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Business Studies Notes

Topic 1: Nature of business Role of businessThe nature of a business o Producing Goods and Services Business- An organisation that produces and provides goods and services to consumers, satisfying customers wants and needs in exchange/aim for a profit. A Business;

Provides our community with a ride range of goods and services Provides employment and income for employees Provides tax for the government to spend on communal wants and needs for our society Creates wealth for our country Assists in the development and use of new technology Encourages research and development of new products Improves our quality of life Stimulates investment which leads to economic growth Increases our GDP Develops skills in our workforce Encourages competition which results in cheaper products

What is a 'good'?A good in tangible, meaning you can physically touch the product E.g. A chocolate What is a 'service'? A service is intangible, meaning it is unable to be touched and does not have a physical presence E.g. A hairdresser What is Production? Transformation of raw materials into a finished or semi-finished (intermediary product) that is sold to consumers for a profit Stages of Production;

Inputs Idea, design, raw material, capital

Transformation Process Factory/manufactures, machines, labour

Outputs Finished product, sold to consumers (retail or wholesale)

Value Added At each stage of production, there is an increase in value as it passes through the process. At each stage of production, the business needs to make a profit

o Profit, employment, incomes, choice, innovation, entrepreneurship and risk, wealth and quality of life

Profit Profit is what remains after all business expenses have been deducted from the businesses sales revenue

A business receives money from its customers in exchange for products. if the business’ sales revenue is greater than its operating expenses, it has earned a profit

SALES – EXPENSES = PROFIT GROSS PROFIT = SALES – COST OF GOODS SOLD NET PROFIT = GROSS PRFOIT – EXPENSES

o It provides a return on investment o It’s essential for success o It provides wealth for the owner o Profit provides tax income for the government

Employment To be able to purchase products, consumers need money, they usually earn that money by working at jobs provided by businesses. The number of employees hired by a business will depend on the nature of the products and the number of customers who wish to purchase the products. Generally, the more that is sold, the more employees a business will hire.

The SME (small-medium enterprise) sector is a major source of employment in Australia, accounting for 70% of all

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private (non-government) sector employment

Incomes An important function of a business is to provide income Income is the amount of money received for providing a labour Employees provide their labour in return for either a; o WAGE: Money received on an hourly/weekly basis o SALARY: Fixed amount of money paid on regular basis to a permanent employee A business receives money from the sale of its products (sales revenue), expenses are then deducted and the amount that remains is the business’ profit, this then becomes the business’ income Usually the company’s profit is dived among shareholders (public company), this type of income is then called a dividend

Businesses generate income for; o Employees (wages and salaries) o Business owners (profit) o Shareholders (dividends)

Choice In our society, consumers have freedom of choice and the opportunity to purchase a variety of products and competitive prices Freedom of choice exists when consumers can shop and select from a range of products

Innovation Innovation is either creating a new product, service or process, or significantly improving an existing one Research and development leads to innovation

Entrepreneurship and Risk

A person who sets up a business, taking on financial risks in the hope of a profit They are prepared to take the risk of starting and operating a business venture If a business fails, its owner may lose all or part of the money he or she has put into it

Entrepreneurs innovate new products and business ideas acceptable to the public

Wealth Business is a major creator of wealth within the Australian economy The more that is produced the more wealth is generated within the Australian economy Profit is redistributed to employees, governments, lenders, owners/shareholders and the business itself

Quality of Life Businesses produce a cast range of products that enable us to satisfy many and varied wants, which result to higher standard of living Quality of life refers to the wellbeing of an individual, and is a combination of material and non-material benefits Businesses improve our quality of life by; o Providing goods and services o Providing job skills and income o Support government tax which provides community with basic facilities

Types of businessesClassification of businesso Legal structure- sole trader, partnership, private company, public company, government enterprise

CLASSIFICATION BY LEGAL STRUCTURE

There are TWO types of legal structures;

UNINCORPORATED BUSINESSES INCORPORATED BUSINESSES o Owner and business are one o The owner’s assets are linked to the business assets o Owner has unlimited liability- if the owner goes bankrupt,

the creditors can take the owners personal assets and sell them to receive money for debt

o EXAMPLES: Sole Trader and Partnerships

o The business owner and the business are separate entities o The business assets and owner’s personal assets are

separate o Incorporated businesses have limited liability- owners can

only lose what they have invested in the business o Business is its own entity- it can be sued/it can sign

contracts etc. o Owners are called shareholders (part owner of a business) o EXAMPLES: Private Companies (Pty Ltd) and Public

Companies (Ltd)

SOLE TRADER Business that is owned and operated by only one person

o An UNINCOPORATED business entity o Owner may employ people to work in the business o Owner provides finance, makes decisions and takes responsibility for operation of

business o NOT regarded as a separate legal entity; THE OWNER AND BUSINESS IS REGARDED AS THE

SAME (e.g. business is sued owner is sued) o UNLIMITED LIABILITY- Business owner is personally responsible for all the debts of the

business, creditors can sell owners assets to receive money for debt PARTNERSHIP Legal business structure that is owned and operated between 2 and 20 people with the aim of


making a profit

o An UNINCOPORATED business entity o The owner and the business are regarded as the same o Partners in business are subject to UNLIMITED LIABILITY o The partnership can be made verbally or in writing or by implication

PRIVATE COMPANY (Pty Ltd)(proprietary company)

An incorporated business and usually has between 1 and 50 private shareholders

o Must have words ‘proprietary limited’ (Pty Ltd) after its name o Investments offered to those people the business wishes to have as part (family, friends,

etc.) o LIMITED LIABILITY- Share holders and business are separate entity’s. They can only lose

amount they invested into the business o Private company has to have director o Has to pay 28.5% of flat tax

PUBLIC COMPANY (Ltd) A company whose shares are traded freely on stock exchange. 5 to unlimited shareholders

o Investors are the general public (>18 years of age) o General public may buy and sell shares in those companies o LIMITED LIABILITY o Shares for the company are listed on the Australian Securities Exchange o Must have the word ‘limited’ or ‘Ltd’ after its name o Has to pay 30% of flat tax

GOVERNMENT ENTERPRISES Government-owned and operated businesses that provide essential community services

o Owned and operated by all levels of government o E.g. NSW trains, Medibank Private, Australian Post o Often referred as public sector businesses o Due to privatisation some government enterprises have become public companies

o Industry- primary, secondary, tertiary, quaternary, quinary

CLASSIFICATION BY INDUSTRY SECTOR

PRIMARY INDUSTRY

Industries that exploit natural resources (grown, dug or caught) and produce raw materials e.g. cotton, fruit, gold, coal, fish, prawns, birds

SECONDARY INDUSTRY

Industries that process raw materials into a finished or semi-finished product e.g. thread, flour, fruitcake, bread, furniture, jewellery

TERTIARY INDUSTRY

Products that are sold to retailers, that are then sold to consumers (industries that distribute foods and provide services)

QUATERNARY INDUSTRY Industries that provide information based services e.g. journalism, teaching, banking

QUINARY INDSUTRY Industries that provide household services e.g. carpet cleaners, childcare, restaurant

o Local, national, global

CLASSIFICATION BY GEOGRAPHICAL SPREAD

THERE ARE 3 GEOGRAPHICAL LOCATIONS;

LOCAL Has a very restricted geographical spread; it serves the surrounding area

o Local business is very restricted o Serves a suburb


o Personal relationship with customers o Majority of local businesses are SME o E.g. local chemist

NATIONAL Operates within just one country

o Operates in one country o Well known by most Australian’s o Operates in all Australian states o E.g. Commonwealth Bank

GLOBAL (transnational/multinations)

Large company that has branches in many different countries

o Commonly known as a transnational business o Has offices in many countries around the world o Head office is based in their home country o E.g. McDonalds

o Size- small to medium enterprises (SMEs), large

CLASSIFICATION BY SIZE

CHARACTERISTICS SMALL MEDIUM LARGE Business type Corner store

Local mechanic Hairdressing salon

Services club Motel/hotel Engineering factory

Woolworths Qantas National Australia Bank

Number of employees Fewer than 20 employees 20-199 employees 200 or more employees Type of ownership Independently owned and

operated by usually one or two people

Owned and operated by a few people and/or private shareholders

Owned usually by thousands of shareholders

Most common legal structure Sole trader Partnership

Partnership Private company

Public company

Decision making Owner responsible for majority of decisions; simple and quick implementation of decisions

Owner responsible for majority of decisions

Complex decision making, due to division of responsibilities and layers of management

Sources of finance Equity finance (owner own savings/funds raised by own owner)Debt finance (obtained from financial institutions; loan) – difficulty in accessing loans

Owners/partners own savings or a loan and/or private shareholders

Equity and debt finance

Many sources including cash reserves, retained profit, sale of shares, and loans from domestic and overseas institutions

Market share Small, usually local area, not dominant in the industry

Medium due to dominance within a geographic region, some market dominance

Large, especially for multinational corporations that dominate the markets of many countries

Factors influencing choice of legal structure o Size, ownership, finance

SIZE Relationship between the size of a business and the most important legal structure

OWNERSHIP Legal structure of the business

FINANCE when a business expands it will require injections of finance

Small, medium (SMEs) Sole trader,Partnership Private company

o Limited availability of debt finance o Mainly equity finance (own capital

Large Private Company Public company

o External equity finance- shareholders need for large fund injection

o Debt finance easier to obtain

Influences in the business environment Business environment Businesses always dealing with an ever-changing environment in which they operate all business decisions interrelate Changes in larger business environment has direct influences on other firms. A successful business manages understands the

environment in which business operates enables to respond resiliently to prepare for the impact such changes will have on business operations.

o E.g interest rates increase businesses won’t be able to purchase new equipment


o E.g alternatively, reduced competition in market will result to businesses increasing their individual market share & profitability.

Business environment: surrounding conditions in which the business operates, subdivided 2 broad categories

o External environments: factors over which the business has little control

E.g government policy, technology, economic conditions, social attitudes

o Internal environment: factors in which business maintains some degree of control

E.g products, location, resources, management, business culture

External Influences Changes in external environment make it necessary for managers

to make adjustment to business operation. Perhaps introduction of new gov. regulations, requiring the business to make adjustments

o E.g carbon reduction scheme result in organisations paying for carbon pollution they generate in order to reduce carbon pollution eventually creating more sustainable economy

Economic influences Economy: is a system where governments, businesses, consumers and other relevant associations interact to satisfy the needs of society

Business can be regarded as the engine that drives production, employment, price changes and our standard of living The economic cycle refers to the changes in consumer and business spending over a period of time, influencing

o The level of employment and investment in an economyo The profitability of businesso The amount of goods and services produces

The fluctuations are measured using the real domestic product

a) Employment: If employees have security they are likely to spend more of their income on consumer goods. spending encourages business to employ more labour so it can produce more goods and services. An increase in consumer demand is often the main reason why goods and services are provided. This is known as economic growth.

b) Inflation: When prices rise, the cost of living increases. To compensate for this, employees will seek higher wages from their employer. Higher

wages increase the costs of production. In response, businesses may need to reduce the size of their workforce, and the remaining employees may need to accept a greater workload.


State of economy has great impact on business policies implemented by the government are aimed at keeping the economy growing steadily, without putting pressure on inflation (prices) & wages.

E.g Continuous growth/development of china’s economy has benefited Australian businesses in relation to exports business’ supplying raw materials (coal) and finished product.

When economic problems appear: consumers cautious how money is spent overall confidence begins to fall reduced spending impacts business’, profits will fall, and cost cutting takes place retrenches workers

Financial influences Business environment in which market competitors are controlled more by market forces rather than by government regulation.● In the 1980s financial institutions were permitted to offer a wider range of new services, allowing commercial banks to compete

more effectively with nonbank financial companies and more overseas financial institutions.● Due to globalisation of the world's financial markets, it is no longer necessary for many large Australian businesses to use only

domestic financial institutions for the raising of finance.● Deregulation: Is the removal of government regulation from industry with the aim of increasing efficiency and improving

competition. Geographic influences

Australia’s demographic location within the Asia-Pacific region and the economic growth in a number of Asian nations have provided opportunities for business expansion, sales and profit

Demographic factors: changes likely to have a profound effect on business activity. Study of particular features of population; population size, age, sex, income, cultural background

Changes in these factors can lead to changes in demand levels and the nature of products and services. o Major demographic issue is changes in age structure of our population large section of workforce retire skill

shortages as well as increase in demand for a age-related services e.g health and aged care


Recession/trough: -falling production of G&S-falling levels of consumption and investment-rising unemployment-falling income levels-falling quality of life-low interest rates

Expansion:-phase of business cycle when economy moves from trough to peak -period when business activity surges and gross domestic product expands until it reaches a peak-unemployment is minimum as people start to regain work -inflation slowly rising -interest is slowly rising-also known as “economic recovery”

Book/peak:-increasing production of G&S-rising levels of consumption and investment -falling unemployment-rising income levels-rising quality of life-high interest rates

Contraction-phase of the business cycle in which the economy as whole is in decline-occurs after business cycle peaks but before it becomes a trough -can be source of economic hardship; as the economy plunges into a contraction, people start losing their jobs-difficult to assess just how long a downtrend will continue before it reverses-unemployment is increasing as people are starting to lose their work -Inflation slowly dropping-Interest slowly dropping

Depression:-sustained and severe recession-extreme fall in economic activity lasting for a number of years, whereas depression normal lasting period of months-unemployment extremely high-interest rates very low-inflation very low

Globalisation: Another essential geographical influence world is not limited by national borders globalization assisted by technological revolution in communications and computers, is radically altering the shape of world markets & nature of business

o Increased competitiono Expanded marketso Greater customer expectationo Economies of scaleo Locational flexibilityo Cheaper materialso Diversificationo Access to better labour

Social influences Rapid identification to tastes in fashion/culture result sales, profit opportunities, business growth Awareness of change and quick response is detrimental or business’ may deteriorate. Consumer demand : environmental sustainability & family friendly workplaces

Legal influences Businesses of small to medium characteristics face similar regulations to those facing large businesses.● Time consuming and costly● businesses want a removal of some of these regulations● New statues introduced major impact on business conduct:● Legislation includes;

○ laws on taxation○ Industrial relations○ Occupational health and safety○ Equal employment opportunity○ Anti-discrimination and protection of the environment,

e.g Trade Practices Act 1974 (Cwlth), administered by the Australian Competition and Consumer Commission (ACCC),

ACCC is an independent statutory authority, dealing with competition and consumer protection laws.Political influences Political change can

lead to uncertainty to business confidence. eg labour or liberalThese include:

● Labour

market reforms: Decentralisation of wage determination ● Taxations – Good and services tax GST (10% on the supply of goods)● Social reforms – paid parental leave● Environmental management- emissions trading scheme (etc)

Institutional influences

INSTITUTION: Organisations in our society who play a significant role in influencing societal issues e.g. government, regulation bodies, parliament, education, churches etc.

3 main institutional influences on a business;

GOVERNMENT REGULATORY BODIES OTHER o Federal o State o Local

o EPA o NSW fair trading o ASIC o ACCC

o Employer associations o Trade and industry associations o ASX


GOVERNMENT

FEDERAL STATE LOCAL Obligations include; o Payment of taxes for employees

and for businesses with company tax and GST

o Provision of employee superannuation

o Observance of customs regulations

o Abiding by relevant legislation that would affect business operations

Obligations include; o Provision of employee

entitlements (work compensation, work health and safety requirements, award rates and entitlements

o Payment of payroll taxes o Abiding by relevant state

legislation e.g. health, employment

o Abiding by pollution controls

Have control over following business activities;

o Approving new development and alteration

o Fire regulations o Parking regulations o Size, location and shape of business

signs

REGULATORY BODIES Set up to monitor and review actions of businesses and consumers in relation to certain issues and the appropriate legislation. This is to ensure that businesses conduct themselves fairly in relation to the consumer, community and competitors

OTHER INSTITUTIONAL INFLUENCES Affect how businesses operate in Australia

EXAMPLES

Technological influences

New communications tech enables information to be rapidly transmitted to an ever-increasing number of customers -> speed makes communication instantaneous

Business wanting to be locally, nationally , globally competitive must adopt appropriate technology develop sustainable competitive advantage

E.g ride-sharing company uber transformed taxi industry through innovate use of tech. Tech could make 40% of aus jobs redundant in 10-15 years.

Competitive situation influences

Competition between businesses to win customer loyalty can benefit consumer and the business o It can provide consumer with more choices, a range of qualities and variety of prices o Competition can stimulate greater efficiency in production and usually results in better quality product at lowest cost to business Each business aims to have a sustainable competitive advantage over its competition in order to capture a larger portion of the market


TRADE UNIONS Raise new demands on behalf of employees e.g. negotiate wages and working conditions and help settle disputes

EMPLOYER ASSOCIATIONS

Represents interest of employers e.g. formulate policies in line with union activities and promote industry, trade and commerce

Markets HOW HAVE MARKETS CHANGED OVER TIME-:

o Globalisation has increased- introduction of free trade and movement of goods and services o E-commerce has helped with globalisation process; reduction in retail trade Financial markets have become more global. After 1983, Australia deregulated Australian financial market, allowing foreign banks in Australia e.g. ING, HSBC, ARAB BANK

Different types of markets can include:● financial/capital markets● labour markets● consumer markets● Other external influences include changes in financial, labour and consumer markets.

Type of market concentration Features/characteristics

Examples

Monopoly ● Complete concentration by one firm in the industry● Firm has the ability to decide the price of the good or service because there are no competitors

(i.e. the firm is the price maker)● Customer has no influence over the price charged. i.e. the customer is the price taker.

Australia PostSydney Trains

Oligopoly ● Consists of a small number of larger firms that dominate the market● Are able to stay in control of the market because they spend large amounts of money on

advertising and this enables them to restrict the entry of new competitors to the market.

BanksOil companiesCar Manufacturers

Monopolistic competition

● Most common type of market in Australia● Large number of buyers and sellers● The goods and services sold are differentiated from competitors using methods such as

packaging, advertising, brand names and quality.

Clothing manufacturersLocal retailing

Perfect competition ● Large number of small businesses that sell products that are the same or similar● Very little advertising is used to increase market share● The only way to achieve market share is through price competition.

Fruit and vegetable growers

Internal influences on businessRelates to specific factors within the business that will affect its operations

These factors can be identified and adjusted via feedback and evaluation processes that provide the business within information for change


EASY OF ENTRY MARKETING STRATEGIESAbility of a person to establish a business within a particular industry

Ease of entry is determined by type of market concentration

DIFFICULT: When market is saturated and when there is small amount of demand for product

EASY: If shortage of business in area, if there is niche market or you have new innovative product

Type of marketing will depend on;

o Size of market: number of existing and potential customers o Size of business: large business invest in range of

marketing activities small business simple marketing

o Number of competitors: more competitors greater need for marketing

Nature of product: type of product and whether it requires extensive marketing e.g. necessities earphones

FOREIGN COMPETITION NUMBER OF COMPETITIONForeign competition can take away from local businesses getting into the market

Takes market share away from other businesses e.g. Aldi vs. Coles

Foreign businesses can produce products cheaper because of labour

MONOPOLY One major business dominates in the market e.g. city rail

OLIGOPOLY Only a few businesses in the market that dominate e.g. Coles, Woollies, Aldi, IGA

PERFECT COMPEITION

Large number of small businesses competing in the market. All have a small share e.g. fruit & veg growers

Product influences Affect a range of internal structures and operations within the business, main product influences:● The type and range of goods and services produced.

○ Type: If the goods are physically large or require many raw material inputs, there will need to be structures in place to organise and monitor the processes involved in production.

○ Range; The larger the number, the more internal impact it will have on the business as it will need to expand operations and internal structures to accommodate the changes.

● the type of business (service, manufacturer or retailer) will internally influence the structure of the business.○ Internally, a service provider will be structured differently to a manufacturer or retailer, and the influences

will vary. ○ Some goods or services require extensive preparation, while others are merely deliverers.

● The size of the business will be based on the range and type of goods and services produced, the level of technology utilised, and the volume of goods and services produced.

Location influences Prime location = Customer convenience + Visibility Location can make the difference between success and failure before doors even open Location is very important as it affects many aspects of how a business operates, such as total sales and how

expensive it is to run Particularly true for retail and service-oriented businesses which need a constant flow of people walking past the

store- the passing trade- and thus need to be located in a shopping centre, or main street Locating next to complementary businesses is beneficial as more customers will be attracted to a single site

demonstrated by the clustering of retail outlets Bad location is a liability that adversely affects sales and profits The factors to consider when selecting a location are:

a) Visibility If a business is not visible, customers may not make the effort to find the business , hence optimum customer flow

will not be achieved. Business wanting high visibility would locate in a prime shopping area such as a shopping center or main street,

whereas companies concerned with manufacturing wouldn’t consider this to be a crucial consideration choose low-visibility location & advertise location to appropriate customers.

o e.g mechanics, car yards, equipment hire, even solicitors and doctors.b) Cost

Leasing or purchasing a central location in a busy shopping center will be far more expensive than a location with lower levels of passing customer traffic

Business’ such as retail, cafes, fast food outlets rely on maximum exposure and passing customer traffic, so this factor is unavoidable

Location may not be a key consideration if the business does not rely on passing customer traffic Given rapid technological advancements businesses don’t consider their location as important at all ability to

communicate with their customer base through the internet fastest growing avenue for consumer saleso E.g telemarketers/businesses that sell their products via internet

c) Proximity to suppliers Main issue is size and quanitity of raw materials needed for production/size of the finished goods to be supplied. Logging companys and steel manufacturers are reliant on bulky raw materials/finished goods, have significant

transport costs. Hence will locate closer to supplier in an attempt to reduce costs Florists, bakeries, shore retailers don’t transport bulky goods proximity to suppliers is not a major consideration.

d) Proximity to customers Importance of factor dependent on type of business being established Retail must locate close to customer base convenience

o Easy access parkingo Shopping sentences

Manufacturing/wholesaling business more cost effective to transport product to customer Other location cost factors could include leasing costs in ‘prime shopping centre areas’, incentives offered by local

councils and general overheads such as rates or utilities

e) Proximity to support services● Support services are the activities needed to assist the core operations or prime function of a business. ● eg accountants, solicitors and government agencies ● Small businesses traditionally tend to use external services ● medium-sized and larger businesses often provide their own support services internally● Advancements in technology have enabled all businesses to access a range of support services through the use of


○ computers ○ Faxes○ Mobile phones○ Phone and video conferences○ Email

Resource influences The four main resources available to a business are:1. Human resources: employees of the business, it’s most important asset2. Information resources: knowledge and data required by the business example market research, sales reports,

economic forecasts, technical material and legal advice3. Physical resources: include equipment, machinery, buildings, raw materials4. Financial resources: funds the business utilises to meet its obligations to various creditors

o Creditors: individuals/businesses who are owed money e.g suppliers, employees A knowledgeable and efficient manager will gather, select and coordinate the appropriate resources from a complex

array. Skills/expertise of management team in coordinating the business’s resources will largely determine whether

objectives of business are achieved & profit is made

Management influences

Today business structures are flat due to significant pressures on businesses from increased competition due to forces of globalization

Collaborative workplaces allow for a more cohesive and inclusive business culture The management style the business adopts depends on size and main activity Example retail, manufacturing or

service.

Such businesses can adapt quickly to meet changing consumer needs and market conditions because there are fewer managers who need to approve decisions

Businesses that adopt a flatter organisational structure reduce the number of levels of management, giving greater responsibility to individuals in the business

Business culture All businesses have their own business (corporate) culture – the values, ideas, expectations and beliefs shared by the staff and managers.

The style or character of a business is consequently reflected in its culture The business culture can be revealed officially:

o in the policies, goals or slogans of a business Unofficially:

o Unwritten or informal rules that guide how individuals in the business behave such as staff dress code, language staff use and the way that staff treat each other and customers.

Having a business culture assists in initiating a change to routine or procedures Research has shown businesses with a healthy, well developed, strong culture are more likely to be successful

Business culture: refers to the values, ideas, expectations and beliefs shared by members of the organisation

Each business develops its own particular way of doing things reflected in its culture

Culture is evident in organisational structure

Business culture can; o Be revealed in policies, goals or slogans of business o Seen in the unwritten or informal rules that guide employees to behave

Way staff dress Language staff use Way staff treat each other and customers


Elements of business culture; VALUES Businesses basic beliefs shared among employees SYMBOLS Consist of events/objects that are used to represent something the business believes is important RITUALS Routine behaviour patterns in businesses everyday life HEROES Businesses successful employees who reflect its values act as example for others

Management must ensure staff members are given sufficient training to reflect values of business

Senior management must role model for staff in those important values

Democratic leadership style Members of group take participative role in decision making process Autocratic leadership style Individual takes control over all decisions and takes little input from group

members

Culture and organisational structures A business’ culture evident in its organisational structure Formal business with an emphasis on bureaucracy, line authority, hierarchical management structures, and defined job titles and

areas of responsibility often have prevailing cultures that emphasis accountability, communication and corporation Tend to conform to a culture of loyalty and respect for superiors Culture that values and expects defined career pathways may be evident in formal organisations Less formal businesses flatter management structures, less departmentalization, fewer defined spans of control exhibit highly

flexible, innovative, risk-taking cultures. E.g Apple Inc. values innovation. Steve Jobs, created the atmosphere of innovation allowed company to successfully introduce new

products ac, ipod, iphone, ipad

Management’s role in developing a business culture Management takes place once a positive business culture is established and needs to be kept alive Ensures that staff members are given sufficient training to reflect the values of the business For a successful and sustainable change in business culture, vital senior management must continually reinforce what the values are

by communicating with staff, rewarding employees who display the appropriate values.

Stakeholders Stakeholders: the individuals and groups that interact in some

way with the business and have vested interest in its activities Businesses are

o expected to practice ethical management and do the ‘right’ thing in the interests of all stakeholders

o strive to be recognized as being good corporate citizens & that they increase success when the goals they purse align with the interests and expectations of their main stakeholders.

o Must be aware of & take into account the needs of the stakeholder

Internal stakeholder: has direct influence on a business e.g employees, shareholders

External shareholders: still have interest in the business, but don’t have direct influence in the business

Shareholders Partial owners as they purchase shares in a company Annual general meeting: shareholders voice concerns, ask the Board of Directors questions hence have direct influence

on business Companies need to ensure they maximise the return on their shareholders investment. Shareholders want the company

they’ve invested in to be profitable as they receive a proportion of the profits (dividends) They also make capital gain if the value of an organisation’s shares increases

o Capital gain: A profit from the sale of property or an investment Shareholders desire immediate returns & profits hence company feels greater pressure to generate revenue quickly Hence influence manager’s decisions affect grown/long-term expansion plans of company.

Managers Responsibility of running a profitable or successful organisation. Managers will influence organisational policies, procedures and employees’ productivity

o Ethical and socially responsible activities should lead to increased sales.Employees Employees influence organisation as their skill/commitment to the process of manufacturing a product, affects the quality

of the product the organisation sells. organisation treat them ethically (provide for their needs) more inclined to put effort into work tasks & more motivated

to meet customer expectations.Customers To ensure future viability, business should consider the needs of their customers

Consumer is a powerful stakeholder in the external operating environment they are astute, better educated, informed increasingly prepared to seek compensation if unfairly treated/ purchased a product that did not perform as promise.

Demand for ‘clean, green and safe’ products e.g consumer backlash against manufacture of sports shoes that was perceived to be exploiting cheap labour in a


developing countrySociety community increasingly expect businesses to show environmental concern using valuable land , showing disregard for

carbon emissions or future welfare through their own employment within organisations. Therefore socially responsible businesses will participate in a range of community projects/activities.

o E.g NAB recognised as one of Australia’s best performing companies in terms of ethical business strategies.o aims ‘to make a positive and sustainable impact on the lives of customers, people, shareholders, communities

and environment’s in which they operate.o Spent $7.3 billion in financing activities to address climate change & $49 million in community investment.

Environment Pressure for businesses to adopt ecologically sustainable operating practiceso Occurs when economic growth meets the needs of present population without endangering the ability of future

generations to meet their needs Through communication/training, businesses should ensure all employees/contractors are environmentally aware

Business growth and decline The business life cycle refers to the stages of growth and development a business can experience The stages are: establishment, growth, maturity and post-maturity’ In each stage, a business is confronted with new challenges and presented with different opportunities

Stages of the business life cycle and responding to challenges at each stage


Business life cycle Refers to the stages of growth and development a business can experience

4 MAIN STAGES

1. ESTABLISHMENT 2. GROWTH 3. MATURTIY 4. POST-MATURITY RENEWAL

STEADY STATE DECLINE CESSATION

o Establishment stage

Birth of business, needs to establish a solid foundation

The main challenge at the establishment stage is to get the business on a solid foundation by generating enough sales to create a positive cash flow, build up a customer base/relationship and succeed in sales and profits

Number of challenges need to be responded at this stage detailed planning can help greatly reduce the risk of failing

o Slow sales because of lack of customers o Business may run at a loss o High costs in establishing the business such as purchasing equipment, raw materials and leasing the building o Owner has to hire and train staff o Needs to establish a relationship with their customers and build up a customer base o Cash flows maybe erratic, more money maybe flowing out of the business than flowing in o Mistakes will be made because of inefficiencies and lack of experience o High failure rate, up to 33% of businesses fail within the first year of trading

Goals Survival, and setting a firm foundations for figure growth Sales Normally begin slowly and are somewhat erratic Marketing Highlight product advantages by accentuating the products strength Profit Usually slow to begin with, occasionally a loss Financial management

Greatest source of start up capital is from owners personal savings

Costs Very high fixed costs (premises, equipment, raw materials and insurance) Customers Need to develop positive relationship with customers Employees Normally only a few. Owner establish work routines and building up relationships

o Growth stage Time of accelerating growth. Sales increase and the cash flow is normally positive

Customer base has been established with regular clients accounting for a large percentage of total sales

Business undertakes development of new products to satisfy different market segments

o Sales will start to increase o New products may be introduced o Business will start to see a profit o Business will start to build a reliable customer base o Employees will become abler to do their jobs efficiently o Costs should start to decrease as the business uses its resources more efficiently o Less chance of business failure, but the owner still needs to keep an eye on cash flows o Cash flows improve o Main problem is that the business may grow too quickly and lose control of business direction

Goals To constantly increase the average level of sales, continue growing business Sales Rapid increase, especially in the early stages of the growth phase Marketing Development of new products to satisfy market niches; price discounts due to lower production

costs Profit Should increase due to rising sales and falling production costs Financial management

Use of sophisticates, computerised accounting procedures and systems

Costs Production of costs tend to decrease due to economics od scale Customers Concentration on satisfying existing customer base, whilst tapping into new market (domestic

and overseas) Employees Increased specialisation of workforce requiring formal and informal training

1. Growth stage

Time of accelerating growth: sales increase, cash flow usually positive During the growth stage the business has increased sales, a regular customer base, develops new products and improves its cash


flow With growth comes complexity and responsibility,

which creates the need for long-term planning Business growth & expansion can occur through

integration with other businesses through a merger or acquisition

o Merger: when the owners of two separate businesses agree to combine their resources and form a new organisation.

o Acquisition (takeover) occurs when one business takes control of another business by purchasing a controlling interest in it

Merger/acquisitions are effective ways a company quickly increasing its range of products, eliminating competition in the marketplace

Several different types of mergers or acquisitions:a) Vertical integration: occurs when a business expands at different but related levels in the production and marketing of a

producta. Backward vertical integration: When a business integrates

with one of its suppliers e.g bakery acquiring a wheat farmb. Forward vertical integration: when a business integrates

with a firm it sells to e.g the bakery could merge with a supermarket chain that sells its bread

b) Horizontal integration: when a business acquires or merges with another firm that makes/sells similar products e.g if a bakery merges with/acquired by another bakery.

o Maturity stage

This is when the business has stabilised and is making steady sales and profits Requires a more professional approach to planning Rate of growth slows and eventually flattens out; an early warning sign of possible decline Sense of complacency often envelops the business Managers may need to restructure/reorganize the business Difficulty is introducing changes without destroying entrepreneurial spirit that laid the foundation for the business’s success

STABLE o Cash flows are steady o Good relationship with customers; reliability and loyalty o Stabilized costs

AREAS OF CONCERN o Competition becomes more aggressive o Obsolete products (products go out of date)

o Technology o New products in the market

o Need to look at external influences o Changes in economy, democratic, laws, competition, technology etc.

o Post-maturity stage

Once a business reaches post-maturity, there are 3 possible outcomes;

RENEWAL Increase in sales/profits; new products developed and expansion of business through merger/takeover

MERGER: Two businesses join together TAKEOVER: One business buys out another business

STEADY-STATE Continues to operate at the level it has been during the maturity phase DECLINE/CESSATION Business is losing business because;

o Competition more aggressive o Failure to respond to external influences o Declining sales/profits

Factors that can contribute to business decline


Two main causes of business decline: Lack of management expertise : business fails to prepare business plan as the environment changes if owner does not fulfil

roles/characteristics of a manager business decline as they are not fulfilling their important role Lack of sufficient money: undercapitalization. Many small businesses start out on a ‘shoestring’ budget without sufficient capital &

positive cash flow business unable to purchase stock and materials. Inevitably results in lost sales and falling profitso Undercapitalisaiton: occurs when there is a lack of sufficient funds to operate a business normally

Poor location Poor marketing Obsolete product Lack of planning Lack of experiences Uncontrolled growth Having too little/much of product Poor financial management

Voluntary and involuntary cessation - liquidationBusiness may cease operating, voluntarily or involuntarily. The difference between the two depends on who instigates the process:

Voluntary cessation A business could cease operations and voluntarily wind up its affairs All assets owned by the business are sold Stops operating as owner may wish to retire, wan a change of lifestyle or died (only in

case of sole trader) Increasing debts and a negative cash flow owner realizes business underperforming. To prevent accumulation of debt owner will need to cease operating the business of

their own accord; that is, undergo voluntary cessationo Voluntary cessation: occurs when the owner ceases to operate the

business of their own accord

Involuntary cessation Owner is forced to cease trading by the creditors of the business; that is undergo

involuntary cessationo Creditors: individuals/businesses who are owed money e.g suppliers, employeeso Involuntary cessation: occurs when the owner is forced to cease trading by the

creditors of the business As a business continues its decline, creditors become worried about $

$ they are owed and force the business owner into winding up the business

Bankruptcy Bankruptcy: is a declaration that a business, or person, is unable to pay their debts Sole Traders and partnerships could end up being declared bankrupt Can either be voluntary or involuntary either business owner or a creditor applying to a

court for bankruptcy order to be made. Court then appoints a representative to collect any money owed to the business this money (along with money raised from sale of

any assets of the business, and some personal assets of the owner), is divided between creditors. Realisation: The process of converting the(se) assets of a business into cash is called

Voluntary administration When a company (public/proprietary) is experiencing financial difficulties, it can be placed in voluntary administration

o Voluntary administration: occurs when an independent administrator is appointed to operate the business, in hope of trading out of the present financial problems.

Administrator’s main tasks is to bring the business and its creditors together, examine the financial affairs of the business. Usually has combined experiences of; receiver, chartered accountant and investigator

If successful, the business may resume normal trading if unsuccessful the business goes into liquidation

Liquidation If a company is in financial difficulty it’s shareholders, creditors, court can put company into liquidation.

o Liquidation: occurs when an independent and suitably qualified person – the liquidator – is appointed to take control of the business, with the intention of selling all the company’s assets in an orderly & fairly way in order to pay the creditors.

o Once creditors have been paid, any surplus cash is paid to the owners of the company Company in liquidation can also be in receivership

o Receivership: is where a business has a receiver appointed by creditors or the Courts to take charge of the affairs of the business. Unlike liquidation though the business may not necessarily be wound up

Main features of liquidation are that it:1. Can be regarded as the equivalent of bankruptcy for a company (corporation)2. Results in the life of a company coming to an end (cessation)3. Has become insolvent

o Insolvent: occurs when a company is not able to pay its debts as and when they fall due Two types of insolvent liquidation:

1. Creditors’ (voluntary) liquidation: most common type of liquidation process can come about in 2 methods


a. First method involves creditors voting for liquidation, following a voluntary administration b. Second method involves the company’s shareholders agreeing to liquidate the company and appoint a liquidator

2. Court (involuntary) liquidation: in this situation court appoint a liquidator to wind up the company usually after an allocation has been made from either a creditor, shareholder, company director, or some circumstances, the Australian Securities and Investments Commission (ASIC)

When a company is being liquidated because it is insolvent, the liquidator’s prime responsibility is to the company’s creditors. Liquidator is not required to do any work unless there are enough assets to pay their costs Liquidators main functions are to:

o Take possession of & realise – convert into cash – the company’s assetso Investigate & report to creditors about the company’s financial and related business affairso Determine debts owed by the company and pay the company’s creditorso Scrutinize the reason for the company failureo Report possible offences by people involved with the company to ASICo Finally, to deregister or dissolve the company

Identify problems that arise for stakeholders when companies go into liquidation Every year hundreds of aus companies placed into liquidation impacts wider community. Average of 30 – 40 individuals personally

affected by one company insolvency Main problems that arise for stakeholders:

Stakeholder Main problems arising from company liquidationCompany directors Possible disqualification as a director

Possible loss of personal assets to pay for the company’s debts Possibility of fine, imprisonment

Creditors (unsecured) May not recover any of the money owed If there are funds leftover after payment of costs of liquidation and to other priority creditors

e.g employees may be possible to receive part payment for the money owed; for example,5 cents for every dollar owed

Employees Loss of jobs Have the right, if funds left over after payment of liquidator’s fee, to be paid outstanding wages

and superannuationShareholders Rank behind the creditors, unlikely to receive any payment

Liquidator can reuest that holders of unpaid or partly paid share in the company pay the outstanding amount on those shares

Society/economy Loss of production from the liquidated companies Social and personal difficulties associated with job losses Loss of economic confidence

Bankruptcy Voluntary or forces declaration that a business, sole trader and partnerships are unable to pay their debts Realisation When assets are sold to try and pay a businesses debts Receiver Independent person appointed to try and sort out the financial problems of a business, if this isn’t possible,

business will be liquidated Liquidator Occurs when an independent person sells off assets of a company to try and obtain capital to pay creditors Solvent Positive cash flows/ ability to pay debt Insolvent Negative cash flows/ inability to pay bills

Creditors Include banks and their suppliers

Topic 2 Business management nature of managementIntroduction Managing is an essential skill all need to develop In world of business, management is a fundamental activity, what makes the business function Important characteristics of management:

1. Having the ability to analyse information, attend meetings and communicate with a wide range of individuals inside and outside the business

2. Possessing the skills to manage change effectively


3. Having the vision to see how things could be, rather than just accepting things the way they are4. Providing leadership through the desire to encourage, motivate, guide employees5. Understanding roles & responsibilities in order to achieve the goals of the business

Traditional definition of management: is the process of coordinating a business’s resources to achieve its goals The 4 main resources available to a business are:

1. Human resources: 2. Information resources:3. Physical resources:4. Financial resources:

Therefore a manager is an individual who coordinates the business’s limited resources in order to achieve specific goals.

Contemporary definition In the past few years there has been a subtle, however significant modification of the meaning of the term management: Contemporary definition of management: views management as the process of working with and through other people to achieve

business goals in a changing environment. Crucial to this process is the effective and efficient use of limited resources Management requires:

o Working with and through others: managers that do not interact and communicate well with employees fail to achieve high levels of commitment from staff

o Achieving the goals of the business: goals are necessary as without them the business would rapidly loose direction and employees wouldn’t understand the ultimate purpose of their work and managers would not be able to measure performance. Effectiveness measures the degree to which a goal has been achieved

o Getting the most from the limited resources: Managers need to coordinate resources efficiently to face the problem of limited resources/scarcity. Efficiency compares the resources needed to achieve a goal (the costs) against what was actually achieved (the benefits)

o Balancing efficiency and effectiveness: Managers balance efficiency and effectiveness of their decisions correct balance between efficiency & effectiveness is the key to achieving a competitive position in today’s challenging business environment

o Coping with a rapidly changing environment: Successful managers are those who anticipate & adjust to changing circumstances

Management within the business Observations made of modern managers’ work patterns suggest that management is a difficult and demanding job and that there is a

gap between how individuals view role of a manager and reality, myths and realities of management are outlined: Myth Reality

1. The effective manager is a methodical planner, reflects on what has been achieved, with time to systematically work through problems encountered throughout the day

The typical manager is constantly interrupted, no more than approximately 10 minutes spent on any one activity. The manager takes on a great deal and has little time for reflection

2. effective manager has no regular activities to carry out. It is all a matter of coordinating other people’s responsibilities and then sitting back to watch others do the work

Although managers’ days are constantly interrupted by trivialities and crises, still have regular duties to perform must interpret & analyse information, attend meetings and communicate regularly with other parts of the business

3. Management is a science and, as such, can be reduced to a formula and set of ‘laws’, that if followed, result in goals being achieved

Manager’s job is more art than science they rely heavily on judgement, past experience, perception and intuition.

The features of effective management Effective management is a fundamental activity that makes the business function Management is the process of

o Coordinating a business’s resources to achieve its goalso Working with and through other people to achieve business goals in a changing environment

Whether goals of a business are achieved, significantly is dependent on the skills and expertise of the management team in coordinating the business’s resources

PLANNING Setting objectives and deciding on the methods to achieve them

ORGANISING Structuring the organisation to translate plans and goals into actions LEADING Process of influencing/motivating individuals to work towards the achievement of the organisation’s

objectives CONTROLLING Compares what was intended to happen with what has actually occurred

The role of effective management is to assure joint efforts of employees are directed towards achieving the goals of the business producing all G+S demanded by consumers involves combined efforts of many individuals.

o Combined effort must be effectively coordinated so that the greatest amount of goods and services can be produced for the least cost – effectively.

Businesses do more than meets the needs of individuals; they must also meet the needs of all the stakeholders in general Most important: the ability of these managers to achieve the business’s goals

o To do this effectively a manager must possess a range of skills

Skills of management Managers employ their skills to achieve success & business goals

o Skill: is the ability that comes from the knowledge, practice and talent to do complete a task effectively Effective managers are those who:


o Possess a range of specific management skillso have the ability to employ these skills in a number of different situationso employ their skills to organize and motivate employs to work effectively towards objectives

There is an increasing significance in possessing these skills, given the two fundamental changes:1. Movement from hierarchical structures of many traditional businesses with multiple layers of management, towards ‘flatter’

business structure2. Development of self-managing work teams:

o Skills will be required to obtain for the growing trend away from traditional ‘command and control’ from of management towards team-based, consultative management styles

For a Manager to operate effectively the skills required are:

o Interpersonal (people) Skills

Managers constantly working with and through other individuals therefore interpersonal (people) skills are essentialo Interpersonal (people) skills: are those skills needed to work and communicate with other people and to

understand their needs. Which means they: Have ability to relate to individuals, be aware & appreciate their needs displaying genuine understanding have ability to communicate, motivate, lead and inspire communicate with people

SNAPSHOT! Interpersonal skills crucial to the success of management: Self-management Communication Supportiveness Motivation Conflict resolution

o Communication Communication: is the exchange of information between people; the sending and receiving of messageso A manager communicates with employees and customers in the marketplace

One of the most difficult challenges for managers is getting employees to understand and want to achieve the business’s goals effective communication conquers this challenge.

o Effective communication is essential for long-term survival of businesso Managers who are effective communicators have ability to share their thoughts & plans & easy to influence

otherso They should effectively communicate company’s goals, strategies and direction in which wanting to head

Only 40% of employees report they are well informed of their company’s goals, strategies and tacticsMiscommunication Owing to complex nature of achieving effective communication misunderstandings, mistakes and unforeseen barriers

often lead to false messages or no messages being receivedo Miscommunication can have disastrous consequences in a business

Importance of nonverbal communication Important for managers to be aware of their power of non-verbal communication and body language indefinitely convey

more powerful message then spoken/written communication, hence can result in contradictory messages being intentionally or unintentionally given

o Non-verbal communication: is any message that is not written or spoken Consists of body language (posture, facial expressions, placement of limbs and proximity to others)

o Body language: the use of gestures, facial expressions and posture to communicate Smile, glance, stare, body movement – all communicate a message

o Strategic thinking skills

Strategic thinking: allows a manager to see the business as a whole and to take the broad, long-term viewo Involves thinking about a business’s future direction and what future goals the business wants to achieveo Can be learned through practice

When a manager is able to think strategically, they then:o Visualise how work teams and individuals interrelateo Understand the effect of any action on the businesso Gain insights into an uncertain futureo See the business in the context of events and trends, and identify opportunities or threats

o Vision skills Vision: the clear shared sense of direction that allows people to attain a common goal o Arguably the most essential contribution of management, as without it no sense of cooperation and

commitment, which makes achieving goals impossibleo Most effective way for managers to share their vision is through the organisation’s goals having knowledge of

where the business is headed and what it is trying to achieve helps employees understand where the manager wishes to take the business

To share their vision and inspire other, managers will have to display effective leadership qualitieso Leadership: is the ability to influence people to set and achieve specific goals

Manager will use his/her leadership abilities to act as a bridge on which to support team members as they cross from the existing ideas into new and unfamiliar territory.

o Problem solving skills

Problem solving: means finding then implementing a course for action to correct an unworkable situation. There are 6 steps in a typical problem-solving process

1. Clearly identify what the problem is and what caused it (may be industrial dispute/need to develop more socially responsible organisation

2. All facts and info relevant to problem must be gathered Simply talking to people or completing questionnaires or surveys

3. Develop alternative solutions problem can be solved with open mind


4. Analyse alternatives disadvantages and advantages5. Choose one alternative, implement it 6. Subsequently evaluate the solution

o Decision-making skills

Task of solving problems require making some decisionso Decision making: process of identifying the options available and then choosing a specific course of action to

solve a specific problem Effective decision making involves:

o being able to make decisions within a particular time frame o requires a manager to adequately assess the risk involved if the decision is implemented

o Flexibility and adaptability to change skills

how managers perceive and react to changes in the Australian business environment over the next 10-20 years will have dramatic consequences for their business

regardless of level of management a successful manager;o are those who anticipate and adjust to changing circumstanceso must be flexible, adaptable and proactive rather than reactive

flexible: refers to being responsive to change and able to adjust to changing circumstances proactive: refers to a management style that incorporates dynamic action and forward planning to

achieve particular objectives For example Arthur Hancock, former senior human resources manager for global equities limited said: “We are seeking managers who can adapt to changing situations.. we don’t want manager who are dogmatic and inflexible these were appropriate 50 years ago.. but not 4 today’s markets which are highly competitive, technologically driven and rapidly changing”

o Reconciling the conflicting interests of stakeholders Stakeholders are groups and individuals who interact with the business, thus have a vested interest in its activities There has been a significant philosophical shift in business conduct to meet society’s expectations society increasingly expects

businesses to accept responsibility and accountability towards all stakeholders for the promotion and management of change. Business’:

o In their operations, are expected to be enterprising, comply with the law, socially just and ecologically sustainableo Strive to be recognized as ‘good corporate citizens’o Increase their chances of success when they pursue goals that align with the interests and expectations of all stakeholders

All stakeholders who interact require different things, all place competing demands upon the business. There expectations can be compatible or incompatible.

o Compatible expectations: simultaneously satisfy various stakeholders E.g customers want quality products at reasonable prices, if business meets expectation, sales should

increase leading to greater profits in turn satisfies the business owners who are rewarded with higher dividends

o Incompatible expectations: they oppose each other; satisfying one set of stakeholders will most probably result in other stakeholders being dissatisfied.

E.g employees & their unions require safe working conditions and reasonable wages & customers want reasonably prices product. Providing safer working conditions of a wage rise is ethically and socially responsible however it will cost the business money short term

If business wished to retain a high dividend to satisfy the shareholders’ expectations forced to raise the prices of tis products action will upset customers

Other hand, the business may retain prices at the original level, reducing its profit doing this could cause disquiet among shareholders

To maintain its profit, the management of a business may choose to cut costs by sacking employees, compromising on product quality or safety

- Decision can endanger employees or society, damage environment through pollution, hence raising ethical and social responsibility considerations

Reconciling the various conflicting interests is a complex task senior management constantly should assess business’ actions in an attempt to satisfy as many stakeholder expectations as possible.

Strategies that could reconcile the conflicting interests of stakeholders Businesses are realising that reconciling conflicting interests and increasing stakeholder value ensure long-term growth and survival Reconciling the conflicting interests of stakeholders requires competent, informed, ethical and socially responsible managers Businesses have a responsibility to take into account the long-term effects of their current decisions

o They’re decisions concerned with production processes, workplace practices, employment programs, product development and design, business expansion all have an impact of both present and future generations

1. One particular strategy has been adopted by more enlightened businesses is to place greater emphasis on environmental practices adopting such a policy benefits both shareholders and society. Business analysts beginning to refer to the triple bottom line, where shareholder value increases through the careful

management of stakeholder value. o Triple bottom line: refers to the economic, social and environmental performance of a business


2. employee share acquisition schemes they provide opportunity for eligible employees to purchase shares in a business, often at a reduced price. This reconciles conflicting interests between shareholders and employees as it aligns the interest of both groups as a number of employees become shareholders.

3. Another widely used strategy: offer training and professional development to employees Educated & skilled workforce works more efficiently, reducing production costs results in rising profits, consequently

pleasing shareholders. Well trained staff produce higher quality products, hence satisfying customer expectations

4. In a desire to reconcile the conflicting interests of the various stakeholders, some businesses use a process of stakeholder engagement Stakeholder engagement: refers to businesses sharing information with and seeking input from stakeholders and

involving them in decision making Business’ anticipate through engaging stakeholders they are more likely to act in an ethical or social responsible manner. Also anticipate a positive image of business will be maintained if all stakeholders have their expectations satisfied, leading

to increased sales as well as an improved reputation for corporate social responsibility

achieving business goals Goal: is a desired outcome (target) that an individual or business intends to achieve within a certain time frame All organisations should set goals increases their chances of success; figure 6.3 illustrates six common business goals Businesses’ Need to establish goals as they Required to undertake planning to successfully achieve goals Goals are important as they:

1. Serve as targets2. Measuring sticks act as a benchmark against the business can measure its performance3. Motivation4. commitment

The most effective business goals should be S.M.A.R.T1. Specific: Goals should be straightforward & emphasise what the business wants to happen2. Measurable: Decide on goals whose progress can be measured so the business owner can see the change occur helps business

stay on track 3. Achievable: goals should be challenging and not out of business reach as employees will become unmotivated due to lack of success4. Realistic: should represent something owner and employees are able to work towards5. Timebound: have deadlines and sub-deadlines attached to them, otherwise commitment too vague

o Profits One of the most basic financial goals for businesses is to maximise progitso Profit is what is left after the costs of producing and supplying th eprocut (expenses) have been deducted

from money earned from sales (revenue)o If business is unable to consistently make profit, it will fail only profitable businesses survive in the

marketplace A major indicator of a business’ success is the size of its profit businesses are always looking for ways to maximise

their profito Profit maximisation: occurs when there is a maximum difference between the total revenue (that is the

number of sales made multiplied by the price) coming into the business and total costs being paid out. The goal of seeking to make as much profit as possible is pursued by a larger number of businesses than any other goal.

A way to maximise profits is to increase sales may be done by lowering the price hence consumers purchase more

o Alternatively business may seek to increase sales through well-targeted marketing campaign, creating more innovative products or delivering better services

o Business entering a new market or introducing a new product perform best by initially setting low prices to build a large customer base

E.g virgin airlines adopted this strategy when it entered the Australian market it offered cut-price airfares to tempt passengers away from the established carriers. Virgin has as its long-term goal ‘the desire to maximise profits’, but they realized it would take a number of years to achieve.

o Market share Market share: refers to the business’s share of the total industry sales for a particular product

o market share is usually a goal for only large businesses these businesses often develop an extensive product range, using many different brand names to gain extra few percentage points of range, using many different brand names to gain an extra few percentage

o small market share gains often translate into large profits for these


Total sales x price = Total revenue (TR)Total expenses incurred in operating the business = Total costs

(TC)Maximum profit = TR at maximum difference from TC

businesses Competition between the major Australian banks and second-tier banks has resulted in a declining overall

market share for the others non-major banks and other institutions have taken market share away from the big four.

Market share of SMEs is restricted to the size of the businesso E.g local corner store’s market share is limited to the number of customers living within its immediate

area Strategy to increase market share is promotion

o Promotion: describes the methods used by a business to inform, persuade and remind a market about its products

Used to convince new customers to try product Still maintains established customer’s product loyalty Advertising that emphasises product’s features still assures those who do use the product

that they are making the right decisiono Growth Most businesses want to grow, they can achieve growth internally (organically) or externally

o Internal growth: involve employing more people, increasing sales, introducing innovative products, purchasing new equipment, establishing more outlets

E.g Mcdonalds has pursed an ambitious growth program by selecting a large number of sites for future expansion

o External growth: achieved by merging with or acquiring other businesses Small business owners are content to mantian their existing size (not grow) to :

o Avoid the pressures of expansion in a desire for a particular lifestyle/ quiet lifeo Keep control over the business’s operationso Maintain personal contact with the customers

o Share price A share is a part ownership of a public company Companies need to satisfy their shareholders by improving the share price and paying healthy dividends

o Social goals All businesses operate within a community and have certain social responsibilities Many businesses develop social goals and adopt strategies that will benefit the community whilst achieving financial

goals. Main social goals:

1. community service: Business sponsorship in community events e.g Businesses financially support educational, cultural, sporting and welfare actitivites

2. Provision of employment: large businesses don’t regard employment of ppl as a main goal SMEs look at the continuity of their business, sometimes employing family members (who otherwise may be unemployed)

3. Social justice: business may be concerned for social justice Social justice: it adopts a set of policies to ensure employees or community members are treated equally&

fairly.o Environmental

goals Business owners should be concerned about the environment’s future prospects More output is demanded and consequently its production lines work faster and faster the raw materials used to

produce the vast array of goods and services are shrinking at a frightening rateo Individuals have done this without giving thought to future generations

Businesses and individuals are becoming more environmentally aware, through these business practices the impact on the planet’s health are reduced so that future generations are not disadvantaged

o enlightened businesses are adopting practices of ‘recycle, renew and regenerate’, adopting a ‘green’ attitude, developing products and creating ideas that are environmentally friendly

Sustainable development Economic growth should not occur at the expense of polluting and degrading the air, water and forests that are

essential to support life on this planet there needs to be a balance between economic and environmental concerns – in other words, sustainable development

o Sustainable development: occurs when the needs of the present population are met without endangering the ability of future generations to meet their own needs

Pressure for businesses to play their part in achieving sustainable development has come from society’s increasing awareness of environmental issues governments are imposing stricter environmental regulations on business practices, this provides new business opportunities for environmental services and products

Implementing sustainability is an opportunity and platform for growth o achieving a mixof

business goals Businesses have range of goals because they have different stakeholders who each have different needs Managers should attempt to achieve a mix of the above goals Most goals are interdependent; all help the business achieve its prime function Goals can be compatible meaning strategies implemented by business in pursuit of a particular goal can assist in

achieving multiple goalso E.g strategies employed by business to achieve the goal of maximizing growth simultaneous help achieve

goal of maximizing profits and increasing market share May be difficult for business to achieve all its goals simultaneously as the links between them are incompatible hence

Managers often have to make a trade-off between conflicting goalso E.g manager face the dilemma between maximising profits or increasing market share

o Staff involvement – innovation, motivation, mentoring, training all businesses should give a high priority to achieving staff involvement


Staff involvement: means involving employees in the decision-making process and giving them necessary skills and rewards A work environment that maximises employee involvement and satisfaction has high levels of labour productivity

HOW CAN EMPLOYER MOTIVATE STAFF

Democratic leadership style (involved in decision making) Set small weekly goals Give employees purpose Be positive Give constant feedback Priorities work-life balance Rewards MONETARY (cash) or NON-MONETARY (other incentives) Employee discounts Promotions Teamwork Trust Encourage suggestions

o Innovation Businesses should encourage an innovative business culture by recognizing and encouraging one of the most important sources of innovative ideas: employees

An intrapreneur is an innovative employer who takes on the entrepreneurial roles within a business have creative minds

For a business to grow and maintain its competitive advantage, staff must be encouraged & given opportunity to be innovative. Practices managers could take on include:

o Rewards to employees with innovative ideas that become profitableo Trustful management that does not excessively control - micromanage – peopleo Sufficient financial, management, human and time resources to achieve goalso Not fearing consequences of making mistakeo Techniques like brainstorming

o Motivation One of the most important management functions High levels of motivation result in increasing rates of productivity

o Motivation refers to the individual, internal process that directs, energises and sustains a person’s behaviour

What drives an individual to behave a certain way or achieve certain goals Individual employees respond differently to various motivational techniques

o Abandoning the union in favour of individual contractso Giving bonuso Making out as if the job is rare and many people can fill it o Is money the best motivator

For generations managers have believed that money is the most powerful motivating The successful businesses today will need to give close attention to involving employees in the decision-making

process Good managers should be

good motivators, encouraging employees and using positive reinforcement to influence behaviour

success of the business significantly depends on motivated & skilled employees who are committed to its goals – that is, everyone working towards a common purpose

o Mentoring Mentoring is the process of developing another individual by offering tutoring, coaching and modelling acceptable behavior

Teaching new employees the business’ expectations strengthens their dedication & commitment to the businesso Training Refers to the process of teaching staff how to perform their job more efficiently through boosting their knowledge &

skills Goal of training is to improve employee productivity THERE ARE 2 TYPES OF TRAINING; FORMAL Off-the-job training; when you receive a formal qualification at the end of a training e.g.

certificate/diploma from TAFE OR degree/masters from UNIVERSITY

INFORMAL On-the-job training e.g. conferences, online modules, in-services (NO FORMAL QUALIFICATION)

Management approachesThere are three main approaches to management and leadership Classical/Scientific Approach: Traditional/old style Behaviour Approach: More modern approach Contingency Approach: Adaptable approachLeadership styles


The two main types of leadership style are:o Autocratic or authoritarian – strong, centralised controlo Participative or democratic – authority and power are decentralized

Manager adopting autocratic leadership style makes all decisions & frequently checks employee performance managers should bring a range of leadership styles to their positions that can change according to the situation. Managers who adopt a strict classical-scientific approach usually display an autocratic leadership style.

o manager controls the people in the business closely and motivates through threats and disciplinary action.o autocratic style of leading can be effective in a time of crisis when intermediate compliance with rules or procedure

is needed, or in meeting an unexpected deadline when speed in important.o However generally this style does not encourage the best performance from employees.

Classical Approach (autocratic leadership style) Chain of Command is long One-way Communication A strict Hierarchical organisational structure Communication from the top Autocratic leadership style (Downward style) Disciple as a feature of leadership Rewards for efforts Jobs broken down into tasks Time and motion evaluation Evaluation of employees Traditional pyramid shaped structure Managers carry out key activities of planning, organising and controlling Constant supervision of activities Employees lack motivation E.g Mcdonalds use Taylor’s scientific management approach to food Big mac produced according to steps

Adv Disadvantages Efficient organisation of the business Improves profits/increases sales/and amount of product produced Employees know exactly what they have to do Scientific methods can be taught

Managers do all the planning, organising and controlling Employees lack motivation/boring monotonous jobs High staff turnover

3 Basic Functions of Management Process:

o Management as planning

o Planning provides key to short and long term success of a business provides a vision and goals for a business Planning: preparation of a predetermined course of action for a business. Involves how the business will achieve its

stated mission & business goals 3 different types of plans on how to achieve the business goals

1. Strategic (long-term) planning 5-10 years: level of planning assists where the business wants in the market to be and what it wants to achieve (in relation to competitors)

2. Tactical (medium-term) 1-2 years: allows the business to respond quickly to changes. Emphasis on how goals will be achieved through allocation of resources

3. Operational (short-term) planning: planning provides specific details about the way in which the business will operate on a day-to-day or weekly basis contributing to achieving short-term actions & goals

o Management as organising

Organising is the next part of the process when management puts into practice the goals that were determined in the planning stage

organising the financial, human and material resources to achieve goals Management has to coordinate activities to translate plans into reality to ensure the goals of the strategic, tactical

and operational plans are achieved Physical: Equipment, raw materials, machinery Human: People, employees Financial: Capital (Money) The organisation process is the range of activities that translate the goals of a business into reality; take 3 steps

1. Determining the work activities2. Classifying and grouping activities3. Assigning and delegating authority

o Management as controlling

Controlling: process management goes through when it attempts to evaluate performance & take corrective action to ensure that objectives are being achieved

Controlling compares what was intended to happen with what actually occurred If discrepancy between performance and goals, changes and improvements can be made

o Hierarchical organisational structure


PYRAMID STRUCTURE

DESCRIPTION - Division of labour: Means the degree to which a total task can be divided into small, usually unskilled, tasks e.g. production line

- Every employee in organization except one (CEO) is subordinate to someone else within the organization - Consists of multiple entities that descend into the base of staff level employees, who sit at bottom of pyramid

LONG CHAIN OF COMMAND Where the directions or how the information filters down to the employees CLASSICAL/SCIENTIFIC = many layers of management (long chain of command)

SMALL SPANS OF CONTROL Amount of workers a manager supervises CLASSICAL/SCIENTIFIC = number of employees controlled by ONE manager

ADVANTAGES - Employees recognise defined levels of leadership within organisation - There is authority and levels of responsibility - Opportunities for promotion motivate employees to work well - May narrow employees field of focus and become expert is specific functions

DISADVANTAGES - Communication across different departments tends to be less effective - Rivalry between departments - Increased bureaucracy - Increased time may be required to respond to clients - Salaries for each layer of management increase organizations costs

Behavioural approach to management (participative/democratic leadership styles) The behavioural approach to management pioneered by Elton Mayo stresses the people (employees) should be the main focus

of the way in which the business is organized Main features of behavioural management approach include:

o Humanistic approach: employees are the most important resourceo Economic and social needs of employees should be satisfiedo Employee participation in decision makingo Team-based structureo Managers nee good interpersonal skillso Democratic leadership style emerging

According to the behavioral management approach, the main management functions are; leading, motivating, communicating

o Management as leading Leading occurs when managers endeavor to influence/motivate people in the business to work to achieve

the business’ objectives To act as a leader a manger should:

o display empathy and possess good listening skillso have high expectations of employee’s abilities to initiate and implement ideaso open mindo builds communicates clear visiono Delegates tasks to suitable employees

Delegation is handing over of tasks to an employee who is suitably capable & qualified to carry them out

Having a vision of where the business should be in the long and short term Less effective managers focus on tasks more concerned with meeting deadlines

o Management as motivating

Concerned with providing workers with the desire to carry out work to a high standard. Managers can motivate employees by;

- Rewards; NON-MONETARY Rewards e.g. awards MONETARY Rewards e.g. cash bonuses, profit sharing schemes and reward programs

- Put in place work practices to motivate employees - Giving employees sense of involvement - Recognising, self-worth and positive reinforcement

Trust/respect for employeeso Management as Process by which the various management roles are carried out by interacting and communicating with others;


communicating can be written or oral

Features of effective communication; - Open communication - Tone has to be appropriate and not overwhelming - Hand gestures - Eye contact - Avoid repetition

o Teams Teamwork involves people who interact regularly and coordinate their work toward a common goals

o Businesses starting to realise this team approach the catalyst for superior performance Development of work teams has resulted in flatter organisational structures The role of managers is changing from controller to facilitator Businesses are adopting flatter management structures, resulting in:

o ‘de-layering’ of traditional hierarchical structureo Establishment of market-focused work teamso Each work team responsible for wide range of production functions

Reducing the levels of management gives greater responsibility to individuals in the business

o Participative/democratic leadership style Manager implementing classical-scientific approach normally adopt an autocratic leadership style manager practiced

behavioural approach use more participative / democratic leadership style P/D leader one who asks employees for their suggestions & seriously considers those suggestions when making decisions they

share their decision making authority with their subordinates Style of leadership most effective when a business is operating in an environment undergoing rapid change ADV: motivation & job satisfaction r optimal as employees feel they have played active role in allocating tasks and implementing

actions to meet objectives

Contingency approach to management

CONTINGENCY APPROACH

The management of a business is able to be flexible and adaptable to management practices and ideas in changing circumstances.

e.g. changing economic conditions, increased competition, seasonal climatic conditions and emergencies

it is a combination of both democratic and autocratic management styles as it depends on the situations and requirements of the task and activity being done

o Adapting to changing circumstances Businesses need to be responsive to changes in its environment and be adaptive in;

The nature of workcan change due to technology or downsizing

Differences between employees and managers Size of the business

businesses grow and contract External influences

o Economic conditions o Technology o Increased competition o Seasonal/climatic conditions o Social trends o Competition o Change in demographics o Internal conflict within staff

Management process


Management Process

Key functions of the business enable the business to function efficiently and effectively if managed correct

Each key function is dependent on each other and needs to work together for a business to produce a good or service ALL DEPENDENT ON EACH OTHER FOR THE BUSINESS TO ACHIEVE ITS GOALS/OBJECTIVES

Coordinating Key business functions and resources Interdependence: The four key functions of the business are reliant on each other for the business to function efficiently and

effectively. One key function needs the other three to function.

Examples of Interdependence (Reliant on all 4 Key Functions)

Operations Production of goods/services

Human ResourcesGood customer service improves sales/profits

Marketing‘What does Marketing do to aid Operations?’Product is made more aware to consumers (Advertising)Distribution of the product to make it accessible to as many customers as possibleBrand image of the productSurvey customers

FinancePayment of employees - Made on timeProvides budgets for training and development of staff.

Operations Operations: refers to the business processes that involves transformation & production it is a term that applies both to the

manufacturing and services sector The operations management consists of all the activities in which managers engage to produce a good or service

o Concerned with creating, operating and controlling a transformational process that takes inputs from a variety of resources, and produces outputs of goods and services needed by customers

Production involves skillful bringing together of a number of resources such as finance, equipment, management, technology and people to create finished goods and services through a series of operations

Operations management function has immense influence on the quality, cost & availability of a business’s good and/or service

o Goods and/or Services Operations management function responsible for transforming inputs into outputs Characteristics of operations management differ according to business whether a manufactured of goods/ provider of services:

o Manufacturers produce tangible products (physical)o Service organisatons produce intangible products (services)

Tangibles: physical products that can be handled & stored before they are sold to consumer Intangible: cannot be touched Production process & consumption are not linked Modern businesses produced combination of both manufactured goods and services

o The Production ProcessThere are three key elements of the production process in any business: Inputs, Processes and Outputs. Inputs are the resources used in the transformation (production) process. Some resources are already owned by the business, while

others come from suppliers. Transformed Resources are those inputs that are changed or converted in the operations process. Resources include:

o Materials: basic elements o Information: knowledge gained from research, investigation & instructiono Customers: become transformed resources when their choices shape inputs

Transforming Resources are those inputs that carry out the transformation process. They enable the change and value adding to occur. The two main transforming resources are:

o Human Resources (People employed by the Business)


o Facilities. Outputs refer to the end result of a business’ efforts - the good or service that is delivered or provided to the consumer.

Transformation Process The main concept of operations management is transformation, which is the conversion of inputs (resources) into outputs (goods or

services).

VALUE ADDED At each stage of production, there is an increase in value as it passes through the process in order to achieve a sufficient profit

o Quality Management Quality management is the strategy which a business uses to make sure that is product meets customer expectations. Three quality

approaches are:1. Quality control2. Quality assurance3. Total quality management

Quality refers to the degree of excellence of goods or services and their fitness for a stated purpose

How does Quality Management;a. Minimise Waste: Quality products are going out to consumers - increasing profits. If the product coming off the production line

is of a good quality it will go out to consumers for sale. If there are quality control problems the inputs won’t be used efficiently and will be taken off the line - costs the business money.

b. Reduces variance in the production of the final product: Each product that comes off the production line is the same.c. Improve customer satisfaction: Customers will purchase the product and buy from the Business regularly (Repeat customers)

Approaches to Quality Management include: Quality Control: involves the use of inspection at various points in the production process to check for problems and defects Quality Assurance: involves the use of system so that a business achieves set standards in production- usually set by the industry or

international body The ISO 9000 series of quality certifications widely used international standard (International Organisation for Standardisation)

Total Quality Management: is a commitment to excellence that emphasises continuous improvement in all aspects of a business operation by sharing responsibility among all the members of the business

Quality Circles are groups of workers who meet with management to solve certain problems. Continuous Improvement involves an ongoing commitment to achieve high quality standards. Having a customer focus involves Businesses making sure they meet customer expectations when it comes to the quality of the

product. Interacts with marketing department to achieve this aim.

MarketingWhen a Business promotes, prices, and distributes a product to satisfy customers wants and needs. The aim of Marketing is to increase sales and maximise profits. This is achieved by the exchange of the good or service for money. Marketing in today’s society is customer orientated (customer satisfaction).

Aims of Marketing: Repeat sales/customer loyalty. Exchange of goods/services Knowing who your customers are Targeting groups in society who will buy your product Profitability Developing long term relationships with your customers

Marketing is vital to the existence of a business Without marketing customers are not aware of a product’s existence regardless of how ‘revolutionary’ it may be

o According to stats more then 70% of new products launched on the market self-destruct in the first year of operation, due to poor marketing businesses make few sales if they do not market their products successfully

At the same time many products that would seem insignificant and unimportant have become ‘essential items’ as a result of a well managed professional marketing plan

It is a powerful business strategy

Marketing fundamentals In past years you have probably been involved in some type of marketing activity. The four main marketing strategies are commonly

referred to as the four Ps of the marketing mix. The four main marketing strategies:


o Priceo Placeo Producto Promotion

What is marketing? Marketing is a total system of interacting activities designed to plan, price, promote and distribute products to present to potential

customers Successful marketing involves bringing the buyer and seller together and making a sale

Role of marketing difference between selling and marketing Is that selling is merely getting rid of existing stock , whereas marketing takes a much

broader view brings together the buyer and seller and makes a sale Traditional marketing is a broad category incorporating the wide array of advertising channels we see daily. This marketing

attempted to pull customers to a product no matter the cost don’t necessarily consider the customer to whom their selling to o E.g print media, billboard, TV advertising and radio broadcasting

Contemporary marketing ( is a way of thinking ) refers to those strategies that stress the importance of customer orientationo Businesses that adopt this approach base their marketing decisions and practices on the needs and wants of their

customers this is known as the marketing concept approach o when adopting the marketing concept approach focus on relationship marketing:

relationship marketing is developing long-term , cost effective relationships with their customers. For these businesses, the customer relationship does not end with the sale; it begins there they always strive to exceed customer expectations

businesses utilizing contemporary marketing approach have become more prosperous than traditional channels

o Identification of the target market Few businesses can afford to market their products the whole market share as high expenses & there are rare products suitable to all

consumers Businesses must select specific group of customers on which to concentrate their marketing efforts: their target markets

o A target market is a group of customers with similar characteristics who presently, or who may in the future, purchase the product

o (Potential customers) Three broad approaches can be adopted when selecting a target market:

o Mass marketing approach, market segmentation approach or nice marketing approach

Mass-Market approach

In a mass market, the seller mass-produces, mass-distributes, and mass-promotes one product to all buyers. This mass market approach seeks a large range of customers business then develops single marketing mix and directs it at the entire market for the product

o one type of product with little variation, one promotional program, one price, one distribution system used to reach all customers

few product apart from basic food, water gas etc are marketed to the mass marketas a result of greater variations in choice, higher personal incomes and customers seeking more individualized products, the mass market has been replaced by segmented or niche markets

Market segmentation approach

Enables the business to identify this particular group and ensures that it does not waste its resources by marketing to the mass market

Market segmentation: occurs when the total market is subdivided into groups of people who share one or more common characteristic based on four elements:

Business’ segment its market so it can better direct its marketing strategies to specific groups of customers rather than the mass market

Ultimate aim is to increase sales and profits by better understanding & responding to the desires of the target customers once market has been segmented business selects one of these segments become the target market

Segmenting approach allows business to better satisfy the wants and needs of a targeted group as the business can:o Use marketing resource more efficientlyo Better understand the consumer buying behaviour of the target marketo Make comparison within the target market over timeo Refine marketing strategies used to influence consumer choice

E.G INSERT IMAGE OF TOTAL MARKET FOR FEMALE FASHION RETAILERS Selecting a market segment to be the target market is important fashion retailer makes clothes 4 women over 40

years. Clothes are of reasonable quality yet won’t be classed as ‘designer’ clothes. In this business female middle-income earners are the main target market

Total market is divided into various groups that target people with different characteristics Market can be segmented by;

o Demographics o Geographic o Lifestyle o Behavioral

Niche markets A narrowly selected target market segment (micro market); very small amount of people attracted to a specific product Differentiated Often larger businesses target different segments; involves focusing the marketing effort on a number of different groups


Marketing based on the following factors; GEOGRAPHIC Consumer characteristics differ based on where they live; geographic status effect what

people want, quality of product and price they are prepared to pay for it DEMOGRAPHICS Those things concerned with features of the population, such as age, gender, income, jobs

and education levels PSYCHOGRAPHICS Refer to such things as personality, lifestyle and social class s

Demographic- population characteristics

Geographic–where people live Psychographic– personality characteristics

Behavioural – loyalty to a product

Age Gender Education Family size Income Occupation Social class Religion Ethnicity

Urban Suburban Rural Regional City size Climate Landforms

Lifestyle Personality Motives Socioeconomic group Consumer opinions interests

purchase occasion benefits sought loyalty use rate price sensitivity

o Marketing Mix Once owner has established the marketing goals & selected a target market next step of marketing plan is to develop marketing

strategies to achieve the goals o Marketing strategies: are actions undertaken to achieve the business’s marketing goals through the marketing mix

One of the most useful ways of understanding how to develop a marketing strategy is to examine each of the elements of the marketing mix the marketing mix refers to the combination of the four Ps – product, price, promotion and place (distribution).

o The business has control over these elements and uses them to reach its target market o These four Ps of the marketing mix are considered the basic cornerstone of making

However as the service sector within the economy has grown, three more P’s have been added that apply especially to the service industry 3 extra P’s – people, processes and physical evidence – now form the extended marketing mix

This will largely be determined by where the product is positioned or its stage in the product life cycleo Product life cycle: describes the life of a product over four stages: introduction, growth, maturity and decline

A different marketing mix will also be required for a product in its introductory stage than when it reaches the decline stageMARKETING MIX Refers to the combination of the four elements of marketing (THE 4 P’s) that make up the marketing strategy;

- Product - Price - Promotion - Place

PRODUCT Products refers to all the benefits a good or service offers to a customer Business owner needs to determine the products quality, design, name, warranty and guarantee, packaging, labelling and

exclusive features The product is a combination of all these variables and customers will buy products that not only satisfy their needs but also

provide intangible benefits The quality is an important feature of the product as it should have a high degree of excellence, achieve its state purpose, be

easy to use and well designed to meet customer expectations Products are goods or services, and consist of both tangible and intangible features The product element involves more then deciding which product (goods or service) to market. The business owner needs to

determine the product’so Qualityo Designo Nameo Warranty and guaranteeo Packagingo Labellingo Exclusive features

Product is a combination of all these variables Customers buy products that not only satisfy their needs but also provide intangible benefits such as a feeling of security,

prestige, satisfaction or influence

PRODUCT PACKAGING Involves development of a container and the graphic design for a product; well-designed packaging will give a positive impression of the product and encourage first-time customers to purchase The packaging of a product assists sales Packaging helps preserve, inform, protect and promote the product

PRODUCT BRANDING Important part of product development is brand and associated brand logo; these combined are a powerful marketing tool The important part of the product development is the brand and associated brand logo.

Combined these can be a powerful marketing toolo Brand logo: graphic representation that identifies a business or product


E.g ‘golden arches’ symbol is used by McDonald’s in some ads brand name doesn’t appear only brand symbol subtle clever method used to reinforce meaning of the symbol and associate it with a brand name

POSITIONING How does your product differentiate from the competitors product in the market PRICE Price is the payment required to purchase a product; pricing strategies include;

A business must select the most appropriate pricing method suitable to its product and market conditions. Too high could mean lost sales, price too low give customers cheap impression

To choose the correct price, business can choose one of three methods for calculating pricePRICING METHODS;

COST BASED Price higher then total cost of production for profit

MARKET BASED Depends on supply and demand of a product Setting prices according to interaction between levels of supply and demand – what the

market is prepared to pay fore.g. PRAWNS high demand = high price low demand = low price

COMPETITION-BASED PRICING A business will price depending on the competition; HIGHER= higher quality SAME= letting consumer make decisions (similar quality) LOWER= value for money or consumer might see it as lower quality

PENETRATION PRICING

Businesses that operate in highly competitive markets often adopt a penetration strategy; where the prices of products are set below the prices charged by competitors

SKIMMING STRATEGY

Where there is very limited competition, a skimming strategy might be adopted; where prices are set at wherever the market will bear (strategy used following the introduction of a new product)

PRICE TOO LOW shortage result PRICE TOO HIGH surpluses result MUST REACH EQUILIBRIUM FOR SHORTAGES & SURPLUSES TO DISAPPEAR

PROMOTION Refers to the methods used by a business to inform, persuade and remind customers about its products with the aim of; Promotion refers to the methods used by a business to inform, persuade and remind customers about its product with the aim

of:o Attracting new customers through raising awareness of producto Increasing brand loyalty by reinforcing the image of the producto Encouraging existing customers to purchase more of the product

MAIN FORMS OF PROMOTION;

Personal selling & relationship marketing Personal selling involves the activities of a sales representative directed to a customer in an attempt to make a sale Relationship marketing refers to the development of long-term, cost-effective and strong relationships with individual customers

Sales promotion Refers to the activities or materials used by the business to attract interest and support for the good or service E.g free samples, coupons, point-ofpurchase displays

Publicity and public relations Refers to any free news story about a businesses products; managing a favourable relation between a business and its customers

Advertising Print or electronic mass media used to communicate a message about the product; used to attract potential customer, create a demand for the product and communicate essential information

Technology The recent revolution in social media advertising (SMA) in combination with traditional advertising methods has become an effective advertising tool used to deliver specific messages to their target markets Inexpensive Easy to use and monitor Effective method of gaining exposure

PLACE Place or distribution are activities that make the products available to customers when and where they want to purchase them A Distribution channels is a way of getting the product to the customer. This process involves a number of intermediaries that

are invisible to the customer. The traditional distribution channels are:

1. Producer to customer2. Producer to retailer to customer3. Producer to wholesaler to retailer to customer

Two new distribution channels are e-commerce and mobile commerce


o E-commerce: buying&selling goods on internetMobile commerce: wireless handheld devicesRefers to the distribution channels used to move finished products to the final customer

The distribution channel links the point of manufacturing to the final customer, these include; vending machines, supermarkets, service stations and convenience stores The main distribution channels are;

Intensive distribution Most common type of distribution channel; intensive distribution is where as many outlets as possible are used to distribute the product e.g. potato chips

Selective distribution Where the manufacturer wants the product to be widely distributed but not quite to the same degree as intensive e.g. bread and milk

Exclusive distribution Used for products positioned right at the top of the market; high-quality high-priced productivity and both the product and the price hint strongly at exclusively e.g. Rolls-Royce

Finance

Understanding of both accounting and finance is absolutely necessary if business managers and owners are to make informed decisions.

Financial statements To assist business owners in making judgements about the direction of the business at any given time they need to prepare some

financial statements. o Financial statements: are reports that summarise transactions over a period of time

The main accounting reports and financial statements are cash flow statements, income statements and balance sheets. Example; business owners need to be aware of whether the cash flow through the business is sufficient to allow the business to pay

its debts on time, whether or not the business is trading profitably, and the financial status of the business

Examine effective cash flow management Cash flow statements are vital for the information they give on the timing of payments and receipt of income. information on cash movement is kept because this will help the business predict future cash flows, hence make provision for

payments cash flow statement shows:

o business made a cash surplus for two of its three months of trading

o in march this business experienced a cash deficiento In short term, if these trends continue

Cash flow statements allow business to: o Control financeso Plan strategies for financial benefito Plan and predict future cash flow inflows.

The format of cash flow statements for large businesses and public companies:

o Cash from operating activities: these are the cash inflows and outflows relating to the main activity of the business; that is, the provision of goods and services

o Cash from investing activities: these are the cash flows related to the purchase and sale of non-current assets and investments

o Cash from financing activities: these are cash flows related to the acquisition and repayment of both debt and equity finance

FINANCE Accounting is a management tool that is concerned with providing information on the financial affairs of a business, while finance is concerned with where the business sources its funding

The management of cash flow involves anticipating cash expenditure and ensuring that enough of the income earned comes in the form of cash.

A well managed business needs to ensure that enough money is saved in the event of contingencies (unexpected challenges), as contingencies can place the business under unexpected financial pressure

o Contingencies: are unanticipated events that can lead to financial difficulty business leaders and managers need to have a good understanding of accounting and finance, and need to draw on this


knowledge and skill when managing all aspects of the businessTWO TYPES OF FINANCE;

OWNERS EQUITY DEBT FINANCE

- Internal finance - Owners contribution - External equity finance:

1. Shares in a public company 2. Venture capital

External finance Financial institution (bank) 2 types;

1. SHORT TERM: paid within 12 months 2. LONG TERM: 5-30 years

ACCOUNTING Finance is concerned with where the business sources its funding while Accounting is a management tool that is concerned with providing information on the financial affairs of a business

Accounting is a managerial and administrative tool that involves the recording of financial transactions so a clear summary of cash flow in and out can be traced over time

Every financial transaction is recorded and entered into accounts that may be computerized or manual (form of books)o Transactions from ordering of stock to sale of an old stock itemo Financial transactions include delivery dockets, sales receipts, invoices, cash register records and e-payment

transactions) Basically: Accounting is a financial management tool that is involved with the recording and analysis of all the business’s

financial transactions Accounting presents this information in its final state through financial statements:

o Cash flow statemento Income statemento Balance sheet

o Cash flow statementCASH FLOW STATEMENT

A cash flow statement is a financial statement, that indicates the movement of cash receipts (inflows) and cash payments (outflows) over a period of time

o They are vital for the business to assess whether money inflows can match money outflows liquidity is used to describe whether a business has a good or adequate cash flow

o A business is said to be liquid if it has the cash available to meet payments as they are due. Generally a business would prefer its sales to be in cash for precisely this reason – it has a need for cash to meet its payments. Why

do businesses allow credit sales when they prefer cash? as they need to match their desire for cash with the cusomter’s ability to pay. By allowing customers to purchase on credit, the business will obtain sales it might otherwise lose

Summary of the typical monetary inflows and outflows:Cash inflows Cash outflows Cash sales Credit sales when paid Other income e.g. interest from investments, non-operating

income- Sales - Commission - Discounts on purchases - Sales of assets - Royalties - Payments from debtors - Interest from investments - Rental income - Dividends on shares

Payments for stock Payments for expenses (wages, insurance, etc) Payments for non-operating expenses

- Advertising - Stock - Wages - Electricity - Rates - Mortgage payments - Taxation payments

- A liquid business is said to be one that has a positive balance after all the transactions have been documented - Businesses are subject to a cyclical flow of funds - Predictable times in period where cash flow is high or low - Cycles occur on a weekly, fortnightly, monthly, quarterly and annual basis

FORMULA FOR CASHFLOW STATEMENT- OPENING BALANCE + INFLOWS – OUTFLOWS = CLOSING BALANCE

CLOSING BALANCE= become opening balance for next period

o Income statement

Income (revenue) statement

Summary of all the revenues (income earned) and all the expenses that are incurred to gain that revenue What is left is profit Income statement measures the performance of a business over time Provides detailed description of the sales, cost of stock sold, selling costs, administration and production costs,

gross and net profit

The profit and loss statement is divided into 3 main sections;


COGS OPENING STOCK + PURCHASES – CLOSING STOCK GROSS PROFIT SALES – COGS NET PROFIT GROSS PROFIT – EXPENSES

Sales Income/revenue from the sale of your good/service

COGS Cost of goods sold; how much does it cost to purchase the good you are selling

Opening stock Stock you have in your business at the start of a period

Purchases New stock ordered for the store for the selling period

Closing stock Stock left over, that hasn’t been sold at the end of the period

Gross profit How much profit you have left after you pay suppliers for the good you’ve sold

Expenses How much it costs to run the business e.g. electricity, wages, rent, advertising, insurance, delivery, stationary, water, rates, leasing expenses etc.

o Balance sheetBALANCE SHEET Measures the overall worth of a business; statement of the businesses assets, liabilities and owner’s equity as a set time,

usually June 30th

ASSETS = LIABILITIES + OWNER’S EQUITYA = L + OE Sometimes called the statement of financial position Shows the overall financial stability of the business Main items in the balance sheet are: assets, liabilities and owner’s equity Assets: items of value owned by the business that can be given a monetary value. They can be current or non-

current, tangible or intangibleo Current assets: assets a business can expect to use up, turn over within 12 months e.g cash, accounts

receivable (debtors) and inventories (stock)o Non-current assets: those assets that have expected life of longer then 12 months. E.g large physical

items… buildings, land, machinery, fixtures, fittings Liabilities: are items of debt owed to outisude parties/organisations, they can be current or non-current

o Current: the debt expected to be repaid in the short term (12 months or less) e.g bank overdrafts, credit card debts, accounts payable (creditors), accrued expenses

o Non-current: can last up to 30 years e.g mortgages, leases, retirement benefit funds Owners equity: is the funds contributed by the owner(s) to establish and build the business, also known as the

‘capital’ Balance sheet should always balance:

o Assets must equal liabilities

Good will Intangible asset; business owner adds a figure to the asset figure because the business has saved profits and a good customer base

Creditor Another name for account payable Debtor Another name for account receivable Inventory Another name for stock Overdraft Short term debt which allows a business to overdraw their cheque account by a bank

Human resourcesIf handled correctly human resources can provide a business with a competitive advantage Employees can make or break business management of staff has to be top priority foe every business owner. Human resource management: the effective management of the formal relationship between the employer and the employees

Human resources cycle Main functions of staffing are to attract and acquire, train and develop,

reward, maintain and separate the people needed to achieve the business’s goals

STAGE 1:ACQUISITIONHiring new employees

- The methods/strategies used by the business in the hiring of new employees - First stage of the human resources cycle

STAFFING NEEDS Staffing needs required by a business include; - Certain skill level needed - Knowledge and qualifications - Experience - Need to be able to fulfil duties of job


Once staffing needs are decided, they will attract employees e.g. advertisements RECRUITMENT Refers to attracting potential employees to apply for the job

Potential recruits can come from; - EXTERNAL: outside of the business - INTERNAL: present employees within the business

Various methods to find applicants; - Social media- Internet sites for employment (seek.com)- Newspapers - Window advertisements - Person asks for job personally - Word of mouth

SELECTION Refers to deciding what applicants will be interviewed for the job; they will go through a set of criteria before they are offered the position

Main processes involved in selection; - Interview applicants - Comparison of applicants in relation to skills - Background check - Check digital footprint - Test your skills

Once the selection process is complete, the successful applicant is offered the position and decide whether they want to take the job. An employment contract will then be signed, making the agreement legal.

STAGE 2 DEVELOPMENTImproving employees’ skills and abilities

TRAINING Refers to the process of teaching staff how to perform their job more efficiently and effectively by boosting their knowledge and skills PROCESS OF TRAINING;

- Develop their skills - Expand their knowledge of their jobs - Improve their performance - Make them more effective and efficient

METHODS OF TRAINING; INFORMAL On the job training

e.g. mentoring, modules, in servicing, job rotation FORMAL Receive a qualification

e.g. TAFE (Certificate, diploma), university (bachelor degree, master, PHD), business college/online modules

DEVELOPMENT Refers to activities that prepare staff to take greater responsibility in the future HOW ARE EMPLOYEES DEVELOPED;

- Give them more responsibility - Further informal training - More formal training - Allow them to take on positions of responsibility for a short period of time

PERFORMANCE APPRAISAL

When an employer examines your performance within a workplace with;

- Positives - Ways to improve


STAGE 3 MAINTENANCEMotivating employees to remain with the business

Motivating employees to remain with the business; employment relations function concerned with building employee loyalty

DATABASES Keep details about a performer up to date, including; - Personal information - Performance appraisals - Qualifications - Course they have completed - Length of time they have been in workplace

REWARD SYSTEMS; Rewards recognise an employees good work, confirming their work is valued; it grows their productivity and motivation in the workplace

MONETARY AWARDS Compensation or bonus given in the form of money e.g. increased pay rates, bonuses, commissions, shares in company

NON-MONETARY AWARDS

Compensation given in a transaction which does not involve cash e.g. fringe benefits, flexibility, working from home and different start/finish times

STAGE 4SEPERATION Employees leaving the place of Employment

This is when the employee decides to leave the workplace or the employer terminated the employees contract;

VOLUNTARY Own accord

NON-VOLUNTARY Employer terminated employee

- Health problems - New employment - Retirement - Not happy with job (conditions/pay/boring) - Promotion

- Sacked (not performing) - Redundancy; job no longer exists e.g. technological

change - Retrenchment; economic recession/no jobs available - End of contract - Inappropriate behaviour (summary dismissal)

o Recruitment Acquisition: refers to the process of attracting and recruiting the right staff for roles in a business prior to this a business must

undertake a job analysiso It is a systematic study of each employee’s duties, tasks and work environment e.g equipment degree of supervision

necessary Job analysis for particular position consists of:

1. Job description: written statement scribing employee’s duties, tasks & responsibilities2. job specification: list of the key qualifications needed to perform a particular job .. education, skills, experience

Recruitment involves finding and attracting the right people to apply for a job vacancy; using ads, employment agencies, word of mouth. When organisation decides 2 recruit can internally/externally recruit

o Internal recruitment: appoints someone already within the business to a vacancyo External recruitment: used 2 find suitable applicants from outside the business

Once job applicants are found process selecting right applicant beginso Employee selection: gathering info about each applicant for position using info to choose most appropriate client

o Training Training refers to the process of teaching staff how to perform their job more efficiently and effectively by boosting their knowledge

and skills Development refers to activities that prepare staff to take greater responsibility in the future through acquiring better knowledge

and skills & gaining more experience in a particular areao Developing staff involves training

Aim of training and development is to seek long-term change in employees’ skills, knowledge attitudes and work behavior in order to improve work performance in the business.

o Necessary for personal and business growth New and existing employees need training

o New need training and development depending on their level of experienceo Existing need training to continuously upgrade their skills

According to the Australian Centre for Industrial Relations Research and Training, there is little evidence of a strong training cluture within Australian workforces

o Lack of training and development can have long-term implications for a business’s ongoing competitiveness, and could lead to higher turnover rates as staff seek development in other forms

Comparatively well-presented training & development provides benefits for both the employee and the employer:Benefits for the employee Benefits for the employer Opportunity for promotion and self-improvement Improved job satisfaction through better job performance

Higher productivity through better job performance & more efficient use of human resources


Challenge – learn new things Adaptability – greater ability to adapt to and cope with

changes Improved chances of future employability

Goals and objectives more efficiently met Reduced costs due to less labour turnover, errors,

accidents, absenteeism More capable ‘mobile’ workforce Existing staff more easily retained ‘Insurance policy’ – employees are able to cope better with

business ‘crises’

Effective t&d program is planned and perceived as integral to the business’s strategy, as well as maintaining a business’s sustainable competitive advantage

Ongoing training for all employees is becoming critical due to rapid technological change and global competition – promotion of the concept of a learning organisation is crucial

o Learning organisation: monitors and interprets its environment, seeking to improve its understanding of the relationship between its actions and its environment.

Technology creates the need for ongoing training Ongoing training for all employees can be promoted by the business becoming a learning organisation Some common training methods include formal off-the-job training, informal on-the-job training, action learning, competency-based

training, corporate universities and training technologies. Training needs must be identified well in advance of any proposed technological implementation. Training should be viewed as an investment in the human capital of the business

Types of training and development Off-the-job training – when employees are trained away from the workplace. It usually involves sending individuals or groups of

employees to a particular specialized training institution. This may be a university or TAFE college

o Employment contracts

EMPLOYMENT CONTRACT

A legally binding, formal agreement between an employee and employer. There are 3 different types of employment contracts;

1. Award 2. Enterprise agreement 3. Common law contract

AWARD A set of minimum terms and conditions usually for a certain industry e.g. casual retail worker, hospitality workers

ENTERPRISE AGREEMENT

Negotiated agreement between an employer and a union or a group of employees e.g. catholic school teachers, prison officers, nurses

COMMON LAW CONTRACT

When employers and employees have a right to sue for compensation if either part doesn’t fill their part of the contract e.g. rugby player, singer/song writer

NATIONAL EMPLOYMENT STANDARDS

A set of minimum employment conditions that have to be included in employment contracts (award and enterprise agreements). They have 10 main standards including;

1. 38 hours per week 2. Flexible working arrangements 3. Parental leave (12-month unpaid work) 4. Annual leave (4 weeks’ minimum) 5. Personal and carers leave 6. Community service leave 7. Long-service leave 8. Paid on public holidays 9. Termination/redundancy pay 10. Fair work information statement

o Separation Final stage in the employment cycle is ‘separation stage’ in which employees leave the workplace on an voluntary or involuntary

basis Handled by human resource manager Unfair dismissal: occurs when an employee is dismissed by their employer and the action is believed to be harsh, unjust or

unreasonable

Voluntary separationEmployee decides to give up full or part time work, and includes:


Retirement: occurs when an employee decides to give up full or part time work & no longer apart of the labour force Resignation: or ‘quitting’, is a voluntary ending of the employment relationship Redundancy: job an individual is doing is no longer required to be performed , usually due to technological changes, merger or

acquisition

Involuntary separationEmployee is asked to leave the business against their will, includes: Retrenchment: Retrenchment is employee termination due to lack of sufficient work to keep the employee fully occupied whereas

difference redundancy occurs due to permanent elimination of some jobs as organisational/technological change has removed the need for those particular skills

Dismissal: behavior of employee unacceptable necessary 4 business to terminate their employment contract Redundancy BOTH

Ethical business behaviour Majority of businesses want to be seen as responsible corporate citizens Many businesses concerned with the triple bottom line:

o Refers to the economic,. Environmental and social performance of a business Ethics are standards that define what is acceptable and unacceptable behavior Business ethics are the application of moral standards to business behavior such as:

o Fair and honest business practiceso Decent workplace relationso Conflict of interest situationso Accurate financial managemento Truthful communication

Fair trade: trading partnership that seeks greater equity (fairness) in international trade promotes the rights of marginalized workers, esp in low-income countries

One strategy implemented to encourage ethical behavior is to devise a corporate code of conduct this is a set of ethical standards for managers and employees to abide by

ETHICS Moral principles that govern a person’s behaviour or the conducting of an activity; basic ethics is the application of moral standards to business behaviour such as;

- Fair and honest business practices - Decent workplace relations - Conflict of interest situations - Accurate financial management - Truthful communication

CODE OF CONDUCT

One strategy that can be implemented to encourage ethical behaviour is to devise a corporate code of conduct.

Set of standards the business has designed for themselves to promote ethical and social responsibilities and standards for managers and employees to abide by

CONFLICT OF INTEREST

GOVERNANCE- all employees and managers must declare any gifts given to them visually over a certain monetary value

Management and change Organisational change is the adoption of a business’s new idea or behaviour in response to internal or external influences The ability to embrace, manage & adapt to change will increasingly determine a business’s competitive advantage Successful

managers are the ones who anticipate and adjust to changing circumstances they are proactive rather than reactive

Responding to internal and external influences Whether the influences driving change come from outside (external) or within (internal) the business – changes to the business will

occurInternal influences

Internal influences have a direct impact on a business and the business has some control over them Internal influences are managers and employees

External influences External influences have an indirect impact on a business and the business has very little control over them External influences include competition, legislation, technology and social influences

Managing change effectively Long term survival of any business depends on the ability of its managers to scan environ, predict future trends and exploit change Management of the change will be effective if business:

o Identifies the need for changeo Sets achievable goalso Develops strategies to overcome resistance to changeo Use management consultants


MANAGING CHANGE EFFECTIVELY BY:

o Identifying the need for change Manager always scanning environment attempting to understand factors that will have an impact on the business better

identify current trends and predict future changes Achieving such a vision requires a holistic view of the outside world correctly anticipating factors that will potentially impact

business assists the manager in identifying the need for change

- Business information systems A business info system (BIS) (management info system (MIS) gathers data, organizes and summarises them then converts them

into practical information to be used by managers to make decisions and effectively tackle change

o Setting achievable goals A vision statement states the purpose of the business, indicating what the firm does & states its key goals

o In conjunction business establishes specific company goals that are measurable (set of yearly basis) Reassessment of these are required if management detects changes in the external business environment

o However For change to be managed effectively it is essential any new goals are achievable o Resistance to change

There will be restraining forces working against the change the managers are undertaking – creating resistance The main reasons for resistance to change include:

o Financial costs of implementing major changes can be substantialo Purchasing new equipmento Redundancy payments (employees loose jobs a result of change entitled to financial compensation)o retrainingo Reorganizing plant layout (new tech introduced layout of plant may need 2 be reorganized)o Inertia

Force field analysis Useful model for understanding the change process Driving forces: those forces that initiate, encourage and support the change Restraining forces: those that work against the change, creating resistance Two strategies for overcoming resistance to change:

o Creating a culture of change (encouraging teamwork)o Change agents business should identify influential individual in the business to act as catalysts to help manage the

change process

o Management consultants Main role of management consultants is to help businesses improve their performance and assist with change management. They:

o Heaps of business experienceso An objective (External) point viewo Awareness of industry best practice

They provide change management advice: a methodical approach to dealing with change In key functional areas of business e.g. marketing, finance, operations and human resources ADVANTAGES; Specialised skills in the area of change Ability to articulate change process to employees/management Set achievable goals/objectives/time frame for the change to occur Help reduce resistance to change among employees and management

Topic 3 Business planning Small to medium enterprises Definition and role Small to medium enterprises (SMEs) are the ‘engine room’ of the Australian economy According to the ABS, a SME is classified as a business employing fewer than 200 employees According to the ABS, SMEs account for 99.8% of all private sector businesses The number of SMEs fluctuates over time depending on the economy’s state In recent years, SMEs have created many jobs, become innovative and are increasingly entering overseas markets


Economic contribution Economy: a system used to determine what to produce, how to produce and to whom production will be distributed Contribution to employment Contribution to the balance of payments Contribution to invention and innovation How SMEs can enter the global market for long-term growth The SME sector contributes:

o 57% of Gross domestic product (GDP) GDP indicates if the economy has experienced economic growtho 66% of total private sector employmento To our balance of payments, since they are often more successful at exporting than large businesses. BOP: is a record of a

country’s trade and financial transactions with the rest of the world over time, usually one yearo Significantly to the level of R&D

SMEs can enter the global market by selling directly to customers in export territories, marketing products through a local distributor, participating in a joint venture with a local business partner or selling through a website

Success and/or failure 5 common keys to SME success are:

o Flexibilityo Reputationo Focus on market nicheo Entrepreneurial abilitieso Access to information

A SME has failed when it is o Unincorporated and declared bankrupto Incorporated & forced into liquidation or voluntary cessation

SMEs have high failure rate ABS says ¼ businesses will fail within the first year of being established The most common causes of SME failure are managerial inexperience and incompetence, undercapitalisation and lack of planning

Influences in establishing a small to medium enterprise When owners were establishing their business they needed to consider a range of influences that combine to determine the level of success achieved

Personal qualities – qualification, skills, motivation, entrepreneurship, cultural background, gender Personal qualities , motivation, experience and entrepreneurship are the primary influences on an individual’s decision to establish a

business Not everyone suited to business owner role certain skills/personal qualities required to succeed Owners should learn the skills they don’t currently have Owners should select a business opportunity that suits their personality and builds on strengths

Qualifications Most people who start a business are ordinary people and many with only a small amount of money. Recent research has revealed that about 75% of people who started their own SME spent at least 50 hours a week in the business. For most types of SMEs, there are no formal academic requirements needed to commence operating. Some such as professionals

(accountants, lawyers, dentists etc) need academic qualifications. For those who want to gain academic qualifications in small business, there are many tertiary courses available.

Most trade related small businesses require qualification and a licence. Qualifications are generally gained through an apprentice-type program.

Knowledge and understanding can also come from experience working in other businesses. It is extremely difficult to categorise SME owners or the qualifications they possess. Two factors that are important are motivation

and entrepreneurship

Skills Business qualifications and skills are essential & can be attained through experience, education and/or training

Experience Gaining management experience before establishment can be done either by completing a management training course or

undertaking management role within businesso Experiences provides an essential foundation experienced individual will now understand and be realistic about

financial and personal demands business will place on them Experience: Over time a person working in an industry will gain valuable experience and develop new skills from exposure to the

work environment. These would include: Organisational Skills, Administration and bookkeeping, sales presentation, time management, customer service, customer applications, management skills, store presentation, leadership skills, independence, being an employee, ordering, stock control

Education and/or training Education/Training: Universities, TAFE, and business colleges offer courses in many business and industry fields. These skills allow

the business owner to develop the essential skills necessary for establishing a business, including; Finance and Accounting, computer skills, staff management, business administration, marketing.

Disadvantage: expensive period of time

Motivation


Motivation: refers to ur personal drive, determination and desire to achieve a goal/objective Underlying attraction is the desire to transform an idea into a successful product by capturing the attention of potential customers Most business owners are motivated by the rewards they believe can be gained from establishing a business, including both

monetary and non-monetary rewards.o Include: Choosing location of work, being own boss (independence), making an investment, choosing those with whom

you work, profits, security, developing own creative ideas, achieving a better lifestyle, employing family members, contributing to society, increasing personal wealth, capital gains, accepting a challenge, gaining recognition in the community, possible tax advantage, improving open status, experiencing some excitement, gaining more control over own destiny, overcoming employment.

Entrepreneurship Entrepreneur is an individual who starts, operates and assumes the risk of a business venture in the hope of making a profit:

o Socialisation makes people committed o Desire to be your own boss o Having passiono Having hope to the businesso Love for your worko Gives employees a positive outlook

Changing society thus creation of new opportunities for innovative products&services to be developed Entre. Must have range of personal characteristics that enable them to take advantage of & be successful with these opportunities

o Confident in decision making & willing to accept responsibility for decisions must always have a will to succeed may not achieve desired result on first venture hence drive, determination and ability to recover from poor decisions/mistakes is necessary to recover from poor decisions or mistakes

Flair / creativity are essential for entrepreneurs as they allow them to create / seize new opportunities 4 new products, new niche markets

Success can sometimes depend on finding a new and more innovative way to sell a good/service. An entrepreneur needs to set goals and have a vision for the business's future. An entrepreneur may enjoy the experience of guiding the business's growth but the working hours for a business owner could be

very long.

Cultural Background Person’s cultural background influences their reasons for establishing a business can arise from a community’s traditions and

beliefs ‘work ethic’ – willingness to work long and hard in an effort to be successful strong in European and Asian cultures. Many migrants come w few resources except a strong desire to improve their lives, their determination translates to success

Gender Governments are implementing policies to assist small businesses in contributing to the national economy in response to these

policies & to a general change in social attitudes, many women are setting up their own businesses at a faster rate then men

Sources of information Don’t have funds to employ specialist/consultant to assist with management thus SME owner can receive assistance from various

numbers of government and private support agencies sources of advice: o Trade associationso Federal, state & local government departmentso Accountantso Ausindustryo Small enterprise association of Australia and new Zealando TAFE collegeso Universitieso solicitors

Professional advisersProfessional adviser is able to examine the business much more objectively and provide an independent analysis of the organisation more aware of changes within legal, economic and financial environment. Business owners should make use of the information & advice from the following advisers:1. Accountants-provide valuable advice on all financial management issues & taxation obligations-have access to latest changes to taxation & financial reporting requirements2. Solicitors-provide information concerning business formation, structures, registration, contracts, leases, partnership agreements, patents and legislation.-up 2 date with changes to company law advise small business owners how to best deal w them3. Bank managers-provide info & advice on financial services-wide range of experience -able to access bank resources4. Management consultants -give advice when owner can’t deal with an arising business management problem-are more objective & view problems in an unbiased manner-check their credentials and experience


Government agenciesState GovernmentsBusiness connectBoosting business innovation programFederal governmentTechnological adviceLocal government

Other sourcesChambers of commerceSmall Enterprise Association of Australia and New Zealand (SEAANZ)Trade associationsLibraries and reference materialAustralian Bureau of Statistics

The business idea - competition A business opportunity can be described as something an entrepreneur can see as a potential success. It is often identified when a

business can provide a good or service in a better/different way from those already on the market. Source of business idea may come from:

o Own experience, interests, abilities, imaginationo Accessing gov stats and research infoo Identifying ‘ gap’ in the market – a demand not currently satisfiedo Visiting displays / exhibitions

Identifying business opportunities Two ways businesses can identify opportunities are:1. Analyse & review particular pats of the market to find an opening/’gap’ for particular goods and services2. Identifying whether many other people share a particular interest or hobby

Competition Competition: is rivalry among businesses that seek to satisfy a market When identifying business opportunity entrepreneur must decide on:

1. Type of market g&s will compete in target at mass market or niche market (specialised) owner can now identify level of comp & main competitors

2. How to make the business competitive OR how to develop a customer base or gain a market share from its competitors SME owners must decide how to make a business competitive. 2 main ways for of achieving competitiveness- cost of production and

differentiation of the goods or services1. Cost depends on production techniques producing good and service at lowest possible cost thus sell at the lowest price has

the greatest ability to attract market share2. Differentiation making product/service different, unique, better from rivals

Establishment optionsIf an entrepreneur, who will operate a business does not have the required skills, they can overcome this by: Seeking training Having someone with the relevant skills Outsourcing certain tasks to a support service. Starting from scratch allows freedom of decision making despite high risk involved. Existing business is already operating and the cost of buying it includes the initial costs etc. Franchise is working under the name and using the formula of a large business and a percentage of the revenue is paid to

the franchisor. Owners must consider the nature of the product before choosing how they wish to establish a business.

WAYS OF ESTABLISHING A BUSINESS:

Setting up a new business from scratchConditions favourable when: Individual created something unique & starts business to market their innovation or invention Individual recognizes gap in market clear customers’ needs are not satisfied by existing businesses Market has grown , existing businesses cannot supply all customers If conditions not favourable establishment method not suitable as SMEs provide competition

Purchasing an existing business Goodwill premises existing customer base staff location is included when purchasing the business

Purchasing a franchise Under franchise agreement person buys the rights to use the business name and distribute the products or service of an existing

businesso They receive benefits of a successful business formula – well-recognised name, establishe trademarks

Market considerations


-What g/s will be sold-most suitable price for the g/s-Most appropriate location for the businessSuccess will depend on the research and planning done to answer these 3 fundamental questions

Goods and/or services 1st decision to be made is to determine what they are going to sell When starting a business it’s very important the owners possess the knowledge exper4ience skills required for their good or service Business’ fail without a market (customers0 for their g/s, therefore they must undertake market analysis Market analysis involves collecting, summarizing and analysing information about the state of the market, customers, the threats

and opportunities that the market presents adv & disadvantages business will have over competitors. E.g surveys, presents business owner with info about customer’s attitudes, perceptions & opinions. Answering:

o Age gendero Who are competitors, how can we gain moreo Who do we want to sell too

Price price major impact on success of a business. Too high drive away potential customers. Too low difficult to make a profit business can choose one of three methods to calculate & determine price1. Cost-based: Price higher then total cost of production for profit2. Market-based: Setting prices according to interaction between levels of supply and demand – what the market is prepared to pay for3. Competition-based pricing: Price that is below, equal or above that of competitors

Location Key decisions of a prospective small business owner is concerning actual location of the business. Different businesses suited to

different locations Local government zoning determines where some types of businesses can operate, it’s designed to separate business activities from

residential areas preventing householders being disturbed by business’ operating late at nightShopping centre complexRetail shopping stripsOnline presence Homebased businesses

Finance Funding is needed for two reasons establishment costs (setting up the business) and operating costs (the day to day running) Crucial issue when owner identifies business opportunity, especially if hard to raise:

o Own funds (equity or capital) internal source of fundso Loans (debt) from external sources.

Finance refers to the funds required to carry out the activities of a business; SOURCE There are 2 options to source/obtain capital;

EQUITY Comes from internal sources, such as the owner’s savings and profits reinvested in the business

DEBT An external source; provided by a number of financial institutions outside the business

EQUITY Equity will be the entrepreneur's own money. The advantage of equity is that no interest is charged on finance contributed by the owner. This capital may come from:

The owner's savings A termination payment when the owner left a full-time job A gift from family members Shares in the business purchased by other people.

Equity finance carries an obligation for the business. This obligation is the percentage return the investors and shareholders expect from the business called a dividend.

DEBT There are three main terms for debt financing;

Short-term finance Money needed to fund the day-to-day workings of the business (less than 12 months). For this reason, it is commonly called working capital: current assets (receivables, inventories) less current liabilities (overdrafts, creditors). The main types of short-term finance are bank overdraft, bank bills and trade credit.

MAIN TYPES OF SHORT-TERM FINANCE: overdrafts: where the bank allows a business to overdraw their account up to an agreed limit for a

specified time, to overcome a temporary cash shortfall commercial bills: primarily short-term loans issued by financial institutions, for larger amounts

(usually over $100 000) for a period of generally between 30 and 180 days factoring: the selling of accounts receivable for a discounted price to a finance or factoring

company. Medium-term finance

Covers loans with a term of between one and five years. For this reason, it is normally used when the business wishes to expand, purchase new equipment or develop new products. The main types of medium-term finance are term loans, personal loans and leasing.


Long-term loans Usually for a period of more than five years, are used to purchase buildings, land, plant and equipment. The main type of long-term finance is a mortgage, which is a loan secured on some type of asset such as land or a building.

MAIN TYPES OF LONG-TERM FINANCE: mortgage: a loan secured by the property of the borrower (business) debentures: issued by a company for a fixed rate of interest and for a fixed period of time unsecured note: a loan from investors for a set period of time. It is not secured against the

business’s assets.COST The type of finance used by a business will influence the cost of capital.

Debt financing requires the use of money from an external source, such as a bank and the cost is the interest charged by the institution

The cost of equity finance is the return paid at the end of the financial year. If the business makes a profit, this return is called a dividend if the business is a company. The company does not pay a dividend if it does not return a profit; The cost of equity finance can also be measured in terms of liability. Liability is unlimited if the business is operated as a sole trader or partnership. The liability of a company is limited to just the assets of the company and all funds put in by shareholders.

Legal considerations and influence of government on SMEs All business owners have a legal obligation to observe the statutory regulations when commencing and operating a business Of the many laws and regulations that small business owners need to comply with, some important regulations relate to:

o Business nameo Land zoningo Health regulations

Legal requirements as outlines by the 3 levels of government that need to be obeyed or the business maybe punished usually by fines;

1. FEDERAL Competition and consumer act

2. STATE WHS (work cover)

3. LOCALZoning

Business name

Australian Securities and Investment Commission (ASIC) are responsible for a national business name registration service Need to register their business name when the name is that of the owner it’s optional

Zoning Local government controls zoning regulations have the authority to restrict where certain businesses can locate Zoning regulations create areas where land can be used only for particular purposes, where “ “ take place

o Residentialo Industrialo Recreationalo Commercial activities

When establishing business owner must inquire with the local c9uncil to determine which zoning regulations will affect their business now & in futureHealth regulations

The Work Health and Safety Act 2011 (NSW) provides a framework to protect the health, safety and welfare of all workers and others in relation to NSW workplaces and work activities. The following is required; Provide a safe working environment for employees or anyone on site Training in work health and safety issue of employees Provide worker compensation insurance to all employees Report any serious accidents/injuries/deaths to Work Cover NSW Provide ongoing health care/rehabilitation and physio until the employee can return to work Local government imposes health

regulations under the Public Health Act 2010 Every local council supplies businesses with standards requirements to meet in order to receive a license to operate, including:

o Temperatureo Kitchen layouto Correct food handling

Other regulations The competition and Consumer Act 2010 (Cwlth) is a federal government statute that aims to:

o Promote fair trade and competition in the marketplaceo Protect both consumers and businesses from deceptive & misleading practices

Australia Competition and Consumer Commission (ACCC) :Overseas the Competition and Consumer Act 2010 Provides guidance to small businesses and to help them deal with their individual matter. Also directs small businesses to alternate

dispute resolution processes

Human resourceso Skills


SKILLS Skilled employees are highly productive and result in creating wealth for the business. The main objective of recruiting is to choose the most appropriate person for a particular job.

The skill base of existing employees should also be detailed, so that:

Training can be provided to improve the skills level of existing employees Recruit people who have the required skills if the existing employees do not have those skills

What skills would an employer need from their employees; Good attitude/motivated/ready to work to best of their ability Customer service skills e.g. communication skills Formal qualifications e.g. TAFE, university, business college Experience e.g. on the job training Organisational skills Follow instructions

o Cost- wage and non-wage

WAGES/SALARIES (RENUMERATION); A wage earner is paid on an hourly basis and can earn overtime A salary earner is paid on a yearly basis. There usually aren’t any opportunities to earn extra money. There are no real set

hours; any extra time doesn’t relate to extra pay ON-COST;

All employers who have permanent worker (full time or part time) have to pay on-cost On-cost are payments made to the employee by the employer on to of their regular wage/salary

A business will only employ someone if the return is greater than the cost. The total cost of an employee is not solely the wage or salary paid. The employer is also responsible for other employee expenses, referred to as on-costs.

The main on-costs include: Occupational health and safety requirements Long service leave Sick leave Superannuation Holiday pay Study leave Maternity and paternity leave Workers’ compensation Leave loading.

SUPERANNUATION This requires all employers to make a financial contribution to a fund that employees can access when they retire. The main aim of superannuation is to give employees a sum of money that can be used:

For their retirement If they become an invalid By the beneficiaries upon a person’s death

ANNUAL LEAVE LOADING

An extra amount (17.5%) is added to an employees’ holiday pay. The amount is calculated on the four weeks’ annual leave to which each fulltime, permanent employee is entitled. Unions negotiated a percentage loading for workers so that the average family could afford to go away for a holiday

LONG SERVICE LEAVE After 10 years service, an employee is given 10 weeks extra leave (paid) CARERS LEAVE Usually family members MATERNITY LEAVE Having a baby; up to 18 weeks paid leave; 12 months leave without pay

o Taxation- federal and state taxes, local rates and charges

Taxes, local government rates and charges must be considered and budgeted;

FEDERAL Taxes include; COMPANY TAX

30% of every dollar of profit a business makes PAYE (PAY AS YOU EARN) TAX

This is the income tax paid by employees. The business must calculate the appropriate amount of tax and then deduct it from the employees' pay, reducing their disposable income. The withheld tax must be passed on to the ATO.

GST (GOODS AND SERVICES) TAX private consumption of 10%. Fresh food is excluded. FBT (The Fringe Benefits Tax) - certain benefits companies give to their employees, e.g. the private use of a company' vehicle.

FRINGE BENEFITS (FBT) TAX Tax on the provision of a benefit to an employee - such as cars for private use, low-interest loans


STATE Taxes include; PAYROLL TAX

Tax based on the total amount that employers pay in wages; tax on employing workers LAND TAX

Tax levied on the owners of land in NSW LOCAL COUNCIL Rates (a system of property taxation usually based on the values of land), is the main local government charge

a business will face. The 3 main areas in which fees or charges are levies are; Water and sewerage Waste management services Development and building approval fees

The business planning process All SME owners must have a good understanding of the:

o Role of the business plano Process of business planning

The role of the business plan Business plan: is the travel itinerary for future growth and development within a business. It sets out the desired goals and direction

of the business Essential role of the business plan: is to act as a guide or map on which the business’s journey can be plotted most useful

management tools a business owner can use in all businesses, the best results come from effective management and detailed planningWhat is a business plan

It is a written statement of the business’s goals and the steps to be taken to achieve them it is a summary and an evaluation of a business idea in written form

A comprehensive business plan will assist when arranging finance for the business the plan provides information that lenders need to know and it also shows that the business is being properly organized and managed

Time invested in planning never wasted in the long run chances of success are greatly improves Each plan unique contains info and strategies that apply to one particular business dependent on variables such as the product the

market, the size of the business and its location

Common elements of a business planElement Purpose1: Executive summary A brief overview of the plan2: Goals What the business hopes to achieve3: Strategies An overview as to how the business will attempt to achieve the goals4: Business description and outlook Overview of the industry in which the business will operate including

situational analysis5: Management and ownership The nature and type of organisational structure6: Operational plans Details the production process & the individuals required now & in future7: Marketing plans The product, price, promotion & distribution details8: Financial plans Description of the business’s financial needs & methods for evaluating its

performance9: Human resource plans Details both the present and future staff requirements

Benefits of a business plan

Sources of planning ideas business environment is divided into two categories:

1. the internal business environment: covers the factors within the direct control of the owners- represents what occurs within the direct control of the owners

2. This is the larger environment within which the business operates. It consists of factors over which the business has little control & repreents what occurs on a larger scale outside the business

Information is the essential ingredient needed to prepare a business plan

Opportunities & threats are external to a business, and if a business does not respond to these the business can fail

o Situational analysis A situational analysis refers to a collection of methods that managers can use to analyse a

business’s internal & external environment. One method of analysis is SWOT analysiso SWOT analysis: an excellent technique for gathering information for use in the

business plan strengths, weaknesses, opportunities and threats Analysis of the business’s strengths & weaknesses is an internal analysis Analysis of the business’s opportunities & threats is an external analysis Important to the business plan is identification of unmet or unsatisfied

demand that the business can perhaps satisfy the business owner should attempt to convert threats into opportunities.


Vision, goals and/or objectiveso Vision

Business’s vision is expressed in their vision statement Vision statement: broadly states what the business aspires to become in the future Vision of the Commonwealth Bank is ‘to excel at securing and enhacing the financial wellbeing of people. Businesses and

communities’ Vision statements may relate to customer or employees Main purpose of it is to guide & direct business owners, managers and employees creates the culture within the business & acts as

a benchmark against which to measure all the business’s decisions & operationso E.g Oxfam ‘ a just world without poverty’

o Goals and objectives Once owner has formulated vision statement can determine specific goals People start up a bsiness as they want to achieve something

Goals for businesses could include:- To become the largest business in the market- Improve market share- Provide a reasonable return for investors- Contribute to the wellbeing of the community

ALL these goals 1 thing in common they are the motivating force behind the business

Levels of goals and objectives Action plan develoedp breaks down the goals into objectives – specific statements detailing what a business (or individual) needs to

achieve in order to accomplish its visionStrategic goals Senior management

Focus on long-term broad aims and apply to the business as a whole

The chief executive officer (CEO) may establish a strategic goal of ‘increasing market share’ will involve the input of 4 key business functional areas – operations, marketing, finance & human resources.

Tactical objectives Middle management setFocus on mid-term , departmental issues & describe the course of action necessary to achieve the business’s strategic goals

Using previous e.g, a marketing manager may set a tactical objective of researching consumer tastes & preferences in order to help achieve the strategic goals

Operational objectives Front-line managers or supervisors setFocus on short-term issues and describe the course of action necessary to achieve the tactical objective & strategic goals

Marketing supervisor may set an objective of arranging for 20 customer to attend a focus group, research session to help achieve the tactical objective & strategic goal

A business needs to have a clear idea of what it is trying to achieve; in other words; needs clear goals & objectives it is the interaction between the vision statement, goals & objectives that provide a process for a business to accomplish this

o o Long term growth An important aspect of profit maximization is the business’s

ability to maintain profits over time to achieve a business must aim for long-term growth:

o Long-term growth: is the ability of a business to continually expand LTG depends on a business’s ability to develop & use its asset structure to increase sales, profits & market

share important goal of management as it ensures that the business is sustainable into the future LTG requires comprehensive, strategic planning,

For business to prosper & grow must have a sustainable competitive advantage Some other strategies that successful businesses have used to achieve long-term growth include:

1. Customer feedback2. Supplier and customer partnerships3. Cost4. Stigma six5. Staff motivation

Stigma – six process is one in which 99.99 % of all manufactured products are free Organising resources


After SME owner formulates the vision, goals, objectives – next stage in planning process requires organising the resources – human effort, time, money, equipment & materials – needed to fulfill the plan.

Organising is determining: what is to be done, who is to do it, how it is to be done Creation of an organizational structure: the frame work in which the business defines how tasks are divided, resources are used and

departments are coordinatedStep 1: Business organisation structure Vision/goals objectivesStep 2 & Step 3: Determine activities, then group them Step 4: Assign work tasks & delegate authority The benefits of a properly implemented organising process is that it:

o establishes a chain of command that results in an orderly way of communicating within the businesso creates a coordinated work environment by outlining sensible guidelines for who does what and who is responsible

for various activitieso provides a sense of common purpose so that all employees are working towards a common vision, goal or objectiveo organises resources in the most efficient manner so that all employees can perform their tasks

Part of the organizing process required resource allocation: refers to the efficient distribution of resources as to successfully meet the goals that have been established

o Resource allocation establishes what work will be done by who what machine what conditions Each of key business functions require specific resources that need to be effectively organized

o Operations Operations function of a business involves transforming different types of inputs (raw materials, labour, equipment & other resources) into finished goods/services.

To undertake successful production, factors need to be considered:o Type of equipment & raw materials neededo Which suppliers will be used to purchase the o Amount of money allocated for purchase of resourceso Storage, warehouse, delivery systems requiredo Level of technical expertise employees will need to achieve maximum production

Resources to be organised:o Raw materials – type, quantity, supplierso Machineryo Labour – type, expertise, numbero Money to purchase raw materials & other operational resourceso Storage – warehouse o Delivery Systems

o Marketing Marketing – integrating all sections of business to satisfy the needs and wants of consumers & achieving business goals

Resources to be organised:o Employee training where employees do not have the expertise requiredo Marketing – employees of all departments must be coordinated e.g sales, public relations,

advertising, market research, distribution of staffo Organise informational, financial & physical resources so marketing staff can get their jobs

doneo Additional funds may be needed to accomplish all the marketing objectives given to a specific

department or team. Efforts of all employees in the marketing department must be coordinated and this is best achieved by

adequate resourcing. E.g, the sales consultants, advertising personnel, market research staff, distribution people and so on

must be provided with the informational, financial and physical resources to perform their jobs.

o Finance Finance: Funding, acquisition + distribution in business Resources to be organised:

o Financing sources e.g family, friends , bankso Equity (owner ship) & control of business (equity vs debt capital) o Grants – any monetary/financial assistance that does not have to be repaid. Provided for

expanding, research & development, innovation, exporting

In organising the financial resources: what is the most appropriate source of financing Amount of equity (ownership of the business) and potential control SME owner has to hand over to

obtain the necessary financing (debt capital) think shark tank Explore wide range of federal and state government grants: Grants are usually provided for expanding business, R&D, innovation, exporting

o Human Resources Human resources: employees are the most important resource in Resources to be organised:

o Recruitment & selection criteria & processo Trainingo Motivation to keep employees e.g tangible & intangibleo Promotion opportunitieso Compliance with legislation – anti discrimination & equal opportunityo Organisational leave, maternity


Important aspect SME owners need to consider when organizing HR is to provide adequate training and development for staff,

o seek wats to motivate employeeso ensure they comply with existing legislation relating to employees

e.g Myer retains valuable employees through policy of 6 weeks paid maternity leave for staff who worked minimum 18 months

Forecasting Business needs more than just information about present business conditions needs info about possible future events

o Forecasts (projections): are the business’s predictions about the future Forecasts needed to enable effective planning; owner may forecast the availability of labour, raw materials, finance and building

requirements for this task business owners rely on internal and external information source One useful set of data is the forecast for total revenue and total cost

o Total revenue, Total cost When trying to determine if a business will be financially successful, SME owner can attempt to forecast the amount of money the

business may receive as sales – its total revenye and how much it has to pay for business expenses – its total costs

Total revenue Total revenue is the total amount received from the sales of a good/service

TR=P xQ P = price Q = quantity of units sold possible to forecast total revenue by estimating how many units are expected to be sold. For example, if the price of each unit is

$100 and 25 are expected to be sold, then the total revenue forecast will be $2500. Estimates of future sales are determined by the demand for the business’s good or service and the amount of competition in the

marketplace. Sales forecasting data:o can be gathered by using market research techniques such as customer surveyso are more precise if the business has some previous sales history to act as a guide.

Total cost Costs involved in operating a business can be broadly classified as fixed/variable costs

o Fixed costs (FC) : costs that don’t vary regardless of how much units of a good/service are producedo Variable costs (VC) : costs dependent on the number of goods produced

Total cost of producing a certain number of goods/services is

FC+VC=TC It is possible to forecast total cost by estimating the change in variable costs at different levels of production Forecast of total revenue and total cost make it possible to use the very useful forecasting technique: break even analysis

o Break even analysis Break-even analysis is used to determine the elvel of sales that need to be generated to cover the total cost of production Total cost of production includes fixed costs (costs that don’t change regardless of how much is sold) & variable costs (costs

dependnent on the amount of sales – e.g materials) Sales above break even point = profit Sales below break-even point = loss BEA important planning tool as management can determine the level of sales required to obtain a profit Can be used to determine the effect on profit if sales increase/decrease Planning tool used in the strategic planning stage, b4 budgets prepared Break-even sales quantity:

Quantity (Q )=Total¿costs ¿Unit price−Variable costs per unit

Break-even is the point where sales equal costs (fixed & variable) - @ this point profit nor loss are madeo E.g 5000 units will need to be sold to break even

Biz fact ! Fixed costs do not change as sales increase or decrease. They include rent, insurance, salaries of

management and office staff, rates, depreciation, interest on loans, and office expenses. Variable costs increase as sales increase or decrease when sales go down. For example, for every $1 of

sales, a business has estimated that 25c (or 25 per cent of sales) represents variable costs. Examples of variable costs are direct labour and materials, commission on sales, delivery, freight,

packaging. Total costs are the sum of the fixed costs and the variable costs.

o Cash flow projections The cash flow projection shows the changes to the cash position brought about by the operating, investing and

financial activities of the business Provides information concerning the business’s’ expected cash receipts (cash inflows) and cash payments (cash outflows) over an

accounting period – usually 12 months


Plans consist of a month-to-month projection of the flow of money into the business Owner should b able 2 estimate the business’s bank balance for each month & identify the duration of possible cash shortfalls Overall info will point out periods when business expenses are too high / times when a short-term investment is possible to deal with

a cash surplus. The cash flow projection is an important tool for cash flow management. It offers:

o the SME owner a clear indication of how much capital investment the business idea requireso a bank loans officer evidence that the business is a good credit risk.o It is important to not confuse a cash flow projection with a cash flow statement. The cash flow statement indicates how

cash has flowed into and out of the business in the past period of time. The cash flow projection shows the cash that is expected to be made or spent over a period of time into the future.

Monitoring and evaluations Business has to monitor & evaluate its environment and

take corrective action – adjusts its business plan to avoid any problems

The plan must be constantly monitored and evaluated so the business can make accurate modifications as necessaryMonitoring

Process of measuring actual performance against planned performance. Constantly asking1. What does business want to achieve – goals2. Are goals being achieved

Monitoring involves 2 steps:1. Establishing forecast performance standards

o Required business to outline what it wants to accomplish – to establish a performance standard: a forecast level of performance against which actual performance can be compared

o E.g a 5% increase in month sales, e.g a production quota of 1000 units per week2. Comparing actual performance with forecast performance

o Budgets, sale statistics & cost analyses can be used to evaluate results only thru establishing performance stands & comparing them with actual performance an owner can evaluate the effectiveness on business plan

Evaluating Evaluate their business’s performance to determine whether the goals have been achieved. Evaluating involves:

o Examine what strategies made business plan successful o Identifying weak spots that could be improved & modify the plan to fix them

3 AREAS need constant monitoring & evaluating are sales, budget and profit

o Monitoring and evaluating sales

Sales management control involves:o Comparing budgeted sales against actual saleso Making changes where necessaryo E.g new selling technique is introduced; the level of sales will need to be closely monitored

to determine whether actual sales are above/below what was forecasto Monitoring

and evaluating budgets

Business shouldn’t operate without having prepared a budget A budget is the business’s financial plan for the future outlines how business will use its resources to

meet its goals A budget is an important part of the planning process. Its preparation must account for various factors,

such as: a review of past figures and trends, and estimates gathered from relevant departments in the business potential markets or market share, and trends and seasonal fluctuations in the market proposed expansion or discontinuation of projects proposals to alter price or quality of products current orders and plant capacity considerations from the external environment (for example, financial trends from the external

environment, availability of materials and labour). The budget should be regularly compared with actual revenue and expense amounts to detect any

discrepancies. For example, once the owner has determined the goals, they can then estimate the business’s various costs and its revenue.

Profit budget should be reviewed at leat once per month and should compare projected amounts to actual amounts modifications must be implemented if there are any discrepancies

o Monitoring and evaluating

Profit is one of the most intensely watched financial indicators5 main reasons a business’s profit levels must be carefully monitored & evaluated:

1. Profit as reward2. Profit maximisation


profit 3. Profit as a source of finance4. Profit as a performance indicator5. Profit as a dividend payment

One of the most challenging tasks is to evaluate profitability; evaluation of profit is to calculate financial ratios

Taking corrective action Modifying: is the process of changing existing plans, using updated information to shape future plans Corrective action may involve:

o changes to the materials, products that are the firm’s outputo costs of turning raw materials into producto management practiceso Changes to the organisation’s human resources, as each individual’s performance in the organisation is as important as

the finished product.

Critical Issues in Business Success and FailureImportance of a business plan

BUSINESS PLAN A written summary and evaluation of all the research and thinking an owner has done in the development of an idea. Defines the business, sets out its goals and describes the strategies that will be used to achieve the goals. A detailed business plan greatly increases the chance of success

A BUSINESS PLAN SHOULD CONTAIN; A clear, concise statement of the goals of the business- what the business wants to achieve Well-developed plans for achieving these goals- how the business is going to achieve the goals Reliable control standards for measuring performance- has the business achieved the goals; if not,

what needs to be changed?

A COMPREHENSIVE PLAN IS ESSENTIAL FOR BUSINESS SUCCESS Lack of planning is disastrous Best results come from effective management Manager uses business plan and adjusts the plan when changes occur

Management- staffing and teams

A manager’s skill is the most critical factor in determining a businesses success or failure. 2 important areas of business that a manager must pay special attention to are;

STAFFING If a SME owner wants the business to succeed, then it is essential to have employees who are satisfied and motivated, as they will be more productive. They also provide the business with a competitive advantage, especially if the business offers a service where the customers come into direct contact with the employees

Many SME owners outsource recruitment process and use an external recruitment agency. Business pay an agency to interview candidates and recommend a shortlist of potential employees

The next important staffing management function is to achieve the right mix and level of employee’s skills. this is best accomplished by using a skills audit and skills inventory;

AUDIT Process that established the current skills levels of employees and future skills requirements. The aim of the audit is to identify;

- The skills that will give the business a competitive advantage - Weaknesses in the skills base which will threaten the businesses survival

INVENTORY Database containing information on the skills, abilities and qualifications of existing staff; used to search for appropriate candidates to sill new positions within the business

TEAMS Teams are replacing individuals as the basic building blocks of businesses of all sizes, especially in those businesses that are adopting flatter organisational structures. Businesses are learning that teams;

- Make more informed and creative decisions - Work without the need for close supervision - Create greater levels of employee corporation - Provide improved customer service an/or production output

SME owners are seeking professional help from training and coaching businesses. By investing time and money in the development and training of team leaders and team members, the business reaps the rewards of improved productivity

Trend analysis


TREND ANALYSIS When a business looks at trends/patterns that might appear over a period of time, then analysing and making decisions based on the trends.

Trend analysis will assist SME owners to achieve business success by helping forecast following factors; - Potential sales - Total revenue - Total operating costs - Gross and net profits - Availability of labour

Identifying and sustaining competitive advantage

COMPETITIVE ADVANTAGE

Refers to the strategies used by a business to gain an ‘edge’ over its competitors. What makes your business stand out from other businesses (why has customer chosen YOUR product)

How to get competitive advantage;

PROCESS When a business produces a quality product but is able to reduce costs. The result is a cheaper product with the same quality of competition

PRODUCT Differentiation of product means what makes your product stand out from the competition; - Features - Quality - Design - Innovation

CUSTOMERS How do you treat your customers to give you a competitive advantage; 1. Personalised customer service 2. Building relationship with customers 3. Other specialised services other businesses don’t offer

Marketing is the most effective tool to sustain a competitive advantage; A business can maintain a competitive advantage by keeping a core market of loyal

customers. Location is often a very important factor in gaining an advantage over competitors. All businesses will need to

consider the advantages of being located near their target market, suitable employees and their suppliers and other support services.

A competitive advantage in operations can be gained by using new production technology Price/cost strategy is best accomplished by achieving the lowest production costs, which in turn allow it to

reduce the product price Differentiation strategy is to offer customers something that is not already offered by business rivals An effective employment relations system builds loyal, productive staff who share the vision of the business Effective communication systems are the result of good planning, organisational structure and management A financially efficient and stable business carrying low levels of debt and an appropriate amount of cash and

other liquid assets will have an advantage over its competitors -

Avoiding over-extension of finance and other resources

Finance How can a business over extend when financing (debt finance). Debt finance is a problem for some businesses, too much debt finance to equity finance.

- Mortgage (land & building) - Other assets e.g. leasing machinery, equipment, vehicles

If a business is highly geared and the economy is moving into a downswing, the owner will experience 2 financial problems; - Falling sales will reduce cash flow - Interest expenses must be met from a shrinking level of gross profit

A downturn in economic conditions and consumer confidence causes a dramatic fall in sales. To avoid this a business should consider; - BUSINESS PLANNING

Involves completion of cash flow projections, preliminary establishment costs, personal financial budgets and financial statement of position

- LONG-TERM FINANCIAL PLANNING Anticipating future problems and planning the businesses direction is terms of growth/expansion

- AVOID OVERDEPENDENCE ON DEBT FINANCING Helps avoid problems during weak economic periods

- LEASING Rather than buying equipment; reducing need to borrow

- EXPANDING GRADUALLY Rather than growing too fast and losing financial control


Other resources

ASSETS - If business does not have enough finance to establish and operate it, it is UNDERCAPITALISED - Capital that is tied up in assets will mean there is less finance for day-to-day operations

STOCK - Business that overextends stock has invested too much money in goods or raw materials - Stock is unrealised sales, and business with too much stock will potentially lose revenue - Recommended to keep limited supplies and order regularly

STAFF - Staff are costly, but there are options to reduce costs in long term; - Outsourcing - Redefining current job descriptions - Using more equipment/machinery

Using technology In business, technology can include office and manufacturing technology.

Computer technology - Used for accounting, monitoring the trends in sales of goods and therefore allows the business to maintain appropriate inventory levels

- Having the latest technology can give a manufacturing business a competitive advantage - By leasing equipment a business can avoid the high capital cost of purchasing new equipment and technology

Office technology Has streamlined many operations, reduced costs and increased the flow of information to facilitate better decision making. These include;

- Mobile phones - Fax machines - Person computer - Broadband internet - Paper shredder - Skype - Email

E business Electronic business; using the internet to conduct business E commerce Buying and selling of goods/services via the internet

Economic conditions The economic conditions are an aspect of the external business environment in which the business has no control;

STRONG ECONOMIC ACTIVITY

- High levels of consumer spending Businesses have greater capacity to sell goods/services, therefore profits are maintained and improved

- Falling unemployment Unemployment is lower as business can afford to hire more employees when sales and profits are steady/growing

- Increased production Businesses output will increase for future increased sales and profit

WEAK ECONOMIC ACTIVITY

- Lower levels of consumer spending Businesses have a reduced capacity to sell goods/services, thus, profits will decline

- Rising unemployment Businesses cannot support current employee numbers when sales and profits are decreasing, consequently, employees may be made redundant

- Decreased production Businesses output will decrease in response to the fall in consumer spending; profits will decrease


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