Professional Documents
Culture Documents
Bus-business
Nature Of a Business
PRODUCTION AND CREATING VALUE/BENEFITS
Terms:
Business- organized effort of individuals to produce and sell for a profit the products that satisfy
needs and wants of customers
Finished product- one ready for customers to buy and use
Production- activities undertaken that combine resources to create products which satisfies needs
and wants
Questions:
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What is the function of a business? = To turn inputs into outputs by adding value to it through
manufacturing. Also to satisfy the needs and wants of consumers. They also exist to provide
employment to the community.
How do businesses achieve their function= businesses first decide on creating their final
product. They collect their inputs and get skilled employees to prepare the input into a final product
and pays employees before making a profit.
Why are businesses important? = Reasons why businesses are important are:
They serve the needs and wants of consumers and come up with goods/services
according to society demands
These businesses play an important role in Australia as they are a major source of
employment and their total output adds to the economic growth and well being of Australia.
52% of private businesses are small businesses. Also they earn more profit so they pay
more taxes than large businesses.
Many have established profitable overseas markets, which generates much needed export
income. This has an important on Australians balance of payments.
Research and development undertaken adds to the number of inventions and innovations
in Australia. Small businesses provide 40% of all the products produced each year.
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Employment
Businesses
Innovation
Businesses provide
purchase part of a
provide almost
business so when
80% of
resources needed to
opportunities for
maintain continuous
employment in
research and
Australia
development program
Companies, which are
make profit as
innovative, have
businesses give
existing of
businesses
Consumers can
purchase a
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value
Owners and
investors can
receive money if
sales exceed
normal prices
Wholesalers could
also get money ad
their amount on
products could
increase.
Shareholders are
Employers
Customer
Environment
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Government
BUSINESS GOALS
Financial goals- goals focusing on financial success
Financial:
Social goals- aiming to bring benefit to sectors of the community; are to build reputation and to
ensure community is satisfied
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To build accommodation near hospitals for families with seriously ill children.
To have "catch up" learning programs where sick children are provided an education.
To support umbilical cord blood banks
The running of the running of the restaurants and charities are different as McDonalds the
restaurant has 22% of its money also going to charity to sponsor the charity work McDonalds does.
The charity uses this money for its resources/staff. Mc Donald's are also sponsors of sporting and
TV events that are important in society. Ronald mc Donald teams up with coca-cola who gives
charities free coke machines at every house and free coke to use in McDonald restaurants.
Effective coordination ensures minimal wastes, greater efficiency and superior products
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BUSINESS ENVIRONMENT
Business environment- surrounding conditions
-
ESTABLISHMENT
Challenges:
1. Choosing an appropriate product with distinctive advantage over the competition.
2. Finding the right size and location of premises
3. Finding the best angles for marketing
4. Anticipating the business entire financing requirements throughout its establishment phase
GROWTH
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Developing accounting and financial information systems which provide management with
detailed information about the performance of the different aspects of the business
Managing cash flow and taking into account the financial requirements involved in
expanding the business
Taking the opportunities of improving economies of scale with the increased production
levels
Sustaining growth and not letting the successes of the business create a sense of self
satisfaction or laziness
Redefining the role of management so that the manager's workload is not overwhelming.
MATURITY
Sustaining the motivation of management and staff and avoiding laziness or complacency
POST MATURITY
STEADY STATE
DECLINE
difficult to overturn
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RENEWAL
undergoes revival
1. The definition of a small business according to the Australian bureau of statistics are:
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Having an asset value of less than $5 million. They are independently owned and operated and is
closely controlled by the owner/manager. The decision-making is done principally by the
owner/manager. Most of the operating capital is contributed by the owner/manager.
Three main areas of small businesses are:
Construction- there is a need for constructing infrastructure regularly for personal/business
purposes. These are spread out evenly and have a significant importance as we need
maintenance of our infrastructure and also need to expand areas occasionally. It doesnt need
much skill, which attracts people, as it's easy to get into this business.
Property and business- people need to buy/sell houses and need a real estate in every suburb.
They also a need for services on how to maintain their house and other assets e.g. cars, property
area etc.
Retail- we wear clothes all day, everyday so there are establishment and existence of businesses
as they feel consumers would want a variety of clothing's and different types. Also that you can
make profit in this industry.
BUSINESS FAILURE
Solvency- where debts can be paid
Insolvency- inability to meet debts
Bankruptcy- declaration that a bus is unable to pay off debts
Realization- converting assets into cash
Voluntary cessation- when you stop operating bus at own agreement
Involuntary cessation- forced to stop trading
Creditor- people/bus who are owed money
Liquidation- when business goes under converts assets into cash
Voluntary administration- independent administrator appointed to operate bus in hope of trading
out of financial problems
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Market share- percentage of the total sales of a product captured by a particular business in the
industry during a set time period.
Undercapitalize- the situation in which owners of a business provide insufficient capital (funds) to
meet the high cost of establishment
Break even analysis- technique commonly used to assess expected profitability of a company or
single product. It determines of what point revenue equals expenditure.
Write about business relating to business failure:
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BUSINESS ENTITIES
Business entity- any organization involved in production
Disadvantages
unlimited liability
Complete control
less costly
burden of management
all profits
difficult to expand
simplest form
less regulation
no disputes
Disadvantages
unlimited liability
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less costly
disputes
less regulation
COMPANIES
Company- incorporated, registered separate legal entity
To become incorporated: 1) lodge an application with ASIC and receive cert. of Incorporation
2) complete Memorandum of Association and Articles of Association
3) Receive ACN, pay fees to ASIC
Prospectus- document stating financial info, assets and liabilities, future prospects; issued by
public companies to shareholders annually
Limited liability- limits owners financial liability; if company goes into liquidation they cant be
forced to sell their personal assets
Memorandum of Association- document governing relationships b/w third parties. States: name,
purpose, initial capital, liabilities of shareholders, statement that subscribers wish to form a
company
Articles of Association- set of rules of by-laws that govern the internal running of company of incl.
share transfers, election/removal of directors, meetings, profit distribution, etc.
Proprietary (private) companies has 2-50 shareholders, small-medium size, usually family
owned
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Govt corporation
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Small bus has failed when 1). it is unincorporated and declared bankrupt
2). Incorporated and liquidated
High technology (hi-tech)- new and innovative bus depending on advance scientific and
engineering knowledge
Value chain: R&Ddesignproductionmarketingdistributionservice
THE BUSINESS ENVIRONMENT AND ITS IMPACT
Economic cycles- periods of growth (boom) and recession (bust) that occur as a result of
fluctuation in general level of economic activity
The economic cycle
The level of economic activity in country is determined by economic cycle.
It is impossible to save when a boom/recession period will happen. There are upswings and
downswings of the economy.
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Boom
High employment, inflation increase, wage increase, increased consumer spending and high
confidence by consumers, government and businesses
Down swing
Loss of confidence by consumers, government and business sales growth decreases, increased
unemployment and increase in competition between businesses.
Recession
Increased unemployment, decrease in sales (maybe inflation), not many wage rises, consumer
spending decreases and low confidence by consumers
Upswing
Sales start to increase and businesses conditions improve. Employment levels increase a
consumer confidence increases.
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Disadvantages
restricts free operation
market o/s
ETHICAL AND SOCIAL RESPONSIBILITIES
Bus ethics- application of moral standards to bus behavior
Conflict of interest- taking advantage of a situation for their own gain
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Ethically responsible
act honestly/morally
Socially responsible
Structures organization fitting environ.
Laws
honour commitments
Good rep
Recognizes contribution
Enlightened self interest- belief bus helps itself when solving societys problems
Social audit- report of what bus has done and is doing regarding social issues
DHARMA- managers acting ethically; free of self interest
KEY BUSINESS FUNCTIONS
Product- is a set of tangible and intangible features. Strategies includes extension adding
new products, contraction when a business stops making a product and rejuvenation
redesigning/repackaging a product
Promotion: Promotion is the approaches used to get a good or service noticed by potential
customers. Approaches used are personal selling, sales promo, publicity, advertising,
sponsorship
Place is where the exchange between buyer and seller occurs. Placing strategies include
intensive (where product is available at every possible outlet i.e. coke), selective (wide
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distribution of products without intensive i.e. shampoo at hairdresser) and exclusive (limited
supply, implies elitism)
Marketing environ: technical forces, competitive forces, political forces, economic changes,
legal forces, societal forces
Accounting provides info about financial status, cash status, financing info, cash flows,
profitability, trends in earning and borrowing
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Intangible assets:
Patents
Reputation
Copyright
Trademark
Goodwill is value placed on business reputation or size of customer base
Liabilities include
Current- debts the business owes to stakeholders outside the business which must be paid off in full within
accounting period and include:
-Overdrafts, short-term loans or accounts payable
Non-current- long term liability in accounting period which is extended as long as needed an includes
mortgages and term loans
Assets= liabilities + owners equity
Cash flow statement- records cash transactions of a business over a period of time and accounts for cash
inflows and outflows creating a balance
Purpose- ensures business had adequate level of cash and liquidity within a business and prepared each
month to record times business experiences cash shortages or surpluses. It's crucial for:
-Cash to proximate suppliers as needed to provide stock and can mean potential fall in sales and ultimate
profitability in no existence of it
-Business may become insolvent leading to cessation of business
Cash flow statements classified into:
Cash receipts- flow of cash into business and rises as cash does. Occurs when increase in sales, debaters
paying back to business, business assume funds from bank in form of loan or overdraft and business selling
off non-current asset/s
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cash payments- increase in expenses and less cash flow. Occurs when there is increased cost of wages,
increased expenditure on stock and inflation within economy
key uses of financial statement:
-
It can be used to measure business performance and expected and planned performance.
Revenue statement:
Records expenses and income of business over a defined period. It shows the profitability over given period
and commonly prepared at the end of each month.
Revenue- money flowing into business which business earns by arriving out its operations
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PERT and CPA show what needs to be done and how long it takes and order. Gantt charts
outline activities, order and expected time.
TASK DESIGN
Task design- classifying job activities in ways that make it easy for an employee to perform and
complete the task successfully
Warehouse should be located in an area accessible to transport b/c helps distribute product to
markets, helps employees access site, it depends on cost however.
TECHNOLOGY
Telecommute- travel to work electronically
Robotics- highly specialized form of technology capable of complex tasks
CAD/CAM
CAD- computer aided design; computerized design tool that allows bus to create product
possibilities from a series of input parameters; a computerized graphical design that generates 3D
diagrams from a set of input data
CAD designs a sequence of steps needed to be taken to create desired products in shortest
lead time possible
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CAM- computer aided manufacture; software that controls manufacturing processes; can be linked
to CAM to allow instantaneous manufacture of designs that are accepted by clients
INVENTORY CONTROL
Stock take- the physical counting of goods to determine how much of each stock item the bus has
at a certain point
JIT- just in time; ordering stock when needed saves bus on storage costs, handling costs,
stocktaking, security and problems associated with slow turnover
PRODUCT LAYOUT/OFFICE LAYOUT/PROCESS LAYOUT
Mass production- characterized by manufacture of high volume of constant quality goods
Work stations- desk areas required by office workers
Process layout- characterized by grouping together machinery with similar function
QUALITY MANAGEMENT
TQM based on 4 principles: kaizen, prevention, focus on customer and client, whole bus
responsibility
RECORDS MANAGEMENT
Records management- an administrative task involving collection of data
EMPLOYMENT RELATIONS
Employment relations- types of interactions among people
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Maintenance- is keeping the employees. This can be done through monetary benefits (pay
rise, etc) or non-monetary (company cars, discounts, etc)
ACQUISITION OF HR
HR planning- development of strategies to meet the bus future HR needs
Natural attrition- normal loss of employees from retirement, resignation and promotion
Replacement chart- list of key personnel with possible replacements
Job analysis- systematic study of each employees duties, tasks and work environment
Job description- written statement describing duties, tasks and responsibilities
Job specification- list of key qualifications needed to perform a particular job in terms of skills and
experience
RECRUITMENT AND SELECTION
Employment process- bus matches staffing needs with available HR
Recruiting- process of attracting employees
Employee selection- gathering info abt applicants for a position then using info to choose the
most appropriate applicant
Orientation- process of acquainting new employees with and their job
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five classifications for employees: casual, probation, temporary, fixed term contract, permanent
Employer
Providing work and tasks
Employee
Obey lawful and reasonable commands
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2. Affirmative Action (EEO for women) Act 1986 (commonwealth)- strives to correct
imbalances
OCCUPATION HEALTH AND SAFETY
ESTABLISHING A BUSINESS
Personal qualities:
i.
Determination: to succeed in a business you must be determined to
reach your goals
ii.
Dedication: you must be dedicated to your work and give 100% to ensure
you have a good chance at success
iii.
Organised: there is a lot of paper work and legalities when it comes to
businesses. Being organised will prevent any loss of files such as tax files
iv.
Experience: knowing what you are doing will really help the business as it
will run more smoothly and if you have experience you will know what to
expect so you can be prepared or you will know what is required so you
can budget
v.
Motivation: if you stay motivated you will be more inclined to succeed
vi.
Creative: being creative will greatly assist the business, especially when it
comes to things such as marketing
vii.
Initiative: taking initiative and leading the way will help you stay focused
viii.
Independent: if you are not afraid of being on your own, you will learn
how to cope individually and keep the business running
ix.
Skilled: if you are already skilled in the area that you are going into it will
make things a lot easier as you already know what you are doing
x.
Reputation: having a good reputation will give the business goodwill
faster and will allow the business to be more widely recognised in a good
way
Other influences
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i.
Culture: culture is beliefs and rituals. The way people act, dress, their customs
etc. culture could affect your business because:
a. Religious beliefs: how you dress, presentation. What you produce, marketing,
operating and trading hours
b. Family background: may limit your business options, can influence the
structure of a business
c. Language: the type of business you go into and your cliental
Skills and traditions: different cultural groups specialise in different areas creating different talents
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- franchisor
- Australian taxation office
Considerations: There are important practical considerations that must be taken into
account even with a well researched and potentially lucrative business opportunity.
- do you have the time to invest in the project
- is it something that you are really interested in
Skills, financing and competition are three important practical areas that an entrepreneur
must consider before thy can being confident that the business opportunity is worthwhile.
Skill Requirements: depending on the skill requirements for the business, a business operator
should have a skill set that is relevant to the operations of the business. This is especially important
in a small business start up. If the business owner is lacking experience or ability in any crucial
areas, they must either quite the skills or else find someone appropriate to join the venture. Two
methods of gaining skills. (i) Education; T.A.F.E, University, School. (ii) Work experience
Finance: an initial investment is almost always required in any business venture. If the initial
finance needed is not available, the project cannot go ahead. Identifying the full financial needs of
the business over its first years of operation is especially important. Two components must be
considered. (i) personal wealth; personal assets less any liability. (ii) availability of debt finance; if
you have the ability to borrow money
Competition: how many other businesses compete in the same market. When assessing the
competition you need to consider the market size and market power over competitors
The business idea: Once an opportunity and consideration of the practical factors, the
business person can be said to have a business idea. The business idea can not go ahead
if there is no finance, or without sufficient savings
Demand by consumers creates business opportunity; businesses can only exist because
there are people who are prepared to buy their goods. Getting started requires a good
understand of the target markets. Once the target market has been identified decisions
regarding; location, services, pricing and marketing can be made to ensure business
success. Market research helps to identify the needs of the markets.
Potential customers and their needs: potential customers are all the individuals, groups
or businesses that may buy your product. Understanding the needs of these customers
allows a business to tailor its operations to best meet those needs. Doing this can increase
revenue. Using market research, which involves surveying a sample of the population to
build knowledge about people, can greatly assist when identifying potential customers and
their needs
identifying intermediate and/or final customer markets
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i.
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Advantages
Disadvantages
High risk
No goodwill
Advantages
Disadvantages
landlord
Franchise
Advantages
Training
Disadvantages
No experience needed
Lower risk
established
franchisor
visibility
-
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ii.
cost
-
iii.
proximity to suppliers
- one way to reduce costs is to be close to suppliers
because you are then closer to raw materials
- perishable products may consider being closer to
suppliers
- Transport networks create links reducing the time for
delivery. Some businesses locate close to major transport
links to improve delivery and distribution channels
iv.
Customers
assists the business in carrying out its prime function. Some support services such as I.T support
may be advantageous for the business to locate near by, however other support services where
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What is it: suppliers of the stock to a business may extend credit. Business is not required to pay
for stock immediately Interest is not generally payable unless business doesnt pay back within set
time
How long does it last: usually around one month
Type of loan facility: short term loan
Commercial Bill of Exchange:
What is it: one business borrowed from another business. Drawn up and exchanged with another
business for cash. When the bill expires it must be bought back from the holder. Theyre sold at a
discount to the face value
How long does it last: Bill varies between 30 180 days which when the maturity date expires
Type of loan facility: short term loan
Short term loan:
What is it: borrowing any money from a financial institution for a period of less than one year.
These loans tend to be for smaller amounts
How long does it last: less than one year
Type of loan facility: short term loan
Mortgage:
What is it: money borrowed from a bank. Used to purchase property, physically on land.
Repayments consist of principal amount borrowed and interest
How long does it last: 10 30 years
Type of loan facility: long term loan
Term loans:
What is it: money borrowed used to purchase equipment, pay for expansion of business, pay for
new business opportunities. Generally used to pay for other assets, not property.
How long does it last: 1 10 years
Type of loan facility: medium to long term loan
Leasing:
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What is it: for a fee, a business is granted exclusive rights to use designated property or equipment
for an agreed period of time. It frees up much needed capital rather than tying it up in not current
assets eg: equipment
How long does it last: stated in the contract, can vary
Type of loan facility: short / medium / long (as above)
other sources of finance:
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
insurance companies
merchant businesses
superannuation and mutual funds
credit unions and building societies
suppliers
government
debt or as a grant
state government programs
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What is provided: up to 50% of export promotion and marketing expenses is reimbursable, less the
first $15 000. Maximum grant $200 000 p/a; minimum grant $2, 500 (for the first two years)
Further information: www.austrade.gov.au
cost
Debt:
i.
ii.
iii.
interest payments
principal amount
establishment fees and charges (statistic: banks make $24 billion per
year. 50% of that is through establishment fees)
Equity:
profit proportional to the amount of equity
dilution of partnership, means sharing control
Gearing: gearing refers to the proportion of debt finance compared to equity finance.
Highly geared: relying to heavily on debt, more debt than equity BAD
Low geared: relying more on their equity than debt GOOD
Businesses can either be classified as having a high gearing ratio (highly geared) or a low gearing
ratio (low gearing). For most small businesses the generally accepted level of gearing is between
0.4 - 0.6 : 1.
A high gearing ratio exists when the value of debt is greater than or equal to the value of equity eg:
1:1 or 3.7:1
FORMULA FOR GEARING RATIO:
DEBT FINANCE = Gearing ratio
EQUITY FINANCE
D=G
E
Written as a decimal point or percentage
Debt : equity
LEGAL CONSIDERATIONS
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l.
trade practices
m. What is the trade practices act: The Trade Practices Act (1974) is a federal
law. There are separate Acts for each state. The New South Wales Trade
Practices Act only applies to New South Wales.
n. What does it aim to do: It governs the conduct of businesses when dealing
with customers and other businesses. It aims to
- protect consumers from unfair and misleading practices
- regulate the behaviour of businesses to encourage
competition:
lower prices
choice for consumers
awareness / education
service and quality
o. who is it administered by: ACCC (Australian Competition and Consumer
Commission
p. what areas are regulated by the TPA:
- false and misleading advertising
- competition
- price discrimination
- abuse of market power
- price maintenance
patents:
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Establishing supply and distribution networks: supply and distribution networks are
important when getting a business started. Businesses want to be able to deliver their
products to maximise the number of potential customers. Businesses want to have reliable
access to high quality inputs at a low level cost
Supply:
1. what is a supply network: a supply network is simply the
group of companies chosen to supply the input materials and
services that the business need. New suppliers can be used
to create products and services that are different or better to
those already on the market. Market differentiation can often
be achieved by importing supply from other countries or
sourcing goods from smaller scale, high quality producers
2. what does it aim to do:
- minimise cost
- maximise the reliability of supply
- maximise the quality of inputs
Distribution: distribution networks play an important role in maximising sales. These networks can
be indirect or direct:
a. Direct: direct distribution is where the business
supplies the product directly to the consumer and
collects the payments
b. indirect: indirect distribution is where products are
sold in significant quantities to other businesses that
sell those products to consumers at an increased
price
Hiring staff: for most businesses, labour costs are the single biggest expense. There are
many ways to hire staff such as:
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Advertisement: reaching a larger number of people will generally increase the chances of finding
the right person for the job. The advertisement should give a brief description of the position; skills
needed and will usually ask the applicant to provide a CV. It is important to then hold an interview
that is focused on the requirements for the job.
Job Agency: for a fee an employer can go to an employment agency and hire a worker through
them. They agency will identify the most suitable employee they can find and then set up an
interview. Advantage of using an agency is that it saves the employer time and energy
Personal contact: employing someone already known to the business is common. Downside to this
is that it is a lot harder to dismiss an employee with whom the employer had a relationship with
prior to employment
Personal recommendation: someone who comes with the recommendation of a friend whose
judgement is respected by the employer is more likely to be an effective employee than someone
who was not previously known to the employer.
OUTSOURCING
what is out sourcing: the contracting of a person or other business to carry out one or more of the
business functions
Why do businesses outsource: outsourcing is a consequence of the need to specialise and all
companies must do it at some degree. Business operators often choose to specialise in doing a
small number of things well and outsourcing more of their functions. Businesses generally
outsource because they dont have the facilities or skills to do the job, eg: accounting or advertising
what role does each party play: the business is the contractor because they have a contract with
the business to provide a service
what are the two principals behind outsourcing:
a. lower costs that come with specialisation
b. quality and reliability that expertise bring
Operations: on a per unit basis, most services are cheaper to provide in larger rather than smaller
quantities such services are said to possess economies of scale. When a company grows or
finds itself spending large amounts of money with one contractor it may decide to buy the
equipment and skills necessary to provide the service in house.
Marketing: Successful marketing is a crucial factor that influences the fortunes of new businesses.
The importance of marketing effectively motivates many companies to outsource these services to
professionals. Large companies generally have their own marketing departments
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Accounting: accountants provide specialist knowledge on taxation issues, finance, assessing the
viability of a new business and the profitability of an existing one. Outsourcing the accounting
function can ensure a reliable assessment of a small business
Staffing: if things dont work out between the employer and the employee, then the process of
dismissing a staff member can be complex and can involve legal action. If you have hired through
an employment agency, the employer has no ongoing commitment to that worker and can
immediately dismiss them if unsatisfied. Contract workers do not get many entitlements and
benefits. This means they have less secure sources of income because they dont know when they
will be working. Temps or temporary positions are still the most commonly outsourced position.
Job agencies fulfil similar function to labour hire firms except that they find employees who are then
employed by the company itself
TAXATION
Taxation: most taxes are collected by the Commonwealth Government including company, income
and the GST tax
FEDERAL TAXES:
Company tax: for incorporated businesses. It applies from July 2001 at a rate of 30% profit which is
the level of income minus deductions. Paid at different points in the year depending on the size of
the businesses turnover.
Goods and Services Tax (GST): The GST is a 10% tax on all goods and services sold with a few
exceptions. Companies with a turnover in excess of $50 000 p/a need to have an ABN and must
collect the GST at a rate of 10%. Any GST paid by a business on its input materials can be claimed
back by the tax office. GST returns can be filed monthly, or quarterly depending on the turnover of
the business
Pay As You Go tax (PAYG): A business must take PAYG tax out of the pay of all employees each
month, according to the tax scale and the persons income level
Capital Gains Tax: Companies are liable to pay CGT on any profits made on the sale of assets
such as real estate, goodwill and shares
STATE TAXES
Stamp duty: payable as a percentage of the purchase price of selected assets. Eg: cars, land etc
Payroll Tax: based on the total amount of wages paid to employees per year. In NSW businesses
with an annual payroll over $600 000, pay a payroll tax at a rate 6%
On-costs: businesses must also pay a range of costs for labour in addition to wages. Businesses
must pay workers compensation, holiday leave and superannuation
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10 steps to making a BP: 1) ownership structure- who owns and is responsible for
business?
2) Products and services- what products and services will the
business be selling?
3) Market info- who, size, competitors of a target market
4) Market plan- how business will promote 4 p's
5) Sales plan- who will be involved in selling of product/service anad
what dveloment satrategies can be implemented in the future
6) Operations plan- where will the business be located, its layout and
machinery
7) Financial plan- capital needed to commence the business and
what finance will be adequate and who'll provide it
8) HR plan- how many and how employees will be recruited and
what training and development of employees is needed
9) Bus environment- what are the prevailing external environmental
conditions and how these factors affect the business
10) Risk management- how business will deal with diverse mattes
such as increased competition; obsolete stock, general insurance and
product liability. What type of planning is needed to prevent disaster?
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Assists in maintaining the business operation especially focusing on the goals and
objectives
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Business plan needs to analyse the whole business by examining all parts of the operation and as
a result each part of the business can function effectively and achieve its objectives helping overall
success of the business
Information is essential to prepare the business plan and needs to be updated, accurate and is
obtained from different sources within and outside the business. Research and development use to
to contribute to planning. Managements attitude to environemnbt matters, technology and availibity
of resources iflucence decisions about planning and may include the firms organizational
objectives.
External enviro is a soruce of idea for planning as ec0onomical, social, technological, geographical
and legal factors may have an effect on the business.
SOURCES OF PLANNING IDEAS
SWOT- strengths, weaknesses, opportunities, threats, analyses internal and external environment
Helps to set new objectives
e.g. of a swot analysis
strengths
weaknesses
irregular invoicing
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undercutting on a job
opportunities
threats
economic downfall
Market analysis- involves collecting, summarizing, analyzing info abt state of market, customer,
threats and opportunities and any adv/disadv it has over competitors
Sales of objectives- desired level of sales
Unit sales- a measure of the actual no of products sold
Dollar sales- measure of total monetary value of bus sales
Social justice- bus terms adopting a set of policies to ensure that employees are treated
equally
Function structure- organizing bus according to different activities or functions w/in it
FORECASTING
Forecasts- predictions about the future
Break even analysis- determines level of sales that needs to be generated to cover the total cost
of production; total sales revenue = total operating costs
Importance- management can determine the level of sales required to obtain a profit. Also
can be used to determine the effect on profit if sales increase or decrease.
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break even analysis is point where sales equals costs and no money is lost but no profit is
made.
Decision tree- a diagram that reps different courses of action, possible outcomes of each action
and the probability of success; presents alternatives as branches
Decisions trees can help to determine:
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Decisions
Well received
$0 (profit or loss)
$0 (profit or loss)
Decisions
150,000 (profit)
Decisions
$80,000 (loss)
Budgets reflect the strategic planning decisions about how resources are to be used and
provide financial information for specific goals of a business and are used in strategic,
tactical and operational planning. Budgets enable constant monitoring of objectives and
whether they are being achieved. Budgets emphasizing the corporate objectives of the
business and provide a basis for administrative control, direction of sales, control of
expenses and production cost control.
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Capital expenditure- planned expenditure on items such as plant and machinery and the
expected revenue to be generated from these items. Capital expenditure budgets are part
of longer term planning and the strategic planning process.
Cash budgets- plans of anticipated receipts and payments and the resulting cash balance.
They indicate ash requirements during a period, usually for time periods between 1 month
to 1 year. Determine whether business can meet financial commitments, anticipating
shortfall or determining excesses of cash, which could be invested. It is complete when all
other budgets are as it incorporates these
Raw materials- labour hours budgets and production budgets are used in manufacturing
firms to estimate the amount of raw materials that needs to be purchased to produce the
products. Raw materials include stock, work in progress, semi finished goods, components
parts and subcontracted work.
Labour hours budgets estimate the amount of labour required in the production process
and their cost. Labour hours include direct and indirect labour and overtime.
Production or output budgets- estimate the cost of materials, labor and overheads required
generating the amount of production that achieves the forms objectives. That is the
determines the cost of output once the volume of output has been determined. The
production budget analyses the elements that make up the production costs and therefore
combines the information from the raw materials budget and labor hours budget.
3) Establish strategies
4) Implement plan
5) Monitor performance
6) Evaluate performance against planned performance
7) Modify plan if necessary
Monitoring- process of measuring actual performance against planned performance through
knowing what business wants to achieve and are they being achieved. These should be
considered at every stage of the business plan and such monitoring involves establishing forecast
performance standards and comparing actual performance with forecast performance.
Performance standard- forecast level of performance against which actual performance can be
compared. E.g. 5% increase in monthly sales
Evaluating- process of assessing whether the bus has achieved stated goals
Controlling- process of measuring the bus performance against its plan and taking corrective
action if necessary. Three specific areas include:
Sales- comparing budgeted sales against actual sales and making changes where
necessary and are important for credit and cash sales. Money should be kept securely to
avoid theft and should be banked promptly. Separation of duties and electronic banking
reduce fraud. Management of credit sales is an important aspect as time lags between the
purchase of inventories, the credit sales transaction and the collection of amounts owing
may cause cash flow problems for management. Control is needed to minimize time lags.
Marketing reports- effective marketing control hinges on the quality and quantity of the
market reports available to the owner and the time taken to prepare them. The control
process should allow a rapid flow of information so the owner can detect any differences
between actual and planned levels of performance.
Budgets- should be prepared and regularly compared with actual revenue and expense
amounts to detect any discrepancies. E.g. once the owner has determined the goals they
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can then estimate the business's various costs and its revenue. A profit budget will
establish the viability of the business by predicting how much profit is likely to be made
form expected sales.
Modifying the process and changing existing plans using updated information to shape
future plans.
ELEMENTS OF BP
Structure of plan:
Part ADescription of business- location, owners, market, products and ownership structure. Purpose of
plan. Concise statement of the business's goals. Situational analysis- investigation of marketing
opportunities and potential problems.
Part B- description of products, production process, future research and development plans and
skills analysis- personal needs and requirements
Part c- analysis of existing competition. Sales forecast, predicting market growth and marketing
strategies for 4 p's
Part d- finance plan- breakdown of present financial requirements, financial forecasts for the next
3-5 years, an accurate system of record keeping and financial control strategies.
Situational analysis- detailed description of internal and external environment
Strategy- plan defining approaches to achieve specific objectives
Skills audit- systematic process establishing current skills levels and future skills requirements
Skills inventory- computerized database containing info on skills and experiences of present
employees
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Market analysis involves: research of market size, number and size of competitors, overall
market growth, average profit level for each competitor, segments of market bus intends to
target. Location of target market and info on target
Marketing strategy- plan outlines how bus will use its resources to achieve marketing objectives
Cash flow projections- show changes to cash position. From info owner can estimate the bank
balance and identify extent and duration of possible cash shortfalls
Profit and loss projections- consists of monthly forecasts of sales, cost and profit
Balance sheet projection- provides info on total assets and liabilities
Break even point- helps owner determine profitability of diff combinations of resources; reps level
of sales that must be reached before any profit is made
Financial controls- tools used to monitor and control the financial aspects
COMPETITIVE ADVANTAGE
Price cost strategy- wanting to be leader w/in industry; leads way by achieving lowest production
costs that in turn allow reduced product price
Efficiency of operation- ability to streamline processes in bus
Economies of scale- reduce cost of inputs and increase level of outputs
Low cost labour- decrease labour and use tech
Differentiation strategy- offering something not offered by competitors
ENSURING LONG TERM SUCCESS
Limit advances of competitors a bus must protect itself and reduce opportunities available
to competitors. Achieved through: R&D, copyrights, patents, contracting w/ suppliers, lobbying
govt to limit foreign competition
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USING TECHNOLOGY
3 main probs will affect bus cash flow and lead to danger of failure: poor stock
management, collection of debt, personal use of funds
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