ability to employ these skills in a number of different situationsemploy their skills to organize and motivate employs to work effectively towards objectivesThere is an increasing significance in possessing these skills, given the two fundamental changes:Movement from hierarchical structures of many traditional businesses with multiple layers of management, towards ‘flatter’ business structureDevelopment of self-managing work teams:Skills will be required to obtain for the growing trend away from traditional ‘command and control’ from of management towards team-based, consultative management stylesFor a Manager to operate effectively the skills required are:Interpersonal (people) SkillsManagers constantly working with and through other individuals therefore interpersonal (people) skills are essentialInterpersonal (people) skills: are those skills needed to work and communicate with other people and to understand their needs. Which means they:Have ability to relate to individuals, be aware & appreciate their needsdisplaying genuine understandinghave ability to communicate, motivate, lead and inspirecommunicate with peopleSNAPSHOT! Interpersonal skills crucial to the success of management: Self-managementCommunicationSupportivenessMotivationConflict resolutionCommunicationCommunication: is the exchange of information between people; the sending and receiving of messagesA manager communicates with employees and customers in the marketplaceOne of the most difficult challenges for managers is getting employees to understand and want to achieve the business’s goals effective communication conquers this challenge.Effective communication is essential for long-term survival of businessManagers who are effective communicators have ability to share their thoughts & plans & easy to influence othersThey should effectively communicate company’s goals, strategies and direction in which wanting to headOnly 40% of employees report they are well informed of their company’s goals, strategies and tacticsMiscommunicationOwing to complex nature of achieving effective communication misunderstandings, mistakes and unforeseen barriers often lead to false messages or no messages being receivedMiscommunication can have disastrous consequences in a businessImportance of nonverbal communicationImportant for managers to be aware of their power of non-verbal communication and body language indefinitely convey more powerful message then spoken/written communication, hence can result in contradictory messages being intentionally or unintentionally givenNon-verbal communication: is any message that is not written or spokenConsists of body language (posture, facial expressions, placement of limbs and proximity to others) Body language: the use of gestures, facial expressions and posture to communicateSmile, glance, stare, body movement – all communicate a messageStrategic thinking skillsStrategic thinking: allows a manager to see the business as a whole and to take the broad, long-term viewInvolves thinking about a business’s future direction and what future goals the business wants to achieveCan be learned through practiceWhen a manager is able to think strategically, they then:Visualise how work teams and individuals interrelateUnderstand the effect of any action on the businessGain insights into an uncertain futureSee the business in the context of events and trends, and identify opportunities or threatsVision skillsVision: the clear shared sense of direction that allows people to attain a common goal Arguably the most essential contribution of management, as without it no sense of cooperation and commitment, which makes achieving goals impossibleMost effective way for managers to share their vision is through the organisation’s goals having knowledge of where the business is headed and what it is trying to achieve helps employees understand where the manager wishes to take the businessTo share their vision and inspire other, managers will have to display effective leadership qualitiesLeadership: is the ability to influence people to set and achieve specific goals Manager will use his/her leadership abilities to act as a bridge on which to support team members as they cross from the existing ideas into new and unfamiliar territory.Problem solving skillsProblem solving: means finding then implementing a course for action to correct an unworkable situation.There are 6 steps in a typical problem-solving process Clearly identify what the problem is and what caused it (may be industrial dispute/need to develop more socially responsible organisationAll facts and info relevant to problem must be gathered Simply talking to people or completing questionnaires or surveysDevelop alternative solutions problem can be solved with open mindAnalyse alternatives disadvantages and advantagesChoose one alternative, implement it Subsequently evaluate the solutionDecision-making skillsTask of solving problems require making some decisionsDecision making: process of identifying the options available and then choosing a specific course of action to solve a specific problemEffective decision making involves:being able to make decisions within a particular time frame requires a manager to adequately assess the risk involved if the decision is implementedFlexibility and adaptability to change skillshow managers perceive and react to changes in the Australian business environment over the next 10-20 years will have dramatic consequences for their businessregardless of level of management a successful manager;are those who anticipate and adjust to changing circumstancesmust be flexible, adaptable and proactive rather than reactiveflexible: refers to being responsive to change and able to adjust to changing circumstancesproactive: refers to a management style that incorporates dynamic action and forward planning to achieve particular objectivesFor example Arthur Hancock, former senior human resources manager for global equities limited said: “We are seeking managers who can adapt to changing situations.. we don’t want manager who are dogmatic and inflexible these were appropriate 50 years ago.. but not 4 today’s markets which are highly competitive, technologically driven and rapidly changing”Reconciling the conflicting interests of stakeholdersStakeholders are groups and individuals who interact with the business, thus have a vested interest in its activitiesThere has been a significant philosophical shift in business conduct to meet society’s expectations society increasingly expects businesses to accept responsibility and accountability towards all stakeholders for the promotion and management of change.Business’:In their operations, are expected to be enterprising, comply with the law, socially just and ecologically sustainableStrive to be recognized as ‘good corporate citizens’Increase their chances of success when they pursue goals that align with the interests and expectations of all stakeholdersAll stakeholders who interact require different things, all place competing demands upon the business. There expectations can be compatible or patible expectations: simultaneously satisfy various stakeholders E.g customers want quality products at reasonable prices, if business meets expectation, sales should increase leading to greater profits in turn satisfies the business owners who are rewarded with higher dividendsIncompatible expectations: they oppose each other; satisfying one set of stakeholders will most probably result in other stakeholders being dissatisfied.E.g employees & their unions require safe working conditions and reasonable wages & customers want reasonably prices product. Providing safer working conditions of a wage rise is ethically and socially responsible however it will cost the business money short termIf business wished to retain a high dividend to satisfy the shareholders’ expectations forced to raise the prices of tis products action will upset customersOther hand, the business may retain prices at the original level, reducing its profit doing this could cause disquiet among shareholdersTo maintain its profit, the management of a business may choose to cut costs by sacking employees, compromising on product quality or safetyDecision can endanger employees or society, damage environment through pollution, hence raising ethical and social responsibility considerationsReconciling the various conflicting interests is a complex task senior management constantly should assess business’ actions in an attempt to satisfy as many stakeholder expectations as possible.Strategies that could reconcile the conflicting interests of stakeholdersBusinesses are realising that reconciling conflicting interests and increasing stakeholder value ensure long-term growth and survivalReconciling the conflicting interests of stakeholders requires competent, informed, ethical and socially responsible managersBusinesses have a responsibility to take into account the long-term effects of their current decisions They’re decisions concerned with production processes, workplace practices, employment programs, product development and design, business expansion all have an impact of both present and future generationsOne particular strategy has been adopted by more enlightened businesses is to place greater emphasis on environmental practices adopting such a policy benefits both shareholders and society.Business analysts beginning to refer to the triple bottom line, where shareholder value increases through the careful management of stakeholder value. Triple bottom line: refers to the economic, social and environmental performance of a businessemployee share acquisition schemes they provide opportunity for eligible employees to purchase shares in a business, often at a reduced price. This reconciles conflicting interests between shareholders and employees as it aligns the interest of both groups as a number of employees become shareholders.Another widely used strategy: offer training and professional development to employeesEducated & skilled workforce works more efficiently, reducing production costs results in rising profits, consequently pleasing shareholders. Well trained staff produce higher quality products, hence satisfying customer expectationsIn a desire to reconcile the conflicting interests of the various stakeholders, some businesses use a process of stakeholder engagement Stakeholder engagement: refers to businesses sharing information with and seeking input from stakeholders and involving them in decision makingBusiness’ anticipate through engaging stakeholders they are more likely to act in an ethical or social responsible manner.Also anticipate a positive image of business will be maintained if all stakeholders have their expectations satisfied, leading to increased sales as well as an improved reputation for corporate social responsibilityachieving business goalsGoal: is a desired outcome (target) that an individual or business intends to achieve within a certain time frameAll organisations should set goals increases their chances of success; figure 6.3 illustrates six common business goals Businesses’ Need to establish goals as they Required to undertake planning to successfully achieve goalsGoals are important as they:Serve as targetsMeasuring sticks act as a benchmark against the business can measure its performanceMotivationcommitmentThe most effective business goals should be S.M.A.R.TSpecific: Goals should be straightforward & emphasise what the business wants to happenMeasurable: Decide on goals whose progress can be measured so the business owner can see the change occur helps business stay on track Achievable: goals should be challenging and not out of business reach as employees will become unmotivated due to lack of successRealistic: should represent something owner and employees are able to work towardsTimebound: have deadlines and sub-deadlines attached to them, otherwise commitment too vagueProfitsOne of the most basic financial goals for businesses is to maximise progitsProfit is what is left after the costs of producing and supplying th eprocut (expenses) have been deducted from money earned from sales (revenue)If business is unable to consistently make profit, it will fail only profitable businesses survive in the marketplaceA major indicator of a business’ success is the size of its profit businesses are always looking for ways to maximise 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 out. The goal of seeking to make as much profit as possible is pursued by a larger number of businesses than any other goal.78635458420Total sales x price = Total revenue (TR)Total expenses incurred in operating the business = Total costs (TC)Maximum profit = TR at maximum difference from TCTotal sales x price = Total revenue (TR)Total expenses incurred in operating the business = Total costs (TC)Maximum profit = TR at maximum difference from TCA way to maximise profits is to increase sales may be done by lowering the price hence consumers purchase moreAlternatively business may seek to increase sales through well-targeted marketing campaign, creating more innovative products or delivering better servicesBusiness entering a new market or introducing a new product perform best by initially setting low prices to build a large customer baseE.g virgin airlines adopted this strategy when it entered the Australian market it offered cut-price airfares to tempt passengers away from the established carriers. Virgin has as its long-term goal ‘the desire to maximise profits’, but they realized it would take a number of years to achieve.Market shareMarket share: refers to the business’s share of the total industry sales for a particular productmarket share is usually a goal for only large businesses these businesses often develop an extensive product range, using many different brand names to gain extra few percentage points of range, using many different brand names to gain an extra few percentage 321489415875000small market share gains often translate into large profits for these businessesCompetition between the major Australian banks and second-tier banks has resulted in a declining overall market share for the others non-major banks and other institutions have taken market share away from the big four.Market share of SMEs is restricted to the size of the businessE.g local corner store’s market share is limited to the number of customers living within its immediate areaStrategy to increase market share is promotion Promotion: describes the methods used by a business to inform, persuade and remind a market about its productsUsed to convince new customers to try productStill maintains established customer’s product loyaltyAdvertising that emphasises product’s features still assures those who do use the product that they are making the right decisionGrowthMost businesses want to grow, they can achieve growth internally (organically) or externallyInternal growth: involve employing more people, increasing sales, introducing innovative products, purchasing new equipment, establishing more outletsE.g Mcdonalds has pursed an ambitious growth program by selecting a large number of sites for future expansion External growth: achieved by merging with or acquiring other businesses Small business owners are content to mantian their existing size (not grow) to :Avoid the pressures of expansion in a desire for a particular lifestyle/ quiet lifeKeep control over the business’s operationsMaintain personal contact with the customersShare priceA share is a part ownership of a public companyCompanies need to satisfy their shareholders by improving the share price and paying healthy dividendsSocial goals All businesses operate within a community and have certain social responsibilitiesMany businesses develop social goals and adopt strategies that will benefit the community whilst achieving financial goals. Main social goals:community service: Business sponsorship in community events e.g Businesses financially support educational, cultural, sporting and welfare actitivitesProvision of employment: large businesses don’t regard employment of ppl as a main goal SMEs look at the continuity of their business, sometimes employing family members (who otherwise may be unemployed)Social justice: business may be concerned for social justiceSocial justice: it adopts a set of policies to ensure employees or community members are treated equally& fairly.Environmental goals Business owners should be concerned about the environment’s future prospectsMore output is demanded and consequently its production lines work faster and faster the raw materials used to produce the vast array of goods and services are shrinking at a frightening rateIndividuals have done this without giving thought to future generationsBusinesses and individuals are becoming more environmentally aware, through these business practices the impact on the planet’s health are reduced so that future generations are not disadvantagedenlightened businesses are adopting practices of ‘recycle, renew and regenerate’, adopting a ‘green’ attitude, developing products and creating ideas that are environmentally friendly Sustainable developmentEconomic growth should not occur at the expense of polluting and degrading the air, water and forests that are essential to support life on this planet there needs to be a balance between economic and environmental concerns – in other words, sustainable developmentSustainable development: occurs when the needs of the present population are met without endangering the ability of future generations to meet their own needsPressure for businesses to play their part in achieving sustainable development has come from society’s increasing awareness of environmental issues governments are imposing stricter environmental regulations on business practices, this provides new business opportunities for environmental services and productsImplementing sustainability is an opportunity and platform for growth achieving a mixof business goals Businesses have range of goals because they have different stakeholders who each have different needsManagers should attempt to achieve a mix of the above goalsMost goals are interdependent; all help the business achieve its prime functionGoals can be compatible meaning strategies implemented by business in pursuit of a particular goal can assist in achieving multiple goalsE.g strategies employed by business to achieve the goal of maximizing growth simultaneous help achieve goal of maximizing profits and increasing market share May be difficult for business to achieve all its goals simultaneously as the links between them are incompatible hence Managers often have to make a trade-off between conflicting goalsE.g manager face the dilemma between maximising profits or increasing market shareStaff involvement – innovation, motivation, mentoring, trainingall businesses should give a high priority to achieving staff involvement Staff involvement: means involving employees in the decision-making process and giving them necessary skills and rewardsA work environment that maximises employee involvement and satisfaction has high levels of labour productivity HOW CAN EMPLOYER MOTIVATE STAFF Democratic leadership style (involved in decision making) Set small weekly goals Give employees purpose Be positive Give constant feedback Priorities work-life balance Rewards MONETARY (cash) or NON-MONETARY (other incentives) Employee discounts Promotions Teamwork Trust Encourage suggestions InnovationBusinesses should encourage an innovative business culture by recognizing and encouraging one of the most important sources of innovative ideas: employeesAn intrapreneur is an innovative employer who takes on the entrepreneurial roles within a business have creative mindsFor a business to grow and maintain its competitive advantage, staff must be encouraged & given opportunity to be innovative. Practices managers could take on include:Rewards to employees with innovative ideas that become profitableTrustful management that does not excessively control - micromanage – peopleSufficient financial, management, human and time resources to achieve goalsNot fearing consequences of making mistakeTechniques like brainstorming MotivationOne of the most important management functionsHigh levels of motivation result in increasing rates of productivityMotivation refers to the individual, internal process that directs, energises and sustains a person’s behaviourWhat drives an individual to behave a certain way or achieve certain goals Individual employees respond differently to various motivational techniquesAbandoning the union in favour of individual contractsGiving bonusMaking out as if the job is rare and many people can fill it Is money the best motivatorFor generations managers have believed that money is the most powerful motivating283210022225000The successful businesses today will need to give close attention to involving employees in the decision-making processGood managers should be good motivators, encouraging employees and using positive reinforcement to influence behavioursuccess of the business significantly depends on motivated & skilled employees who are committed to its goals – that is, everyone working towards a common purposeMentoringMentoring is the process of developing another individual by offering tutoring, coaching and modelling acceptable behaviorTeaching new employees the business’ expectations strengthens their dedication & commitment to the businessTrainingRefers to the process of teaching staff how to perform their job more efficiently through boosting their knowledge & skillsGoal of training is to improve employee productivityTHERE ARE 2 TYPES OF TRAINING; FORMAL Off-the-job training; when you receive a formal qualification at the end of a training e.g. certificate/diploma from TAFE OR degree/masters from UNIVERSITY INFORMAL On-the-job training e.g. conferences, online modules, in-services (NO FORMAL QUALIFICATION) Management approachesThere are three main approaches to management and leadershipClassical/Scientific Approach: Traditional/old styleBehaviour Approach: More modern approachContingency Approach: Adaptable approachLeadership stylesThe two main types of leadership style are:Autocratic or authoritarian – strong, centralised controlParticipative or democratic – authority and power are decentralizedManager adopting autocratic leadership style makes all decisions & frequently checks employee performancemanagers should bring a range of leadership styles to their positions that can change according to the situation. Managers who adopt a strict classical-scientific approach usually display an autocratic leadership style. manager controls the people in the business closely and motivates through threats and disciplinary action.autocratic style of leading can be effective in a time of crisis when intermediate compliance with rules or procedure is needed, or in meeting an unexpected deadline when speed in important.However generally this style does not encourage the best performance from employees.Classical Approach (autocratic leadership style)Chain of Command is longOne-way CommunicationA strict Hierarchical organisational structureCommunication from the topAutocratic leadership style (Downward style)Disciple as a feature of leadershipRewards for effortsJobs broken down into tasksTime and motion evaluationEvaluation of employeesTraditional pyramid shaped structureManagers carry out key activities of planning, organising and controllingConstant supervision of activitiesEmployees lack motivationE.g Mcdonalds use Taylor’s scientific management approach to food Big mac produced according to stepsAdvDisadvantagesEfficient organisation of the businessImproves profits/increases sales/and amount of product producedEmployees know exactly what they have to do?Scientific methods can be taughtManagers do all the planning, organising and controlling?Employees lack motivation/boring monotonous jobsHigh staff turnover3 Basic Functions of Management Process:Management as planningPlanning provides key to short and long term success of a business provides a vision and goals for a businessPlanning: preparation of a predetermined course of action for a business. Involves how the business will achieve its stated mission & business goals 3 different types of plans on how to achieve the business goalsStrategic (long-term) planning 5-10 years: level of planning assists where the business wants in the market to be and what it wants to achieve (in relation to competitors)Tactical (medium-term) 1-2 years: allows the business to respond quickly to changes. Emphasis on how goals will be achieved through allocation of resourcesOperational (short-term) planning: planning provides specific details about the way in which the business will operate on a day-to-day or weekly basis contributing to achieving short-term actions & goalsManagement as organisingOrganising is the next part of the process when management puts into practice the goals that were determined in the planning stageorganising the financial, human and material resources to achieve goalsManagement has to coordinate activities to translate plans into reality to ensure the goals of the strategic, tactical and operational plans are achievedPhysical: Equipment, raw materials, machineryHuman: People, employeesFinancial: Capital (Money)The organisation process is the range of activities that translate the goals of a business into reality; take 3 stepsDetermining the work activitiesClassifying and grouping activitiesAssigning and delegating authority Management as controllingControlling: process management goes through when it attempts to evaluate performance & take corrective action to ensure that objectives are being achievedControlling compares what was intended to happen with what actually occurredIf discrepancy between performance and goals, changes and improvements can be madeHierarchical organisational structurePYRAMID STRUCTURE -3492513779500DESCRIPTION Division of labour: Means the degree to which a total task can be divided into small, usually unskilled, tasks e.g. production line Every employee in organization except one (CEO) is subordinate to someone else within the organization Consists of multiple entities that descend into the base of staff level employees, who sit at bottom of pyramid LONG CHAIN OF COMMAND Where the directions or how the information filters down to the employees CLASSICAL/SCIENTIFIC = many layers of management (long chain of command) SMALL SPANS OF CONTROL Amount of workers a manager supervises CLASSICAL/SCIENTIFIC = number of employees controlled by ONE manager ADVANTAGES Employees recognise defined levels of leadership within organisation There is authority and levels of responsibility Opportunities for promotion motivate employees to work well May narrow employees field of focus and become expert is specific functions DISADVANTAGES Communication across different departments tends to be less effective Rivalry between departments Increased bureaucracy Increased time may be required to respond to clients Salaries for each layer of management increase organizations costs Behavioural approach to management (participative/democratic leadership styles)The behavioural approach to management pioneered by Elton Mayo stresses the people (employees) should be the main focus of the way in which the business is organizedMain features of behavioural management approach include:Humanistic approach: employees are the most important resourceEconomic and social needs of employees should be satisfiedEmployee participation in decision makingTeam-based structureManagers nee good interpersonal skillsDemocratic leadership style emergingAccording to the behavioral management approach, the main management functions are; leading, motivating, communicatingManagement as leadingLeading occurs when managers endeavor to influence/motivate people in the business to work to achieve the business’ objectivesTo act as a leader a manger should:display empathy and possess good listening skillshave high expectations of employee’s abilities to initiate and implement ideasopen mindbuilds communicates clear visionDelegates tasks to suitable employeesDelegation is handing over of tasks to an employee who is suitably capable & qualified to carry them outHaving a vision of where the business should be in the long and short termLess effective managers focus on tasks more concerned with meeting deadlinesManagement as motivatingConcerned with providing workers with the desire to carry out work to a high standard. Managers can motivate employees by; Rewards; NON-MONETARY Rewards e.g. awards MONETARY Rewards e.g. cash bonuses, profit sharing schemes and reward programs Put in place work practices to motivate employees Giving employees sense of involvement Recognising, self-worth and positive reinforcement Trust/respect for employeesManagement as communicatingProcess by which the various management roles are carried out by interacting and communicating with others; can be written or oral Features of effective communication; Open communication Tone has to be appropriate and not overwhelming Hand gestures Eye contact Avoid repetitionTeamsTeamwork involves people who interact regularly and coordinate their work toward a common goalsBusinesses starting to realise this team approach the catalyst for superior performanceDevelopment of work teams has resulted in flatter organisational structuresThe role of managers is changing from controller to facilitatorBusinesses are adopting flatter management structures, resulting in:‘de-layering’ of traditional hierarchical structureEstablishment of market-focused work teamsEach work team responsible for wide range of production functionsReducing the levels of management gives greater responsibility to individuals in the businessParticipative/democratic leadership styleManager implementing classical-scientific approach normally adopt an autocratic leadership style manager practiced behavioural approach use more participative / democratic leadership styleP/D leader one who asks employees for their suggestions & seriously considers those suggestions when making decisions they share their decision making authority with their subordinatesStyle of leadership most effective when a business is operating in an environment undergoing rapid changeADV: motivation & job satisfaction r optimal as employees feel they have played active role in allocating tasks and implementing actions to meet objectivesContingency approach to managementCONTINGENCY APPROACH The management of a business is able to be flexible and adaptable to management practices and ideas in changing circumstances. e.g. changing economic conditions, increased competition, seasonal climatic conditions and emergencies it is a combination of both democratic and autocratic management styles as it depends on the situations and requirements of the task and activity being done Adapting to changing circumstances Businesses need to be responsive to changes in its environment and be adaptive in; The nature of workcan change due to technology or downsizing Differences between employees and managers Size of the business businesses grow and contract External influences Economic conditions Technology Increased competition Seasonal/climatic conditions Social trends Competition Change in demographics Internal conflict within staff Management processManagement ProcessKey functions of the business enable the business to function efficiently and effectively if managed correct Each key function is dependent on each other and needs to work together for a business to produce a good or service ALL DEPENDENT ON EACH OTHER FOR THE BUSINESS TO ACHIEVE ITS GOALS/OBJECTIVES228606032500 Coordinating Key business functions and resourcesInterdependence: The four key functions of the business are reliant on each other for the business to function efficiently and effectively. One key function needs the other three to function.Examples of Interdependence (Reliant on all 4 Key Functions)Operations?Production of goods/servicesHuman ResourcesGood customer service improves sales/profitsMarketing‘What does Marketing do to aid Operations?’Product is made more aware to consumers (Advertising)Distribution of the product to make it accessible to as many customers as possibleBrand image of the productSurvey customersFinancePayment of employees - Made on timeProvides budgets for training and development of staff.?OperationsOperations: refers to the business processes that involves transformation & production it is a term that applies both to the manufacturing and services sectorThe operations management consists of all the activities in which managers engage to produce a good or serviceConcerned with creating, operating and controlling a transformational process that takes inputs from a variety of resources, and produces outputs of goods and services needed by customersProduction involves skillful bringing together of a number of resources such as finance, equipment, management, technology and people to create finished goods and services through a series of operationsOperations management function has immense influence on the quality, cost & availability of a business’s good and/or serviceGoods and/or ServicesOperations management function responsible for transforming inputs into outputsCharacteristics of operations management differ according to business whether a manufactured of goods/ provider of services:Manufacturers produce tangible products (physical)Service organisatons produce intangible products (services)Tangibles: physical products that can be handled & stored before they are sold to consumerIntangible: cannot be touchedProduction process & consumption are not linkedModern businesses produced combination of both manufactured goods and servicesThe Production ProcessThere are three key elements of the production process in any business: Inputs, Processes and Outputs.Inputs are the resources used in the transformation (production) process. Some resources are already owned by the business, while others come from suppliers.?Transformed Resources are those inputs that are changed or converted in the operations process. Resources include:Materials: basic elements Information: knowledge gained from research, investigation & instructionCustomers: become transformed resources when their choices shape inputsTransforming Resources are those inputs that carry out the transformation process. They enable the change and value adding to occur. The two main transforming resources are:Human Resources (People employed by the Business) Facilities.Outputs refer to the end result of a business’ efforts - the good or service that is delivered or provided to the consumer.Transformation ProcessThe main concept of operations management is transformation, which is the conversion of inputs (resources) into outputs (goods or services).VALUE ADDED At each stage of production, there is an increase in value as it passes through the process in order to achieve a sufficient profit Quality ManagementQuality management is the strategy which a business uses to make sure that is product meets customer expectations. Three quality approaches are:Quality controlQuality assuranceTotal quality managementQuality refers to the degree of excellence of goods or services and their fitness for a stated purposeHow does Quality Management;Minimise Waste: Quality products are going out to consumers - increasing profits. If the product coming off the production line is of a good quality it will go out to consumers for sale. If there are quality control problems the inputs won’t be used efficiently and will be taken off the line - costs the business money.Reduces variance in the production of the final product: Each product that comes off the production line is the same.Improve customer satisfaction: Customers will purchase the product and buy from the Business regularly (Repeat customers)Approaches to Quality Management include:Quality Control: involves the use of inspection at various points in the production process to check for problems and defectsQuality Assurance: involves the use of system so that a business achieves set standards in production- usually set by the industry or international body The ISO 9000 series of quality certifications widely used international standard (International Organisation for Standardisation)Total Quality Management: is a commitment to excellence that emphasises continuous improvement in all aspects of a business operation by sharing responsibility among all the members of the businessQuality Circles are groups of workers who meet with management to solve certain problems.Continuous Improvement involves an ongoing commitment to achieve high quality standards.Having a customer focus involves Businesses making sure they meet customer expectations when it comes to the quality of the product. Interacts with marketing department to achieve this aim.?MarketingWhen a Business promotes, prices, and distributes a product to satisfy customers wants and needs. The aim of Marketing is to increase sales and maximise profits. This is achieved by the exchange of the good or service for money. Marketing in today’s society is customer orientated (customer satisfaction).?Aims of Marketing:Repeat sales/customer loyalty.Exchange of goods/servicesKnowing who your customers areTargeting groups in society who will buy your productProfitabilityDeveloping long term relationships with your customersMarketing is vital to the existence of a business Without marketing customers are not aware of a product’s existence regardless of how ‘revolutionary’ it may beAccording to stats more then 70% of new products launched on the market self-destruct in the first year of operation, due to poor marketing businesses make few sales if they do not market their products successfullyAt the same time many products that would seem insignificant and unimportant have become ‘essential items’ as a result of a well managed professional marketing planIt is a powerful business strategyMarketing fundamentals In past years you have probably been involved in some type of marketing activity. The four main marketing strategies are commonly referred to as the four Ps of the marketing mix. The four main marketing strategies:PricePlaceProductPromotionWhat is marketing?Marketing is a total system of interacting activities designed to plan, price, promote and distribute products to present to potential customersSuccessful marketing involves bringing the buyer and seller together and making a saleRole of marketingdifference between selling and marketing Is that selling is merely getting rid of existing stock , whereas marketing takes a much broader view brings together the buyer and seller and makes a saleTraditional marketing is a broad category incorporating the wide array of advertising channels we see daily. This marketing attempted to pull customers to a product no matter the cost don’t necessarily consider the customer to whom their selling to E.g print media, billboard, TV advertising and radio broadcastingContemporary marketing ( is a way of thinking ) refers to those strategies that stress the importance of customer orientationBusinesses that adopt this approach base their marketing decisions and practices on the needs and wants of their customers this is known as the marketing concept approach when adopting the marketing concept approach focus on relationship marketing:relationship marketing is developing long-term , cost effective relationships with their customers. For these businesses, the customer relationship does not end with the sale; it begins there they always strive to exceed customer expectations businesses utilizing contemporary marketing approach have become more prosperous than traditional channels Identification of the target marketFew businesses can afford to market their products the whole market share as high expenses & there are rare products suitable to all consumersBusinesses must select specific group of customers on which to concentrate their marketing efforts: their target marketsA target market is a group of customers with similar characteristics who presently, or who may in the future, purchase the product(Potential customers)Three broad approaches can be adopted when selecting a target market:Mass marketing approach, market segmentation approach or nice marketing approachMass-Market approachIn a mass market, the seller mass-produces, mass-distributes, and mass-promotes one product to all buyers.This mass market approach seeks a large range of customersbusiness then develops single marketing mix and directs it at the entire market for the productone type of product with little variation, one promotional program, one price, one distribution system used to reach all customersfew product apart from basic food, water gas etc are marketed to the mass marketas a result of greater variations in choice, higher personal incomes and customers seeking more individualized products, the mass market has been replaced by segmented or niche marketsMarket segmentation approachEnables the business to identify this particular group and ensures that it does not waste its resources by marketing to the mass market Market segmentation: occurs when the total market is subdivided into groups of people who share one or more common characteristic based on four elements:Business’ segment its market so it can better direct its marketing strategies to specific groups of customers rather than the mass marketUltimate aim is to increase sales and profits by better understanding & responding to the desires of the target customers once market has been segmented business selects one of these segments become the target market Segmenting approach allows business to better satisfy the wants and needs of a targeted group as the business can:Use marketing resource more efficientlyBetter understand the consumer buying behaviour of the target marketMake comparison within the target market over timeRefine marketing strategies used to influence consumer choiceE.G INSERT IMAGE OF TOTAL MARKET FOR FEMALE FASHION RETAILERS Selecting a market segment to be the target market is important fashion retailer makes clothes 4 women over 40 years. Clothes are of reasonable quality yet won’t be classed as ‘designer’ clothes. In this business female middle-income earners are the main target marketTotal market is divided into various groups that target people with different characteristics Market can be segmented by; Demographics Geographic Lifestyle BehavioralNiche marketsA narrowly selected target market segment (micro market); very small amount of people attracted to a specific product Differentiated MarketingOften larger businesses target different segments; involves focusing the marketing effort on a number of different groups based on the following factors; GEOGRAPHIC Consumer characteristics differ based on where they live; geographic status effect what people want, quality of product and price they are prepared to pay for it DEMOGRAPHICS Those things concerned with features of the population, such as age, gender, income, jobs and education levels PSYCHOGRAPHICS Refer to such things as personality, lifestyle and social class sDemographic- population characteristicsGeographic–where people livePsychographic– personality characteristicsBehavioural – loyalty to a productAgeGenderEducationFamily sizeIncomeOccupationSocial classReligionEthnicityUrbanSuburbanRuralRegionalCity sizeClimateLandformsLifestyle PersonalityMotivesSocioeconomic groupConsumer opinionsinterestspurchase occasionbenefits soughtloyaltyuse rateprice sensitivityMarketing MixOnce owner has established the marketing goals & selected a target market next step of marketing plan is to develop marketing strategies to achieve the goals Marketing strategies: are actions undertaken to achieve the business’s marketing goals through the marketing mixOne of the most useful ways of understanding how to develop a marketing strategy is to examine each of the elements of the marketing mix the marketing mix refers to the combination of the four Ps – product, price, promotion and place (distribution).The business has control over these elements and uses them to reach its target market These four Ps of the marketing mix are considered the basic cornerstone of making However as the service sector within the economy has grown, three more P’s have been added that apply especially to the service industry 3 extra P’s – people, processes and physical evidence – now form the extended marketing mix This will largely be determined by where the product is positioned or its stage in the product life cycleProduct life cycle: describes the life of a product over four stages: introduction, growth, maturity and declineA different marketing mix will also be required for a product in its introductory stage than when it reaches the decline stageMARKETING MIX Refers to the combination of the four elements of marketing (THE 4 P’s) that make up the marketing strategy; Product Price Promotion Place PRODUCT Products refers to all the benefits a good or service offers to a customer Business owner needs to determine the products quality, design, name, warranty and guarantee, packaging, labelling and exclusive features The product is a combination of all these variables and customers will buy products that not only satisfy their needs but also provide intangible benefits The quality is an important feature of the product as it should have a high degree of excellence, achieve its state purpose, be easy to use and well designed to meet customer expectations Products are goods or services, and consist of both tangible and intangible featuresThe product element involves more then deciding which product (goods or service) to market. The business owner needs to determine the product’sQualityDesignNameWarranty and guaranteePackagingLabellingExclusive featuresProduct is a combination of all these variablesCustomers buy products that not only satisfy their needs but also provide intangible benefits such as a feeling of security, prestige, satisfaction or influencePRODUCT PACKAGING Involves development of a container and the graphic design for a product; well-designed packaging will give a positive impression of the product and encourage first-time customers to purchase The packaging of a product assists salesPackaging helps preserve, inform, protect and promote the productPRODUCT BRANDING Important part of product development is brand and associated brand logo; these combined are a powerful marketing tool The important part of the product development is the brand and associated brand logo. Combined these can be a powerful marketing toolBrand logo: graphic representation that identifies a business or productE.g ‘golden arches’ symbol is used by McDonald’s in some ads brand name doesn’t appear only brand symbol subtle clever method used to reinforce meaning of the symbol and associate it with a brand namePOSITIONING How does your product differentiate from the competitors product in the market PRICE Price is the payment required to purchase a product; pricing strategies include; A business must select the most appropriate pricing method suitable to its product and market conditions. Too high could mean lost sales, price too low give customers cheap impressionTo choose the correct price, business can choose one of three methods for calculating pricePRICING METHODS; COST BASED Price higher then total cost of production for profitMARKET BASEDDepends on supply and demand of a product Setting prices according to interaction between levels of supply and demand – what the market is prepared to pay fore.g. PRAWNS high demand = high price low demand = low price COMPETITION-BASED PRICING A business will price depending on the competition; HIGHER= higher quality SAME= letting consumer make decisions (similar quality) LOWER= value for money or consumer might see it as lower quality PENETRATION PRICING Businesses that operate in highly competitive markets often adopt a penetration strategy; where the prices of products are set below the prices charged by competitors SKIMMING STRATEGY Where there is very limited competition, a skimming strategy might be adopted; where prices are set at wherever the market will bear (strategy used following the introduction of a new product) PRICE TOO LOW shortage result PRICE TOO HIGH surpluses result MUST REACH EQUILIBRIUM FOR SHORTAGES & SURPLUSES TO DISAPPEAR PROMOTION Refers to the methods used by a business to inform, persuade and remind customers about its products with the aim of; Promotion refers to the methods used by a business to inform, persuade and remind customers about its product with the aim of:Attracting new customers through raising awareness of productIncreasing brand loyalty by reinforcing the image of the productEncouraging existing customers to purchase more of the productMAIN FORMS OF PROMOTION; Personal selling & relationship marketing Personal selling involves the activities of a sales representative directed to a customer in an attempt to make a sale Relationship marketing refers to the development of long-term, cost-effective and strong relationships with individual customers Sales promotion Refers to the activities or materials used by the business to attract interest and support for the good or service E.g free samples, coupons, point-ofpurchase displaysPublicity and public relations Refers to any free news story about a businesses products; managing a favourable relation between a business and its customers Advertising Print or electronic mass media used to communicate a message about the product; used to attract potential customer, create a demand for the product and communicate essential information TechnologyThe recent revolution in social media advertising (SMA) in combination with traditional advertising methods has become an effective advertising tool used to deliver specific messages to their target marketsInexpensiveEasy to use and monitorEffective method of gaining exposurePLACE Place or distribution are activities that make the products available to customers when and where they want to purchase themA Distribution channels is a way of getting the product to the customer. This process involves a number of intermediaries that are invisible to the customer. The traditional distribution channels are:Producer to customerProducer to retailer to customerProducer to wholesaler to retailer to customerTwo new distribution channels are e-commerce and mobile commerceE-commerce: buying&selling goods on internetMobile commerce: wireless handheld devicesRefers to the distribution channels used to move finished products to the final customer The distribution channel links the point of manufacturing to the final customer, these include; vending machines, supermarkets, service stations and convenience stores The main distribution channels are; Intensive distribution Most common type of distribution channel; intensive distribution is where as many outlets as possible are used to distribute the product e.g. potato chips Selective distribution Where the manufacturer wants the product to be widely distributed but not quite to the same degree as intensive e.g. bread and milk Exclusive distribution Used for products positioned right at the top of the market; high-quality high-priced productivity and both the product and the price hint strongly at exclusively e.g. Rolls-Royce FinanceUnderstanding of both accounting and finance is absolutely necessary if business managers and owners are to make informed decisions. Financial statementsTo assist business owners in making judgements about the direction of the business at any given time they need to prepare some financial statements. Financial statements: are reports that summarise transactions over a period of timeThe main accounting reports and financial statements are cash flow statements, income statements and balance sheets.Example; business owners need to be aware of whether the cash flow through the business is sufficient to allow the business to pay its debts on time, whether or not the business is trading profitably, and the financial status of the businessExamine effective cash flow managementCash flow statements are vital for the information they give on the timing of payments and receipt of income. information on cash movement is kept because this will help the business predict future cash flows, hence make provision for payments3346450-127000cash flow statement shows:business made a cash surplus for two of its three months of tradingin march this business experienced a cash deficientIn short term, if these trends continueCash flow statements allow business to: Control financesPlan strategies for financial benefitPlan and predict future cash flow inflows. 279781015557500The format of cash flow statements for large businesses and public companies:Cash from operating activities: these are the cash inflows and outflows relating to the main activity of the business; that is, the provision of goods and services Cash from investing activities: these are the cash flows related to the purchase and sale of non-current assets and investmentsCash from financing activities: these are cash flows related to the acquisition and repayment of both debt and equity financeFINANCEAccounting is a management tool that is concerned with providing information on the financial affairs of a business, while finance is concerned with where the business sources its fundingThe management of cash flow involves anticipating cash expenditure and ensuring that enough of the income earned comes in the form of cash. A well managed business needs to ensure that enough money is saved in the event of contingencies (unexpected challenges), as contingencies can place the business under unexpected financial pressureContingencies: are unanticipated events that can lead to financial difficultybusiness leaders and managers need to have a good understanding of accounting and finance, and need to draw on this knowledge and skill when managing all aspects of the businessTWO TYPES OF FINANCE; OWNERS EQUITY DEBT FINANCE Internal finance Owners contribution External equity finance: Shares in a public company Venture capital External finance Financial institution (bank) 2 types; SHORT TERM: paid within 12 months LONG TERM: 5-30 years ACCOUNTINGFinance is concerned with where the business sources its funding while Accounting is a management tool that is concerned with providing information on the financial affairs of a businessAccounting is a managerial and administrative tool that involves the recording of financial transactions so a clear summary of cash flow in and out can be traced over timeEvery financial transaction is recorded and entered into accounts that may be computerized or manual (form of books)Transactions from ordering of stock to sale of an old stock itemFinancial transactions include delivery dockets, sales receipts, invoices, cash register records and e-payment transactions)Basically: Accounting is a financial management tool that is involved with the recording and analysis of all the business’s financial transactionsAccounting presents this information in its final state through financial statements:Cash flow statementIncome statementBalance sheetCash flow statementCASH FLOW STATEMENT A cash flow statement is a financial statement, that indicates the movement of cash receipts (inflows) and cash payments (outflows) over a period of timeThey are vital for the business to assess whether money inflows can match money outflowsliquidity is used to describe whether a business has a good or adequate cash flow A business is said to be liquid if it has the cash available to meet payments as they are due.Generally a business would prefer its sales to be in cash for precisely this reason – it has a need for cash to meet its payments. Why do businesses allow credit sales when they prefer cash? as they need to match their desire for cash with the cusomter’s ability to pay. By allowing customers to purchase on credit, the business will obtain sales it might otherwise loseSummary of the typical monetary inflows and outflows:Cash inflowsCash outflowsCash sales Credit sales when paidOther income e.g. interest from investments, non-operating incomeSales Commission Discounts on purchases Sales of assets Royalties Payments from debtors Interest from investments Rental income Dividends on sharesPayments for stockPayments for expenses (wages, insurance, etc)Payments for non-operating expensesAdvertising Stock Wages Electricity Rates Mortgage payments Taxation paymentsA liquid business is said to be one that has a positive balance after all the transactions have been documented Businesses are subject to a cyclical flow of funds Predictable times in period where cash flow is high or low Cycles occur on a weekly, fortnightly, monthly, quarterly and annual basis FORMULA FOR CASHFLOW STATEMENT- OPENING BALANCE + INFLOWS – OUTFLOWS = CLOSING BALANCE CLOSING BALANCE= become opening balance for next period Income statementIncome (revenue) statement Summary of all the revenues (income earned) and all the expenses that are incurred to gain that revenue What is left is profit Income statement measures the performance of a business over time Provides detailed description of the sales, cost of stock sold, selling costs, administration and production costs, gross and net profit The profit and loss statement is divided into 3 main sections; COGS OPENING STOCK + PURCHASES – CLOSING STOCK GROSS PROFIT SALES – COGS NET PROFIT GROSS PROFIT – EXPENSES Sales Income/revenue from the sale of your good/service COGS Cost of goods sold; how much does it cost to purchase the good you are selling Opening stock Stock you have in your business at the start of a period Purchases New stock ordered for the store for the selling period Closing stock Stock left over, that hasn’t been sold at the end of the period Gross profit How much profit you have left after you pay suppliers for the good you’ve sold Expenses How much it costs to run the business e.g. electricity, wages, rent, advertising, insurance, delivery, stationary, water, rates, leasing expenses etc. Balance sheetBALANCE SHEETMeasures the overall worth of a business; statement of the businesses assets, liabilities and owner’s equity as a set time, usually June 30th ASSETS = LIABILITIES + OWNER’S EQUITYA = L + OE Sometimes called the statement of financial positionShows the overall financial stability of the businessMain items in the balance sheet are: assets, liabilities and owner’s equityAssets: items of value owned by the business that can be given a monetary value. They can be current or non-current, tangible or intangibleCurrent assets: assets a business can expect to use up, turn over within 12 months e.g cash, accounts receivable (debtors) and inventories (stock)Non-current assets: those assets that have expected life of longer then 12 months. E.g large physical items… buildings, land, machinery, fixtures, fittingsLiabilities: are items of debt owed to outisude parties/organisations, they can be current or non-currentCurrent: the debt expected to be repaid in the short term (12 months or less) e.g bank overdrafts, credit card debts, accounts payable (creditors), accrued expensesNon-current: can last up to 30 years e.g mortgages, leases, retirement benefit fundsOwners equity: is the funds contributed by the owner(s) to establish and build the business, also known as the ‘capital’Balance sheet should always balance:Assets must equal liabilitiesGood will Intangible asset; business owner adds a figure to the asset figure because the business has saved profits and a good customer base Creditor Another name for account payable Debtor Another name for account receivable Inventory Another name for stock Overdraft Short term debt which allows a business to overdraw their cheque account by a bank Human resourcesIf handled correctly human resources can provide a business with a competitive advantageEmployees can make or break business management of staff has to be top priority foe every business owner. Human resource management: the effective management of the formal relationship between the employer and the employees 33350205143500Human resources cycleMain functions of staffing are to attract and acquire, train and develop, reward, maintain and separate the people needed to achieve the business’s goalsSTAGE 1:ACQUISITIONHiring new employees The methods/strategies used by the business in the hiring of new employees First stage of the human resources cycle STAFFING NEEDS Staffing needs required by a business include; Certain skill level needed Knowledge and qualifications Experience Need to be able to fulfil duties of job Once staffing needs are decided, they will attract employees e.g. advertisements RECRUITMENT Refers to attracting potential employees to apply for the job Potential recruits can come from; EXTERNAL: outside of the business INTERNAL: present employees within the business Various methods to find applicants; Social mediaInternet sites for employment ()Newspapers Window advertisements Person asks for job personally Word of mouth SELECTION Refers to deciding what applicants will be interviewed for the job; they will go through a set of criteria before they are offered the position Main processes involved in selection; Interview applicants Comparison of applicants in relation to skills Background check Check digital footprint Test your skills Once the selection process is complete, the successful applicant is offered the position and decide whether they want to take the job. An employment contract will then be signed, making the agreement legal. STAGE 2 DEVELOPMENTImproving employees’ skills and abilities? TRAINING Refers to the process of teaching staff how to perform their job more efficiently and effectively by boosting their knowledge and skills PROCESS OF TRAINING; Develop their skills Expand their knowledge of their jobs Improve their performance Make them more effective and efficient METHODS OF TRAINING; INFORMAL On the job training e.g. mentoring, modules, in servicing, job rotation FORMAL Receive a qualification e.g. TAFE (Certificate, diploma), university (bachelor degree, master, PHD), business college/online modules DEVELOPMENT Refers to activities that prepare staff to take greater responsibility in the future HOW ARE EMPLOYEES DEVELOPED; Give them more responsibility Further informal training More formal training Allow them to take on positions of responsibility for a short period of time PERFORMANCE APPRAISAL When an employer examines your performance within a workplace with; Positives Ways to improve STAGE 3 MAINTENANCEMotivating employees to remain with the businessMotivating employees to remain with the business; employment relations function concerned with building employee loyalty DATABASES Keep details about a performer up to date, including; Personal information Performance appraisals Qualifications Course they have completed Length of time they have been in workplace REWARD SYSTEMS; Rewards recognise an employees good work, confirming their work is valued; it grows their productivity and motivation in the workplace MONETARY AWARDS Compensation or bonus given in the form of money e.g. increased pay rates, bonuses, commissions, shares in company NON-MONETARY AWARDS Compensation given in a transaction which does not involve cash e.g. fringe benefits, flexibility, working from home and different start/finish times STAGE 4SEPERATION Employees leaving the place of EmploymentThis is when the employee decides to leave the workplace or the employer terminated the employees contract; VOLUNTARY Own accord NON-VOLUNTARY Employer terminated employee Health problems New employment Retirement Not happy with job (conditions/pay/boring) Promotion Sacked (not performing) Redundancy; job no longer exists e.g. technological change Retrenchment; economic recession/no jobs available End of contract Inappropriate behaviour (summary dismissal) RecruitmentAcquisition: refers to the process of attracting and recruiting the right staff for roles in a business prior to this a business must undertake a job analysisIt is a systematic study of each employee’s duties, tasks and work environment e.g equipment degree of supervision necessaryJob analysis for particular position consists of:Job description: written statement scribing employee’s duties, tasks & responsibilitiesjob specification: list of the key qualifications needed to perform a particular job .. education, skills, experienceRecruitment involves finding and attracting the right people to apply for a job vacancy; using ads, employment agencies, word of mouth. When organisation decides 2 recruit can internally/externally recruitInternal recruitment: appoints someone already within the business to a vacancyExternal recruitment: used 2 find suitable applicants from outside the businessOnce job applicants are found process selecting right applicant beginsEmployee selection: gathering info about each applicant for position using info to choose most appropriate clientTrainingTraining refers to the process of teaching staff how to perform their job more efficiently and effectively by boosting their knowledge and skillsDevelopment refers to activities that prepare staff to take greater responsibility in the future through acquiring better knowledge and skills & gaining more experience in a particular areaDeveloping staff involves training Aim of training and development is to seek long-term change in employees’ skills, knowledge attitudes and work behavior in order to improve work performance in the business.Necessary for personal and business growthNew and existing employees need trainingNew need training and development depending on their level of experienceExisting need training to continuously upgrade their skillsAccording to the Australian Centre for Industrial Relations Research and Training, there is little evidence of a strong training cluture within Australian workforcesLack of training and development can have long-term implications for a business’s ongoing competitiveness, and could lead to higher turnover rates as staff seek development in other formsComparatively well-presented training & development provides benefits for both the employee and the employer:Benefits for the employeeBenefits for the employerOpportunity for promotion and self-improvementImproved job satisfaction through better job performanceChallenge – learn new thingsAdaptability – greater ability to adapt to and cope with changesImproved chances of future employabilityHigher productivity through better job performance & more efficient use of human resourcesGoals and objectives more efficiently met Reduced costs due to less labour turnover, errors, accidents, absenteeismMore capable ‘mobile’ workforceExisting staff more easily retained‘Insurance policy’ – employees are able to cope better with business ‘crises’ Effective t&d program is planned and perceived as integral to the business’s strategy, as well as maintaining a business’s sustainable competitive advantageOngoing training for all employees is becoming critical due to rapid technological change and global competition – promotion of the concept of a learning organisation is crucial Learning organisation: monitors and interprets its environment, seeking to improve its understanding of the relationship between its actions and its environment.Technology creates the need for ongoing training Ongoing training for all employees can be promoted by the business becoming a learning organisationSome common training methods include formal off-the-job training, informal on-the-job training, action learning, competency-based training, corporate universities and training technologies.Training needs must be identified well in advance of any proposed technological implementation.Training should be viewed as an investment in the human capital of the businessTypes of training and developmentOff-the-job training – when employees are trained away from the workplace. It usually involves sending individuals or groups of employees to a particular specialized training institution. This may be a university or TAFE collegeEmployment contractsEMPLOYMENT CONTRACT A legally binding, formal agreement between an employee and employer. There are 3 different types of employment contracts; Award Enterprise agreement Common law contract AWARDA set of minimum terms and conditions usually for a certain industry e.g. casual retail worker, hospitality workers ENTERPRISE AGREEMENT Negotiated agreement between an employer and a union or a group of employees e.g. catholic school teachers, prison officers, nurses COMMON LAW CONTRACT When employers and employees have a right to sue for compensation if either part doesn’t fill their part of the contract e.g. rugby player, singer/song writer NATIONAL EMPLOYMENT STANDARDS A set of minimum employment conditions that have to be included in employment contracts (award and enterprise agreements). They have 10 main standards including; 38 hours per week Flexible working arrangements Parental leave (12-month unpaid work) Annual leave (4 weeks’ minimum) Personal and carers leave Community service leave Long-service leave Paid on public holidays Termination/redundancy pay Fair work information statement SeparationFinal stage in the employment cycle is ‘separation stage’ in which employees leave the workplace on an voluntary or involuntary basisHandled by human resource managerUnfair dismissal: occurs when an employee is dismissed by their employer and the action is believed to be harsh, unjust or unreasonableVoluntary separationEmployee decides to give up full or part time work, and includes:Retirement: occurs when an employee decides to give up full or part time work & no longer apart of the labour forceResignation: or ‘quitting’, is a voluntary ending of the employment relationshipRedundancy: job an individual is doing is no longer required to be performed , usually due to technological changes, merger or acquisitionInvoluntary separationEmployee is asked to leave the business against their will, includes:Retrenchment: Retrenchment is employee termination due to lack of sufficient work to keep the employee fully occupied whereas difference redundancy occurs due to permanent elimination of some jobs as organisational/technological change has removed the need for those particular skillsDismissal: behavior of employee unacceptable necessary 4 business to terminate their employment contractRedundancy BOTHEthical business behaviour Majority of businesses want to be seen as responsible corporate citizensMany businesses concerned with the triple bottom line:Refers to the economic,. Environmental and social performance of a businessEthics are standards that define what is acceptable and unacceptable behaviorBusiness ethics are the application of moral standards to business behavior such as:Fair and honest business practicesDecent workplace relationsConflict of interest situationsAccurate financial managementTruthful communicationFair trade: trading partnership that seeks greater equity (fairness) in international trade promotes the rights of marginalized workers, esp in low-income countriesOne strategy implemented to encourage ethical behavior is to devise a corporate code of conduct this is a set of ethical standards for managers and employees to abide byETHICS Moral principles that govern a person’s behaviour or the conducting of an activity; basic ethics is the application of moral standards to business behaviour such as; Fair and honest business practices Decent workplace relations Conflict of interest situations Accurate financial management Truthful communication CODE OF CONDUCT One strategy that can be implemented to encourage ethical behaviour is to devise a corporate code of conduct. Set of standards the business has designed for themselves to promote ethical and social responsibilities and standards for managers and employees to abide by CONFLICT OF INTEREST GOVERNANCE- all employees and managers must declare any gifts given to them visually over a certain monetary value Management and changeOrganisational change is the adoption of a business’s new idea or behaviour in response to internal or external influencesThe ability to embrace, manage & adapt to change will increasingly determine a business’s competitive advantage Successful managers are the ones who anticipate and adjust to changing circumstances they are proactive rather than reactiveResponding to internal and external influencesWhether the influences driving change come from outside (external) or within (internal) the business – changes to the business will occurInternal influencesInternal influences have a direct impact on a business and the business has some control over themInternal influences are managers and employeesExternal influencesExternal influences have an indirect impact on a business and the business has very little control over them External influences include competition, legislation, technology and social influencesManaging change effectivelyLong term survival of any business depends on the ability of its managers to scan environ, predict future trends and exploit changeManagement of the change will be effective if business:Identifies the need for changeSets achievable goalsDevelops strategies to overcome resistance to changeUse management consultantsMANAGING CHANGE EFFECTIVELY BY:Identifying the need for changeManager always scanning environment attempting to understand factors that will have an impact on the business better identify current trends and predict future changesAchieving such a vision requires a holistic view of the outside world correctly anticipating factors that will potentially impact business assists the manager in identifying the need for changeBusiness information systemsA business info system (BIS) (management info system (MIS) gathers data, organizes and summarises them then converts them into practical information to be used by managers to make decisions and effectively tackle changeSetting achievable goalsA vision statement states the purpose of the business, indicating what the firm does & states its key goalsIn conjunction business establishes specific company goals that are measurable (set of yearly basis) Reassessment of these are required if management detects changes in the external business environmentHowever For change to be managed effectively it is essential any new goals are achievable Resistance to changeThere will be restraining forces working against the change the managers are undertaking – creating resistanceThe main reasons for resistance to change include:Financial costs of implementing major changes can be substantialPurchasing new equipmentRedundancy payments (employees loose jobs a result of change entitled to financial compensation)retrainingReorganizing plant layout (new tech introduced layout of plant may need 2 be reorganized)InertiaForce field analysisUseful model for understanding the change processDriving forces: those forces that initiate, encourage and support the changeRestraining forces: those that work against the change, creating resistanceTwo strategies for overcoming resistance to change:Creating a culture of change (encouraging teamwork)Change agents business should identify influential individual in the business to act as catalysts to help manage the change process-3843021986280026516335270500Management consultantsMain role of management consultants is to help businesses improve their performance and assist with change management. They:Heaps of business experiencesAn objective (External) point viewAwareness of industry best practice They provide change management advice: a methodical approach to dealing with changeIn key functional areas of business e.g. marketing, finance, operations and human resources ADVANTAGES; Specialised skills in the area of change Ability to articulate change process to employees/management Set achievable goals/objectives/time frame for the change to occur Help reduce resistance to change among employees and managementTopic 3 Business planning Small to medium enterprisesDefinition and roleSmall to medium enterprises (SMEs) are the ‘engine room’ of the Australian economyAccording to the ABS, a SME is classified as a business employing fewer than 200 employeesAccording to the ABS, SMEs account for 99.8% of all private sector businessesThe number of SMEs fluctuates over time depending on the economy’s stateIn recent years, SMEs have created many jobs, become innovative and are increasingly entering overseas marketsEconomic contributionEconomy: a system used to determine what to produce, how to produce and to whom production will be distributedContribution to employmentContribution to the balance of paymentsContribution to invention and innovationHow SMEs can enter the global market for long-term growthThe SME sector contributes:57% of Gross domestic product (GDP) GDP indicates if the economy has experienced economic growth66% of total private sector employmentTo our balance of payments, since they are often more successful at exporting than large businesses. BOP: is a record of a country’s trade and financial transactions with the rest of the world over time, usually one yearSignificantly to the level of R&DSMEs can enter the global market by selling directly to customers in export territories, marketing products through a local distributor, participating in a joint venture with a local business partner or selling through a websiteSuccess and/or failure5 common keys to SME success are:FlexibilityReputationFocus on market nicheEntrepreneurial abilitiesAccess to informationA SME has failed when it is Unincorporated and declared bankruptIncorporated & forced into liquidation or voluntary cessationSMEs have high failure rate ABS says ? businesses will fail within the first year of being establishedThe most common causes of SME failure are managerial inexperience and incompetence, undercapitalisation and lack of planning Influences in establishing a small to medium enterprise When owners were establishing their business they needed to consider a range of influences that combine to determine the level of success achievedPersonal qualities – qualification, skills, motivation, entrepreneurship, cultural background, genderPersonal qualities , motivation, experience and entrepreneurship are the primary influences on an individual’s decision to establish a businessNot everyone suited to business owner role certain skills/personal qualities required to succeedOwners should learn the skills they don’t currently haveOwners should select a business opportunity that suits their personality and builds on strengthsQualificationsMost people who start a business are ordinary people and many with only a small amount of money. Recent research has revealed that about 75% of people who started their own SME spent at least 50 hours a week in the business. For most types of SMEs, there are no formal academic requirements needed to commence operating. Some such as professionals (accountants, lawyers, dentists etc) need academic qualifications. For those who want to gain academic qualifications in small business, there are many tertiary courses available. Most trade related small businesses require qualification and a licence. Qualifications are generally gained through an apprentice-type program. Knowledge and understanding can also come from experience working in other businesses.It is extremely difficult to categorise SME owners or the qualifications they possess. Two factors that are important are motivation and entrepreneurshipSkillsBusiness qualifications and skills are essential & can be attained through experience, education and/or training ExperienceGaining management experience before establishment can be done either by completing a management training course or undertaking management role within businessExperiences provides an essential foundation experienced individual will now understand and be realistic about financial and personal demands business will place on themExperience: Over time a person working in an industry will gain valuable experience and develop new skills from exposure to the work environment. These would include: Organisational Skills, Administration and bookkeeping, sales presentation, time management, customer service, customer applications, management skills, store presentation, leadership skills, independence, being an employee, ordering, stock controlEducation and/or trainingEducation/Training: Universities, TAFE, and business colleges offer courses in many business and industry fields. These skills allow the business owner to develop the essential skills necessary for establishing a business, including; Finance and Accounting, computer skills, staff management, business administration, marketing.?Disadvantage: expensive period of timeMotivationMotivation: refers to ur personal drive, determination and desire to achieve a goal/objectiveUnderlying attraction is the desire to transform an idea into a successful product by capturing the attention of potential customersMost business owners are motivated by the rewards they believe can be gained from establishing a business, including both monetary and non-monetary rewards.Include: Choosing location of work, being own boss (independence), making an investment, choosing those with whom you work, profits, security, developing own creative ideas, achieving a better lifestyle, employing family members, contributing to society, increasing personal wealth, capital gains, accepting a challenge, gaining recognition in the community, possible tax advantage, improving open status, experiencing some excitement, gaining more control over own destiny, overcoming employment.EntrepreneurshipEntrepreneur is an individual who starts, operates and assumes the risk of a business venture in the hope of making a profit:Socialisation makes people committed?Desire to be your own boss?Having passionHaving hope to the businessLove for your workGives employees a positive outlookChanging society thus creation of new opportunities for innovative products&services to be developedEntre. Must have range of personal characteristics that enable them to take advantage of & be successful with these opportunitiesConfident in decision making & willing to accept responsibility for decisions must always have a will to succeed may not achieve desired result on first venture hence drive, determination and ability to recover from poor decisions/mistakes is necessary to recover from poor decisions or mistakesFlair / creativity are essential for entrepreneurs as they allow them to create / seize new opportunities 4 new products, new niche marketsSuccess can sometimes depend on finding a new and more innovative way to sell a good/service.?An entrepreneur needs to set goals and have a vision for the business's future.An entrepreneur may enjoy the experience of guiding the business's growth but the working hours for a business owner could be very long. Cultural BackgroundPerson’s cultural background influences their reasons for establishing a business can arise from a community’s traditions and beliefs ‘work ethic’ – willingness to work long and hard in an effort to be successful strong in European and Asian cultures.Many migrants come w few resources except a strong desire to improve their lives, their determination translates to successGenderGovernments are implementing policies to assist small businesses in contributing to the national economy in response to these policies & to a general change in social attitudes, many women are setting up their own businesses at a faster rate then menSources of informationDon’t have funds to employ specialist/consultant to assist with management thus SME owner can receive assistance from various numbers of government and private support agencies sources of advice: Trade associationsFederal, state & local government departmentsAccountantsAusindustrySmall enterprise association of Australia and new ZealandTAFE collegesUniversitiessolicitorsProfessional advisersProfessional adviser is able to examine the business much more objectively and provide an independent analysis of the organisation more aware of changes within legal, economic and financial environment. Business owners should make use of the information & advice from the following advisers:Accountants-provide valuable advice on all financial management issues & taxation obligations-have access to latest changes to taxation & financial reporting requirements2. Solicitors-provide information concerning business formation, structures, registration, contracts, leases, partnership agreements, patents and legislation.-up 2 date with changes to company law advise small business owners how to best deal w them3. Bank managers-provide info & advice on financial services-wide range of experience -able to access bank resources4. Management consultants -give advice when owner can’t deal with an arising business management problem-are more objective & view problems in an unbiased manner-check their credentials and experience Government agenciesState GovernmentsBusiness connectBoosting business innovation programFederal governmentTechnological adviceLocal governmentOther sourcesChambers of commerceSmall Enterprise Association of Australia and New Zealand (SEAANZ)Trade associationsLibraries and reference materialAustralian Bureau of StatisticsThe business idea - competitionA business opportunity can be described as something an entrepreneur can see as a potential success. It is often identified when a business can provide a good or service in a better/different way from those already on the market. Source of business idea may come from:Own experience, interests, abilities, imaginationAccessing gov stats and research infoIdentifying ‘ gap’ in the market – a demand not currently satisfiedVisiting displays / exhibitionsIdentifying business opportunitiesTwo ways businesses can identify opportunities are:Analyse & review particular pats of the market to find an opening/’gap’ for particular goods and servicesIdentifying whether many other people share a particular interest or hobbyCompetitionCompetition: is rivalry among businesses that seek to satisfy a marketWhen identifying business opportunity entrepreneur must decide on:Type of market g&s will compete in target at mass market or niche market (specialised) owner can now identify level of comp & main competitorsHow to make the business competitive OR how to develop a customer base or gain a market share from its competitorsSME owners must decide how to make a business competitive. 2 main ways for of achieving competitiveness- cost of production and differentiation of the goods or servicesCost depends on production techniques producing good and service at lowest possible cost thus sell at the lowest price has the greatest ability to attract market shareDifferentiation making product/service different, unique, better from rivals Establishment optionsIf an entrepreneur, who will operate a business does not have the required skills, they can overcome this by:Seeking trainingHaving someone with the relevant skillsOutsourcing certain tasks to a support service. Starting from scratch allows freedom of decision making despite high risk involved.Existing business is already operating and the cost of buying it includes the initial costs etc.Franchise is working under the name and using the formula of a large business and a percentage of the revenue is paid to the franchisor. Owners must consider the nature of the product before choosing how they wish to establish a business. WAYS OF ESTABLISHING A BUSINESS: Setting up a new business from scratchConditions favourable when:Individual created something unique & starts business to market their innovation or inventionIndividual recognizes gap in market clear customers’ needs are not satisfied by existing businessesMarket has grown , existing businesses cannot supply all customersIf conditions not favourable establishment method not suitable as SMEs provide competitionPurchasing an existing businessGoodwill premises existing customer base staff location is included when purchasing the businessPurchasing a franchiseUnder franchise agreement person buys the rights to use the business name and distribute the products or service of an existing businessThey receive benefits of a successful business formula – well-recognised name, establishe trademarksMarket considerations-What g/s will be sold-most suitable price for the g/s-Most appropriate location for the businessSuccess will depend on the research and planning done to answer these 3 fundamental questionsGoods and/or services1st decision to be made is to determine what they are going to sellWhen starting a business it’s very important the owners possess the knowledge exper4ience skills required for their good or serviceBusiness’ fail without a market (customers0 for their g/s, therefore they must undertake market analysisMarket analysis involves collecting, summarizing and analysing information about the state of the market, customers, the threats and opportunities that the market presents adv & disadvantages business will have over competitors. E.g surveys, presents business owner with info about customer’s attitudes, perceptions & opinions. Answering:Age genderWho are competitors, how can we gain moreWho do we want to sell too Priceprice major impact on success of a business. Too high drive away potential customers. Too low difficult to make a profitbusiness can choose one of three methods to calculate & determine priceCost-based: Price higher then total cost of production for profitMarket-based: Setting prices according to interaction between levels of supply and demand – what the market is prepared to pay forCompetition-based pricing: Price that is below, equal or above that of competitorsLocationKey decisions of a prospective small business owner is concerning actual location of the business. Different businesses suited to different locationsLocal government zoning determines where some types of businesses can operate, it’s designed to separate business activities from residential areas preventing householders being disturbed by business’ operating late at nightShopping centre complexRetail shopping stripsOnline presence Homebased businesses FinanceFunding is needed for two reasons establishment costs (setting up the business) and operating costs (the day to day running)Crucial issue when owner identifies business opportunity, especially if hard to raise:Own funds (equity or capital) internal source of fundsLoans (debt) from external sources.Finance refers to the funds required to carry out the activities of a business; SOURCE There are 2 options to source/obtain capital; EQUITY Comes from internal sources, such as the owner’s savings and profits reinvested in the business DEBT An external source; provided by a number of financial institutions outside the business EQUITY Equity will be the entrepreneur's own money. The advantage of equity is that no interest is charged on finance contributed by the owner. This capital may come from:The owner's savingsA termination payment when the owner left a full-time jobA gift from family membersShares in the business purchased by other people.Equity finance carries an obligation for the business. This obligation is the percentage return the investors and shareholders expect from the business called a dividend. DEBT There are three main terms for debt financing; Short-term finance Money needed to fund the day-to-day workings of the business (less than 12 months). For this reason, it is commonly called working capital: current assets (receivables, inventories) less current liabilities (overdrafts, creditors). The main types of short-term finance are bank overdraft, bank bills and trade credit.MAIN TYPES OF SHORT-TERM FINANCE:overdrafts: where the bank allows a business to overdraw their account up to an agreed limit for a specified time, to overcome a temporary cash shortfallcommercial bills: primarily short-term loans issued by financial institutions, for larger amounts (usually over $100?000) for a period of generally between 30 and 180 daysfactoring: the selling of accounts receivable for a discounted price to a finance or factoring company.Medium-term finance Covers loans with a term of between one and five years. For this reason, it is normally used when the business wishes to expand, purchase new equipment or develop new products. The main types of medium-term finance are term loans, personal loans and leasing.Long-term loans Usually for a period of more than five years, are used to purchase buildings, land, plant and equipment. The main type of long-term finance is a mortgage, which is a loan secured on some type of asset such as land or a building.MAIN TYPES OF LONG-TERM FINANCE:mortgage: a loan secured by the property of the borrower (business)debentures: issued by a company for a fixed rate of interest and for a fixed period of timeunsecured note: a loan from investors for a set period of time. It is not secured against the business’s assets.COST The type of finance used by a business will influence the cost of capital.Debt financing requires the use of money from an external source, such as a bank and the cost is the interest charged by the institution The cost of equity finance is the return paid at the end of the financial year. If the business makes a profit, this return is called a dividend if the business is a company. The company does not pay a dividend if it does not return a profit; The cost of equity finance can also be measured in terms of liability. Liability is unlimited if the business is operated as a sole trader or partnership. The liability of a company is limited to just the assets of the company and all funds put in by shareholders. Legal considerations and influence of government on SMEsAll business owners have a legal obligation to observe the statutory regulations when commencing and operating a businessOf the many laws and regulations that small business owners need to comply with, some important regulations relate to:Business nameLand zoningHealth regulationsLegal requirements as outlines by the 3 levels of government that need to be obeyed or the business maybe punished usually by fines; FEDERAL Competition and consumer act STATE WHS (work cover) LOCALZoning Business nameAustralian Securities and Investment Commission (ASIC) are responsible for a national business name registration serviceNeed to register their business name when the name is that of the owner it’s optionalZoningLocal government controls zoning regulations have the authority to restrict where certain businesses can locateZoning regulations create areas where land can be used only for particular purposes, where “ “ take placeResidentialIndustrialRecreationalCommercial activitiesWhen establishing business owner must inquire with the local c9uncil to determine which zoning regulations will affect their business now & in futureHealth regulationsThe Work Health and Safety Act 2011 (NSW) provides a framework to protect the health, safety and welfare of all workers and others in relation to NSW workplaces and work activities. The following is required; Provide a safe working environment for employees or anyone on site Training in work health and safety issue of employees Provide worker compensation insurance to all employees Report any serious accidents/injuries/deaths to Work Cover NSW Provide ongoing health care/rehabilitation and physio until the employee can return to work Local government imposes health regulations under the Public Health Act 2010Every local council supplies businesses with standards requirements to meet in order to receive a license to operate, including:TemperatureKitchen layoutCorrect food handlingOther regulationsThe competition and Consumer Act 2010 (Cwlth) is a federal government statute that aims to:Promote fair trade and competition in the marketplaceProtect both consumers and businesses from deceptive & misleading practicesAustralia Competition and Consumer Commission (ACCC) :Overseas the Competition and Consumer Act 2010 Provides guidance to small businesses and to help them deal with their individual matter. Also directs small businesses to alternate dispute resolution processes Human resourcesSkills SKILLS Skilled employees are highly productive and result in creating wealth for the business. The main objective of recruiting is to choose the most appropriate person for a particular job.The skill base of existing employees should also be detailed, so that:Training can be provided to improve the skills level of existing employeesRecruit people who have the required skills if the existing employees do not have those skillsWhat skills would an employer need from their employees; Good attitude/motivated/ready to work to best of their ability Customer service skills e.g. communication skills Formal qualifications e.g. TAFE, university, business college Experience e.g. on the job training Organisational skills Follow instructions Cost- wage and non-wage WAGES/SALARIES (RENUMERATION); A wage earner is paid on an hourly basis and can earn overtime A salary earner is paid on a yearly basis. There usually aren’t any opportunities to earn extra money. There are no real set hours; any extra time doesn’t relate to extra pay ON-COST;All employers who have permanent worker (full time or part time) have to pay on-cost On-cost are payments made to the employee by the employer on to of their regular wage/salary A business will only employ someone if the return is greater than the cost. The total cost of an employee is not solely the wage or salary paid. The employer is also responsible for other employee expenses, referred to as on-costs.The main on-costs include:Occupational health and safety requirementsLong service leaveSick leaveSuperannuationHoliday payStudy leaveMaternity and paternity leaveWorkers’ compensationLeave loading.SUPERANNUATIONThis requires all employers to make a financial contribution to a fund that employees can access when they retire. The main aim of superannuation is to give employees a sum of money that can be used:For their retirementIf they become an invalidBy the beneficiaries upon a person’s death ANNUAL LEAVE LOADING An extra amount (17.5%) is added to an employees’ holiday pay. The amount is calculated on the four weeks’ annual leave to which each fulltime, permanent employee is entitled. Unions negotiated a percentage loading for workers so that the average family could afford to go away for a holiday LONG SERVICE LEAVE After 10 years service, an employee is given 10 weeks extra leave (paid) CARERS LEAVE Usually family members MATERNITY LEAVE Having a baby; up to 18 weeks paid leave; 12 months leave without pay Taxation- federal and state taxes, local rates and charges Taxes, local government rates and charges must be considered and budgeted; FEDERAL Taxes include; COMPANY TAX 30% of every dollar of profit a business makes PAYE (PAY AS YOU EARN) TAX This is the income tax paid by employees. The business must calculate the appropriate amount of tax and then deduct it from the employees' pay, reducing their disposable income. The withheld tax must be passed on to the ATO.GST (GOODS AND SERVICES) TAX private consumption of 10%. Fresh food is excluded. FBT (The Fringe Benefits Tax) - certain benefits companies give to their employees, e.g. the private use of a company' vehicle.FRINGE BENEFITS (FBT) TAX Tax on the provision of a benefit to an employee - such as cars for private use, low-interest loansSTATE Taxes include; PAYROLL TAX Tax based on the total amount that employers pay in wages; tax on employing workers LAND TAX Tax levied on the owners of land in NSW LOCAL COUNCIL Rates (a system of property taxation usually based on the values of land), is the main local government charge a business will face. The 3 main areas in which fees or charges are levies are; Water and sewerage Waste management services Development and building approval fees The business planning processAll SME owners must have a good understanding of the:Role of the business planProcess of business planningThe role of the business planBusiness plan: is the travel itinerary for future growth and development within a business. It sets out the desired goals and direction of the businessEssential role of the business plan: is to act as a guide or map on which the business’s journey can be plotted most useful management tools a business owner can use in all businesses, the best results come from effective management and detailed planningWhat is a business planIt is a written statement of the business’s goals and the steps to be taken to achieve them it is a summary and an evaluation of a business idea in written formA comprehensive business plan will assist when arranging finance for the business the plan provides information that lenders need to know and it also shows that the business is being properly organized and managedTime invested in planning never wasted in the long run chances of success are greatly improvesEach plan unique contains info and strategies that apply to one particular business dependent on variables such as the product the market, the size of the business and its locationCommon elements of a business planElementPurpose1: Executive summaryA brief overview of the plan2: GoalsWhat the business hopes to achieve3: StrategiesAn overview as to how the business will attempt to achieve the goals4: Business description and outlookOverview of the industry in which the business will operate including situational analysis5: Management and ownershipThe nature and type of organisational structure6: Operational plansDetails the production process & the individuals required now & in future7: Marketing plansThe product, price, promotion & distribution details8: Financial plansDescription of the business’s financial needs & methods for evaluating its performance9: Human resource plansDetails both the present and future staff requirementsBenefits of a business plan Sources of planning ideas business environment is divided into two categories:the internal business environment: covers the factors within the direct control of the owners- represents what occurs within the direct control of the owners 4309153-3821000This is the larger environment within which the business operates. It consists of factors over which the business has little control & repreents what occurs on a larger scale outside the businessInformation is the essential ingredient needed to prepare a business planOpportunities & threats are external to a business, and if a business does not respond to these the business can failSituational analysisA situational analysis refers to a collection of methods that managers can use to analyse a business’s internal & external environment. One method of analysis is SWOT analysisSWOT analysis: an excellent technique for gathering information for use in the business plan strengths, weaknesses, opportunities and threatsAnalysis of the business’s strengths & weaknesses is an internal analysis30581602349500Analysis of the business’s opportunities & threats is an external analysis Important to the business plan is identification of unmet or unsatisfied demand that the business can perhaps satisfy the business owner should attempt to convert threats into opportunities.Vision, goals and/or objectivesVisionBusiness’s vision is expressed in their vision statementVision statement: broadly states what the business aspires to become in the futureVision of the Commonwealth Bank is ‘to excel at securing and enhacing the financial wellbeing of people. Businesses and communities’Vision statements may relate to customer or employeesMain purpose of it is to guide & direct business owners, managers and employees creates the culture within the business & acts as a benchmark against which to measure all the business’s decisions & operationsE.g Oxfam ‘ a just world without poverty’Goals and objectivesOnce owner has formulated vision statement can determine specific goalsPeople start up a bsiness as they want to achieve somethingGoals for businesses could include:To become the largest business in the marketImprove market shareProvide a reasonable return for investorsContribute to the wellbeing of the communityALL these goals 1 thing in common they are the motivating force behind the businessLevels of goals and objectives Action plan develoedp breaks down the goals into objectives – specific statements detailing what a business (or individual) needs to achieve in order to accomplish its visionStrategic goalsSenior managementFocus on long-term broad aims and apply to the business as a wholeThe chief executive officer (CEO) may establish a strategic goal of ‘increasing market share’ will involve the input of 4 key business functional areas – operations, marketing, finance & human resources.Tactical objectivesMiddle management setFocus on mid-term , departmental issues & describe the course of action necessary to achieve the business’s strategic goalsUsing previous e.g, a marketing manager may set a tactical objective of researching consumer tastes & preferences in order to help achieve the strategic goalsOperational objectivesFront-line managers or supervisors setFocus on short-term issues and describe the course of action necessary to achieve the tactical objective & strategic goalsMarketing supervisor may set an objective of arranging for 20 customer to attend a focus group, research session to help achieve the tactical objective & strategic goal-9461546203900292354032497100A business needs to have a clear idea of what it is trying to achieve; in other words; needs clear goals & objectives it is the interaction between the vision statement, goals & objectives that provide a process for a business to accomplish thisLong term growthAn important aspect of profit maximization is the business’s ability to maintain profits over time to achieve a business must aim for long-term growth:Long-term growth: is the ability of a business to continually expandLTG depends on a business’s ability to develop & use its asset structure to increase sales, profits & market share important goal of management as it ensures that the business is sustainable into the future LTG requires comprehensive, strategic planning, For business to prosper & grow must have a sustainable competitive advantageSome other strategies that successful businesses have used to achieve long-term growth include:Customer feedbackSupplier and customer partnershipsCostStigma sixStaff motivationStigma – six process is one in which 99.99 % of all manufactured products are free 47790107920800Organising resourcesAfter SME owner formulates the vision, goals, objectives – next stage in planning process requires organising the resources – human effort, time, money, equipment & materials – needed to fulfill the plan. Organising is determining: what is to be done, who is to do it, how it is to be doneCreation of an organizational structure: the frame work in which the business defines how tasks are divided, resources are used and departments are coordinatedStep 1: Business organisation structure Vision/goals objectivesStep 2 & Step 3: Determine activities, then group them Step 4: Assign work tasks & delegate authority The benefits of a properly implemented organising process is that it:establishes a chain of command that results in an orderly way of communicating within the businesscreates a coordinated work environment by outlining sensible guidelines for who does what and who is responsible for various activitiesprovides a sense of common purpose so that all employees are working towards a common vision, goal or objectiveorganises resources in the most efficient manner so that all employees can perform their tasksPart of the organizing process required resource allocation: refers to the efficient distribution of resources as to successfully meet the goals that have been establishedResource allocation establishes what work will be done by who what machine what conditionsEach of key business functions require specific resources that need to be effectively organizedOperationsOperations function of a business involves transforming different types of inputs (raw materials, labour, equipment & other resources) into finished goods/services.To undertake successful production, factors need to be considered:Type of equipment & raw materials neededWhich suppliers will be used to purchase the Amount of money allocated for purchase of resourcesStorage, warehouse, delivery systems requiredLevel of technical expertise employees will need to achieve maximum production Resources to be organised:Raw materials – type, quantity, suppliersMachineryLabour – type, expertise, numberMoney to purchase raw materials & other operational resourcesStorage – warehouse Delivery SystemsMarketingMarketing – integrating all sections of business to satisfy the needs and wants of consumers & achieving business goalsResources to be organised:Employee training where employees do not have the expertise requiredMarketing – employees of all departments must be coordinated e.g sales, public relations, advertising, market research, distribution of staffOrganise informational, financial & physical resources so marketing staff can get their jobs doneAdditional funds may be needed to accomplish all the marketing objectives given to a specific department or team. Efforts of all employees in the marketing department must be coordinated and this is best achieved by adequate resourcing.E.g, the sales consultants, advertising personnel, market research staff, distribution people and so on must be provided with the informational, financial and physical resources to perform their jobs.FinanceFinance: Funding, acquisition + distribution in businessResources to be organised:Financing sources e.g family, friends , banksEquity (owner ship) & control of business (equity vs debt capital) Grants – any monetary/financial assistance that does not have to be repaid. Provided for expanding, research & development, innovation, exportingIn organising the financial resources: what is the most appropriate source of financingAmount of equity (ownership of the business) and potential control SME owner has to hand over to obtain the necessary financing (debt capital) think shark tankExplore wide range of federal and state government grants:Grants are usually provided for expanding business, R&D, innovation, exportingHuman ResourcesHuman resources: employees are the most important resource in Resources to be organised:Recruitment & selection criteria & processTrainingMotivation to keep employees e.g tangible & intangiblePromotion opportunitiesCompliance with legislation – anti discrimination & equal opportunityOrganisational leave, maternity Important aspect SME owners need to consider when organizing HR is to provide adequate training and development for staff,seek wats to motivate employeesensure they comply with existing legislation relating to employeese.g Myer retains valuable employees through policy of 6 weeks paid maternity leave for staff who worked minimum 18 monthsForecastingBusiness needs more than just information about present business conditions needs info about possible future eventsForecasts (projections): are the business’s predictions about the futureForecasts needed to enable effective planning; owner may forecast the availability of labour, raw materials, finance and building requirements for this task business owners rely on internal and external information sourceOne useful set of data is the forecast for total revenue and total costTotal revenue, Total costWhen trying to determine if a business will be financially successful, SME owner can attempt to forecast the amount of money the business may receive as sales – its total revenye and how much it has to pay for business expenses – its total costsTotal revenueTotal revenue is the total amount received from the sales of a good/serviceTR= P x QP = priceQ = quantity of units soldpossible to forecast total revenue by estimating how many units are expected to be sold. For example, if the price of each unit is $100 and 25 are expected to be sold, then the total revenue forecast will be $2500.Estimates of future sales are determined by the demand for the business’s good or service and the amount of competition in the marketplace. Sales forecasting data:can be gathered by using market research techniques such as customer surveysare more precise if the business has some previous sales history to act as a guide.Total costCosts involved in operating a business can be broadly classified as fixed/variable costsFixed costs (FC) : costs that don’t vary regardless of how much units of a good/service are producedVariable costs (VC) : costs dependent on the number of goods produced Total cost of producing a certain number of goods/services isFC+VC=TCIt is possible to forecast total cost by estimating the change in variable costs at different levels of productionForecast of total revenue and total cost make it possible to use the very useful forecasting technique: break even analysisBreak even analysisBreak-even analysis is used to determine the elvel of sales that need to be generated to cover the total cost of productionTotal cost of production includes fixed costs (costs that don’t change regardless of how much is sold) & variable costs (costs dependnent on the amount of sales – e.g materials)Sales above break even point = profitSales below break-even point = lossBEA important planning tool as management can determine the level of sales required to obtain a profitCan be used to determine the effect on profit if sales increase/decreasePlanning tool used in the strategic planning stage, b4 budgets preparedBreak-even sales quantity:Quantity Q=Total fixed costsUnit price-Variable costs per unitBreak-even is the point where sales equal costs (fixed & variable) - @ this point profit nor loss are madeE.g 5000 units will need to be sold to break evenBiz fact !4713623-126100Fixed costs do not change as sales increase or decrease. They include rent, insurance, salaries of management and office staff, rates, depreciation, interest on loans, and office expenses.471357918161000Variable costs increase as sales increase or decrease when sales go down. For example, for every $1 of sales, a business has estimated that 25c (or 25 per cent of sales) represents variable costs.Examples of variable costs are direct labour and materials, commission on sales, delivery, freight, packaging.48301849054600Total costs are the sum of the fixed costs and the variable costs.Cash flow projectionsThe cash flow projection shows the changes to the cash position brought about by the operating, investing and financial activities of the businessProvides information concerning the business’s’ expected cash receipts (cash inflows) and cash payments (cash outflows) over an accounting period – usually 12 monthsPlans consist of a month-to-month projection of the flow of money into the businessOwner should b able 2 estimate the business’s bank balance for each month & identify the duration of possible cash shortfallsOverall info will point out periods when business expenses are too high / times when a short-term investment is possible to deal with a cash surplus.The cash flow projection is an important tool for cash flow management. It offers:the SME owner a clear indication of how much capital investment the business idea requiresa bank loans officer evidence that the business is a good credit risk.271502752629000It is important to not confuse a cash flow projection with a cash flow statement. The cash flow statement indicates how cash has flowed into and out of the business in the?past?period of time. The cash flow projection shows the cash that is expected to be made or spent over a period of time into the?future. INCLUDEPICTURE "" \* MERGEFORMATINET Monitoring and evaluationsBusiness has to monitor & evaluate its environment and take corrective action – adjusts its business plan to avoid any problemsThe plan must be constantly monitored and evaluated so the business can make accurate modifications as necessaryMonitoringProcess of measuring actual performance against planned performance. Constantly askingWhat does business want to achieve – goalsAre goals being achievedMonitoring involves 2 steps:Establishing forecast performance standardsRequired business to outline what it wants to accomplish – to establish a performance standard: a forecast level of performance against which actual performance can be comparedE.g a 5% increase in month sales, e.g a production quota of 1000 units per weekComparing actual performance with forecast performanceBudgets, sale statistics & cost analyses can be used to evaluate results only thru establishing performance stands & comparing them with actual performance an owner can evaluate the effectiveness on business planEvaluatingEvaluate their business’s performance to determine whether the goals have been achieved. Evaluating involves:Examine what strategies made business plan successful Identifying weak spots that could be improved & modify the plan to fix them3 AREAS need constant monitoring & evaluating are sales, budget and profitMonitoring and evaluating salesSales management control involves:Comparing budgeted sales against actual salesMaking changes where necessaryE.g new selling technique is introduced; the level of sales will need to be closely monitored to determine whether actual sales are above/below what was forecastMonitoring and evaluating budgetsBusiness shouldn’t operate without having prepared a budgetA budget is the business’s financial plan for the future outlines how business will use its resources to meet its goalsA budget is an important part of the planning process. Its preparation must account for various factors, such as:a review of past figures and trends, and estimates gathered from relevant departments in the businesspotential markets or market share, and trends and seasonal fluctuations in the marketproposed expansion or discontinuation of projectsproposals to alter price or quality of productscurrent orders and plant capacityconsiderations from the external environment (for example, financial trends from the external environment, availability of materials and labour).The budget should be regularly compared with actual revenue and expense amounts to detect any discrepancies. For example, once the owner has determined the goals, they can then estimate the business’s various costs and its revenue.?Profit budget should be reviewed at leat once per month and should compare projected amounts to actual amounts modifications must be implemented if there are any discrepanciesMonitoring and evaluating profitProfit is one of the most intensely watched financial indicators5 main reasons a business’s profit levels must be carefully monitored & evaluated:Profit as rewardProfit maximisationProfit as a source of financeProfit as a performance indicatorProfit as a dividend paymentOne of the most challenging tasks is to evaluate profitability; evaluation of profit is to calculate financial ratiosTaking corrective actionModifying: is the process of changing existing plans, using updated information to shape future plansCorrective action may involve:changes to the materials, products that are the firm’s outputcosts of turning raw materials into productmanagement practicesChanges to the organisation’s human resources, as each individual’s performance in the organisation is as important as the finished product.Critical Issues in Business Success and FailureImportance of a business plan BUSINESS PLAN A written summary and evaluation of all the research and thinking an owner has done in the development of an idea. Defines the business, sets out its goals and describes the strategies that will be used to achieve the goals. A detailed business plan greatly increases the chance of success A BUSINESS PLAN SHOULD CONTAIN; A clear, concise statement of the goals of the business- what the business wants to achieve Well-developed plans for achieving these goals- how the business is going to achieve the goals Reliable control standards for measuring performance- has the business achieved the goals; if not, what needs to be changed? A COMPREHENSIVE PLAN IS ESSENTIAL FOR BUSINESS SUCCESS Lack of planning is disastrous Best results come from effective management Manager uses business plan and adjusts the plan when changes occur Management- staffing and teams A manager’s skill is the most critical factor in determining a businesses success or failure. 2 important areas of business that a manager must pay special attention to are;STAFFING If a SME owner wants the business to succeed, then it is essential to have employees who are satisfied and motivated, as they will be more productive. They also provide the business with a competitive advantage, especially if the business offers a service where the customers come into direct contact with the employees Many SME owners outsource recruitment process and use an external recruitment agency. Business pay an agency to interview candidates and recommend a shortlist of potential employees The next important staffing management function is to achieve the right mix and level of employee’s skills. this is best accomplished by using a skills audit and skills inventory; AUDIT Process that established the current skills levels of employees and future skills requirements. The aim of the audit is to identify; The skills that will give the business a competitive advantage Weaknesses in the skills base which will threaten the businesses survival INVENTORY Database containing information on the skills, abilities and qualifications of existing staff; used to search for appropriate candidates to sill new positions within the business TEAMS Teams are replacing individuals as the basic building blocks of businesses of all sizes, especially in those businesses that are adopting flatter organisational structures. Businesses are learning that teams; Make more informed and creative decisions Work without the need for close supervision Create greater levels of employee corporation Provide improved customer service an/or production output SME owners are seeking professional help from training and coaching businesses. By investing time and money in the development and training of team leaders and team members, the business reaps the rewards of improved productivity Trend analysis TREND ANALYSIS When a business looks at trends/patterns that might appear over a period of time, then analysing and making decisions based on the trends. Trend analysis will assist SME owners to achieve business success by helping forecast following factors; Potential sales Total revenue Total operating costs Gross and net profits Availability of labour Identifying and sustaining competitive advantage COMPETITIVE ADVANTAGE Refers to the strategies used by a business to gain an ‘edge’ over its competitors. What makes your business stand out from other businesses (why has customer chosen YOUR product) How to get competitive advantage; PROCESS When a business produces a quality product but is able to reduce costs. The result is a cheaper product with the same quality of competition PRODUCT Differentiation of product means what makes your product stand out from the competition; Features Quality Design Innovation CUSTOMERS How do you treat your customers to give you a competitive advantage; Personalised customer service Building relationship with customers Other specialised services other businesses don’t offer Marketing is the most effective tool to sustain a competitive advantage; A business can maintain a competitive advantage by keeping a core market of loyalcustomers.Location is often a very important factor in gaining an advantage over competitors. All businesses will need to consider the advantages of being located near their target market, suitable employees and their suppliers and other support services.A competitive advantage in operations can be gained by using new production technology Price/cost strategy is best accomplished by achieving the lowest production costs, which in turn allow it to reduce the product price Differentiation strategy is to offer customers something that is not already offered by business rivals An effective employment relations system builds loyal, productive staff who share the vision of the business Effective communication systems are the result of good planning, organisational structure and managementA financially efficient and stable business carrying low levels of debt and an appropriate amount of cash and other liquid assets will have an advantage over its competitors Avoiding over-extension of finance and other resources Finance How can a business over extend when financing (debt finance). Debt finance is a problem for some businesses, too much debt finance to equity finance. Mortgage (land & building) Other assets e.g. leasing machinery, equipment, vehicles If a business is highly geared and the economy is moving into a downswing, the owner will experience 2 financial problems; Falling sales will reduce cash flow Interest expenses must be met from a shrinking level of gross profit A downturn in economic conditions and consumer confidence causes a dramatic fall in sales. To avoid this a business should consider; BUSINESS PLANNING Involves completion of cash flow projections, preliminary establishment costs, personal financial budgets and financial statement of position LONG-TERM FINANCIAL PLANNING Anticipating future problems and planning the businesses direction is terms of growth/expansion AVOID OVERDEPENDENCE ON DEBT FINANCING Helps avoid problems during weak economic periods LEASING Rather than buying equipment; reducing need to borrow EXPANDING GRADUALLY Rather than growing too fast and losing financial control Other resources ASSETS If business does not have enough finance to establish and operate it, it is UNDERCAPITALISED Capital that is tied up in assets will mean there is less finance for day-to-day operations STOCK Business that overextends stock has invested too much money in goods or raw materials Stock is unrealised sales, and business with too much stock will potentially lose revenue Recommended to keep limited supplies and order regularly STAFF Staff are costly, but there are options to reduce costs in long term; Outsourcing Redefining current job descriptions Using more equipment/machinery Using technology In business, technology can include office and manufacturing technology. Computer technology Used for accounting, monitoring the trends in sales of goods and therefore allows the business to maintain appropriate inventory levels Having the latest technology can give a manufacturing business a competitive advantage By leasing equipment a business can avoid the high capital cost of purchasing new equipment and technology Office technology Has streamlined many operations, reduced costs and increased the flow of information to facilitate better decision making. These include; Mobile phones Fax machines Person computer Broadband internet Paper shredder Skype Email E business Electronic business; using the internet to conduct business E commerce Buying and selling of goods/services via the internet Economic conditions The economic conditions are an aspect of the external business environment in which the business has no control; STRONG ECONOMIC ACTIVITY High levels of consumer spending Businesses have greater capacity to sell goods/services, therefore profits are maintained and improved Falling unemployment Unemployment is lower as business can afford to hire more employees when sales and profits are steady/growing Increased production Businesses output will increase for future increased sales and profit WEAK ECONOMIC ACTIVITY Lower levels of consumer spending Businesses have a reduced capacity to sell goods/services, thus, profits will decline Rising unemployment Businesses cannot support current employee numbers when sales and profits are decreasing, consequently, employees may be made redundant Decreased production Businesses output will decrease in response to the fall in consumer spending; profits will decrease ................
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