Transcript Prelim Business Studies Study Notes

Prelim
Business Studies
Study Notes
By Andrew Newbound
© Andrew Newbound 2013
The Nature of Business
Topic 1
© Andrew Newbound 2013
Role of Business
Topic 1.1
© Andrew Newbound 2013
What is A Business
A
collection of activities that are
performed to design, produce, market,
deliver and support its goods and
services.
 Its owners do this to receive benefits
© Andrew Newbound 2013
The Nature of a Business
- Produce goods and services
 Goods


Tangable object
The clothes we wear, foods we eat,
television sets we watch and cars we drive
 Services


Coles, Woolworths, Aldi
Intangible
 Increase
in services, decrease in goods
© Andrew Newbound 2013
Profit
 Difference
between the price at which a
good or service is sold and the costs of
getting the good or service to market
 Gross profit

𝑠𝑎𝑙𝑒 𝑝𝑟𝑖𝑐𝑒 − 𝑠𝑎𝑙𝑒 𝑝𝑟𝑖𝑐𝑒
 Net

profit
𝑔𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡 − 𝑒𝑥𝑝𝑒𝑛𝑠𝑒𝑠 𝑎𝑛𝑑 𝑡𝑎𝑥𝑒𝑠
© Andrew Newbound 2013
Employment
 Workforce





had changed
Skilled jobs
Young people in education and training
Aging
Increase in female participation
10,000 fewer people employed in
manufacturing than 5 years ago
 Businesses
moving to low cost countries
© Andrew Newbound 2013
Incomes
 Employee’s
business
reward for working in a
© Andrew Newbound 2013
Choice

Market economy


Regulation to protect consumers



Customer demand determines what products
will be sold in the market
Dangerous products
False claims
Regulation

Government affected by a free market lobby

Restrict the market
© Andrew Newbound 2013
Innovation
A
new idea that relates to a better
product, a service or a way of doing
something
 Niche market

Buyers with specific, unmet needs
© Andrew Newbound 2013
Entrepreneurship and Risk
 Risks
associated with marketing new ideas
for products or new ways of marketing or
distributing better and cheaper products
© Andrew Newbound 2013
Wealth
 Wealth

creation
People invest in business
 Want
time
to grow the value of their wealth over
 Dividend



Payment of a share of profits
Businesses retain 50% to fund future growth
50% in form of dividend
© Andrew Newbound 2013
Quality of Life
 Providing
appropriate rewards for work
 Challenging and interesting work
 A safe working environment
 Effective training

Enable employees to do work well
© Andrew Newbound 2013
Influences in the Business
Environment
Topic 1.3
© Andrew Newbound 2013
The Business Environment
 Anything
business
that affects the operation of a
© Andrew Newbound 2013
Efficient Managers
 Constantly
monitoring the business
environment to pick up any change that
may impact upon their business
© Andrew Newbound 2013
External Influences on Business
 Outside
the control of a business’s
managers
© Andrew Newbound 2013
External Influences
Economic
Financial
Geographic
Social
Legal
Political
Institutional
Technological
Competitive
Situation
Markets
© Andrew Newbound 2013
Economic
 Attributed

to the economic cycles
Predictable long-term pattern of changes
in the national income
© Andrew Newbound 2013
Economic Cycle
© Andrew Newbound 2013
Economic Cycle
Upswing
• Confidence increases
• Employment rises
Boom
• Low unemployment
Downswing
• Loss of confidence
• Unemployment rises
Trough
• Confidence rock bottom
• High unemployment
© Andrew Newbound 2013
Economic Cycle
 Australia


Sustained growth in spending for ~17yrs
following 1992 recession
Loss in confidence
 2008/09
GFC
 Rapid decrease in spending

Monetary policy
 Determined
by RBA
 Stabilise economic activity
© Andrew Newbound 2013
Economic Cycle
 Recession



Unemployment rises
Spending falls
2 consecutive quarters of negative growth
 Inflation


Demand begins to outstrip supply
RBA decreases interest rates
© Andrew Newbound 2013
Reserve Bank of Australia
 Stability
of Australia’s currency
 Maintenance of full employment
 Economic prosperity of people of
Australia
 Welfare of people of Australia
© Andrew Newbound 2013
2009 GFC
 US

householders defaulting on mortgages
Those reliant on such funds could not be
payed
 Economic


stimulus
Minimise impact of downswing
$53 billion by Rudd Labor Government
 $900
per household
© Andrew Newbound 2013
Recessionary Cycle
Rising
unemployment
Cost cutting
Consumers
more cautious
Reduced
spending
© Andrew Newbound 2013
Boom Cycle
Falling
unemployment
Increased
production
Consumers
confidence
returns
Increased
spending
© Andrew Newbound 2013
Financial
 More
significant with deregulation and
globalisation
 Important

Business inputs must be financed
 Raw
materials
 Equipment
© Andrew Newbound 2013
Financial – Derivatives
 Financial

securities
E.g. contract
 Enable
businesses to manage risk more
efficiently

Contract between apple growers and
apple pie manufacturers
 Ensure

price doesn’t change
Bad for either if price changes
© Andrew Newbound 2013
Financial – Derivatives
 Qantas

– Hedging
Transferred risk of fuel prices to hedge fund
 Business

specialising in risk management
Competitive advantage over Virgin when
fuel prices rose
© Andrew Newbound 2013
Geographic
 Location
of a business
 Australia in Asia Pacific region

Access to rapidly growing markets
 China
 India
 Lower
 Mines

transport costs
in regional Australia
Difficult to get skilled labour
 Fly-in-fly-out
workforce
© Andrew Newbound 2013
International Trade
 All
economic transactions that take place
between consumers, businesses and
governments in different countries
 Businesses specialise in goods and
services that are produced more
efficiently
© Andrew Newbound 2013
Social
 Attitudes,
values and beliefs of a society
 Changes in fashion

Make companies involved very susceptible
 Aging

population
Opportunities
 Leisure
and travel needs
 Heath and medical needs
© Andrew Newbound 2013
Social
2


income families
More women working full time
Opportunities
 Prepared
 Healthy

and takeaway meals
lifestyle
Rejecting soft drinks for bottled water
 Immigration

Diverse Australian population
© Andrew Newbound 2013
Legal
 Framework
of laws and regulations that
governs the operations of a business
 Fair Work Act 2009

Smaller number of awards and minimum
conditions for employers
© Andrew Newbound 2013
Political
 Ideas
that come from the political parties
 E.g.


Resources rent tax
Carbon tax/emissions trading scheme
 Not
possible to insure against
© Andrew Newbound 2013
Political
Federal
Government
State
Government
Local
Government
•Taxes
•Superannuation
•Customs
•Employee
entitlements
•Approving new
development
•Fire regulations
•Parking regulations
•Size, location and
shape of business
signs
© Andrew Newbound 2013
Political
Labour
market
reforms
Social reforms
Environment
management
Taxation
© Andrew Newbound 2013
Institutional
 Not


only established organisations
Unions
Trade associations
 More

importantly
Established practices/customs in a business
 Change
= essential
 Make change more difficult
© Andrew Newbound 2013
Technological
 Important
because of rate of change
 How things are done in business
 E.g.


US car making process
= completely automated
Woolworths
 Minimise
component in distribution
 Saved over $4.5 billion with new system
© Andrew Newbound 2013
Competitive Situation
 Market
where other businesses are
providing products to meet the same
consumer need
© Andrew Newbound 2013
Competitive Situation
Ease of entry
into market for
a new business
Local and
foreign
competition
Marketing
strategies
employed by
competitors
Number of
competitors
© Andrew Newbound 2013
Types Of Market
Concentration
Monopoly
1
firm
 No competitors
 E.g.


Australia post
Railcorp
Oligopoly
 Consists of a small
number of larger
firms that dominate
the market
 E.g.



Banks
Oil companies
Car manufacturers
© Andrew Newbound 2013
Types Of Market
Concentration
Monopolistic
Competition
 Large
number of
buyers and sellers
 Differentiated
goods
 E.g.


Clothing
manufacturers
Local retailing
Perfect Competition
 Large
number of
small businesses
that sell products
that are the same
or similar
 E.g.

Fruit & vegetable
growers
© Andrew Newbound 2013
Markets
 Market

Place in the commercial world where
goods and services are sold
© Andrew Newbound 2013
Internal Influences
 Things
managers can influence
© Andrew Newbound 2013
Products
 Businesses
competing to produce a
product that better meets the needs of
the competitors
© Andrew Newbound 2013
Location
Visibility
Cost
•How well
•How often
•Rent/lease
Proximity to
suppliers
•How close to
suppliers
Proximity to
customers
•How close
Support services
•e.g. accountants,
lawyers
© Andrew Newbound 2013
Resources
Finance
Employees
Equipment
Raw
materials
© Andrew Newbound 2013
Resources
 Way
are acquired
 Affect


Quality
value
© Andrew Newbound 2013
Management
 Attitudes


Manager
Employees
 ‘Best

and values
practice’
Way the competitive businesses in the
industry do things and clearly involves ideas
 Efficiency
 Quality
production
 High levels of customer services
© Andrew Newbound 2013
Management – Flight Centre
 Family,
village, tribe
 Business teams
Area leadership
National
leadership
Regional
leadership
Global©board
Andrew Newbound 2013
Stakeholders
 Any
group/individual on whom the
decisions/ actions have an impact

∴ have an interest in things a business does
 Shareholders

People who have a ‘share’ in the ownership
of a company
© Andrew Newbound 2013
Stakeholders
Internal
Stakeholders
Shareholders
External
Stakeholders
Investors
Customers
Suppliers
Employees
Competitors
Unions
Managers
Government
The community
© Andrew Newbound 2013
Types of Businesses
Topic: 1.2
© Andrew Newbound 2013
Size
Micro: <5
Small: <20
Medium: 50-200
Large: >200
© Andrew Newbound 2013
Local, National, Global
Local
area
National
Global
• Immediate market
• E.g. Mike’s seafood,
Inner Vision Surf N Skate
• Throughout Australia
• E.g. Woolworths, QR National
• Portion of business outside of Australian
borders
• E.g. BHP Billiton, McDonalds , Westpac
© Andrew Newbound 2013
Global: Advantages
 Most
efficient production resources
 Distribute risk

Geographic
 Currency
fluctuations
© Andrew Newbound 2013
Industry
Primary
Extraction of natural resources
E.g. Farmers, Rio Tinto, BHP Billiton, Xtrata, Fortesque
Secondary
Converts natural resources to finished & semi-finished
goods
E.g. General Motors, Alchoa, Bluescope Steel, Bago
Woodworks, Dorvic Steel
Tertiary
Selling and distributing goods and services
E.g. Inner Vision, Jim Pearson transport, Country Energy
e.g. teachers, hotels, motels, restaurateurs
© Andrew Newbound 2013
Industry
Quaternary
Information processing services
E.g. Real estate, banks, media,
insurance
Quinary
Consumer focused services
e.g. teachers, hotels, motels,
restaurateurs
© Andrew Newbound 2013
Industry
 Shifts
away from primary industry into the
services sector

Developed nation
 Primary

sector < tertiary sector
Feeds into other aspects of the economy
© Andrew Newbound 2013
Legal Structure
Sole Trader
1 Owner
Unlimited liability
Owner’s income is taxed
Name must be registered if different from sole trader’s name
ABN (Australian Business Number)
Partnership
2-50 partners
Up to 200 for accountancies and solicitors
Unlimited liability
Owners’ income taxed
Each partner has the power to buy, sell, employ and borrow
© Andrew Newbound 2013
Legal Structure
Limited
Partnership
For business venture with more risk of failure
Allows some partners
to have limited liability
Public
Company
(Ltd.)
Normally silent
partners
Investment purely
for financial
reasons
Unlimited owners (shareholders)
Limited liability
Separate legal entity from owners
General public can buy shares
Financial records must be inspected by ASIC (Australian Securities and
Investment Commission
© Andrew Newbound 2013
Legal Structure
Private
Company
(Proprietary)
(Pty. Ltd.)
1-50 people
Know each other
Limited liability
Cannot ask general public for funds
Not listed on stock exchange
Transfer/sale of shares is restricted
‘Dividends’
Percentage of profits
payed to shareholders
© Andrew Newbound 2013
Legal Structure
Cooperatives
Group of people with a common interest
Members invest in co-op which carries out their
buying/selling for them
Often used in agricultural industries
≥ 7 members
Not required to pay tax on profits
Limited liability
© Andrew Newbound 2013
Legal Structure
Trusts
Trustee
Person responsible for
management of assets
Manage investments and minimise tax
Not a separate legal entity
Government
Enterprises
Businesses owned/operated by state or
federal government
© Andrew Newbound 2013
Types of Businesses
for Legal Structures
 Not
all legal structures suitable for all
businesses

If the shoe fits
 Sole


trader
All decisions = direct actions of manager
Name does not make a separate legal
enterprise
© Andrew Newbound 2013
Types of Businesses
for Legal Structures
 Partnership

agreement
Reduce likelihood of disputes
 Profit
distribution
 Working arrangements
 Structure changes
 What happens if money is owed to creditors
© Andrew Newbound 2013
Types of Businesses
for Legal Structures
 Medium



 Large business = company
High amount of finances needed
Specialist managers
Large enough to avoid downside of limited
liability
© Andrew Newbound 2013
Sole Trader
Advantages








Low cost of entry
Simplest form
Complete control
Less costly to operate
No partner disputes
Owner’s right to keep all
profits
Les government regulation
No tax on profits, only on
personal income
Disadvantages







Unlimited liability for debts
End of business when
owner dies
Difficult to operate if sick
Need to carry all losses
Burden of management
Need to perform a variety
of tasks
Difficulty in raising finance
for expansion
© Andrew Newbound 2013
Partnership
Advantages







Low start up costs
Less costly to operate
Shared responsibilities
and workload
Pooled funds
Minimum gov regulation
No taxes on business
profits
Business can keep going
upon death of 1 partner
Disadvantages
 Unlimited liability

For all debts
 Disputes
 Difficulty
in finding
a suitable partner
 Divided loyalty and
authority
© Andrew Newbound 2013
Company
Advantages




Public finance
Limited liability
Can transfer ownership
Perpetual succession






Disadvantages



Long life
Experienced management
Greater spread of risk
Lower company tax rate
Growth potential
Only need 1 shareholder
and 1 director



Cost of formation
Double taxation
Personal liability for debts if
directors knew that
business was unable to pay
debts
Yearly report of audited
accounts
Public disclosure
Inefficiencies from
becoming too large
© Andrew Newbound 2013
Franchise Arrangement
- Franchisor
Advantages





Fast and selective
product distribution
Avoids costs of
construction
Does not have to
operate outlets
Agreement ensures
some control
Motivated franchisees
Disadvantages
 Unsuitable
franchisee
 Disagreement over
conditions and
terms of contract
© Andrew Newbound 2013
Franchise Arrangement
- Franchisee
Advantages





Limited finances
needed
Guaranteed
customer base
Established name
Management
back-up
Proven methods of
business
Disadvantages




Franchisor retains
great deal of control
Limited individuality
Disagreements over
conditions and terms
in the contract
If too successful,
franchisor may open
own outlet
© Andrew Newbound 2013
Boost Juice Case Study
 80%
of businesses fail in first 3 years of
operation
 20% of franchises fail in first 3 years of
operation
© Andrew Newbound 2013
Business Growth & Decline
Topic 1.4
© Andrew Newbound 2013
The Business Life Cycle
 Series
of predictable phases businesses
experience as they develop
Establishment
Growth
Maturity
Post Maturity
© Andrew Newbound 2013
Establishment
Characteristics






Customers not familiar with
product
Retailers reluctant to put on
shelves
Takes time to establish
product
Expenses higher than sales
revenue
Negative profits
Businesses lose money in
establishment stage
Strategies




Adequate savings to
address cash problems
Effective marketing
strategies
Undertake business
courses to develop
management skills
Research government
regulations
© Andrew Newbound 2013
Growth
Characteristics




Rapid increase in sales
Pressure on resources,
particularly cash and
labour
Cash problems
develop
Competitors attracted
by increasing sales
Strategies




Prepare to work
even harder
Effective credit
policy to collect
debts
Consider factoring
Select time to
employ professional
managers
© Andrew Newbound 2013
Maturity
Characteristics
 Sales level off
 Market is saturated
 Time to employ
professional
managers
 Focus on remaining
competitive
Strategies




Focus on cutting costs
Examine all aspects of
value chain to cut
costs
Diversify into new
products
Find new ways to grow
value of business
© Andrew Newbound 2013
Post-maturity
Characteristics




Final stage of life
cycle
Falling sales and loss
of market share
Cash flow problems
emerge
Business starts to
decline
Strategies




Improve the
competitive position of
the business through
cost cutting
Renewal may be a
possibility with new
products
New managers with
new ideas
Manage the closure
effectively and ethically
© Andrew Newbound 2013
Integration
© Andrew Newbound 2013
Factors Contributing to
Business Decline
 Failure



to embrace change
Products
Technology
Production techniques
 Lack
of finance
 Business culture
 Environmental influences

E.g. economic recessions
© Andrew Newbound 2013
Voluntary Cessation
 Owner
decides to end business
 E.g.


Retire
Business purchased by another and
customers, employees etc. are
incorporated
 All
stakeholders interests are considered
© Andrew Newbound 2013
Involuntary Cessation
 Forced
ending of a business
 Creditors take legal action to wind up
business
© Andrew Newbound 2013
Liquidation
 Turning
assets into cash
 Distributed to secured creditors
 Remaining distributed to unsecured
creditors

Sometimes at a proportionate amount
 E.g.
50c in $1
© Andrew Newbound 2013
Sole Trader Cessation
 Voluntary

Pay bills and stop trading
 Involuntary



Court orders trading to cease
Debts paid
Bankruptcy may be declared
 Death


of owner
Business may die too
OR succession
© Andrew Newbound 2013
Partnership Cessation

‘Dissolved’

Arrangements set out in Partnership Agreement


If not – Partnership Act honoured
Can occur




A partner dies
A partner is declared bankrupt
A partner committed fraud
By court order due to creditors not being paid
© Andrew Newbound 2013
Company Cessation


‘Wound up’
Voluntary
Acquire solvency declaration so can pay bills
Profits divided amongst owners
Trading ceases
1.
2.
3.

Involuntary
Courts order a liquidator
1.

2.
3.
Assets turned into cash
Creditors paid in order of priority
Owners, shareholders liable to value of
ownership
© Andrew Newbound 2013
Problems Arising From
Liquidation
Company directors
•Possible loss of directorship position
•And/or disqualified as a director
•Could lose personal assets to pay for
company’s debts
•Possibility of a fine and/or
imprisonment
© Andrew Newbound 2013
Problems Arising From
Liquidation
Creditors (unsecured)
• May not receive any money owed
• May only receive proportion of money owed
Employees
• Loss of jobs
• Right to have outstanding wages and
superannuation payed if money left over
after liquidator’s fees
© Andrew Newbound 2013
Problems Arising From
Liquidation
Shareholders
• Unlikely to receive any payment
• Rank behind creditors
• Liquidator can request that holders of unpaid/partly
paid shares in the company pay outstanding amount
on those shares
Society/economy
• Loss of production
• Social and personal difficulties associated with job losses
• Loss of economy confidence
© Andrew Newbound 2013
Business Management
Topic 2
© Andrew Newbound 2013
Nature of Management
Topic 2.1
© Andrew Newbound 2013
Management
 Business




activities
Planning
Leading
Organising
Controlling
 Process
of working with and through other
people to achieve business goals
© Andrew Newbound 2013
Features of Effective
Management - Orica
 Maintain

business culture
Safety, health and the environment
 Trust

Commercial ownership
 Own
something to make money out of it
© Andrew Newbound 2013
Features of Effective
Management - Orica
 Maintain

Creative customer solutions
 Good

business culture
customer service
Working together
 Collective
knowledge
 Increase sales
 Effectively use limited resources
© Andrew Newbound 2013
Skills of Management
Reconciling
Interests of
Stakeholders
Strategic
thinking
Vision
Problem solving
Decision Making
Adaptability to
change
Flexibility
Interpersonal
Communication
© Andrew Newbound 2013
Skills of Management
 Communicate
effectively
 Lead
 Delegate
 Motivate
 Negotiate
© Andrew Newbound 2013
Richard Branson
 Interpersonal

Negotiation
 ACCC

Motivation
 Communicating

Media
© Andrew Newbound 2013
Communication
 Transmission
of ideas and information
throughout a business
 Conveying meaning

Correct translations if necessary
 Avoiding

ambiguity
Analogies don’t add confusion
© Andrew Newbound 2013
Communication
 Listening

Ideas of others taken into consideration
 Efficient

use of technology
Employees can quickly grasp concepts
© Andrew Newbound 2013
Strategic Thinking
 Achieve
future goals in uncertain business
environment

Fluctuations in economic cycle
 Strain


on credit
Maybe cut unnecessary spending
Maybe put future projects on halt
© Andrew Newbound 2013
Vision
 Manager
imagines what business would
be like in a period of time
 Business as a whole strive towards
common goals
 Without

Unable to best manage a business
© Andrew Newbound 2013
Problem Solving
 Address
business
problems as they arise within a
© Andrew Newbound 2013
Problem Solving
Identify the problem and causes
Gather relevant information
Develop alternative solutions
Analyse the alternatives
Choose one alternative and implement it
© Andrew Newbound 2013
Decision Making
 Choose
between alternatives
 Best make positive decisions for the
business
 Acquire and analyse information
 Anticipate competitor’s moves
 Resource allocation
 Without

Competitors gain advantage
© Andrew Newbound 2013
Flexibility
 Tackle
challenges in dynamic business
environment
 2009 GFC


Reduced customer demand
Tackled incorrectly
 Inadequate
resources upon market return
© Andrew Newbound 2013
Adaptability to Change


Adapt to changes in consumer demand
McDonalds




Consumers wanted healthy lifestyle
New, healthier products
Healthier means of manufacture
Kmart



Consumers wanted cheaper products
Removing underperforming and expensive
items
Everyday Low Prices
© Andrew Newbound 2013
Reconciling the Conflicting
Interests of Stakeholders
 Stakeholders
have different goals
Customers: Max benefits
Shareholders: Min costs
Employees: Max benefits
Shareholders: Min costs
Business: Max benefits
Suppliers: Min costs
Community: Max benefits from Shareholders: Min costs
things like low pollution levels
© Andrew Newbound 2013
Reconciling the Conflicting
Interests of Stakeholders
 Mining
company caused high lead levels
in children
Decide on stance on issue
Problem solving
Decide on alternative
Decision making
Reduce dividends to
shareholders
Decision making
Pay out annual
compensation
Interpersonal (how much)
Pay out 50% of all medical
fees immediately
Interpersonal (how much)
Reduce corporate bonuses
Interpersonal
(howNewbound
much)2013
© Andrew
Demonstrate out objective
Communication
Achieving Business Goals


What a business’s stakeholders want it to
achieve
Profit


Dividends


Difference between revenue and cost incurred
Portion of profit distributed to shareholders
Retained profits

Portion of business profit kept by business to
sustain future growth
© Andrew Newbound 2013
Market Share
 Percentage
of the market a particular
business’s products has
 Reducing price of products

Able to increase revenue
 Increase

Less profit per individual product
 If

overall profits
cost of production is constant
Less innovation
 Other
mechanism of increasing market share
© Andrew Newbound 2013
Growth


Increase in business revenues from year to
year
Opening additional stores


Selling more existing products at higher prices


BHP Billiton
Luring clientele



JB Hi Fi
Better than competitors
Offering something that competitor can’t
Increasing value
© Andrew Newbound 2013
Growth
 JB

Hi Fi
Rapid growth
 Harvey


Norman
Maturity stage
Constant growth
 Low
in comparison
© Andrew Newbound 2013
Share Price
 Price
at which shares are bought and sold
on the secondary market
 JB Hi Fi



1000% growth from 2003-2010 (since listing)
Increase in market share reflective
40% profit returns in half year period
© Andrew Newbound 2013
Social
 Providing
employment
 Specific initiatives such as mentoring
indigenous people to get full time work
© Andrew Newbound 2013
Environmental
 Concerned
with sustainability
 Walmart

Sell products that sustain resources and the
environment
 Throughout


whole supply chain
Cannot sell products without
Meaningful contribution
© Andrew Newbound 2013
Achieving a mix of the above
goals
 Walmart


Specific goals across supply chain
Barcode tracking technology
 Reduce
staffing levels
 Cut costs

Environmental
 Reduce
greenhouse gas emissions
© Andrew Newbound 2013
Staff Involvement – Innovation
 Kmart

Mt Druitt
Dressing up as characters of products they
sell
 Boost
sales
 Entice customers into the stores
 Excitement for less profitable products
© Andrew Newbound 2013
Staff Involvement – Motivation
 Make

staff enjoy the workplace more
Boost sales, effectiveness
 Staff
recognise their contribution to
business success
 Kmart

Rewarding good performance
 Kmart

gift cards
Bonus pool
 Every
1% of sales above budgeted amount
© Andrew Newbound 2013
Staff Involvement – Training
 Employees
well
 Kmart


are able to perform their role
Induction
Continuous training
 Particularly

in customer service
Main competitive advantage
© Andrew Newbound 2013
Staff Involvement - Mentoring
 Experienced
person trains and counsels
another employee
 Expensive
 Highly effective

Highly effective and proficient members
 Difficult
aspects of the role
© Andrew Newbound 2013
Management
Approaches
Topic 2.2
© Andrew Newbound 2013
Planning
 Setting
of targets and goals
 Setting time frames
 Prioritise activities
 Suggest resource/financial allocation
 Defines parameters
© Andrew Newbound 2013
Organising
 Allocates
the actual resources and
money
 Determines organisational design
 Assigns work to employees
 Sets the channels of communications
© Andrew Newbound 2013
Controlling
 Reviews
actions undertaken
 Creates performance reports
 Accounts for variance between planned
and actual performances
 Suggests new parameters
© Andrew Newbound 2013
Hierarchical organisational
structure
 Small

spans of command
Managers only in charge of a small group
of people
 4-14
 Division

of labour
Job divided into small, usually unskilled tasks
 Rigid

subordinates
chain of command
Strict line of authority from top to bottom
© Andrew Newbound 2013
Autocratic Leadership Style
 High
level of direction
 Little/no participation of subordinates
© Andrew Newbound 2013
Taylor
 Taylor’s




four principles of management
Develop
Select
Divide
Cooperate
 Eliminate
wasted movements
 Best qualified workers for a job
 Incentive systems
© Andrew Newbound 2013
Henri Fayol
 More
Taylor

focussed to all managers than
Lowest level
 Universal
set of functions
 Widely followed by managers today
© Andrew Newbound 2013
Fayol’s 14 Principles
Division of
work
Authority
Discipline
Remuneration
Subordination
Esprit de corps
•Fair wage
•Of individual
interests to
general interests
•Team spirit
Initiative
Order
Unit of
command
Unity of
direction
Equity
Scalar chain
Centralisation
•Kind and fair
Stability of
tenure of
personnel
© Andrew Newbound 2013
Behavioural approach
Leading
Motivating
• Change & conflicts
dealt with
• Maximum
productivity
Communicating
• Managers employ
their strategies
effictively
© Andrew Newbound 2013
Teams
 Self

managing teams
Don’t need close supervision
 Wider
 Flat
span of control
organisational structure
© Andrew Newbound 2013
Participative/democratic
leadership style
 Open
communication channels
 Gain feedback

Better business decisions
 More


motivated employees
Loyalty
Productivity
© Andrew Newbound 2013
Theorists
Elton
Mayo
Douglas
McGregor
Abraham
Maslow
© Andrew Newbound 2013
The Hawthorne Studies
 Western

Electric Company
1924-1932
 Productivity
increased when the lighting
was turned up OR down
 Being accepted by the group
© Andrew Newbound 2013
The human relations
movement
 Importance
of employee satisfaction
© Andrew Newbound 2013
Douglas McGregor
Theory X
Theory Y
• Workers
• Little ambition
• Dislike work
• Avoid responsibility
• Need to be closely
directed to work
effectively
• Workers
• Exercise selfdirection
• Accept
responsibility
• Consider work as
natural as rest and
play
© Andrew Newbound 2013
Abraham Maslow – 5 Needs
Physiological
Esteem
Safety
Social
Selfactualisation
© Andrew Newbound 2013
Comparative
Traditional Organisations
• Less fluid
• Division of labour
• Rigid structure
• Hierarchical
• Autocratic, didactic
management style
• Delegation
• Top-down
New and emerging
organisations
• More fluid
• People centred
• Multi-task, multi-skilled
• Inclusive
• By consensus
© Andrew Newbound 2013
Classical-scientific approach
Major strengths
• Easy to understand
• Planning
• Actual performance
• Division of labour
• Specialisation
• Straightforward
organisational structure
• Rigid chain of
command
Major weaknesses
• Too simple
• Workers treated as
machines
• Excessive supervision
• Over-specialisation
• Leadership is rigid and
controlling
• No input
© Andrew Newbound 2013
Behavioural approaches
Major strengths
•Flexible and adaptable
•People’s needs
•People = important
•Motivation
•Satisfy business goals
•Individual needs
•Employees are valued
•Communications = 2 way
•More informed decisions
Major weaknesses
•Developed before
globalisation, technological
advances
•Uncertainty in task designs,
expectations
•Difficult to gauge link between
productivity and human
motivation
•Different motivational needs
•Difficult to adjust to
•Decision making is time
consuming
© Andrew Newbound 2013
Contingency approach
 Uncertain
future
 Competitors react to changes more
quickly
 Business can meet customer needs more
effectively than competitors

Market share increases
 Important
to react quickly


© Andrew Newbound 2013
Management Process
Topic 2.3 Volume 1
© Andrew Newbound 2013
Business Functions
 Interdependence

The different functions of the business
working together in order to achieve
something
 Synergy

The whole is greater than the sum of the
individual parts
© Andrew Newbound 2013
Business Functions
Operations
Human resources
• Manufacturing
• Provision of services
• Other value adding
• Domestic/global
• Industrial relations (HR)
• Human resources
management (HRM)
• Personnel
Marketing
Accounting and finance
• Product
• Price
• Promotion
• Placement
• Administration
• Financial management
• Financial planning
• Management and change
© Andrew Newbound 2013
Coordination
 Ensuring
that the different parts in a
business work together effectively
 Incitec Pivot




Goals in all 4 functions
Communicate goal
Improve employee productivity
$530 million net profit
© Andrew Newbound 2013
Operations
 Transforming
inputs into outputs
 Quality



Repeat business
Word-of-mouth new business
Above competitors
© Andrew Newbound 2013
The Production Process
 Series
of stages a product progresses
through to be transformed

Adds value to product
Inputs
Processes/
Transformations
Outputs
© Andrew Newbound 2013
Quality Management
 Quality


Manufacture of services to meet predefined standards/specifications
Customers switch if don’t
 Coca



Cola
Contain advertised amount
Taste like Coke
Be carbonated
© Andrew Newbound 2013
Quality Management
 Minimisation
of variation to defined limits
 Building systems and procedures to
ensure
© Andrew Newbound 2013
Standards Australia
 Develops
and maintains expectations of
certain products



Safety
Performance
Reliability
 Works
with international standards
agencies

Positive contribution to Australia
© Andrew Newbound 2013
Purchasing/supply chain
management
 Supply

Range of suppliers from which the business
purchases materials and resources
 Lead

chain
time
Length of time it takes for the business to
actually meet the needs of the customer
through provision of the good or service the
customer/client seeks
© Andrew Newbound 2013
Purchasing/supply chain
management
 Supplier

rationalisation
Process a business goes through when it
reviews and reduces the number of
suppliers it purchases from
 Best
value for money
© Andrew Newbound 2013
Quality assurance
 Systems
and procedures to ensure
error/fault will not occur
 Incitec Pivot

Computerised bag loading
 Exact

quantity in each bag
Much growth in recent years
© Andrew Newbound 2013
Total Quality Management
(TQM)
 Japanese

concept
Constantly striving to improve all aspects of
the business
 Kmart

Highest possible level of customer service
 Assist
customers who require assistance
immediately
 ‘Kansei’

24hr trading to improve convenience
© Andrew Newbound 2013
Management Process
Topic 2.3 Volume 2
© Andrew Newbound 2013
Role of Marketing
 Find
out what customers want and
develop products that will meet what
they want
© Andrew Newbound 2013
Target Market
 The
component of the total market which
the business will focus its marketing
© Andrew Newbound 2013
Identification of the Target
Market
 Market


segmentation
Breaking down market into small,
manageable bits
Coca Cola’s lack of products for infants
 Differentiated


marketing
Focusing marketing on a number of
segments
Ford’s range of products
© Andrew Newbound 2013
Customer Characteristics
 Geographics

Where consumer lives
 Demographics

Features of the population
 Psychographics

Characteristics of the target market
© Andrew Newbound 2013
Marketing Mix
 Combination
of the 4Ps to achieve
business objectives
© Andrew Newbound 2013
Product
 Differentiation

Adding features not offered by others
 Brand


Positioning in market
Associating logo/name/symbol with
characteristics
 Reliability/syling/value
for money
© Andrew Newbound 2013
Pricing

Penetration pricing




Setting prices below competitors
Woolworths and Coles price wars
Suited for markets with competitors
Skimming pricing




High prices only attracting top end of market
Maximise profits
Quickly recoup production costs
Few competitors
© Andrew Newbound 2013
Promotion
Personal selling
• Activities of a sales representative in helping a customer
explain benefits of product
Advertising
• Paid communication
• Directly to customers
• E.g.
• Television
• Newspapers
• Radio
© Andrew Newbound 2013
Promotion
Below-the-line promotions
• Competitions
• Free samples
• Coupons
• E.g. Coca Cola’s win a beach house
Public relations
• Product mentioned in magazine/newspaper
• Associating with positive marketing
© Andrew Newbound 2013
Place
Intensive distribution
• As many outlets as possible
Selective distribution
• Wide, yet more specific than intensive
Exclusive distribution
• Only available at very specific outlets
• Luxury items
• Customers go to great lengths to purchase
© Andrew Newbound 2013
Management Process
Topic 2.3 Volume 3
© Andrew Newbound 2013
Cash Flow Statements
 What
basis
is going in and going out on a daily
© Andrew Newbound 2013
Expenditure
 Capital


expenditure
Money a business invests in assets
E.g. property, equipment, computers
 Revenue


expenditure
Cash a business spends to generate
revenue
E.g. advertising, stock
© Andrew Newbound 2013
Credit

Bank loan


Overdraft


Allows a business access to large amounts of
funds paid back over an extended period of
time with interest
A good source of short-term finance with a preapproved credit limit
Trade credit

Extended trading terms offered to encourage
higher sales
© Andrew Newbound 2013
Reduce sales price to improve
cash flow
 Able
to pay creditors on time
 Prevent wastage
 Generate cash
 Increase volume of sales
© Andrew Newbound 2013
Cash Flow Statement
Jan
Feb
Mar
Opening Balance
$2000
$4000
$0
Cash Inflow
$5000
$2000
$3000
Cash Outflow
$3000
$6000
$5000
Closing Balance
$4000
$0
-$2000
𝐶𝐵 = 𝑂𝐵 + 𝐶𝐼 − 𝐶𝑂
© Andrew Newbound 2013
Definitions
 Liquidity

Ability to pay short term debts
 Profitability

Measure of the effectiveness of using
resources available to a business
© Andrew Newbound 2013
Resources
Sales
revenue
Assets
Owner’s
investment
© Andrew Newbound 2013
Assessment of business
performance
Benchmarks
Budgets
Previous
periods
© Andrew Newbound 2013
Income Statement
 Measures
the performance of a business
 AKA

Profit and loss statement
 (P&L)


Revenue statement
Statement of earnings
 Brackets
≡ deduction
© Andrew Newbound 2013
Formulae
Gross profit=Revenue – COGS
COGS=OS+Purchases−OS
𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡
= 𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡 − 𝑒𝑥𝑝𝑒𝑛𝑠𝑒𝑠
© Andrew Newbound 2013
Revenue Statement of PMQ Motor Supplies for year ending 30 June 2006
$
$
300,000
Revenue (Sales)
Opening Stock
50,000
Purchases
40,000
Closing Stock
35,000
Total COGS
55,000
Gross Profit
245,000
Expenses
Wages
105,000
Electricity
15,000
Advertising
25,000
Total Expenses
Net Profit
145,000
© Andrew Newbound 2013
100,000
Gross Profit Ratio

𝐺𝑃
𝐺𝑃𝑅 =
× 100%
𝑅
Reflects margins between the business’
purchasing costs and its selling costs
© Andrew Newbound 2013
Gross Profit Ratio
 Solving






a change
Cheaper supplier
Buy in bulk
Hold less stock
Buy local
Absolute last alternative
Alternative warehousing
Increase mark-up on good/service
© Andrew Newbound 2013
Gross Profit Ratio
Low
• High supply costs
• Low prices
charged for
products
High
• Low supply costs
• High prices
charged for
products
© Andrew Newbound 2013
Net Profit Ratio

𝑁𝑃
𝑁𝑃𝑅 =
× 100%
𝑅
Reflects operating costs/expenses of the
business
 Improve


Decrease expenses faster than sales
Increase stock turnover
© Andrew Newbound 2013
Net Profit Ratio
Low*
• Excessive costs
High*
• Low
costs/expenses
• Sound financial
management
© Andrew Newbound 2013
* Especially if compared to GPR
Expense to Sales Ratio
𝐸
𝐸𝑆𝑅 = × 100%
𝑅
 Necessary


Higher expenses create less profitability
Should not rise faster than sales
© Andrew Newbound 2013
Ratio Answer Process
Put it in plain English
Identify trends
Compare to the norm
© Andrew Newbound 2013
Revenue Statement Strategies
Increase Revenue
Decrease Expenses
• Sales Promotion
• e.g. advertise
special deal
• Product rejuvenation
• Give product a
fresh look
• Developing cost
centres
• Department within
business that
reviews all costs
• Expense minimisation
• Keeping expenses
as low as possible
© Andrew Newbound 2013
Assets
𝐴 = 𝐿 + 𝑂𝐸
 Anything
the business owns that has
financial value and will provide future
economic benefit to the business
© Andrew Newbound 2013
Assets
Current assets
• Bank savings
• Cash on hand
• Accounts
receivable
(debtors)
• Prepaid
expenses
• Inventories
(stock)
Non-current
assets
• Property
• Plant and
equipment
• Motor vehicles
Intangible
assets
• Goodwill
• Trademarks
• Copyrights
• Patents
© Andrew Newbound 2013
Liabilities
𝐿 = 𝐴 − 𝑂𝐸
 Any
monetary amounts owed as the result
of past events
Current liabilities
• Account payable
(creditors)
• Overdrafts
• Credit card debts
Non-current
liabilities
• Mortgages
• Long term loan
• Lease
© Andrew Newbound 2013
𝑂𝐸 = 𝐴 − 𝐿
Owner’s Equity
 The
money the business is worth to the
owners
Capital
• Money that the owners have put into the business
Retained profits
• Profits which have been earned by the business but have
not been paid out as dividends
© Andrew Newbound 2013
Balance Sheet Definitions
Liquidity
• Whether the business has enough cash in and short
term assets to cover debt
Solvency
• Ability of the business to repay debts as they fall due
Working capital
• The finance available for the day-to-day running of
the business
© Andrew Newbound 2013
Liquidity
 Whether
the business has enough cash in
and short term assets to cover debt
 Highly liquid assets

Can be changed into cash quickly
Expressed as a ratio _:1
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
𝐶𝐴
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑟𝑎𝑡𝑖𝑜 =
=
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 𝐶𝐿
Safe working ratio = 2:1
© Andrew Newbound 2013
Solvency
 AKA
Debt to equity
 AKA Gearing
 Ability of the business to repay debts as
they fall due
 Insolvent

Cannot pay debts on time
 Indicates
long term stability
 Relationship between debt and equity
funding
© Andrew Newbound 2013
Solvency
Expressed as a ratio _:1
𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝐿
𝐺𝑒𝑎𝑟𝑖𝑛𝑔 𝑟𝑎𝑡𝑖𝑜 =
=
′
𝑂𝑤𝑛𝑒𝑟 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦 𝑂𝐸
High > 1.5:1
© Andrew Newbound 2013
Solvency
Too high
Too low
• Relies too much
on borrowed
funds
• Vulnerable to
insolvency
• Missing out on
investment
opportunities
• Low risk creditors
are happy
© Andrew Newbound 2013
Improve working capital and
liquidity
Leasing
Decreasing
liabilities
Factoring
Sale and leaseback
Creating greater
cash flow
•Instead of purchasing
JIT (Just-In-Time)
inventory control
Invoice
discounting
•Discounts for early
payment of accounts
receivable
© Andrew Newbound 2013
Improving the solvency
Decrease
liabilities
Controlling loans
• Using available
finance to pay off
liabilities
Increase equity
Issue new shares
to finance
purchases
• If a public company
© Andrew Newbound 2013
Management Process
Topic 2.3 Volume 4
© Andrew Newbound 2013
Human Resources Process
Business plan
Job analysis
Recruitment
Selection
© Andrew Newbound 2013
Recruitment
 Pool
of potential applicants is developed
for jobs
 Internally

Transferring between roles
 Externally

External means
 Best
possible candidate to apply
© Andrew Newbound 2013
Selection
 Choosing
1.
2.
right person for job
Candidates apply for job
Series of interviews/employment tests

Eliminated at each stage
 See
if employee is adequate for the task
© Andrew Newbound 2013
Training and development
 Training

Providing skills required to do job well
 Development



Employee is made more valuable resource
to company
Up skilling
Prepare employees for FUTURE jobs,
responsibilities
© Andrew Newbound 2013
Modern Awards
 Basis
of employment
 10 key aspects of employment

Ensure fairness for workers in negotiating
contracts
 Wages
 Leave
 Dispute
resolution
© Andrew Newbound 2013
Enterprise Bargaining
 Employees
in a certain enterprise bargain
as a collective
 Higher wages
 Trade offs

E.g. increase in productivity
© Andrew Newbound 2013
Separation
 Voluntary


Employee leaves of own choosing
E.g. redundancy
 Agreed
by employee
 Involuntary

Employee is dismissed
 Not
of own choosing
© Andrew Newbound 2013
Ethical Business Behaviour
 Lack


of trust
Between customer and seller
E.g. online business arrangements
 Bribery

Acceptable in 1 location, not another
© Andrew Newbound 2013
Ethical Business Behaviour
 Environmental

Profitable
 Negatively
 Online

issues
affect environment
scams in general
Damage a company
© Andrew Newbound 2013
Management and
Change
Topic 2.4
© Andrew Newbound 2013
Internal influences
Products
Location
Resources
Management
& Business
Culture
© Andrew Newbound 2013
External Influences
Social
Legal
Economic
Political
Technological
Geographic
Financial
Competitive
Situation
Markets
Institutional
© Andrew Newbound 2013
The Change Process
1. Identifying the need for change
2. Setting achievable goals
3. Resistance to change
4. Management consultants
© Andrew Newbound 2013
Business Information Systems
 Planned
system
 Collect info from internal and external
environments
 Store, process and disseminate date

Form managers require
© Andrew Newbound 2013
Setting Achievable Goals
Preparing the workforce
Decide what systems and
procedures need to be
implemented
Break cultural change into
manageable bits
© Andrew Newbound 2013
Resistance to Change
 Financial




costs
Purchasing new equipment
Redundancy payments
Retraining
Reorganising plant layout
 Inertia
of managers/owners
© Andrew Newbound 2013
Resistance to Change
 Cultural
incompatibility in mergers and
takeovers
 Staffing



Deskilling
Acquiring new skills
Loss of career prospects
© Andrew Newbound 2013
Management Consultants
 Possess
greater understanding of ‘best
practices’ within industry
 Best manage change
 Set out framework

Meet objectives
© Andrew Newbound 2013
Business Planning
Topic 3
© Andrew Newbound 2013
Small to Medium
Enterprises
Topic 3.1
© Andrew Newbound 2013
Business Size
 ATO
Micro
Small
• <5
• e.g. Rainbow’s
edge
• 5-<20
• Macquarie
seafood
Medium
Large
• 20-<200
• Salt Water Wine
• 200+
• Coles
© Andrew Newbound 2013
Business Size
 Small

business
Independent ownership and operations
 SME

A business employing fewer than 15
employees
© Andrew Newbound 2013
Role of SMEs
 Employment


99% of Australian workforce
Retain during GFC
 Part
of supply chain
 Meet needs of community

Acutely aware
 Innovation

Risk taking nature
© Andrew Newbound 2013
Gross Domestic Product (GDP)
 Sum
total value of goods and services
produced in Australia in a year
 SMEs produce 58%
© Andrew Newbound 2013
Success and/or failure of SMEs
 Fail
Impact of
economic
conditions
Lack of
business
skills
Lack of
capital
Failure to
keep proper
books
© Andrew Newbound 2013
Success and/or failure of SMEs
 2009

= higher failure rate than 2008
Decline in consumer confidence
 GFC
 Inadequate
 Retail

funds to repay liabilities
is most susceptible
Cut by consumers in economic weakness
© Andrew Newbound 2013
Retained Profits
 Proportion
of business’s profits kept within
the business

Not distributed to owners
 Promote
growth
© Andrew Newbound 2013
Influences in Establishing a
Small to Medium Enterprise
Topic 3.2
© Andrew Newbound 2013
Qualifications
 Recommended



Certificate IV in small business
management
Diploma of business
Bachelor of Business
© Andrew Newbound 2013
Skills
 Interpersonal


skills
Vision
Communication skills to communicate
vision to others
© Andrew Newbound 2013
Motivation
 Desire/willingness
to do something
 Work within the business comes easier
 Maximise productivity of other co-workers
© Andrew Newbound 2013
Entrepreneur
 Organises
and operates a business
 Prepared to take greater than normal
financial risks

High risk = high return
© Andrew Newbound 2013
Entrepreneurship
Sets realistic
goals
•Attempts to
achieve them
Confident in
own ability
Makes decision,
carries them out
Takes moderate
risks
Good physical
health
Motivated by
achievement,
not money
Desires
responsibility
Emotionally
stable
High levels of
energy
Strong drive
Basic desire to
control and
direct
Skilled organiser
Tolerates failure
Works well with
people © Andrew Newbound 2013
Entrepreneurship
 Willingness
and ability to turn ideas and
capabilities into reality
 Entrepreneur





Identifies a need
Develops the idea
Takes risks
Develops strategies
Is motivated
© Andrew Newbound 2013
Entrepreneur









Persistent
Committed
Patient
Positive
Optimistic
Works long hours
Active
Hard working
Practical
 Reliable
 Helpful
 Organised
 Motivated
 Versatile
 Flexible
 Efficient
 Dependable
© Andrew Newbound 2013
Entrepreneur
 Experienced
 Realistic
 Dynamic
 Responsible
 Problem
 Determined
solver
 Punctual
 Quick
thinker
 Self confident
 Has
integrity
 Thorough
© Andrew Newbound 2013
Cultural Background
 Ideas,
customs may lead down path
 Expectations of individual within culture
© Andrew Newbound 2013
Gender Influence
 Business
women






opportunities accessible to
Ecommerce
Retail
Hospitality
Health roles
Children
Hair dressing
© Andrew Newbound 2013
Sources of Information
Federal
• Advice
• Grants
• Ideas
• Raising of
finance
State
• Advice
• Registration
• Loan finder
• Checklists
• Grants
• ‘Tech
Vouchers’
Local
• Training
• Info about
Port
Macquarie
© Andrew Newbound 2013
Competition
 Several
businesses try to meet customer
needs more effectively than rivals
 Type of market


‘mass’ broad market
‘niche’ specialised market
 How


to make business competitive
Develop customer base
Gain market share from competitors
© Andrew Newbound 2013
Establishment Options – New
Advantages
•Cheap
•Innovation
•Flexibility
•Grants
Disadvantages
•Lack of goodwill
•Harder to get
money
•Time to build
business
© Andrew Newbound 2013
Establishment Options
– Existing
Advantages
• Known practices
• Room for innovation
• Brand recognition
• Client base
• Control
• Equipment
• Knowledge from
current owners
Disadvantages
• Costly
• Resistance to change
• Staff entitlements
• Loyalty to previous
owner
• Not as competitive
© Andrew Newbound 2013
Establishment Options
– Franchise
Advantages
• Support
• Brand
recognition
• Competitive
• Supply of
equipment
Disadvantages
• Inflexible
• No innovation
• Royalties
© Andrew Newbound 2013
Goodwill
 The
value of the reputation of a business
 Difference between total value of assets
and the sale price of the business
© Andrew Newbound 2013
Existing Business Advice
 Thoroughly

Work in business
 Finances

check operations
more likely to lend
Access to financial records
 Goodwill
may be associated with owner,
not business
 Intellectual property

Any invention/creation of the owner
considered to be their property
© Andrew Newbound 2013
Franchise
 Equipment
 Supplies
 Training
 Ongoing
management assistance
 Collective buying power
 Brand recognition
© Andrew Newbound 2013
Competitive advantage
 Marketing


Differentiation of product
Unique brand
 Loyalty
© Andrew Newbound 2013
Location – Visibility
 Attract
passing trade
 Easy to find for customers and suppliers
 More important for retail than
manufacturing
© Andrew Newbound 2013
Location – Cost
 Purchase
vs lease premises
 Areas with higher lease/rend
 Lease


Tax deductable
Negative impact on cash flow
© Andrew Newbound 2013
Location
– Proximity to Suppliers
 Cost
of transport
 Timing of delivery of stock
 Proximity to customers
 Accessible to target market
© Andrew Newbound 2013
Location
– Proximity to Support Services
 Activities
needed to assist core
operations/prime functions of business
 Outsourcing of various functions


Accountant
Marketing specialist
 Access

to technology
Internet reduces importance of this
© Andrew Newbound 2013
Finance Sources
Banks,
NBFIs
Investors
Personal
savings
Family and
friends
Grants
Stock
exchange
© Andrew Newbound 2013
Cost of Borrowing
 Interest
you pay
© Andrew Newbound 2013
Zoning
 Not
all businesses are permitted in all
locations
 Environmental Act
 Particularly important for home businesses
© Andrew Newbound 2013
Training
 Employees
well
gain skills needed to do job
More productive
employees
Further profitability
Enhancing business’
competitive position
© Andrew Newbound 2013
Wage and non-wage
outcomes
 Wage

Annual salary
 Non-wage




Other financial benefits
Superannuation
Annual leave loading
Fringe benefits
© Andrew Newbound 2013
Taxation – Federal Taxes

Company tax


PAYE tax



‘Pay as you Earn’ income tax on employees
Forwarded by businesses to Fed. Gov.
GST


30% tax levied on the business’ profit
Imposed on most private consumption (10%)
FBT (Fringe Benefits Tax)

Applied to non-wage benefits
© Andrew Newbound 2013
Taxation – State Taxes
 Payroll

Payed by employers whose payroll >$50k
 Land

tax
tax
A tax payed of 1.6% of the value of the
land of all land owners in NSW
© Andrew Newbound 2013
Taxation – State Taxes
 Superannuation

9% of the salary paid into a complying fund
 Registered
with the Insurance and
Superannuation Commission
 Leave

loading
17.5% on top of the employee’s salary for
prescribed period of leave
© Andrew Newbound 2013
Superannuation
 Quarterly
contribution of 9%
 Workers <70 years
 $450+ per month
 Full time workers
© Andrew Newbound 2013
The Business Planning
Process
Topic 3.3
© Andrew Newbound 2013
SWOT
Strengths
Weaknesses
• What a business is capable of
doing
• What a competitor does better
Opportunities
• A set of circumstances that allow
something to be improved
Threats
• The obstacles a business faces in
the external environment
© Andrew Newbound 2013
Vision
 Ideal
of what a business will look like if all
goes to plan
 3-5yr period
© Andrew Newbound 2013
Long Term Growth
High growth
• Less market for
older investors
High
dividends
• Detrimental to
business
© Andrew Newbound 2013
Vision & Mission Statements
Vision
Statement
• Business
aspires to
become
• Future
orientated
Mission
statement
• Why a
business exists
• Purpose
• Function
© Andrew Newbound 2013
Organising Operations
What tasks need to be done?
What equipment and skills will employees need?
Which workers will do these tasks?
How will the workers doing particular tasks be
grouped?
Who will supervise the workers or will we use selfmanaging teams?
© Andrew Newbound 2013
Market Analysis
 Determining
whether a business has
sufficient potential market in order to
succeed without being squeezed out of
the market
 External influences
© Andrew Newbound 2013
Sales Forecasting
Similar business as guide
How much consumers are likely to
spend on products or a competitor’s
Estimation of daily sales x30
© Andrew Newbound 2013
4P’s
Product
Price
Promotion
Place
© Andrew Newbound 2013
Market Analysis
Market size
• Present and potential sales
Market growth rate
• How much it is growing by
Market profitability
• Are existing businesses profitable?
Industry cost structure
• Costs in existing businesses
© Andrew Newbound 2013
Market Analysis
Distribution channels
• The new or existing ways a business can distribute a
product to gain a competitive advantage
Market trends
• How the market is changing both based on industry
and region
Key success factors
• Elements that are necessary in order for a firm to
achieve its marketing objectives
© Andrew Newbound 2013
Key Success Factors
Access to
resources
Economies of
scale
Access to
distribution
channels
Technological
progress
© Andrew Newbound 2013
Forecasting
 Giving
managers the best possible
information they need to make the best
possible decisions in an uncertain
environment
𝑇𝑜𝑡𝑎𝑙 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 = 𝑃𝑟𝑖𝑐𝑒 × 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦
𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 = 𝐶𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 × 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦
© Andrew Newbound 2013
Break-even Analysis
Break-even
• A state where 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 = 𝑐𝑜𝑠𝑡𝑠
• No gain, no loss
Total revenue
• Amount of money brought into a business through the
sale of its products
Total costs
• Amount of money the production consumed for a
business
© Andrew Newbound 2013
Break-even Analysis
Fixed costs
• Do not reflect the
total level of sales
Variable costs
• Change proportionately
with the quantity of sales
made
𝐵𝑟𝑒𝑎𝑘 − 𝑒𝑣𝑒𝑛 𝑝𝑜𝑖𝑛𝑡
𝑇𝑜𝑡𝑎𝑙 𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠
=
𝑢𝑛𝑖𝑡 𝑝𝑟𝑖𝑐𝑒 − 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
© Andrew Newbound 2013
Cash Flow Projections
 Forecasting
of the quantity of finances
moving from one aspect of a business to
another
 Set out basic cash requirements
© Andrew Newbound 2013
Cash Flow Management
 Credit
policy
 Generous discounts to customers who
pay early
 Link periods of surplus with large, fixed
payments
© Andrew Newbound 2013
Sales Reports
Sales analysis
• Insight into market trends
• Create most profitable mix of products
Market share analysis
• Comparison between businesses based on performance
• Meeting needs as good/better than competitors
Profitability analysis
• Profit performance of various aspects of the busines
© Andrew Newbound 2013
Budgets
 Form
of highly effective control
 Determine how successful a business’
plans are
© Andrew Newbound 2013
Taking corrective action
Establish goals and
objectives
Take corrective
action
Monitor
performance
• What is happening?
Evaluate
performance
• Is what is happening
good or bad? Why is it
happening?
© Andrew Newbound 2013
Corrective Action Reports
 Prevent





Repeat mistakes
Loss of customers
Dissatisfied customers
Poor quality products
Unhappy staff
© Andrew Newbound 2013
Corrective Action Reports
 Better
staff morale
 Reason for new customers
© Andrew Newbound 2013
The Business Plan
 Executive
Summary & Overview
 Operations plan




Daily operations
Systems & Procedures
Physical Layout
Organisational structure
© Andrew Newbound 2013
The Business Plan
 Marketing





plan
Market research and target market
Sales Objectives
Analysis of competition
Marketplace potential
Marketing strategy and promotional
activities
© Andrew Newbound 2013
The Business Plan
 Financial




plan
Set-up Cost
Cash flow Forecast
Record-keeping systems
Assets and Liabilities
© Andrew Newbound 2013
Critical Issues in Business
Success and Failure
Topic 3.4
© Andrew Newbound 2013
Business Plan - Components
Executive Summary
Marketing
Financial
Human Resources
© Andrew Newbound 2013
Business Plan – Types
Start-up
Growth
Strategic
Feasibility
© Andrew Newbound 2013
Management -Staffing
 Impact
upon costs, costs through profits
 Overall productivity
 Teams

Employees feel a more significant
component of business success
© Andrew Newbound 2013
Trend Analysis
 Effective
management
 Gauge past events
 Market segmentation
 Rapid response to issues
© Andrew Newbound 2013
Over-extension
 Holding
too much stock
 Investing too much in plant & machinery
 Spending heavily on advertising

Without results
 Too
many staff
© Andrew Newbound 2013
Over-extension
 Borrowing

too much capital
Highly geared
 Failing
to collect money owing
 Excessive drawings
© Andrew Newbound 2013
Finance Advice

Use personal savings


Lack of finances



No debt servicing costs
Primary reason for failure
Under capitalisation
Loan requirements




3 years financial statements
Tax returns
Business plan
Sales projections
© Andrew Newbound 2013
Finance Advice
 Budgeting


Sufficient income
Check industry average
 Business

is vital
plan
Effective management of savings
© Andrew Newbound 2013
Avoid Overextending
Financially
 Business





planning
Cash flow projections
Establishment costs
Budgets
Financial statements
Business goals and objectives
 Avoiding
financing

overdependence on debt
Avoid problems in weak economy
© Andrew Newbound 2013
Avoid Overextending
Financially
 Long


term financial planning
Anticipates future problems
Plan future direction
 Growth
 Start

and expansion
small
Expand slowly
© Andrew Newbound 2013
E-Business
Using internet to conduct business
 Find information
 Communicate via email
 Online working, paying accounts
 Research market conditions, industry
trends, economic forecasts
 Markets goods and services via its website
 Lodge forms, apply for licences
© Andrew Newbound 2013
E-Commerce
 Buying
and selling of goods and services
via the internet
© Andrew Newbound 2013