DOHA GOREISHI

BUSINESS STUDIES NOTES

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TOPIC 1: THE NATURE OF BUSINESS

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1.1 The Role of Businesses● Business is the centre of the Australian economic system. It is the provider of

employment, the source of employment, the source of goods and services, and outlet for innovation and entrepreneurial skill, and is the foundation of the choice and high standards of living that we enjoy today.

● Businesses exist to satisfy needs and wants of individuals or groups.- They do this by transforming resources into products

● Products may be tangible (goods) or intangible (services)● Entrepreneurs are people who take risk in combining resources to produce a

product- They are often described as creative and innovative

● Making the most profit is a goal for most businesses (except non- profit & not-for profit organisations

● The income that nonprofit and not-for-profit organizations generate is used differently.

- Nonprofit organizations return their income back to the organization if they generate extra income.

- Not-for-profits use their excess money to pay their members who work for them.

- Nonprofits are tax exempt or charitable, meaning they do not pay income tax on the money that they receive for their organization. They can operate in religious, scientific, research, or educational settings.

● Businesses:○ Provide Goods and services○ Provide employment○ Supply needs and wants of society○ Provide the government with taxation revenue○ Engage in research and development○ Develop production techniques (business is a catalyst in progression)○ Contribute to the quality of life○ Innovate and contribute to change○ Develop entrepreneurs○ Help their owners achieve personal goals○ Provide income for workers○ Provide a career path

● Capital outlet, also known as fixed assets, may include machinery, land, facilities, or other business necessities that are not expended during normal use

● Venture capital is financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. Venture capital generally comes from well-off investors, investment banks and any other financial institutions

○ As an investor, you expect to receive a rate of return (hopefully revenue)

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○ As a venture capitalist, you own a percentage of the business○ A capital outlay is money a company spends to either purchase a fixed

asset or to extend its useful life. They are also known as capital expenditures or just “capex”

● The largest asset of a business is the employees. ○ https://www.cnbc.com/2018/01/26/richard-branson-on-success-this-

has-been-my-greatest-asset.html ● Purpose of a business

○ Satisfy consumer needs and wants○ Business create and distribute goods and services for profit○ A business works through the interaction of the marketplace, the

process of production and the availability of finance○ Businesses need other business to operate

● Business goals generally fall into two types○ Financial (quantitative)○ Qualitative

● Revenue: excess money made● Profit: total money made

○ Profit = revenue (less) T.costs● Monopoly: a business or two controlling the share market → illegal in

Australia○ https://www.nationalgeographic.com/tv/valley-of-the-boom/

● Qualitative goals include:○ Provide employment ○ Be of service to society○ Prevent social costs (i.e. pollution)

● Some financial goals include○ Make a return on investment○ Repay loans○ Increase sales revenue○ Increase market share○ Diversify to decrease risk○ Long term survival in the market

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QUESTIONS

Outline the steps needed to boost profitability

- Research what competitors are doing and see if you can incorporate that into your business

- Budgeting (cut back)- Advertisements/promotions- Conduct surveys and talk to customers- online/social media presence/ be a proactive business person - Don't be afraid of investing in long-term solutions

Describe two examples of goods with services attached to them

- Buying a computer with online support in case of issues- Purchasing something like supplements and protein shakes from a store with

fitness trainers that can email you with tips etc. (newsletter)- Buy a car- transportation is the service- Buy a phone- service is the apps etc.- Medicine- service is the instructions

Discuss how firms can innovate

- Meetings and reviewing - Employ people with certain skills- Persistently prototyping - Bring in other people’s ideas (collaboration)

Discuss the term “entrepreneurship”

- The act of being creative and introducing new goods and services

Discuss how business contributes to the overall quality of life for society.

- They satisfy needs and wants of consumers, and by doing that, they receive incentive to achieve their own needs and wants

Describe the relationship between innovation and choice

- With innovation come more choices.

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1.2 Classifications of Businesses HOW CAN BUSINESSES BE CLASSIFIED?

● By size● By industrial category● By economic sector● By legal structure

INDUSTRIAL SECTORS

● Agriculture● Mining● Medical● Construction● Financial services● Fisheries

SIZES OF BUSINESSES

● Micro● Small ● Medium ● Large

ECONOMIC DIVISIONS OF BUSINESSES

● Primary● Secondary ● Tertiary ● Quaternary ● Quinary

BUSINESSES CLASSIFIED BY LEGAL ENTITY

SOLE TRADER

○ Are people who operate businesses on their own○ Are independent○ Are people who own businesses which are relatively inexpensive to

establish○ Are responsible for managing and financing their enterprise○ Own businesses are the most common form of business○ Receive all the profits and bear all the losses○ Have unlimited liability which means that personal assets may be

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○ Must be highly skilled in performing many tasks○ Are restricted in taking holidays or breaks due to their heavy

commitments in operating a business

PARTNERSHIP

○ Share all the profits and losses○ Allow a partnership agreement to be drawn up to determine the

arrangement of the business○ Allow each partner to specialise in an area in which they have a

particular skill○ Must lodge their partnership agreement with the Australian Tax

Office (ATO)○ Should have a solicitor draw up the partnership agreement○ E.g. law firms, accounting firms, etc.

COMPANIES

○ Become incorporated○ Limited liability: they are separate legal entities to their owners○ Can sue and be sued in their own legal name○ Do not cease to exist if one of the owners dies○ Have perpetual succession○ Are regulated by ASIC (Australian Security Industry Commission)○ Use the Cth Corporations Act 1989 and the Cth Company Law Review

Act 1998 to govern them○ Exist in many different types such as:

■ Proprietary companies■ Public companies■ No liability companies■ Companies limited by guarantee

PRIVATE COMPANIES

○ Also known as Proprietary Limited companies○ Are the most common form of companies○ Have part owners called shareholders○ Have 2-50 owners who buy shares in the company, hence contributing

capital○ Allow for shares to be bought and sold without disruption the day to

day operations of the company○ Have perpetual succession○ Have relatively high start-up costs○ Cannot sell shares on the Australian stock exchange○ Must submit a return to ASIC each financial year

● Franchise● Cooperative

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● Trust● GBE’S- Government Business Enterprise

○ Centrelink○ Medicare

PUBLIC COMPANIES

● Separate legal entities which can:○ Own a property in their own name○ Be liable for tax ○ Sue and be sued○ Sell shares on the Australian Stock Exchange○ Attract shareholders by issuing a document known as a prospectus○ Must register their prospectus with ASIC○ Can raise large amounts of money through the initial and subsequent

sale of shares on the market○ Distribute company profits through dividends○ Have limited liability○ Have perpetual succession○ Pay tax on the profits they make

● Formation of a public company○ Companies are issued with a certificate allowing it to carry out trading

■ This is known as a certificate of incorporation○ Companies present a legal document which states:

■ The name of the company■ The objective■ The type of business carried out■ The amount of share capital be raised

○ This document is known a Memorandum Association ○ Companies present a document which advertises the sale of shares to

potential investors. This document is known as Articles of Association

■ Initial Share Offer

WHAT ARE COOPERATIVES?

Co-ops are:

● legal structures run by their members○ Usually agricultural groups

● Controlled democratically and are jointly owned● Established for economic gain or for social reasons● Organisations which allow members to pool their resources to work towards a

common goal● Frequently agricultural in nature, such as dairying or fishing cooperatives

WHAT ARE TRUSTS?

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A trust is an organisation which:

● Manages assets for the benefit of beneficiaries○ Family company○ Trustee doesn’t have to be a beneficiary○ You can hire an accountant, lawyer, etc. to work it for you○ Less tax than partnership/ sole trader

● Can be listed on the stock exchange and can be traded● Is regulated by the Trustees Act and by Corporations Law● Can make large investments that individuals cannot make● Have some tax advantages

○ Same advantages as a company

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GOVERNMENT BUSINESS ENTERPRISES

● The public sector has created businesses which act in the interests of the community

● These businesses are known as Government Business Enterprises (GBE)● Examples include the ABC (Australian Broadcasting Commission)● There are generally moves to decrease the number of GBE’s by selling them

to the private sector (privatisation)

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DEFINITIONS

● Business culture: Corporate culture refers to the beliefs and behaviors that determine how a company's employees and management interact and handle outside business transactions.

● Competing brands: Brand Competition can be defined as the rivalry between the companies offering the similar line of products or services in the same target market and to the same target audience with the goal to have the higher market share, increased revenues, huge profits, and growth as compared to the contemporary brand at the marketplace.

● Ease of entry: Industries vary with respect to the ease with which new sellers can enter them. The barriers to entry consist of the advantages that sellers already established in an industry have over the potential entrant.

● Economic growth: an increase in the amount of goods and services produced per head of the population over a period of time.

● E-tailing: E-tailing (less frequently: etailing) is the selling of retail goods on the Internet.

● External influence: Outside influences that can impact a business. Various external factors can impact the ability of a business or investment to achieve its strategic goals and objectives.

● Global Financial Crisis: A global financial crisis is a difficult business environment to succeed in since potential consumers tend to reduce their purchases of goods and services until the economic situation improves.

● GDP: Gross Domestic Product ● Oligopoly: a state of limited competition, in which a market is shared by a

small number of producers or sellers.● Stakeholders: the people/ groups of people involved in a business strategy or

business goal.

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HOW TO DIFFERENTIATE BUSINESSES BY TYPE

● SOLE TRADER○ BRUCE MALOUF, LAWYER

● PARTNERSHIP○ MALOUF & PARTNERS, LAWYERS

● PRIVATE CO○ MALOUF LAWYERS PTY LTD

● PUBLIC CO○ MALOUF LAWYERS LTD

● Primary business○ Farming, fishing

● Secondary business○ Trade

● Tertiary business○ Business professionals

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1.3 The Business EnvironmentThe business environment is divided into 2 sub-categories:

● External influences○ The external business environment consists of those sectors which are

outside the business’ control● Internal influence

○ Within the business’ control

EXTERNAL AND INTERNAL INFLUENCE ON A BUSINESSINTERNAL INFLUENCES EXTERNAL INFLUENCES

location economic

products financial

Business culture geographic

resources social

management legal

customers political

Competitors institutional

creditors technological

suppliers markets/ international

SWOT ANALYSIS → SITUATIONAL ANALYSISS (STRENGTH)

INTERNALW (WEAKNESS)

INTERNAL

O (OPPORTUNITY)EXTERNAL

T (THREATS)EXTERNAL

● Businesses have less direct control over the influences in the external business environment compared to the internal business environment due to other businesses/ competitors contributing to these factors.

● The global financial crisis has impacted Australian business environment in that it brought about a credit squeeze that increased the cost of funds for domestic financial institutions in Australia

● One geographical challenge used to be that Australia’s location was a problem due to the “tyranny of distance” . However, the movement away from traditional industries such as manufacturing in Australia has mean that

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transporting goods long distances is now less of an issue, as more Australian businesses embrace newer investment opportunities in exporting services such as tourism and education.

● One social change that has influenced businesses is paid parental leave, introduced in 2011

● The most notable legal changes are in industrial relations laws.○ For example, the Occupational Health and Safety legislation is an

attempt to redress the high incidence of workplace injuries.● Political influences on business can range from legislative aspects that direct

many business actions as illustrated in the changes to workplace relations○ The Liberal National Party could be said to endorse the views of

business that the ALP aligns itself more with the concerns of workers, especially organised labour

External Influences

● ECONOMIC INFLUENCES○ Inflation○ Interest rates○ Available credit○ Tax○ Tariffs

■ Are taxes on imported goods that are in direct competition with domestic goods

○ Exchange rates○ The economic cycle

● POLITICAL INFLUENCES○ Changing laws○ Deregulation

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○ GBE’s○ Government budgets○ Subsidies

● TECHNOLOGICAL○ New products○ New machinery○ Research and development○ Innovations○ Computerisation

● SOCIAL INFLUENCES○ Changing work values○ Quality of the environment

■ Carbon footprint or environmental footprint■ Karona (beer company) collects its bottled and gives refunds-

also cleans rubbish off beaches■ Restaurants have grease traps that get collected and get

repurposed as diesel product (fuel)○ Immigration

■ Lyca (Italian company) ■ Chinatown

○ Religious changes○ Changing education

■ More people are seeking education■ Difficult to fool customers

○ Changing culture ● COMPETITORS

○ What are the competitor’s products?○ How many competitors are there?○ How strong is the competition?○ How good is their marketing?○ What % of the market share does each competitor have?○ Is that competition local or international?

● CUSTOMERS○ What are their buying patterns○ What are their buying needs

■ Convenience● SUPPLIERS

○ Compare prices○ Compare quality○ What is their reputation?○ Are they flexible?

● LABOUR○ What is staff availability○ What are their skills?○ How old are they?

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■ No retirement age- older people are still in jobs → no jobs for young people→ live abroad

○ What is the role of unions in the business?○ Training, development, promotion

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● A stakeholder is an individual, group or organisation with a special interest in the operation or performance of a business

● A business has a responsibility to its stakeholders● Stakeholders include:

○ The owners○ Customers○ The community○ Employees○ Management○ Suppliers○ Creditors○ The government ○ Competitors

● Stakeholders are crucial to any business structure as they are directly affected by how the business functions. Unlike shareholders, stakeholders may not have a financially vested interest in the business, but also possibly a

1.5 BUSINESS GROWTH AND BUSINESS DECLINE20 | P a g e

FEATURES OF THE MATURITY STAGE● There will be more competition within the market and a reduced market

share● There will be more price competition● Sales and profits level off● The market experience product saturation● The business focuses on maintaining profit levels● Things that could happen during maturity stage:

○ Complacency○ Competition○ Change in societal values

● There are three general possibilities for a business in the post maturity stage:○ The business could remain in a steady state○ The business could experience renewal ○ The business could experience a decline

POSTMATURITY- STEADY STATE

○ The business could continue to exist in a steady state where is focuses on service

POSTMATURITY- RENEWAL

● Or, the business could experience renewal where is expands and new products and services are introduced

POSTMATURING- DECLINE

● Or, the business enters its decline, where its products become obsolete, profits fall and there is poor cash flow

● The final business phase could be cessation

WHAT IS CESSATION?

● The reasons for business failure may be internal or external to the business● Internal factors:

○ Poor management○ Inadequate cash○ Inadequate cash and debt recovery ○ Weak location

● External factors:○ Red tape and government bureaucracy

■ Processes and forms and applications■ Government administration is called “red tape”

○ Excessive competition○ Natural disasters

VOLUNTARY CESSATION21 | P a g e

● Retirement of the owner● Inability to make a profit● Business has served its purpose● Change in owner’s investment focu

INVOLUNTARY CESSATION

● Death of the owner● Bankruptcy● Insolvency- inability to pay debt or bills

SOLE TRADER CESSATION

● A sole trader ceases to exist when the owner dies or decides to finish up all operations and pay all their debts

PARTNERSHIP CESSATION

● A partnership is ended when the partners choose to end their partnership due to disagreements or personal choices

● Partners are guided in ending their business by one of two documents○ Partnership agreement○ The partnership Act

● If there is no partnership agreement, partnerships must follow the guidelines in the Partnership Act

DISSOLVING A PARTNERSHIP

● Courts can dissolve partnerships if: ○ The partnership does not pay its debts○ One of the partners dies ○ One of the partners commits a crime○ One of the partners becomes bankrupt

COMPANY CESSATION

● Companies are more complex to end than other forms of business● A company may need to make a solvency declaration to state that they are

able to pay their debts before winding up● A liquidator is chosen to convert the company’s assets to catch and pay all

the creditors ● Shareholders may be required to pay the company’s debts to the

value of their shareholding

DISCUSSION

HOUSES

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● In the most recent 18 months, house prices have dropped heavily● Best thing to do: save up CASH to buy houses● Buy houses- renovates- sell houses- buy houses● 99 houses

Mark Burrous - purple brick

- Real estate one stop shop to set up your loans too- Wizard home loans

GENTRIFICATION

- Redfern was one working class- Their children are well educated- Come back to redfern and gentrify the area - Forces locals out, but revives the area

BUSINESS IS A CONSTANT GAME OF MONITORING

- YOUR REVENUE- YOUR PROFIT- YOUR CUSTOMERS- ETC.

DISCUSSION: CAN BUSINESSES END IN A GOOD WAY?

● Sell your business- you earn profit and you can end the businessDISCUSSION; DIVERSIFICATION

● When a business purchases another business and integrates it into their business

● Eg. surfing companies purchasing other companies (Ripcurl, Billabong)○ Becomes a mass market○ Diversifying into other markets

● Over Diversification: occurs when a business expand into other markets excessively and it's too much to handle basically

DISCUSSION: HOW THE INTERNET IS INEFFICIENT

● The internet is powered by 80% fossil fuels and is only 20% efficient ○ The way you power your business affects your business○ Being ecologically sensitive is crucial to a successful business

● Starting a business will cost a lot of money anyways, so it is a good idea to invest in renewable resources that will positively impact your business in the long run

● When starting a business, it is not ideal to purchase machinery and assets, rather you should lease such items, in the case that the business does not succeed/ progress

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TED TALK- HOW GREAT LEADERS INSPIRE ACTION BY SIMON SINEK

● THE GOLDEN CIRCLE○ WHY

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○ HOW○ WHAT

● PEOPLE DON’T BUY WHAT YOU DO- THEY BUY WHY YOU DO IT● THE GOAL IS TO DO BUSINESS WITH PEOPLE WHO BELIEVE WHAT YOU

BELIEVE● SUCCESS IS THROUGH BELIEF- NOT PURSUIT OF MONEY● THE LAW OF DIFFUSION OF INNOVATION● WHAT YOU DO PROVES WHAT YOU BELIEVE● IF YOU’RE NOT PASSIONATE ABOUT WHAT YOU DO, YOUR CUSTOMERS ARE

NOT GOING TO BE PASSIONATE ABOUT BUYING IT○ ENTREPRENEURSHIP

● FAMOUS FAILURE○ TiVo- highest quality product on the market

■ Market conditions were great■ Never made money ■ Told customers what they had

● used scare tactics to generate sale● Leaders hold positions of power or authority● Those who lead inspire

1.6 ETHICAL BUSINESS BEHAVIOUR● Business has responsibilities beyond fulfilling a prime function and making

profits● These ethical responsibilities are about down the right things for all

stakeholders● Mission statements frequently indicate the ethics of a business● Within the internal business environment there are ethical responsibilities to:

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○ Owners○ Shareholders: returns on investment, keeping business operating,

acting honestly○ Managers- acknowledging the work of the team, encourage promotion,

eliminate discrimination, prevent unethical work behaviour○ Employees- to motivate, provide WHS, pay appropriate wages and

leave, maintain the best employees ● Ethical business behaviours are directed towards:

○ Customers■ Goods and services must comply with the law

● Eg. Trade Practices Laws and Sale of Goods Laws.○ Suppliers:

■ Delaying the payments of suppliers is unethical○ Government

■ Business must comply with tax, environmental, consumer, company, credit, contracts and WHS laws

○ The environment■ Businesses must decrease pollution and other social costs

associated with their enterprise ■ It includes recognition of harm to the health of people and the

natural environment○ Society

■ Business must maintain its reputation as members of the society● REPUTATION IS MAINTAINED BY INTEGRATING THE

BUSINESS IN SOCIETY■ It is an employer, a leader and a contributor to environmental

protection

ENVIRONMENTAL POLICY IN BUSINESS ASSIGNMENT

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●ENVIRONMENTAL ISSUES ARE VERY PREVALENT

DISCUSSION: WOOLWORTHS PLASTIC BAG POLICY

● Woolworths replaced plastic bags with plastic bags that cost money○ Underestimated the education of the Australian customer on social

issues○ Impractical

DISCUSSION: JULIA GILLARD’S CARBON TAX

● Backfired as no one was hitting the carbon tax limit to be taxed due to so many companies existed

DISCUSSION: BIODIESEL

● Bus company in Victoria runs on biodiesel ○ restaurant / take away oil from drip containers○ Over a decade in business

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