TOPIC ONE: Nature of a Business

LEGAL STRUCTURES
Sole Trader - UNINCORPORATED
- Equity & Debt finance
- Unlimited liability
- ADVANTAGES: own boss, keep profit, decision making, small amount of money required
to set up
- DISADVANTAGES: liability, long hours, difficult for leave/time off, sole responsibility
Partnership - UNINCORPORATED
- Debt & Equity finance
- Unlimited Liability
- ADVANTAGES: Problem and responsibility shared, additional funding, partners can
specialise
- DISADVANTAGES: liability, disagreements, distribution of profit
Private Company - INCORPORATED
- Shares sold to close friends to fund business
- Not on stock exchange
- Limited liability
- ADVANTAGES: liability, decisions and responsibility shared, less bureaucracy
- DISADVANTAGES: lack of capital due to number of shares that can be issued, no benefit
from economies of scale e.g. Bulk buying
Public Company - INCORPORATED
- Shares bought and sold on stock market
- Limited liability
- ADVANTAGES: liability, raise large amounts of capital, benefits from economies of scale
e.g. Buy in bulk, produce at lower unit cost, experimental management - board of
directors
- DISADVANTAGES: Cost of formation, conflict between shareholders and board of
directors, possibility of takeover

INFLUENCES IN THE BUSINESS ENVIRONMENT

External Influences
- LEFT at the SCG Markets If Possible
legal, economical, financial, technological, social, competitive, geographical, market,
institutional, political
Internal Influences
- Please Let Ron Marry Cho
- Products, location, resources, management, and culture
Stakeholders - Businesses are required to fulfil responsibilities to the following:
- Managers
- Society/General Public
- Employees
- Shareholders/Investors
 - Customers
- Environment

TOPIC TWO: Business Planning

INFLUENCES IN ESTABLISHING AN SME
Personal Qualities required for starting a business
- Self-motivated
- Organised
- Desire to succeed
- Initiative
- Determination
- Easy to communicate
Qualifications education and training, certificates & courses
Skills computer, accounting, marketing, administrative
Motivation reason for wanting to succeed
Culture and Gender
Entrepreneur is someone who starts, operates and assumes the risk of a business venture in
order to make a profit. They tolerate failure, take risks and feel motivated to achieve.
MARKET
- Goods = tangible, services = intangible
- SMEs must judge what market their product will sell in:
Age
Gender
Likes
Dislikes
Demographics
- SWOT ANALYSIS weaknesses and strengths
- PRICE
Percentage Mark-ups increased by a fixed percentage
Recommended Retail Price recommended by wholesaler or manufacturer
Price Leadership & Competition follow prices set by another seller
What the market will bear charge what buyers will pay e.g. auction
- LOCATION
Government Zoning
Visibility
Cost of rent
Distance from supplier
Central shopping district or Main Road
Market research is to sustain competitive advantage and therefore increase profit
FINANCE
Source
- Equity Finance funds contributed by the businesss owner
Personal funds
Advantage is that there are no repayments
 Disadvantage is if owner has insufficient funds, may be forced to sell shares
- Debt Finance Money obtained through loans
Loan Overdraft
Advantage is owner doesnt have to sell any ownership in business
Disadvantage is that the owner must pay interest on loan
SWOT analysis a tool allowing a business to look at its:
- Strengths What is our business good at?
- Weaknesses Is there conflict between employees and management?
- Opportunities Are there new markets we can expand into?
- Threats Are there new competitors?
FORECASTING predictions about the future of a business
Techniques include:
- Total revenue & total costs
- Break-even analysis
- Cash flow projections
Total Costs = fixed costs + variable costs
Total Revenue = Selling Price x Quantity
Breakeven Analysis can determine number of sales required to make profit
- Breakeven point = TOTAL FIXED COSTS (UNIT PRICE VARIABLE COSTS per unit)
Cash Flow Projections - shows changes to finance brought about by the operating, investing
and financial activities of a business.
- Inflows (sales) Outflows (costs) = Closing balance (profit)
- Can help estimate the businesss bank balance for each month and identify potential
problems

TOPIC THREE: Business Management

Management Process
OPERATIONS the business processes that involve the transformation or production
- INPUTS Transformation Process Outputs
- Inputs are raw materials, human resources, equipment
- Transformation is the manufacturing process
- Output is the finished product, good or service
Control methods
- Quality Control
Inspector checking finished product
Removing components or final products that dont meet standards
Wasteful method
- Quality Assurance
Stop faults occurring in first place
Products produced to pre-set standards
Responsibility of working team rather than inspector
- Total Quality Management (TQM)
Most efficient form of control management
Encourages all employees to quality test everything they do
 Every employee sets out to satisfy product quality (centre of production
process)

MARKETING what customers want and developing products to meet their wants
IDENTIFYING A TARGET MARKET
- Mass Market:
Large range of customers
Mass-produces
Mass-distributes
Mass-promotes
One product to all buyers
Out-dated
E.g. water, electricity
- Market Segment:
Dividing market into segments
Demographics
Geographic
Lifestyle
Behaviour
- Niche Market:
Narrowly selected target market
E.g. magazines, wedding dresses, maternity shops
MARKETING MIX The 4 Ps
- Product
Quality
Design
Name
Warranty and Guarantee
Packaging
Positioning
Branding
- Price
Cost Plus Pricing: cost of production + mark up
Penetration Pricing: set low price
Skimming: High price for introduction
Psychological Pricing: $999 instead of $1000
Competition Based: set by competitors
Prestige Pricing: set according to perception of product
- Promotion
Personal Selling: sales rep helping customer
Advertising: print or electronic mass media, word of mouth
Below-the-line Promotions: competitions, free samples, coupons, loyalty
Public Relations: celebrity endorsements, sponsorship, newspaper coverage
- Place
Producer to customer
 Producer to retailer to customer
Producer to wholesaler to retailer to customer (most common)
Intensive distribution as many outlets as possible
Selective distribution product widely distributed but not intensive
Exclusive distribution luxury product through exclusive channels

POLC Planning, organising, leading, & controlling

- PLANNING
Determining mission statement & objectives
Establishing plans for achieving goals
Forecasting in profit, growth and market share
- ORGANISING
Analysing tasks that must be completed
Deciding combinations of inputs
Coordination of activities
Establishing structure and roles
- LEADING
Motivating employees
Encouraging positive change
Effective communication
- CONTROLLING
Setting standards
Monitoring activity
Taking corrective action
Comparing planned to actual

FINANCE
Balance Statement
Assets = Liabilities + Owners Equity
A = L + OE

HUMAN RESOURCES
Acquisition
- Identifying Staffing Needs
- Forecasting future demand for workers
- Analysing jobs - two parts; job description and job specification
- Skills, knowledge & abilities needed
Recruitment: finding and attracting the right people
- Internal sources & external sources
Selection
- Finding the most suitable person who matches the job specification
 Development training aimed at improving employees skills and abilities, necessary for
personal and business growth.
Determining training needs
Training methods
- Off-the-job
- On-the-job
- Induction
- Recording training
- Databases

Maintenance - crucial for a business to provide working conditions that will encourage
employees to remain with the business.
- Monetary benefits over-award payments
- Non-Monetary benefits child-care facility at work, meeting personal needs
- Motivation bigger office, challenge of the job
- Performance Appraisal praise

Separation - ending of the employment relationship

- Voluntary separation
Retirement
Resignation or quitting
- Involuntary separation
Retrenchment not enough work
Dismissal unacceptable behaviour
- Both
Redundancy job no longer required to be performed

EMPLOYMENT CONTRACTS - This is a legally binding, formal agreement between an

employer and an employee.

Three different types:

> Award
> Enterprise agreement
> Common law contract

- AWARD
Pay rates including minimum wage
Holidays - public
Leave sick, long-service, carers, compassionate, community
service, maternity/paternity
Flexible work for parents
Overtime rates
Allowances for tools or uniforms
Hours of work
- ENTERPRISE AGREEMENT
- A negotiated arrangement between an employer and a union or a group of
employees.
- The agreement deals with the pay and conditions of people employed in that
workplace.

- COMMON LAW CONTRACT

Individually negotiated, secret (not open to public scrutiny) contract
- Covers those employees who are not under any awards or enterprise agreements
- More common among professional and managerial employees.
- Exists when employers and employees have the right to sue for compensation if
either party does not fulfil their part of the contract