Professional Documents
Culture Documents
- Desire to transform an idea into a successful product by capturing the attention of potential
customers.
- Business owners motivated by the rewards they believe can be gained from business
establishment in both monetary and non-monetary reward mediums.
Entrepreneurship
- Entrepreneurs must be:
- prepared to take a risk and incur the results of the risk, either success or failure.
- confident in decision making and be able to take responsibility for decisions.
- willing to succeed.
- creative and have flair, which allows them to create or seize new business
opportunities.
- able to set goals and have a vision for the future, including adjusting business to
changing environment and setting new goals as others are achieved.
- continually adjusting to changing business, economic and customer markets.
Cultural Background
- Communitys traditions and beliefs (e.g. high work ethic in family).
- Experience in certain trades or services (e.g. Thai person cooking Thai food).
Gender
- Women own approximately 1/3 of all small businesses in Australia.
- Women setting up business from home is the fastest growing sector of the Australian
economy.
2.2 Sources of Information
- SME owners need assistance from the government and private support agencies who
possess a variety of skills.
- A variety of support services exist to provide assistance to a business owner who lacks
experience. Some of them are free, and some are in the form of other businesses that
charge for their services.
Professional Advisers
- Accountants provide valuable advice on all financial management issues and taxation
obligations. They have access to the latest changes to taxation and financial reporting
requirements.
- Solicitors provide information concerning business formation and structures, registration,
contracts, leases, partnership agreements, patents and legislation
- Bank Managers provide information and advice on financial services, sources of finance
and basic business management
- Management Consultants provide advice on the best way to manage and operate business
while being more objective and unbiased
Government Agencies
- Local Government provide advice on land zoning, consider development applications,
assist with subsidised land.
- The State Government offers programs such as:
- NSW Department of State and Regional Development who provide information and
advice on starting a new business, buying a business, managing a small business
and enterprise agreements.
- Business Enterprise Centres Australia provides advice to SME owners on how to
establish a business and create business plans.
- Federal Government offers programs such as:
- www.business.gov.au which services businesses of all sizes with advice.
Disadvantages
Existing
Advantages
Disadvantages
Franchise
Advantages
Disadvantages
2.5 Market
Goods and services
- Businesses will fail without a market to purchase their products.
- It is important for businesses to undertake a market analysis.
- Market analysis is collecting, summarizing and analysing information about the market.
Price
- If the price is too high, it leads to a decline in sales and is difficult to achieve a profit.
- Price-setting strategies:
1. Percentage mark up: increase cost prices by a fixed percentage to give a selling
price.
2. Recommended retail price: recommended price by wholesaler or manufacturer of
goods to be sold.
3. Price leadership and competition: making sure that the price is in line with
competitors.
4. What the market will bear: determining how much consumers will be willing to pay.
Location
- Different businesses are suited for different locations.
- Online Presence means businesses are no longer limited to dealing with people physically.
Some advantages of this is due to:
- It is easier to access
- Location may be considered unimportant
- Easy for home-based businesses.
2.6 Finance
- A business cannot commence without finance to enable it to pursue its activities.
- SME owners must determine how their business will be financed throughout the life of the
business.
- Businesses can obtain funds from either internal (equity) or external (debt) sources.
- Debt finance is money obtained through loans and must be paid back.
- Short term debt finance is less than one year and examples include bank bills, bank
overdraft and trade credit.
- Medium term debt finance is one to five years and examples include term loans, personal
loans and leasing.
- Long term debt finance is over five years and examples include mortgages.
- Equity is the funds contributed by the owner(s) of a business to start and expand the
business.
- The business owner must estimate the establishment costs (expenses that must be paid to
commence the business) and operating costs (the running costs for a full years operation).
- The type of finance will influence cost of capital.
- For debt finance the cost is interest.
- For equity finance the cost is the return (dividend for companies) paid at the end of
the financial year (if profit is made). The cost of equity finance could also be
measured in liability as unincorporated businesses can have business and personal
assets sold to recover debt, whereas incorporated businesses are limited to assets of
company and investments.
2.7 Legal
- All business owners have a legal obligation to observe the statutory regulations when
commencing and operating a business.
Business name
- Every business name must be registered (except when the name is that of the owner and
no Pty Ltd, Co, etc. at the end).
- If two traders want to register the same name, the first applicant for registration is accepted
but the second must register a different name.
Zoning
- Local government controls zoning regulations to plan areas for set purposes (eg.
residential, warehouse) and to assist planning.
- Owners must inquire with the local council to determine which zoning regulations may
apply to them.
Health regulations
- Local councils have requirements and standards for businesses to meet to receive a
license to operate their business.
- Health inspectors assess the business regularly, often without warning. This is to ensure
that the business maintains these standards.
- The Trade Practices Act 1974 (Cwlth) is a federal government statute that aims to:
- Promote fair trade and competition in the marketplace.
- Protect both consumers and businesses from deceptive or misleading practices.
WEAKNESSES
Internal factors
e.g. poor technology, poor location,
unmotivated workforce
OPPORTUNITIES
External factors
e.g. economic boom, low interest rates,
potential overseas markets
THREAT
External factors
Competition is usually one
e.g. new regulations (impacting the
business)
3.3.1 Operations
- Defined as transforming inputs into finished or semi finished goods.
- Necessitates the need to source equipment, supplies, knowledge, storage and
warehousing as well as delivery systems.
- Also determines the:
- Type of equipment and raw materials and their suppliers and cost.
- Storage, warehouse and delivery systems required to operate.
- Level of technical expertise required for maximum production .
- The business may need to utilise CAD (computer aided design) and CAM (computer aided
manufacture) to maximise efficiency.
3.3.2 Marketing
- All sections of the business must be involved in meeting customer needs and wants.
3.3.3 Finance
- New business ventures require funds to operate.
- It is necessary to compare various sources of finance to obtain the best rate.
- The amount of equity (business ownership) that the business owner is willing to hand over
in order to obtain financing must be determined, so that ownership is maintained.
- It is possible to explore government funding and grants that include monetary and financial
assistance that does not have to be repaid.
3.3.4 Human Resources
- Employees are an SMEs most important resource.
- A rigorous recruitment and selection processes is necessary to the functioning of the
business.
- All legislation must be abided by, including anti-discrimination and equal employment
opportunity laws.
3.4 Forecasting
- Forecasts are a business's predictions/projections for the future.
3.4.1 Total Revenue & Total Cost
- These forecasts attempt to predict the amount of money a business will receive from sales
(revenue) and the amount of expenses they will incur (cost). These estimates can be made
by determining the demand for the businesses product and the amount of competition.
- Total revenue is the total amount received from sales. This figure is calculated by the
quantity of goods sold multiplied by the price that theyre sold for or TR = P x Q
- Total cost is the sum of fixed and variable costs. It is categorised into two parts:
- Fixed costs are costs that do not vary regardless of how many units of a good or
service are produced.
- Variable costs are costs that depend on the number of goods and services
provided.
- The formula for total cost is FC + VC = TC.
3.4.2 Break-even Analysis
- A break-even analysis determines the level of sales that need to be generated to cover total
production costs.
- The formula for this is Break-even Sales= Fixed Cost/(Selling Price Variable cost per unit)
3.4.3 Cash Flow Projections
- The cash flow projection shows the changes to the cash position brought about by the
operating, investing and financial activities of the business.
- It is set out the same as cash flow statements but makes predictions.
- If a business has too much cash sitting idle, resources are being used inefficiently or the
business is underinvested.
- It also shows how much investment is needed and the health of the working capital in the
business and overall efficiency.
3.5 Monitoring and Evaluations
- Monitoring involves observing changes and looking at the external influences on the
business.
- Firstly, the business must establish a performance standard. A performance standard is a
forecast level of performance against which actual performance can be compared.
- Secondly, the actual performance is evaluated against the performance standard.
- By doing this, a business owner can evaluate the effectiveness of the business plan.
- Evaluating is about comparing against standards and planned goals.
- Some common evaluations include:
- Figures from past and present in order to track improvement
- A business plan in order to monitor goal progress
- A budget in order to compare figures
- The owner needs to evaluate whether the business operations achieved the desired
results and why.
- Monitoring and evaluating can ensure the long term success of the business.
3.5.1 Sales
- Sales management control involves comparing budgeted sales against actual sales and
making changes where necessary.
3.5.2 Budgets
- A budget is the businesss financial plan for the future outlining how the business will use its
resources to meet its goals
- A budget:
- contains projections of incomes and expenses over a set period of time.
- enables constant monitoring of goals and their progress.
- is used in planning and monitoring aspects of a business.
- needs to be regularly compared with actual revenue and expense amounts.
- allows for modifications if there are discrepancies.
3.5.3 Profit
- Reasons why profit must be carefully monitored and evaluated:
- Profit as reward: it is the return/reward that business owners receive for taking the
risks in business operations.
- Profit maximisation: main goal of a business.
- They can be used as a way of assessing skill base and determining training needs and
who will be promoted, demoted, retained or fired.
Teams
- Benefits associative of team work include:
- Idea sharing.
- Informed decision making.
- Less need for supervision meaning employees monitor each other closely.
- Employee cooperation.
- Improved output.
4.3 Trend Analysis
- Trend analysis is a process of investigating changes over time and looking for a pattern
(trend) in order to predict the future.
- Trend analysis is a powerful tool which assists SME owners achieve business success
helping with forecasts.
- A trend analysis highlights patterns and changes in business performance.
- Sales, revenue, operating costs, gross and net profit can be graphed.
- Trends are used to forecast changes when budgeting for the future.
4.4 Identifying and Sustaining Competitive Advantage
- Business success and failure is linked (in the long term) to a businesss ability to develop a
strategy that allows it to gain a competitive advantage over other competitors in the market.
- A competitive advantage is where a business does something better than a competitor and
has the edge on competitors in a particular area of production.
- Sustainable competitive advantage is a competitive advantage that is maintained over time.
Ways to maintain a competitive advantage:
1) Costing and pricing strategies
- Undercutting competitors
- Reducing production costs
- Reducing input costs
- Specialising labour in production
- Automation (replace labour with machines
- Outsourcing expensive parts of the process
- Increased production (in bulk) reduces unit costs
- Overseas production is cheap labour
2) Differentiate products