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Business NotesCore 1: The nature of Business

1. The nature of Business

The role of business

➔ An organisation that produces/sells goods and/or services in order to make a profit.WIPES ICE Q

➔ Wealth: successful business creates wealth for all stakeholders.

● Business redistribute wealth to → government, employees and shareholders

➔ Income: amount of money a person receives for their labour (wage/salary)

➔ Profit: what remains once all expenses are deducted from sales

● key to its long-term survival (essential to meet expenses)

➔ Employment: number of employees depends on the size + nature of the products.

➔ Services (& goods): Things done for you and items that can be seen or touched

➔ Innovation: development of new products/improvement to existing products (new markets)

➔ Choice: the act of selecting among alternatives.

● Businesses will compete to offer the best price and the highest quality.

● Choice is affected by location, price, reputation and quality

➔ Entrepreneurship and Risk: People who transform their ideas into a business

● Prepared to take the risk of starting and operating a business in an untapped market.

● Those that are successful gain significant financial return.

➔ Quality of Life: overall wellbeing of an individual (combination of non/material benefits)

● Produce a range of products that satisfy our wants → results in a higher quality of life

2. Types of Businesses

Classification of businessesSize:

Geographic Spread:● business acting on behalf of the government to provide essential community services. Some organisations that

were government enterprises have now been● privatised, becoming public companies (Commonwealth, Qantas, Telstra)

● exclusive, selective, intensive

Industry sector:

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Businesses involved in similar types of production.● Primary - collection of natural resources and raw materials (coal, wheat, timber)

● Secondary - use of raw materials, labour and equipment to create products. (cars)

● Tertiary - performing a service for other people

➔ Quaternary - transfer and processing of knowledge + information (education, property, computing, finance, telecommunication)

➔ Quinary - services that are traditionally performed in the home (hospitality, childcare, cleaning, tourism)

Unincorporated: owners pay tax, signs the contracts, owns the property and is liable and responsible for any debts. (sole trader/partnership)Incorporated: legal business/separate entity from owners (public/private companies).

● Can exist regardless of owners, takes on a life of its ownLimited Liability: business owner is personally liable for debt incurred by the business.Unlimited Liability: only liable for the amount you investedGovernment enterprise - business acting on behalf of the government to provide essential community services. Some organisations that were government enterprises have now been privatised, becoming public companies (Commonwealth, Qantas, Telstra).

Factors influencing choice of legal structureSize Ownership Finance

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A growing business may want to choose a different legal structure to gain finance, skills and expertise.

The owner may not want to share ownership.

Gaining investors from switching legal structures could help success of the business

3. Influences in the business environmentThe business environment refers to the surrounding conditions in which the business operates, it can be divided into two broad categories; internal and external.

External influences on the business environment(very little control) MC PIGS LEFT

➔ Markets:

● Labour market - flow of capital/workers between countries (human capital). Can be domestic and international.

● Financial market - heavily impacted by changes to interest rates. Higher rates = expensive to borrow

● Consumer markets - people buying products.

➔ Competitive situation: Influenced by market concentration as this creates pressure of innovation (edge)Types of markets:

● Monopoly : no competitors e.g. Sydney waters, Australia post

● Oligopoly : Small number of large firms that dominate the market e.g. banks, Woolworths

● Monopolistic competition : Large number of buyers and sellers sold by differentiating e.g. cafes

● Perfect competition : Large number of small businesses selling same product- compete through prices e.g. fruit and vegetable growers.

➔ Political: State + Federal government policies e.g. Cigarette packaging- makes product less appealing

➔ Institutional: government, regulating bodies and others.

Government:Imposes regulations on businesses to standardise and protect dealings with consumers and competitors.

➔ Federal- Payment of taxes- Provision of employee superannuation

➔ State:- Payment of payroll tax- Abiding by relevant state legislation

➔ Local- Fire regulations- Parking regulations

Regulating body:Set up to monitor and review actions of businesses e.g. ACCC, ASIC and the Office of Fair trading

Other:The Australian Securities Exchange, trade unions, employer associations, industry groups & lobby groups.Geographic:

● Australia's location within Asia-Pacific region

● Changes in demography = changes in product demand

● Globalisation - removal of barriers between nations - allowance of global trade, therefore, increase of wider competition due to exporting opportunities

Social:● Businesses need to be aware of their community's needs, opinions and beliefs.

● Changes to fashion trends + culture affect business sales and demand Legal: The regulation or legal framework in which a business must operate by

Economic:● Fluctuation in economy due to varied levels of consumer spending

● Businesses tend to be strong when the economy is strong (consumer confidence)

● Government policies to influence economy: microeconomic reform, monetary and fiscal policyFinancial

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● Changes in the global and domestic financial markets will influence the cost of borrowing money; therefore, directly affect the level of investment by a business.

● Two types of financing = debt and equityTechnological

● Increase business communication and productivity.

● Create opportunities for new product development and innovations of existing products.

● Not all technological changes are advantages to the business (Redundant products)

Internal Influences on Businesses (specific factors within the business that will affect its operations) PLMBR

➔ Products: Type of good/service, demand and quality of product, price of product

➔ Location: Visibility, proximity to suppliers, customers, support services determines success of business.

● Prime location= customer convenience + visibility

➔ Management: Businesses have moved towards a ‘flatter structure’ due to rapidly changing technology, increased competition and globalisation. Classical vs behavioural management approach.

➔ Business Culture: values, ideas, expectations + beliefs shared by organisation members. Directly impacts upon the relationship between management and employees.

➔ Resources: human, information (knowledge) physical (equipment + raw materials), financial.

StakeholdersStakeholders in Business: any group or individual who has an interest or is affected by the activities of a business.Society: Expect organisations to be concerned for environment + socially responsibleManagers: Influence organisation policies and employee productivityEnvironment: Growing pressure to adopt sustainable/ecological production practicesCustomers: Consider needs of customers = returning/happy experience/good reputationEmployees: Influence quality of productShareholders: Voting rights on major decisions = direct influence

4. Business growth and decline

Business Life Cycle and responding to challengesThe BLC

o Establishment stage: Product is first launched therefore it takes times and profits can be limited.Challenges Strategies

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● Low sales- no established reputation= not many customers yet

● High costs- many expenses e.g. signs, storage

● Profits- low sales and high costs= loss of money

● Heavy advertising- to attract new customers but can be expensive

● Planning- owners need to be prepped for low sales

o Growth stage: sales increase, regular customers, development of new products, improving cash flow.Challenges Strategies

● Greater complication- increased sales= more paperwork, decisions and staff

● Management stake levels- in rapid growth, owners may underestimate the need of stock. No stock= customers going to competitors and an unreliable reputation.

● Reduce advertising- business can decrease cost by moving ads to more specific areas

● Record keeping- develop systems to keep track of financial records

● Training- can teach workers how to carry out duties properly and effectively

Growth and expansion can occur either through a merger or acquisition (takeover)

➔ Merger: the owners of two separate businesses combine resources and form a new organisation

➔ Acquisition: a business takes control of another business by purchasing a controlling interest in it

➔ vertical integration: business expands at different but related levels in the production and marketing of a product

➔ horizontal integration: business acquires or merges with another firm that makes and sells similar products

➔ diversification: business acquires or merges with a business in a completely unrelated industry

o Maturity Stage: sales begin to slow, steady stream of income and a comfortable customer baseChallenges Strategies

● Competition- new businesses will start to take away customers and others will create deals to attract your customers

● Lower energy levels- culture of business becomes dull and not fun

● Motivation- offering new opportunities to try new things or be promoted

● Monitoring the external environment- be aware of the competition and rematch them.

o Post maturity:

● stage will be dictated by one of four paths:

➔ Steady state- the business is neither declining or expanding

➔ Decline- fall in sales, cash flow and eventual business failure

➔ Renewal- new products are developed and new markets are created

➔ Cessation- the business will cease trading

Challenges Strategies

● Changing customer preferences- changes in social external environment = customer no longer wanting product

● Loss of expertise- employees leave, taking skills and knowledge

● New product design and development- to maintain or grow its sales to escape decline

● Expansion- opening new stores in new areas, or selling products online, increases sales.

Factors that contribute to business declineThree main causes:

➔ Lack of management expertise

➔ Lack of sufficient money

➔ Competition

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Voluntary and involuntary cessation – liquidation Voluntary Cessation: owner of business decides to cease operations

● Reasons can include:

➔ Loss of enthusiasm

➔ Retiring

➔ Selling of business

➔ Declining profitsInvoluntary Cessation: closure is forced on the owner

● Causes include:

➔ Death of owner (sole trader/partnership)

➔ Lack of demand

➔ Poor economic conditions

➔ Increased competition

➔ NSW supreme court has ordered for the businesses assets to be sold to recover debtCessation Process:

Unincorporated business: Bankruptcy

● declare they are unable to pay their debts can be voluntary or involuntary

● Court appoints a representative to collect any money owed by the business

● Owners are generally declared ‘bankrupt’ for three years and are listed on a national register for five years- often means they can’t get loans

Incorporated business Voluntary administration

● Voluntary administration occurs when an independent administer is appointed to operate the business in the hope of trading all of the present financial problems.

● Generates the best outcome for a business owner and for creditorsLiquidation

● process of turning assets into cash to pay creditors

● Can be voluntary or involuntary

● Only the businesses assets may be sold during liquidation

● At the end of the liquidation process the business is dissolved

● A company in liquidation can also be in receivership e.g. Kiki K (where a business has a receiver appointed by creditors or the courts to take charge of the affairs of a business)

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Problems arising from business liquidation

Core 2: Business Management1. Nature of management

Features of effective management

● Planning- Setting strategic + tactical plans, establishing roles and allocating resources

● Organising- Using an organisational structure and set of procedures to implement plans

● Leading- Motivating employees to work hard by example to achieve goals

● Controlling- Monitor + evaluate performance; adjusting plans/procedures to achieve goals

Skills of management

➔ Interpersonal skills: Relates to skills needed to work and communicate with other people and to understand their needs.

➔ Communication skills: Relates to the exchange of information between people; both verbal and non-verbal.

➔ Strategic thinking: See the business as a whole and think about future direction and goals.

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➔ Vision skills: defined by the clear, shared sense of direction that allows people to attain a common goal.

➔ Problem solving skills: Identifying and implementing a course of action to correct a problem.

➔ Decision making skills: Identifying options available and choosing the most effective.

➔ Flexibility and adaptability to change managers need to adapt to the changing external environment.

➔ Reconciling the interests of stakeholders: Stakeholders place demands on business, such as need for good CSR.

Achieving Business GoalsGoals need to be SMART: Specific, measurable, achievable, realistic and timebound.Goals:

● Maximise Profits : Money left after the costs have been deducted from money of sales.

● Increase Market Share : The business’s share of the total industry sales for a particular product.

● Growth : Internal- increase employees & sales. External- merging with other businesses

● Increase Share Price : satisfy shareholders + healthy dividends

● Social Goals : goals that benefit the community

● Environmental Goals: goals involving sustainability and ethics.

Staff involvement:Maximised employee involvement and satisfaction = increased labour productivity.

● Innovation - Businesses should encourage innovation by recognising employees’ ideas

● Motivation - Managers should energise and sustain an employee’s behaviour through positive reinforcement and encouragement

● Mentoring - Teaching new employees business expectations helps strengthen their dedication and commitment to the business.

● Training – Improve employee productivity by boosting knowledge + skill

2. Management Approaches

Classical approach

Management Functions:

● Planning: how the business will achieve its stated mission and business goals

� Strategic: long term plans for overall direction of business

� Tactical: medium term, need to align with strategic

� Operational: short term, day to day plans

● Organising : designing a framework, determining the work that needs to be done, allocating resources, assigning work to employees

● Controlling : ways to measure what is happening in the business, standards business expects to meet.

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Organisational structure:Hierarchical

● creates a clear chain of command

● each person is given a specific role

● workers are trained in a specific way and then monitored

Leadership Style:Autocratic

● Make all decisions without employee involvement (Hold all power)

● Tell employees what to do with little to no help

● Employees are closely controlled and motivated by income and disciplineBehavioural approach

Management Functions:

● Leading: guide people, manage change, motivate + inspire, solve problems, complete tasks

● Motivating : giving workers desire to work at a high standard (Non/monetary rewards)

� Extrinsic – from outside a person e.g. promotions

� Intrinsic – inside a person e.g. work ethic

● Communicating : management is carried out by interacting + communicating with others.

Organisational structure:Team

● Short chain of command

● Increased job satisfaction

● Teams hold responsibilities

● Flatter structure

Leadership Style:Democratic

● Employee input

● Managers discuss the situation or problem with everyone involved

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● Shared authority

Contingency approach

● Uses a combination of theories depending on the situation

● Flexibility

● Reacting quickly to change by thinking strategically about the future

3. Management process

Coordinating key business functions and resources Operations: combine material and employee inputs to produce outputs Marketing: connects business to customers by promoting outputsFinance: provides funds to pay for business expensesHuman Resources: oversee the relationship between and organisation and employee

Operations

Transformed and Transforming Inputs (5):

➔ Materials: raw, physical inputs which are changed in the process e.g. ingredients

➔ Information: how to produce the good or service e.g. instructions

➔ Customers: may have a say in the output e.g. hairdresser

➔ Human Resources: HR used in the production process

➔ Facilities: resources used to produce output e.g. tools

Production process:

➔ Inputs: materials, information, customers, HR and facilities

➔ Transformation process: conversion of inputs to outputs

➔ Output: finished good/service

Quality management:Output needs to meet expected quality:

➔ Quality control: check output to ensure it meets expectations. At the end

➔ Quality assurance: putting in place procedures to ensure quality. Before

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➔ Total quality management examines the entire process, improve each step.

Supply Chain Management:All of the business’s activities involved in getting inputs into a business, putting them through the production process and getting them to customers.

➔ Suppliers: places where business gets inputs from

➔ Transport: how products come in and how they get to customers

➔ Storage: where to place inputs e.g. warehouse

Marketing

Target Market: The people most likely to purchase a business’s products.

The four P’s:

➔ Product: good/service sold by business- Brand name/logo- Packaging

➔ Price: needs to match the value of the product, need to consider positioning in the market- Cost based : price based on cost of inputs - Competition based : the price charged depends on the price charged by competitors- Market based : products sold according to what buyers are willing to pay

o Pricing strategies include loss leaders, price skimming, price points and phycological pricing

➔ Promotion: any activity used by the business to increase its sales. Examples:- Advertising : paid non personal message done through the media- Personal selling : when a business uses people to help try and sell products by delivering a personal message- Sales promotions : customers are offered something enticing- Relationship marketing : occurs when the business is able to establish loyal customers through good service- Publicity : free media - Public relations : used to generate attention e.g. online giveaways - Social media : could be considered part of advertising or public relations

➔ Place: (distribution) activities involved in getting products from producer to consumer - Distribution channel: producer wholesaler retailer consumer (exclusive, selective or intensive

distribution)Market segmentation: geographic, demographic and behavioural

People: staff- any skills or training they have, e.g. friendly, good salespeople

Processes: can include how orders are taken, how products are made, how customers are greeted etc.

Physical evidence: the appearance of a business. One that will appeal to the target market.

E-marketing: marketing activity online e.g. emails, social media, websites etc.

Marketing laws: Two main ones

➔ The competition and consumer act (2010)

➔ The Australian and consumer law (2011)Cover a range of areas, including:

- Deceptive and misleading advertising- Warranties- Implied conditions

Finance

Sources of finance:Debt: money is borrowed and repaid with interest.Equity: owner/partners/relatives put money into business

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Cash flow statement: Summarises cash transactions that occurred over a period of time.

➔ Inflow: Sales + interest (money coming in)

➔ Outflows: payments + expenses (money out)

➔ Net cash flow: Cash Inflow – Cash Outflow

Income statement: Shows the revenue, expenses and profits made by business over certain period of time.

➔ Revenue/sales: money made from selling products before deducting costs (selling price x number sold)

➔ Costs of goods sold: the cost required to make the products (cost price x number sold OR opening stock + purchases – closing stock)

➔ Gross profit: the profit made after deducting the COGS from sales (revenue – COGS)

➔ Expenses: costs incurred in earning the revenue

➔ Net profit: the final product calculated after deducting expenses from the gross profit (gross profit – expenses)

Balance sheet: Shows what business owns, owes and investments.

➔ Assets (how the business was financed) - equation: Assets = liabilities + owner’s equity- Current assets (A): assets that can be turned into cash in under 12 months- Non-current assets (NCA): assets which will be turned into cash in the long term.

➔ Liabilities (debts that the business owes- Current liabilities (CL): must be paid within 12 months- Non-current liabilities (NCL): debts paid over long term

➔ Owner’s equity: money invested into the business by the owner (retained profits/capital)Break-Even Analysis: How many products need to be sold in order to make a profit.

BEP= ¿costsselling price−variable costs

Fixed/variable costs:Fixed: do not vary with change in output e.g. rentVariable: increase as output increases e.g. input costs

Human Resources

Acquisition:The process of bringing employees into vacant positions in a business. Three main steps:

➔ Identifying staffing needs: Determining how many staff are needed, what skills/qualities/education they need, current + future staffing needs.

➔ Recruitment: Finding applicants. Formal: advertising positions, agencies, social media. Informal: dropping off resume

➔ Selection: Process of choosing the best applicant for the job. Includes: interviews, tests, trial periods, personality test

Training: Program a business puts in place to improve the skills of their workers.

➔ Induction – new workers are taught about ways of operation

➔ Mentoring – giving a new worker a long-term worker to help them

➔ Specific – training programs which focus on certain skills. Can be internally or externally run.

Employment contracts:Minimum Employment Standards: Employees are entitled to a set of minimum employment conditions, known as the National Employment Standards.Awards: A legally binding agreement that sets out the minimum wages/conditions for a group of employees. Some matters that can be included in modern wards include minimum wages, types of employment, arrangement of workhours, overtime rates, allowances, details of leave, and superannuation arrangements.

Advantages DisadvantagesSet a minimum for pay and conditions and cover all Can be inflexible and therefore may not suit all employees or

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employees performing a similar job. businesses and prevent recognition of individuals initiative because all employees are guaranteed the minimum pay and conditions regardless of how productive they are.

Enterprise Agreements: BOOT test Collective agreements made at a workplace level between an employer and a union, acting on behalf of its employees, or between the employer and a group of employees, about terms and conditions of employment. In addition to the 10 National Employment Standards, enterprise agreements must include the following:

- A nominal expiry date, usually two or three years after the commencement of the agreement- Procedures for settling any disputes that might arise- Terms that allow for individual flexibility- Provisions for consultation with employees on major workplace change

Advantages DisadvantagesConsultation with and involvement of employees, which, if conducted successfully, results in greateremployee involvement and empowerment. The possibility of improved pay and conditions and greater flexibility by agreeing on conditions that suit both the employer and employee.

More time consuming due to the need to conduct agreement meetings.

Common Law Contract: employers + employees have the right to sue for compensation if either party does not fulfil their part of the contract.

Separation:Ending of the employment relationship. Can be voluntary or involuntary.Voluntary:

➔ Retirement – person decides to resign from their job and leaves the work force.

➔ Resignation – person decides to resign from their job, can be influenced by a range of things.

➔ Voluntary redundancy – may be offered to staff, there are perks

Involuntary:

➔ Redundancy – a person’s job no longer exists, can be given a redundancy package in compensation for loss of work.

➔ Involuntary Separation – Occurs when an employee is asked to leave the business against their will.

➔ Summary dismissal – employee breaches their contract and is dismissed. 4. Ethical business behaviour

Values that determine appropriate and inappropriate conduct. Having a good CSR will also attract more customers.

➔ Follows laws and regulations

➔ Has a good business culture

➔ Ethically sources inputs

5. Management and change

Responding to internal and external influencesTransformational change: complete restructure throughout a whole organisation.

- Organisation structure, work procedures, employee structure, use of technology Incremental change: minor changes, usually only involving a few employees

- Operational changes

Managing change effectivelyIdentify the need for change: manager can identify current trends and predict future changes.

- A business information system gathers, organises and summarises data. Managers can use data to make decisions and evaluate results.

Set achievable goals: must be SMART + continually monitored/adjusted where appropriate

➔ Quantitative goals: sales targets, profit expectations, budgets

➔ Qualitative goals: perception of a business image and staff moraleSituational analysis:

➔ Importance of setting goals

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➔ SWOT (strengths, weaknesses, opportunities and threats)Resistance to change: reasons include financial, inertia and staffing.

Resistance Strategies - Financial: equipment, redundancies, retraining

employees, structural reorganisation. - Inertia: lack of confidence in risk taking- Staffing: threatened by new procedures, resistance

to learning new technology, reduction in promotional opportunity

- Identify the reason of fear- Proactive vs reactive approach

Management consultants: someone with specialised knowledge within an area of business, come in to provide solutions to a business’s problems. Change agents.

Core 3: Business Planning1. Small to medium enterprises

Definition

➔ The Australian Taxation Office (ATO) defines a 'small business' as a business that has less than $10 million in revenue (changed in 2016).

➔ The Australian Bureau of Statistics (ABS) defines SMEs to have less than 200 employees.

Role

➔ provide goods/services to the public, other businesses and government

➔ job creation

➔ innovate

➔ enter overseas markets

➔ make up 99.7% of businesses are SMEs in Australia

Economic contribution

➔ GDP (total value of all goods produced in Australia)

➔ Employment

➔ Taxes

➔ Spending money on SMEs will expand economy

➔ They contribute to economic conditions, failure = economic fall

Success Reasons: Entrepreneurial abilities, Access to information, Flexibility, Focus on the market niche, Reputation.

Failure When it declares bankruptcy or forced into liquidation/voluntary closure.Reasons for SME failure: Failure to plan, Negative cash flow, Not enough sales.

2. Influences in establishment

Personal qualities A business owner requires a range of skills and personal qualities in order to succeed.

➔ Qualifications: advantageous, but not necessary to have formal qualifications

➔ Skills: essential and can be attained with experience, education or training

➔ Motivation: attaining motivation is important in order to establish a vision, need to want something

➔ Entrepreneurship: To have entrepreneurial ability; to be naturally good at business

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➔ Cultural background: particularly important for global businesses, different cultures have different customs which need to be respected.

➔ Gender: more likely to engage in different sectors based on gender.

Sources of information➔ Personal advisors: individuals knowledgeable in specific areas e.g. bank manager➔ Government agencies: local, state and federal governments provide support and guidance e.g. the council➔ Other sources: the chamber of commerce and trade associations

Business ideaThe idea for a product identifies an opportunity, which requires an analysis of competition.

Establishment options New:

➔ Unique idea

➔ Existing businesses aren’t satisfactory

➔ Market grows (increased demand)Advantages Disadvantages

● Flexibility

● Choice

● Owners objectives can be more easily met

● Uncertainty/risk

● Slow start

● CostExisting:

➔ important to know why it’s for saleAdvantages Disadvantages

● take on goodwill and customer base

● Stock

● Equipment

● Staff

● premises

● take on bad reputation

● contacts with customers could be lost- owner/customer relationship

● employees may be resistant to change

Franchise: ➔ buying the rights to a business

➔ set fee

➔ do this to avoid problems associated with new businessesAdvantages Disadvantages

● very little decisions

● risk is low

● training provided

● reputation is usually good

● little say

● profits are shared

● service fee for advice

● franchisee may merely feel like an employee

Market

➔ goods/service

➔ Price: cost-based, market-based and competition-based

➔ Location: impacted by aspects such as zoning, cost, proximity to suppliers/competitors. Can be:- Shopping centre complex- Retail shopping strip- Online presence- Home-based business

FinanceFunds required to carry out business activities.Debt: short term and long term borrowing from external sources.

- Overdraft- Leasing - Mortgage

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- LoansEquity: funds from a business owner.

- Capital – start up money - Retained profits – money reinvested into business by the owner- Shares – public companies

Legal requirementsBusiness name: register with ASICZoning: mixed, industrial and housing zones. Operations need to work around this.Other regulations:

➔ Health: need to be assessed by a health inspector and hold relevant permits

➔ Trade Practices Act: restricts deceptive advertising and deals with safety

➔ Work Health and Safety Act: makes workplaces safe for all and imposed by federal government

Human resources Skills: staffing requires relevant skills and training

Costs: - Only employ staff if return is greater than cost- Costs involved: wage, award/enterprise agreement/individual contracts- Non-wage costs: training/rewards

TaxationThe compulsory payment of a proportion of earnings to the government. Taxation is an important issue when a person is considering all aspects of opening a business.

➔ Federal & State Taxes: includes taxes such as income tax, GST, company tax and land tax

➔ Local government rates: system of property taxation usually based on the value of land.- Water and sewerage- Waste management services- Development and building approval fees

➔ ABN: allows people and businesses to claim tax deductions.

3. Business planning process

Sources of planning ideasSituational analysis is important in order to plan ideas. A SWOT analysis needs to be undertaken.

Vision, goals and/or objectives➔ Vision: broadly states what the business aspires to become; its purpose and its function

➔ Mission: a statement of how the business will achieve its vision

➔ Business goals: (social, financial, personal) (strategic, tactical, operational)

Organising resources

➔ Operations: production of good/service- a business plan effectively details the inputs, processes, and outputs involved.

➔ Marketing: activities undergone to develop a product that suits the target market- Involves advertising to entice customers- Market analysis – social trends, market research, demand, competitors

➔ Finance: source of finance- Plan outlines where these funds go- Sales forecast, cash flow statement, break-even point- Needed to cover initial and ongoing expenses

➔ Human resources: employer employee relationship- Number of employees, the skills they need and their wages- HR laws – WHS, awards, anti-discrimination - Training – induction, mentoring and specific- Monetary and non-monetary rewards- Acquisition – staffing needs, recruitment, selection

Forecasting

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➔ Total revenue: sum of all money received by the business (sales, fees and interest earned)total revenue=price perunit ×number of goods sold

➔ Total cost: all the costs incurred in the operation of the business (fixed and variable)total costs=¿ costs+variable costs

➔ Break-even analysis: financial planning tool that can be used to forecast how many items to be produced and sold in

order to cover cost. BEP= ¿costsselling price−variable costs

➔➔ Cash flow projections/statement: Cash flow projection is a breakdown of the money that is expected to come in and

out of your business.

Monitoring and evaluations➔ Sales: income from products sold

total sales=price per unit×number of goods sold➔ Budgets: an estimation of revenue and expenses over a specified future period of time and is usually compiled and re-

evaluated on a periodic basis➔ Profit: The revenue remaining after all costs have been met is the business's profit.

profit=total revenue−total cost

4. Critical issues in business success and failure

Importance of a business planIt is a blueprint for future growth, so it is beneficial in keeping the business on track for its objectives.

Management➔ Staffing: staff are the business biggest asset

➔ Teams: behavioural approach can lead to superior performance for some businesses.

Trend analysis

➔ Idea that the past can repeat itself

➔ Provides success by forecasting factors such as:- Potential sales- Total revenue- Total operating costs- Gross and net profits- Availability of labour

➔ Leads to effective planning

Identifying and sustaining competitive advantageBusinesses need to develop strategies to gain an advantage over competitors, such as:

➔ Offer customers something no one offers

➔ Differentiation by product quality, innovative design, positive brand image or top-quality service

➔ Sustaining a competitive advantage

Avoiding over-extension of finance and other resourcesShould start small and gradually expand.Over-extension of finances:

➔ Purchasing excess stock

➔ Leasing commitment

➔ Committing to fixed contracts can lead to fees if not paid

➔ Purchase of business premises – unable to pay mortgageOver-extension of resources:

➔ Stock – too much money invested in goods or raw materials

➔ Staff – too much staff due to optimism. Need to reduce dependence.

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Using technology➔ Changing workplace environment and making these more convenient and cheaper➔ E-business: use internet to find information, email, work online, marketing, research, lodge forms and apply for licenses➔ E-commerce: buying and selling of goods and services via the internet

Economic conditionsApart of external environment

➔ Strong economy: consumer spending is high, unemployment rate is low, increased production

➔ Falling economy: less consumer spending, rising unemployment, decreased production