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Business Revision:

Business: A business is the organized effort of individuals to produce and sell, for a profit, the products that satisfy individuals’ needs and wants. All business’s have the common feature of producing goods or services. Goods: Goods are items that you can see or touch. Example: iPod’s Services: Services are things done for you by others. Example: Haircut Businesses provide the economy with: employment and income for employees. Importance of business to the Australian economy:  Pay taxes to the government  Provide employment and income to employees  Produces a wide range of products giving consumers greater choice  Encourages competition- cheaper products  Improves our quality in life  Provide owners with challenges and rewards Role of Business:        

Provider of goods and services Wealth creation Employment Innovation Choice Entrepreneurship Profit Income

Stakeholders: A stakeholder is any group or individuals than can be affected by the activities of a business. Business stakeholders: Those with a vested interest in a business.         

Employees Customers Community Shareholders Financiers Institutions The environment Suppliers Government

Conflict between stakeholders:    

Shareholders & customers Shareholders & government Shareholders & employees Shareholders & community/environment

Internal & External stakeholders:  Internal stakeholders are those who are members of the business organization:  Owners & shareholders  Managers  Staff & employees  External stakeholders are groups or people outside a business, who are not directly working within the business, but are affected in some way from the decisions of the business:    

Financiers Community Government Suppliers

 Customers  Institutions Business can be classified by their legal structure, industry sector, size, and geographic location Legal structures: Franchise, Ltd, Pty Ltd, Sole trader, partnership, Government enterprise. FACTORS AFFECTING LEGAL STRUCTURES:  Size, Finance, Ownership  Incorporated companies goLTD Unincorporated Sole Trader: (The processPartnerships: PTY LTDthrough to become a separate (Business and owner are the same) owners) A person who isentity the from the Business between Proprietary Public limited exclusive owner of a two or more Company (private) business individuals, who limited share Company management and LTD- limited liability- a corporate profits. structure whereby the members of the company cannot be held personally liable for the company's debts or liabilities. Unlimited liability- refers to the legal obligations that partners and sole traders hold, they are liable for all business debts if the business can't pay its liabilities.

Influences in the business environment:

INTERNAL

    

Product Location (parking etc.) Management Business culture Resource management

Industry Sectors

EXTERNAL

      

Economic markets Financial Institutional Competitive situations Technological Geographical (Globalization) Political

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The business life cycle

The life cycle that a business will go through over the course of its existence:    

Establishment Growth Maturity Post- Maturity

Establishment Phase:  The initial phase or birth of the business  Requires planning and enough capital to solve cash flow problems  Half of all small businesses don’t survive in their first 2 years of business Growth phase:      

Increased sales- positive cash flow Need for strategic planning- developing budgets May include mergers and takeovers Equity finance- sale of shares in enterprise to raise capital Changes in staff Customer loyalty and effective marketing campaigns

Maturity phase:  Business growth & market share begin to slow  Business requires a formal corporate structure and professionalism  Research and development (R & D), market research is required to examine future trends and the firm to meet potential customer future needs  Proactive, rather than reactive

Post Maturity Phase:

 Final stage  Business by now- established organization  Key decisions needed for long term survival Steady State: Stable business Renewal- Revitalize business - Increase sales Decline: Failing sales Challenges in the business life cycle

ESTABLISHMENT:

 Survival (Failure rate is high, due to poor cash flow management)  Creating a cohesive and efficient work environment  High fixed costs, rent and equipment  Establishing a loyal customer base, lengthy process  Pricing is set low and company resorts to price skimming and price penetration strategies GROWTH:  Providing sufficient supply to meet market demand  Time lags between orders and delivery, resulting in dissatisfied customers  Maintain funds for re-investment  Advertise to maximize market-share  Ensure market levels are adequate MATURITY:     

Examine value chain to reduce non-value added aspects Innovation- new and improved products are essential Ensure staff remain motivated Scan environment for competitors Apply latest technology

POST-MATURITY- Renewal:  Cash flow may decline in the short term as new products are developed  Research and development in new products and markets is an expensive and lengthy process  Overcome employees’ resistance to change in the business’ operations and structure  Undertaking new strategies involves some degree of risk

POST-MATURITY- Steady:

 Business is content on producing the same product without factoring change in consumer tastes  Business becomes complacent- new competitors enter the market with superior products  Loss of competitive edge POST-MATURITY- Decline:  Profits decline as customers stop buying products  Becomes difficult for the business to borrow money as financial institutions are reluctant to lend to high-risk businesses  Suppliers restrict their credit facilities  Products become obsolete leaving the business with unsold inventory

DECLINE AND CESSATION

BUSINESS DECLINE

Factors that cause business decline:      

Not adapting to changes, trends Lack of research, and development, innovation Poor marketing strategies Insufficient supply New legislation Poor management and organization

Two MAIN causes for decline and possible failure:  Lack of management expertise  Undercapitalization  Undercapitalization occurs when there is a lack of sufficient fund to operate a business normally  The business cash flow position should be carefully monitored in order to have enough cash positive, cash flow to keep operating.

BUSINESS CESSATION

CESSATION UNINCORPORATED (Sole trader, Partnership)

INCORPORATED (LTD, PTY LTD)

VOLUNTARY ADMINISTRATION

Bankruptcy

VOLUNTARY

-

Loss of enthusiasm and ideas Offer of purchase Declining profits Rest Decision to retire

INVOLUNTARY

LIQUIDATION

- Death of the owner -Lack of demand -Increased competition -Can’t pay off debts

Voluntary

Involuntary

Voluntary cessation:  Owners cease to operate the business of their own accord Involuntary cessation:  Occurs when the owner is forced to cease trading by the creditors of the business SOLE TRADER AND PARTNERSHIPS:  Sole traders and partnerships may voluntarily or involuntarily go into bankruptcy.  Bankruptcy is when a business or person is unable to pay off debts. COMPANIES:  Voluntary administration occurs when an independent administrator is appointed to operate the business in the hope of trading out of the present financial problems.  Involuntary liquidation is the process of an appointed liquidator converting the business’s assets into cash, in order to pay the creditor. Liquidation: - Can be regarded as the equivalent of bankruptcy for a company - Results in the cessation of a company - Occurs when the company cannot pay off debts, as and when they fall due.  It has become Insolvent PROBLEMS FOR STAKEHOLDERS DUE TO LIQUIDATION:

- Lose income (supplier) - Lose capital (investor) - Lose job (employee) - Reduced options (customer)...