Business Studies- Role of a Business

The Nature of a Business

- Producing goods and services
- Profit, employment, incomes, choice, innovation, entrepreneurship and risk, wealth and ans and quality
of life.
Producing Goods and Services- Businesses have an imperative role in society, which are pivotal in satisfying the needs and
wants of consumers.
- Business can be defines as the organised efforts of individuals to produce and sell for a
profit, the goods and services, which satisfy the needs and wants of individuals.
- Business owners must combine a variety of recourses (human, raw and material) also
known as inputs to provide goods and services, which enhance the quality of life and
satisfy consumers.
- Through the production process the business is able to create value by combining the
inputs to create outputs.
- Goods are tangible, however services are intangible paid with monetary value
- Case Study: Employees at Coca-Cola combine inputs such as sugar; water syrup and
aluminium can to create an output or finished product ready for consumer use.
Profit- Profit is the preeminent goal for any business to ensure long term survival profit is so
important as it allow the business to meet day to day expenses, such as bill, wages and
insurance.
- Profit is calculated by: Revenue- expenses and is the reward achieved by the operator for
producing the goods and services.
- Case Study: in 2013, Woolworths profit increased by 24% due to expansion in their food,
liquor and gambling businesses.
Employment- By business providing employment to individual, they allow employees to earn an income,
allowing them to accumulate saving and purchase goods and services which satisfy their
needs, ultimately creating wealth.
- SMEs are a pivotal source of employment in Australia, accounting for almost 70% of all
private sector jobs.
- When the services of an employee are no longer needed it is called retrenchment the
retrenched employees are said to be redundant
- Case Study: BHP Billiton has more than 125000 employees and contractors.
Income- Business pay their employees with an income for the labour they provide this income can
come in two forms: a wage, or a salary
- Businesses earn their income through the profit they receive for producing and selling
goods and services.
- If a business is in the public or private sector, the shareholder of the business receive a
portion or all of a business profit. Their income is known as a dividend.
- Case Study: In 2015 Qantas achieved a profit of $557 Million. Qantas shareholders
received a portion of $505 Million.
Choice- The preeminent function of any business is to produce goods and services, which satisfy
the needs and wants of consumers. Businesses operate in a competitive environment and
as a result must provide consumers which choice in order to ensure a competitive
advantage.

- Choice is the ability to choose among alternative it encourages business to be innovative

and unique.
- Case Study: Qantas provides their consumer with choice among: class, cuisine, and inflight
entertainment.
Innovation- Innovation can be defined as the process of improving the features of a product, service or
process.
- Invention can be defined as the development of something totally new.
- Technology has facilitated the innovation of many new products, which are immensely
beneficial to business process and the society in general.
- Businesses must undertake R and D to improve product allows the business to have a
competitive advantage.
- Case Study: Qantas innovating bag tags, creating RFID bag tags. Qantas innovating
economy class and creating business class in 1979.
Entrepreneurship and Risk- An entrepreneur is someone who converts their original idea into a thriving business
- Entrepreneurs assume the risk of establishing and operating the business in an untapped
market with no proven success of consumer demand or monetary return.
- Financial Risk- no return on investment Market risk- changes in demand tech Risknew tech, could require maintenance political and economic risk- government induced
changes can have a paramount impact on the business Environmental Risk- natural
disasters, policies Operation risk- breakdown of equipment could lead to financial loss.
- Case Study: Bull Gates is recognised as one of the most successful entrepreneur
developing his original idea into a thriving business.
Wealth Creation- Wealth is the accumulation of assets which satisfy an individuals needs and wants
- The main reason why individuals go into business is to create wealth.
- Business attain wealth through retained profits and purchasing of assets
- Employers provide their employees with an income, whereby individuals accumulate
savings and purchase assets, ultimately creating wealth.
- Businesses also provide their shareholders with an income, creating wealth.
- Case Study: the Macquarie Group created wealth for their shareholder after their share
price increased by 106% in 2013.
Quality of Life- Through the products and services provide the quality of life of many has drastically
improved QOL refers to the overall wellbeing of an individual, and is a combination of
material and non-material objects.
- Cleaner water, fresh air, unpolluted earth businesses have responded to life issues and
have implemented environmentally friendly procedures.
- Case Study: Qantas has improved the QOL of the environmentally friendly through their
countless initiatives, and as a result have been awarded the Eco- Pioneer of the Year
2013 award.
Types of Businesses
- Classification of a business
o Size- small to medium enterprises (SMEs), large
o Local, National, Global
o Industry- primary, secondary, tertiary, quaternary, quinary
o Legal Structure- sole trader, partnership, private company, public company, government
enterprise
- Factors influencing choice of legal structure
o Size, ownership, finance
Size- Small to medium enterprise

- Businesses come in three different sizes: small, medium and large, though there isnt a
universal definition in which business size can be classified.
- SMEs play an imperative role in the Australia economy providing consumers with products
and services which satisfy their needs as well as providing employment to 70% of all
private sector job (7.3 million people)
- The size of a business can be determine by:
o The number of employees
o The number of owners
o Market share-the number of consumer the business provides it goods for.
o Legal structure
- SMEs as defined by the ABS have less than 200 employees/ or less than $10 million
turnover.
Characteristics
Small
Medium
Large
Employees

<20 employees

Ownership

Independently or two people

Owned and operated Owned by thousands of
By a few people/ Or private
public shareholders
shareholders
Sole Trader,
Partnership,
Public company
Partnership
Private company
Small, local area
Medium, dominance
Large, dominate
Within geographic
Markets of many
Region
Countries

Legal structure
Market Share

20-199

>200

- A micro business has fewer than 5 employees and often is small office home office (SOHO)
businesses Micro businesses make up 88% of small business population.
Local Businesses- A local business has a very restricted geographical spread, serving mainly the surrounding
area.
- Local businesses tend to be SMEs and are located usually where customers work or live.
- Examples, Hairdressers, mechanics, newsagents and pharmacies.
National Business- When a business increases it range of products and the area it serves it becomes a
national business is one, which operates only within one country.
- In other words a national business is one which has branches operating in different states
or territories
- These businesses have a stronger emphasis on marketing and brand awareness.
- If a business expands and increases it sales, it will eventually run out of new customers to
sell to, therefore the market has become saturated. If the business wishes to continue
expanding then products may be imported around the world.
- Examples include: Coles, Sport girls, McGrath Real Estate and David Jones
Global Business- Global businesses also referred to as Transnational Corporations or multinational
corporations are business which a base in the home country, though have branches
partially owned or completely owned in other countries.
- These business conduct a large portion of their business outside of their home country
- Examples: Westfields group, Coca- Cola, Mercedes, BMW and McDonald.
What are the reasons for business expansion?
- Businesses expand for a number of reasons. These include:
o An influx or surge in sales
o A desire to increase profits
o A influx in market share- wanting to access more customers
o The ability to access global consumers increase profit and market share

Industry- Primary, Secondary, Tertiary, Quinary, Quaternary

- Another method used to classify businesses is based in the type of activity they undertake,
or in other words what industry they belong to.
- If a business is involved in similar types of production, they can be grouped together in what
is known as an industry.
Primary Industry- A Business is in the primary industry if it is involved in the collection and production of
natural resources.
- Example: farming, mining, grazing and forestry business in the primary industry account
for 4% of the labour force. 60% of exports come from this industry.
Secondary Industry- The secondary industry is involved with processing and manufacturing the raw material
produced in the primary industry and turn them into semi finished or finished goods
provides 10% of employment
- For example, iron ore, coal and limestone are turned into steel, a semi finished product,
which is then used to make cars a finished product.
Tertiary Industry- Businesses in the tertiary industry provide a service concerned with the selling and
distributing of goods rather than making them.
- The tertiary industry is subdivided into the quinary and quaternary industry tertiary
industry provides 77% of total employment
- For example, wheat and flour are produced in the primary industry. This is then turned into
bread in the secondary industry. The tertiary industry is tasked with selling the bread.
Quaternary Industry- This industry includes the services involved with the transfer and processing of information
and technology.
- Examples of occupation in this industry include: telecommunications, computing, finance
and education
- Doctors provide a service (tertiary industry), then use their knowledge and information to
diagnose patient (Quaternary Industry)
Quinary Industry- The quinary industry consist of services which were usually performed at home, this
includes both paid and non paid work
- Examples of occupations in this industry include: tourism, childcare, lawn mowing and
hospitality.
Classification by Legal StructureIncorporated businesses- If a business in incorporated, the business has gone through a legal process, which legally
separates the business from the owners the business exists as a separate legal entity.
- Public and private companies are incorporated and as a result if the business experiences
and hardships, the owner/ shareholders are not left with the burden of paying.
Unincorporated Businesses- The business owner and the business itself are one single entity
- Sole trader and partnerships are unincorporated businesses.
- 57.5% businesses are unincorporated. This means if the owner dies, the business also
dies. If the business hits financial hardship, the owner(s) has to pay up
Sole Trader
Characteristics

Advantages

Disadvantages

- A sole trader is unincorporated and

is easy to establish in terms of legal
requirements.
- If the business name is the same
as the owner of the name then it
does not have to be registered with
the Australian Securities and
Investment Commission (ASCIC).
- If the name is different to the
owners name it must be registered
with ASIC. A sole trader must obtain
an Australian Business Number
(ABN).
- The owner has unlimited liability for
business debts.

-Low cost of entry

-Simplest business structure
-Keep all profits
-Less cost to operate
-Independent decision making
thus preventing disputes
-Less government regulation
-No tax on profits, only
personal income

-Unlimited liability for debts

-Business will close if the
owner no longer is able to or
wants to run the business
(unincorporated)
-Difficult to operate when sick
or injured
-Must pay all entitlements
-Need to carry all loses
-Stress
-Need to perform wide variety
of tasks
-Difficulty in raising finance for
expansion

Partnership
Characteristics

Advantages

Disadvantages

- A unincorporated type of business

organisation in which two or more individuals
merge money, skills, and other resources, and
share profit and loss in accordance with the
terms of the partnership agreement.
- A partnership can be made verbally or in
writing or by implication; that is, if two people
set up a business together without a legally
binding partnership agreement.

- Low start-up
costs
- Less likely costly
to operate than a
company
- Shared
responsibility and
workload
- Pooled funds
and talent
- Minimal
government
regulation
- No taxes on
business profits,
only on personal
income
- On death of one
partner, business
can keep going

- Personal unlimited liability

- Liability for all debts, including
partners debts, even before the
partnership has begun
- Possibility of disputes
- Difficulty in finding a suitable
partner
- Divided loyalty and authority

Private companyCharacteristics

Advantages

Disadvantages

- A proprietary (private) company is the most

common type of company structure in
Australia, and usually has between two and

- Shareholders liability
limited to the amount of
shares they own

- Establishment costs
higher compared to sole
traders and partnerships

50 private shareholders.
- Private companies often tend to be small to
medium-sized, family-owned businesses.
- Shares in a proprietary company are only
offered to those people the business wishes
to have as part-owners. Shareholders can
only sell their shares to people approved of
by the other directors. It is not listed on, and
its shares are not sold through a stock
exchange.
- A private company must have the words
proprietary limited, abbreviated to Pty Ltd,
after its name.
- Has limited liability protection.

- Perpetual succession business does not have to

be wound up in the event of
replacement of
shareholders
- Access to greater finance
as up to 50 shareholders
allowed

- Access to finance is
restricted relative to
public companies
- Lenders will often seek
personal guarantees
from directors before
making a loan to a
company

Public Company
Prospectus- is a document giving details of a company and inviting the public
to buy shares in it.
Characteristics

The shares for public

companies are listed on the
Australian Securities
Exchange, and the general
public may buy and sell shares
in those companies.
Unlike private companies,
most public companies are
large in size and market a
large range of products for
example, Woolworths, Telstra,
BHP Billiton and Westfield. A
public company has:
o At least one
shareholder, with no
maximum number
o No restrictions on the
transfer of shares or
raising money from the
public by offering
shares
o To issue a prospectus
when selling its shares
for the first time
o A minimum
requirement of three
directors (two must live
in Australia)
o The word Limited or
Ltd in its name
o To publish its audited

Advantages

Access to unlimited
shares enables the
company to obtain
capital so they can
expand
Limited liability
Highly skilled
management by Board of
Directors.
There is no restriction in
the transfer of shares as
they are bought through
the ASX

Disadvantages

Listing on the stock

exchange is a
complex process
management
structure is complex
and may be political
the majority of
shareholders control
the management of
the business

financial accounts each

year, its annual report.
Limited liability
Has Ltd after its name
Existence of the company is
not affected by a change in
owners

Government Enterprises Government owned and operated business also referred to as public sector
businesses and provide essential community services such as health,
education, roads and welfare. They also provide the most employment for
people within Australia.
These business are established by Acts of parliaments who define their
function and power
The number of GBEs in Australia is small with only 5000 typically large
businesses.

GBEs are owned and operated by all levels of government: federal, state and
local. Examples include NSW Trains, Country Energy, Medibank Private and
Australia Post.

Factors Influencing choice of legal structure- Size, finance and ownership

Size A business will generally begin as a sole trader if there is an increase in
sales the business may need a expand in order to meet the needs of
consumers
The business may become a partnership adding additional capital into the
business allowing it to become expand and assist in the running of the
business
A Private company may be formed if the expansion is rapid and if the owners
may be seeking the protection limited liability provides
Being a private company brings additional finance, skills and expertise as
the business grows it may become a national or a transnational business
To cater for this increase in consumers the business may need to source
additional funds, this can come in the form of shares bought by investors after
the company has become a public company.
A float is the raising of capital in a company through the sale of shares to the
public
A prospectus is a document giving the details of a company and inviting the
public to buy shares in it.
Finance Businesses require money in order to expand finance allows the business
to purchase new equipment, undertake R and D, hire staff, and exploit new
markets.
Sole traders and partnerships due to unlimited liability find it difficult to access
finance, thus these legal structures can obtain Venture Capital
Venture capital is the money that is invested into small and sometimes
struggling businesses that have potential to become successful.

Private and Public companies in order to overcome difficulty of raising finance

from banks and other lending institutions can decide to sell shares.
Ownership If a business owner want complete control and ownership of a business- Sole
trader
If the owner wishes to share the business with other people- partnership
If the business owner wants protection and a high degree of control- Private
(50 owners who are more than often silent)
If the business owner wants to remain in control of the business they must
own more than 50 percent of the business.
Influences in the business environment
- External Influence- economic, financial, geographic, social, legal, political, institutional,
technological, competitive situation, markets
The Business Environment- Businesses operate in a dynamic, and often turbulent environment. The business
environment refers to anything, which affects the operation of the business, these
can be divided into two categories: internal and external.
External Influences- An external influence on a business is one the business has no control over the
managers of the business must respond to these influences in order to attain a
competitive advantage
Economic- One of the most important influences on a business are instigated by the economy(s) the
business operates within, and the economic cycles within this economy.
- The economic cycle refers to the growth of income and employment in the economy and
how this growth has an impact on businesses and consumer.
- The economic activity fluctuates, thus meaning employment, income and spending rise and
fall
- The state of the economy has an imperative impact on the business. The government
implements policies in order to ensure the economy are growing steadily without putting
pressure on inflation of prices and wages.
- The overseas economy also has an impact on business in Australia.
- The economic cycle:
o There will be an expansion which will be followed by a boom (increase in
spending)
o As the economy overproduces goods/ services during a boom, businesses will cut
back production and economy will move on a downswing
o When economic problems arise consumers become cautious with spending

Reduce spending= business profit plummets, further cost cutting, leading to further
recession.
- The government attempts to manage the economy to avoid recession or depression via the
monetary and fiscal policy.
- Monetary policy:
o The actions taken by the RBA to stabilise economic activity. RBA encourages
borrowing and spending by reducing interest rates, During expansions and booms,
the RBA discourages borrowing and spending by increasing interest rates
(otherwise inflation occurs)
- Fiscal Policy:
o Federal governments budgetary decisions relating to taxation (revenue) and
expenditure (spending) are used to influence economic activity by either
stimulating or contracting the economy.
o During Recessions: Government will spend more than it collects from
taxation revenue government spending increases and taxes are reduced.
o During Expansions: The government will want to reduce spending in the
economy
o Extensive periods of good economic growth cause levels of inflation and the
overproduction of goods as businesses try to take advantage of consumers
high level of wealth
- Case Study: In 2008/2009 when the GSC was occurring the RBA slashed interest
rates substantially increasing the demand for Apartments.
Financial Finance is a crucial element in the competitiveness of a business because business
inputs such as raw materials and equipments must be financed.
There are three sources of financeo Retained profits: the net profit no paid out in dividends to shareholders,
invested back into the business. In 2014 Qantas had $557 million in profit
o Debt finance: the money borrowed from creditors. The business must pay
the principal as well as interest. In 2005 Qantas had $3.1 billion in debt
finance.
o Equity finance- the owners own funds or selling of shares to new owners
outside of the business to help raise capital.
If interest rates are two high, the business will be deterred from using debt finance,
and instead use retained profits or equity finance.
Deregulating the financial markets has allowed business to seek finance globally.
o

Geographic-

 The location of a business can have a paramount influence on the business. For
instance, Australia location in the Asia-pacific region has allowed business to trade
with countries in these nations cheaper. Additionally, economic growth in these
nations has allowed countries such as China to invest and spend in Australian
Businesses.
Changing demographic factors have also had a paramount impact on businesses.
For instance, the ageing population in Australia has increased the demand for
international and domestic travel, benefiting businesses such as Qantas
immensely.
Globalisation has allowed business in Australia to see people, money, goods and
ideas moving around the world faster and cheaply than ever before.
Social Social influences refer to the attitudes, values and beliefs of a society. Businesses
need to be susceptible to rapid changes in social influences.
o Businesses need to respond to changes in taste, fashion and
environmentally consumer
Today, there is more emphasis on family friendly workplaces, which encourage
women to re enter the workplace. For instance, Qantas provides a more family
friendly environment by providing childcare centres at work.
Immigration has also contributed to an immensely diverse Australian Population.
Legal Legal influences refer to the framework of laws and regulations that govern the
operation of a business. As a result businesses must be conscious with their
business dealing in order to avoid sanctions.
In order to avoid these sanctions businesses must have a sound working knowledge
of the laws so they can understand and comply with the responsibilities they owe to
stakeholder.
Law which have a paramount impact on the business include:
o Fair Work Act 2010- ensure that the business complies with awards and
employee agreements, as well as preventing businesses from taking
advantage of employees and other stakeholders.
o Anti discrimination Act 1977- prevent employers from discriminating
employees. Sex, gender, pregnancy and martial status. Business must
provide equal employment opportunity to those who have been
discriminated against
o WHS Act 2012
o Competition and Consumer Act 2010- all businesses must comply with
these laws and the Australian Competition and Consumer Commission
(ACCC) enforces these laws.
Political Government policies can have an imperative impact on business through the creation
and the amendment of law, which businesses must comply with.
For instance the GST has had a paramount influence on businesses, forcing
business to collect tax on behalf of the government.
Privatisation of government owned businesses
Free trade policies have removed the barriers to international trade. For instance the
Open Skies Agreement between Aus. and USA.
Institutional An institutional influence refers to established organisations such as trade unions,
regulatory bodies, but also established practices or customs in a business.
Federal (Obligations)
State (Obligations)
Local (Have control over)

-Payment of taxes for

employees, business and
GST
-Employee
superannuation
-Observance of custom
regulations
-Abiding by relevant
legislation that would
affect business operations

-Provision of employee
entitlements (workers
compensation, WHS,
award rates of pay and
entitlements)
-Payment of payroll taxes
-Abiding by relevant state
legislation
-Abiding by pollution
controls

-Approving new
development and
alteration applications
-Fire regulations
-Parking regulations
-Size, location and shape
of business signs

Regulator bodies ensure that businesses are practising in order to the

regulations
Regulatory agency
Role
NSW Environmental
-Primary environmental regulator in NSW
Protection Authority (EPA)
-Aims to improve environmental performance and waste
management for NSW through a wide range of programs and
initiatives
-Offers advice and incentives to help businesses improve their
environmental performance
-Governed by the Protection of the Environment Administration Act
1991
NSW Fair Trading

-Is the NSW consumer protection agency

-Provides information and assistance to all consumers and
business owners on areas such as fair and ethical practices
-Services to business include:
Business license information (real estate agents builders and
car dealers
Information for builders and tradespeople that covers their
responsibilities and offers assistance in relation to disputes
between themselves and clients/contractors
Product safety standards
Trade measurements relating to scales/scanners used to weigh
and measure products

Australian Securities and

Investments Commission
(ASIC)

-Monitors market integrity and provides consumer protection in

areas such as payment systems and financial services such as
investment advise
-Aims to ensure all businesses comply with industry standards and
codes of practise
-Operates the Business Names Register that allows people to
register, renew and search business names nationally
-Governed by the Cooperations Act 2001

Australian Competition and

Consumer Commission
(ACCC)

-Is an independent statuary authority that administers the

Competition and Consumer Act 2010. This includes monitoring of:
Anti-competitive and unfair market practices such as the misuse
of market power (e.g. blocking competitors from entering the
market), exclusive dealing and resale price maintenance
Mergers and acquisitions that could decrease the level of
competition
Product safety and liability
Misleading and deceptive advertising

-It operates nationally for the enforcement and administration f

competition and consumer protection laws
Other:
Employer associations

Trade and industry

association

Trade unions

Australian securities
exchange (ASX)

-Represent the interest of employers

-Assist employers ain the flowing ways:
Formulating policies in line with union activates
Acting on behalf of employers in negotiating enterprise or
collective agreements
Promoting industry, trade and commerce
Providing submissions, advice and information to governments
-National bodies that represent larger groups of employers
-For example
Australian Chamber of Commerce and Industry (ACCI)
National Farmers Federation
Australian Industry Group
-Aims is to improve working conditions and pay rates
-Union membership has declined in the last 20 years due to:
New legislation that outlaws compulsory unionism
Changes to work patterns (increase in part-time and casual)
Workplace agreements
Privatisation and restructuring of union-dominant industries

-Operates a share market where companies can raise funds by

issuing shares in the company
-A business list itself on the ASX to become a public company. Thus
to raise capital for expansion and development

Technological Though the implementation of appropriate technology a business can immensely

increase efficiency, productivity, and create new products and services to a higher
quality.
New communication technologies have allowed information to be rapidly
transmitted to an ever-increasing number of customers with a speed that makes
communications almost instantaneous.
If a business wants to be locally, nationally or globally competitive they must adopt
appropriate technology. For instance, Qantas has introduced new planes to be
delivered between 2011-2018 to increase efficiency and increase fuel economy.
Competitive Situation A sustainable competitive advantage refers to the ability of a business to develop
strategies that will ensure it has an edge over its competitors for a long period of
time.
Market competition refers to the number of competitors in a particular market. There
are four main types of market concentration:
o A monopoly- complete concentration by one firm in the industry, eg.
Australia Post leader in the posting industry.
o An oligopoly- where a small number of larger firms have a greater control
over the market. Banks, oil companies

Monopolistic competition- where there is a large number of buyers and

sellers in a particular market. Clothing manufacturers
o Perfect competition- where there are a large number of small firms that sell
similar products. Fruit and vegetable growers
The factors influencing a businesses competitiveness
o Ease of entry into the market ease will determine market concentration.
o Number of competitors- also refers to the market concentration
o Market strategies employed by competitors exposure of competitors
o Local and foreign competitors- those who produce and sell in the same
sector.
Markets Change in financial international financed flows have expanded rapidly over the
last three decades. Investment overseas.
Change in labour the labour market has been somewhat less global in the last 60
years. The movement of large numbers of temporary skilled migrant workers has
been very important in Australia, increasing the demand for highly trained
employees.
Change in consumer market improved technologies and communications have
also changed consumer markets. Significant growth in the amount and value of
world trade- globalisation cheaper prices on the world market, leading to new
consumer markets emerging.
Internal Influences
- Internal Influences- products, location, resources, management and business culture
- Stakeholder
o

Internal Influences- Internal influences refer to specific factors within the business that will affect it
operations essentially influences the business has control over.
Products- Influence affects a range of internal structures and operations business functions.
E.g. if size of the product is large, then there will be structures in place to organise
and monitor process. These include:
o The types of products will affect internal operations of a business. For
instance is the scale of production is large, it will influence business
operations.
o the larger the range of products a business provides the larger impact on
the business
- Product influence will reflect the type of business (services, manufacturer)
- Size of business can impact business operation. Scale of production can impact
business operation
Location- A good location is an asset, and can lead to a high level of sales and profits.
- Prime Location= customer convenience + visibility (pedestrian trade)
- Factors businesses must consider when choosing the prime location:
o Visibility, cost, proximity to suppliers, proximity to customers and proximity to
support services.
Resources- The manager of the business must consider the resources needed to conduct
operations. These include:
o Human resources: the employees of the business greatest assets
o Information: knowledge and data required by business. Market research,
surveys, sales reports and economic forecast

o Physical: equipment, machinery, buildings, raw materials

o Financial: funds the business uses to meet its obligations
Management- Rapid advances in technology, coupled with the significant pressures on the business
from increased competition due to forces of globalisation, have resulted in a flatter
management structure.
- Managers ability to be effective and efficient will be imperative if the business is to
succeed.
o Effective- determines goals and future directions.
o Efficient- ability to achieve maximum output from minimum output
- For a manager to be effective they must posses a plethora of managerial skills such
as: interpersonal, informational, decisional and communication.
Business culture- Business culture refers to the values, ideas, expectations and beliefs shared by
member of an enterprise.
- Elements of business culture include: values, symbols, ritual, rites, ceremonies and
heroes.
- The pivotal role of management is to ensure that there is a positive business
structure in place.
- The culture of a business is often evident of it organisational structure.
- For instance the business culture evident at apple is: innovative, team based, flexible
and personalised.
Stakeholders- A stakeholder is any group or individual who is interested in or affected by the
business.
- Internal stakeholder may include: owner, managers and employees
- External stakeholder may include: customers, suppliers, unions and the government.
- For instance the stakeholder of Qantas include: employees, customers and manager.
Qantas has a plethora of responsibilities to these stakeholders.
Business Growth and Decline
Stages of the business life cycle
o Establishment
o Growth
o Maturity
o Post maturity
Responding to challenges at each stage of the business life cycle
Factors that can contribute to business decline
Voluntary and involuntary cessation- liquidation
Stages of the business life cycle Business pass through four phases in the business life cycle- establishment, growth,
maturity and post maturity.
Though it is important to remember that the business life cycle can apply to a
particular product a business provides and not only the business itself.
It is quintessential that business owners constantly develop strategies to deal with
expansion

The Establishment Phase- Responding to challenges in this stage

In the establishment phase the business first enters the market. In this stage there is
vulnerable as their hold on life is precarious. It is quintessential that the business is
on a solid foundation.
In the establishment stage there is a need for enough sales to be generated to bring
in the much-needed income, which will be used to pay expenses and to generate
positive cash flow.
There are a plethora of challenges faced in this stage. These include:
o Establishing business goals
o The miniscule profit, which is put back into the business for its survival
o Customer resistance
o A high failure rate
o Limited liability
o High cost in setting up
o Difficulty obtaining funds.
Case Study: Cavalious- brother establishing a caf. Both had the skills. Completed
market research. Established a private company.
The Growth Phases- Responding to challenges in this stage
In the growth stage is characterised by a rapid increase in sales.
Increase in sales output= increasing sales= growth in revenue, profit, market share
The variable costs of the business increase as sales increase. If sales increases then
cash flow is positive inflow > outflow
The business will start to develop new products satisfying the needs of different
market segments.
Business employees more people 10-15 employees
Business loyalty is stronger than the establishment stage good reputation in
society
Owner develops a sense of pride in the business however for survival there is a
need for the business to increase planning.
In this stage the business faces a lot more challenges. These include:
o A rapid increase in sales
o New marketing practices need to be established
o A rapid increase in cash flow must be maintained for expansion
o A concentration on satisfying consumer needs
o Expanding too rapidly and therefore loosing control of the business.
Case: Lovebird Weddings It can be said that Lovebird Weddings is in the growth
stage due to the acquisition of another business, increased competition, boost in
sales and increased planning.
For a business to have competitive advantages they must always expand. Thus
businesses must merge or acquire other businesses methods of expansion

A merge is when the owners of two separate businesses agree to combine

their resources and form a new organisation.
o An acquisition however is when one business take control over another.
There are three types of mergers and acquisitions. These include.
o Vertical integration: when a business expands at a different but related level in the
production and marketing of products. There is vertical and backward integration
o Horizontal integration: occurs when a business acquires or mergers with another
firm that makes and sells similar products.
o Diversification (conglomerate): occurs when a business acquires or merges with a
business in a completely unrelated industry.
Maturity- responding to challenges in this stage
In this stage the growth in sales level off. The sales of the business is same year after year,
this is because the market has been saturated. As a result the business must develop new
ways to grow the value of the business.
In this stage a sense of complacency can develop the business losing energy,
enthusiasm and vitality in management and staff.
Profits are stable but there is an increased competition
There is a more formal organisational structure needed to rethink how the business
should operate and survive.
Success and planning must be considered focus on product development
To increase competitiveness it is quintessential that the business reduces costs.
Additionally, diversifying can help the business succeed through the maturity stage. If this
occurs the business moves to the next stage.
Challenges in this stage include:
o Increased need for marketing to maintain customer loyalty
o Expenses need to be minimised in order to ensure steady profit
o Increased failure rate if costs are not controlled and employees become
complacent
o Sales begin to plateau
o There is a need to improve quality of products.
Cash Cow- a product that has a large market share that is stable. It generates a steady
return of profits that exceeds the amount of money required to continue to produce for
instance coke is coca colas cash cow.
Case: David Jones is in the maturity stage as the profit attained by the business has begun
to plateau, due to heavy competition and better prices available at other businesses.
Post MaturitySteady State The businesses keeps operating at the level it has been during the maturity stage
business is satisfying the needs of consumers and maintaining profit levels.
The business does not spend any extra money- no R and D
Challenges:
o Need to conduct market research to ensure customer demand are still being met.
However businesses must be reluctant to spend on R and D
Decline When the business ceases operation it is known as cessation closing the business down.
Profits severely decline as customers stop buying the business products and the cash flow
becomes affected.
Challenges faced in this stage include:
o Borrowing money becomes difficult
o Suppliers may restrict their credit facilities
o Products become obsolete
o

o Skilled employees leave for better opportunities

Renewal To avoid decline the business must employ the use of a business plan.
In this stage the business will experience a revival. Sales, cash flow and profits begin to
increase. For a competitive advantage new products must be developed to satisfy the
need of existing customers, as well as new customers.
The business might merge or acquire another businesses sell share to expand
Extensive market research is undertaken to forecast future consumer trends.
Challenges experienced in this stage include:
o Cash flow might decline in short term due to money being spent on research, new
products and R and D
o New markets are exploited
o New shares may need to be issued to raise finance
Fairfax Media is a company in the renewal stage due to their rapid increase in profit.
Increased investment in digital media. Increased money spent on technology (apps).
Factors that can contribute to the business decline Business decline is not usually caused by one factor but a combination of several. These
include.
o Ill conceived business idea
o Failure to meet consumers needs
o Producing goods that few people want
o No business plan
o Ignoring competition
o Lack of management skills
o Uncontrolled growth
o Increased competition
o Loss of competitive advantage
o Inertia- resistance from change
The two main factors which influence the decline of a business are:
o Lack of management skill- failure to prepare or modify a business plan as the
environment changes.
o Lack of sufficient money- Undercapitalisation occurs when there is a lack of
sufficient finds to operate a business normally.
Case: Billabong was in decline as market share decreased due to an increased competition
from Quicksilver and Roxy. Additionally, social factors are also responsible for the
companies decline (no longer cool).
Voluntary and Involuntary Cessation- liquidationVoluntary Cessation This is when a business voluntarily ceases operation. Any asset owned by the business is
sold off. This is mainly instigated by business failure.
Voluntary bankruptcy- person can voluntarily apply for bankruptcy to end accumulating
debts. The bankrupts persons personal possessions will be seized and sold when a
person cannot meet their financial requirements.
o The process of realisation occurs when the assets of a business are sold and
divided among the creditors.
o Involuntary bankruptcy is when the creditors petition the courts for bankruptcy.
Involuntary cessation occurs when the owner is forced to cease trading by the creditors of
the business
A sole trader or partnership may voluntarily or involuntarily go into bankruptcy: a declaration
that states a business or individual is unable to pay their debts.
A company on the other hand has two options when facing financial difficulty:

Voluntary administration occurs when an independent administrator is appointed to

operate the business in the hope of trading out of their present financial difficulty.
o Involuntary liquidation is the process of an appointed liquidator converting the
businesses assets into money.
If a business is incorporated it will become insolvent- the business can no longer pay of its
debt.
Receivership is where a business has a receiver take charge or affairs of the business.
Unlike liquidation the business may not wind up.
A company in liquidation can go into receivership: Two types.
o Voluntary liquidation- creditors vote for liquidation after voluntary administration or
the companys shareholders agree to liquidation.
o Courts liquidation- court appoints a liquidator to wind up the company usually after
an application form a creditor, shareholder or company.
Main function of liquidatorso Realise the companies assets
o Report to creditors about company finance
o Determined debts owned by the company and pay creditors
o Report possible offense to the ASIC
o Dissolve the company
o