Professional Documents
Culture Documents
- Wealth creation: businesses offer a vast array of products that improve our standard of
living.
Small Business
Medium Business
Large Business
Examples of
businesses
- Corner store
- Local mechanic
- Hairdresser
- Services club
- Motel
- Engineering factory
- Woolworths
- QANTAS
- NAB
Number of
employees
Less than 20
20-199
Over 200
Type of ownership
Decision making
Owner responsible
for majority of
decisions; simple
and quick.
Owner responsible
for most decisions;
slower and more
complicated.
Complex decisions
due to divisions;
slow
implementation.
Sources of income
Owner, difficulty in
accessing loans.
Owner/partners own
savings, easier
access to loans.
Many resources,
cash reserves and
retained profits.
Market share
Medium, dominance
within geographic
region.
Large, dominating
the markets of
various countries.
Partnership/Public
Company
Private Company/
Public Company
- The quaternary industry involves businesses whose services involve the transfer of
knowledge and processing of information (e.g. telecommunications, property and finance).
- The quinary industry includes businesses that provide services that have traditionally
been performed in the home (e.g. hospitality, tourism and childcare).
2.1.4 Legal Structure
- The legal structure of a business refers to how the ownership of a business is registered.
- Sole traders and Partnerships are unincorporated businesses.
- Private companies and public companies are incorporated businesses.
- An unincorporated business is a sole trader or partnership where the business entity and
the owner are one and the same. When the owner dies, then so does the business. This is
the most common legal structure as it is the easiest and cheapest to establish.
- An incorporated business is a business that goes through the process of incorporation to
become a separate legal entity. Regardless of what happens to individual owners of the
business, the business continues to operate.
- A Sole Trader is a business that is owned and operated by one person. The owner may
employ other people, but the owner makes the decisions, makes the decisions and is
responsible for the outcomes of the business.
- A sole trader is not regarded as a separate legal entity. If the business runs into financial
difficulty, the owner is responsible. This may mean they have to sell property or other
personal assets. This is also referred to as unlimited liability.
- Advantages of a sole trader are:
- Low cost of entry.
- Simplest form.
- Complete control.
- Less costly to operate.
- No partner disputes.
- Owners right to keep all profits.
- Less government regulation.
- No tax on profits, only on personal income.
- Disadvantages of a sole trader are:
- Unlimited liability.
- End of business when the owner dies.
- Difficult to operate if sick.
- Need to carry all losses.
- Burden of management.
- Difficulty in raising finance.
- A Partnership is a business structure that is owned and operated by 2 people.
Partnerships also have unlimited liability. A partnership can be made verbally or in writing.
Limited partnerships allow for partners to contribute financially but not in the decision making
process.
- Advantages of a partnership are:
- Low start up costs.
- Less costly to operate than a company.
- Shared responsibility and workload.
- Pooled funds and talent.
- Minimal government regulation.
- On death of one partner, the business can keep going.
- Product: Affects a range of internal structures and operations within the business (e.g.
types of goods and services produced will affect international operations).
- Location: The location will have a direct impact on the sales and profits on some
businesses. A good location is an asset and will lead to high levels of sales and profit.
Factors to consider when choosing a location are visibility, cost, proximity to suppliers,
proximity to customers and proximity to support services.
- Resources: The four main resources of a business are human (employees), information
(knowledge and data), physical (machinery, buildings and raw materials) and financial
(funds).
- Management: flatter organisational structure reduces the number of levels of
management, giving greater flexibility to individuals in the business.
- Business Culture: This can be seen in the unwritten or informal rules that guide how
people in the organisation behave. There are four essential elements of a business culture:
values, symbols, rituals and heroes.
3.3 Stakeholders
- A Stakeholder is any group or individual who has an interest in or is affected by the
activities of a business.
- Internal stakeholders are those that are within the business and the business can
influence directly (e.g. owners, managers, employees and shareholders).
- External stakeholders are those outside the business, which the business cannot directly
influence (e.g. customers, suppliers, competitors, investors, unions, government and the
community/society).
- Responsibilities of managers:
- Support the actions of management
- Provide adequate resourcing levels and lines of communication
- Responsibilities of employees
- Fair pay and conditions
- Provide safe working environment
- Access to training and development
- Responsibilities of shareholders
- Provide information about the businesses performance
- Produce an annual report
- Manage the funds so a reasonable return is paid
- Responsibilities to the environment
- Consider impact on the environment
- Care and preservation of the environment
- Sound and responsible environmental management
- Responsibilities to Customers
- Quality products
- Fair prices
- Service during and after sales
- Safety
- Responsibilities to society/general public
- Fair and honest business practices
- Ethically responsible decisions
4.1.1 Establishment
- Characteristics are:
- Slow growth.
- Need to establish cash flow.
- Erratic sales.
- Usually a loss for first few sectors.
- Challenges are:
- A high vulnerability.
- High risk.
- High start-up costs.
- Erratic sales.
- Strategies are:
- Business planning.
- Setting goals.
- Marketing.
- Establishing a customer base.
4.1.2 Growth
- Characteristics are:
- Accelerating growth.
- Cash flow is positive.
- Development of new products.
- Emphasis on marketing.
- Good reputation.
- Challenges are:
- Complexity.
- Higher responsibility.
- Need for long term planning.
- Problems with expanding too quickly.
- Restrictions on credit.
- Strategies are:
- Planning for cessation.
- Invest in new products.
- Renewal
- Characteristics are:
- Carefully planned strategies can revive a business.
- Increasing sales and profits due to new growth.
- Challenges are:
- Very difficult to accomplish.
- Initial costs are very high.
- Cash flow shortfalls in the short term.
- Employees disenchanted.
- Strategies are:
- Business planning.
- Investing in product development.
4.3 Factors that can contribute to business decline
- Lack of management expertise.
- Lack of sufficient money (undercapitalisation).
4.4 Voluntary and involuntary cessation - liquidation
- Voluntarily Cessation occurs if a business decides to cease operations and any assets
owned by the business are sold. The business may continue if the owner wants to retire,
however most businesses do not continue after they have failed.
- Involuntary Cessation occurs if the business is forced to cease trading by the creditors.
Creditors are those who are owed money.
- Bankruptcy: Sole traders or partnerships may end up being declared bankrupt.
Bankruptcy is a declaration that a person or business is unable to pay his or her debts. If
bankruptcy occurs, the business owner or a creditor applies to the court for a bankruptcy
order to be made. The court then appoints a representative to collect any money owed to the
business. This money, along with money raised from the sale of the assets of the business
owner is divided among creditors. The process of converting the assets of a business is
called realisation.
- Voluntary administration occurs when an independent administrator is appointed to
operate the business in hope of fixing financial problems. The administrators main roles are
to bring the business and its creditors together and examine the financial affairs of the
business. If the business is successful it may resume normal trading. If unsuccessful, the
business goes into liquidation.
- Liquidation occurs when an independent and suitably qualified person is appointed to take
control of the business with the intention of selling all of the companys assets in an orderly
and fair way in order to pay the creditors.
- A company in liquidation can also be in receivership. Receivership is where a business has
been appointed by creditors or the Courts to take charge of the affairs of the business.
Unlike liquidation, though, the business may not cease operation.
- The main features of liquidation are:
- It can be regarded as the equivalent of bankruptcy for a company.
- Results in the life of a company coming to an end.
- Normally occurs because the company is unable to pay its debts as and when they
fall due (it has become insolvent).
- There are two types of insolvent liquidation:
- Creditors (voluntary) liquidation: This is the most common type of liquidation
process and can come about in one of two ways. The first method involves creditors
voting for liquidation following a voluntary administration. The second method
involves the companys shareholders agreeing to liquidate the company and appoint
a liquidator.
- Court (involuntary) liquidation
In this situation a court appoints a liquidator to wind up the company, usually after the
application has been made from either a creditor, a shareholder, a company director
or, in some circumstances, the Australian Securities and Investments Commission
(ASIC).
- The liquidators main functions are to:
- Take possession of and realise (convert to cash) the companys assets.
- Investigate and report to creditors about the companys financial and related
business affairs.
- Determine debts owed by the company and pay the companys creditors.
- Scrutinise the reasons for company failure.
- Report possible offences by people involved with the company to ASIC
- To deregister or dissolve the company.
- A liquidator is not required to do any work unless there are enough assets to pay their
costs.