Business | 4: Legal requirements and financial considerations Gewargis

4.2 Legal Requirements | Notes

Business Name

 Businesses need to register their name except when it is the name of an owner
o ‘Pty Ltd’, Motors, Associates or Co must be registered
 ABN
 Domain name – unique name, represents its activities, costs between $10-$100 per year

Taxation – collection of money from individuals and businesses

 ATO - government body; administers and collects tax (federal government)

 Business Activity statement = Form to the ATO to report business taxation obligation
 Income Tax = The taxable income of an induvial or business

Major federal taxes

o Pay as you go (PAYG) withholding

 Taken from an employee’s salary or wage directly
o Goods and services tax (GST)
 A broad-based tax of 10% of all goods except fresh fruit/vegetables
 Required to register for GST if they earn $75 000 or more in a financial year
o Fringe benefit tax (FBT)
 Tax on the provision of a benefit to an employee

Major state taxes

o Stamp duty
 Placed on documents that give evidence to transactions
o Land tax
 Annually levelled on the owner of the land

Work Health and safety regulation

 The Occupational health and safety Act 2004 (Vic) - covers occupation health and safety

Consumer protection and fair competition – protects from unfair trading

Federal

o The competition and consumer act 2010 (Cwlth) – Aus. Comp. & Con. Comm.

State

o Australian consumer law and fair-trading Act 2012 (Vic) – Consumer affairs Victoria

Local government legal requirements

 Zoning regulation – premise or land used must be approved by the local government
 Health services – Ensure compliance with health regulation (licence, inspections)
Business | 4: Legal requirements and financial considerations Gewargis

4.2 Legal Requirements | Activities

1. What are the main objectives of imposing government regulations?

Exempt from serious consequences for the business and owner.

2. Why is it important to comply with legal and government regulations?

Businesses that do not comply risk losing customers and their reputation, being fines or
losing the right to continue trading.

3. When is it compulsory to register a business name?

When it is not the owner’s name or if something is added to the owner’s name such as ‘Pty
Ltd’, ‘Motors’ ‘and Associates’ or ‘and Co.’

4. Explain why it is important to register a website domain.

To prevent other businesses from registering a similar domain name that might confuse
customers.

5. Describe three federal taxes that a business would be likely to pay.

1. PAYG – taken from an employee’s salary or wage directly
2. GST – broad-based tax of 10% on the supply of most goods and services
3. FBT – tax on provision of a benefit to an employee

6. Describe two state taxes that a business would be likely to pay.

1. Stamp duty – placed on documents that give evidence to transactions
2. Land tax – annually levied on the owner of the land

7. What is WorkSafe Victoria?

Government agency that aims to reduce workplace injuries and support injured workers,
enforce Victoria’s occupational health and safety laws and provide WorkCover insurance.

8. Who pays for WorkCover insurance and what does it cover?

It is a compulsory expense for Victorian employers that covers replacement of lost income,
medical and rehabilitation treatment costs, legal costs, lump sum compensation in the event
of a serious injury.

9. What is the Competition and Consumer Act and which federal body is in charge of

administering it?
A federal law that specifies what business behaviour is acceptable on a wide range of issues
from product safety and pricing to the way in which a business competes in the marketplace,
and is administered by the Australian competition and consumer commission.
Business | 4: Legal requirements and financial considerations Gewargis

10. What is the Australian Consumer Law and Fair Trading Act  and which state body administers
it?
The Australian Consumer Law and Fair Trading Act 2012 (Vic) enacts the Australian
Consumer Law in Victoria. This legislation is administered by Consumer Affairs Victoria.

19. Brainstorm suitable business names for the following businesses and check to see whether
they are already registered.

a. Solomon is starting his plumbing business as a sole trader.

Solomon’s Plumbing

b. Slavica is a florist launching her business in the township of Belgrave.

Belgave’s Florist

c. Nick and Hubert have decided to go into a business partnership to develop cutting-edge
smartphone applications for everyday practical use.
Edge Apps

d. Jo is beginning her business as a chiropractor in Mordialloc.

Mordialloc Chiropractor

e. Steve is commencing his business as a private investigator in the Melbourne suburb of

Mulgrave.
Mulgrave Investigations

24. In each of the following situations, state whether there has been a breach of
the Competition and Consumer Act. If so, describe the type of breach committed.

a. Franchisees of a franchised garden maintenance business were required to sign a clause

in their agreement with the franchisor that they would only operate in a specific group
of postcode areas.
No breach.

b. The owners of five petrol retailers along a major stretch of road met each week to
determine how much they would all charge on each day of the week.
Breaches - prohibits businesses from making agreements with competitors to fix prices.

c. The manufacturer of a range of electrical goods provided all retail outlets selling its
products with a list of recommended retail prices for each of its products.
No breach.

d. A branch of a major supermarket chain, located in the same shopping centre as an

independent supermarket, consistently prices all its products 5 per cent below those of
the independent supermarket, even when the independent business lowers its prices to
try to match its competitor.
Business | 4: Legal requirements and financial considerations Gewargis

Breaches - misuse of market power by one business in relation to other businesses.

e. A small business advertises jumpers and claims that they are made in Australia when in
fact they are made in Hong Kong.
Breaches - the advertisement misleads the public.

f. A small business advertises that a special deal is only for one week when in fact it plans
to extend it for two months.
Breaches – deceptive advertising.

g. A small business offers its customers a 10 per cent discount if they provide the names
and addresses of five potential customers for the business.
Breaches – referral selling is illegal.

25. In each of the following examples, state if there has been a breach of the Australian
Consumer Law and why.
a. A small business owner displays a sign that reads ‘Choose carefully. No refunds given’.
Breach – businesses must give refunds if goods are faulty in any way

b. A small business owner does not issue a receipt for a $300 transaction.
Breach – receipts are required for all amounts about $75

c. A small business owner removes any unfair terms from the business’s contracts.
No breach – contracts would be consistent with the Act
Business | 4: Legal requirements and financial considerations Gewargis

4.4 Establishing Bank Accounts | Notes

Establishing separate accounts

 Transactions of the business are performed through a separate bank account

o Separate entity principal
o Easier to monitor financial performance + position of the business
o Easier calculate expenses & revenue
o Less time consuming

Choose the right bank account

 Consider the factors

o Bank fees
o Interest rate
o Overdraft facilities
o Credit cards
o Convince and support
Business | 4: Legal requirements and financial considerations Gewargis

4.4 Establishing Bank Accounts | Activities

1. What is the ‘separate entity principle’ in accounting?

The separate entity principal states that the business and the owner are two separate
entities.

2. Explain one reason why a business should have a separate bank account to that of its
owner.
It is easier to monitor the financial performance and position of the business.

3. Why is it important to carefully read the terms of the agreement before signing up for a
new bank account?
The owner may incur expenses and fees they are unaware of.

4. What is an overdraft facility?

An agreement with the bank that allows account owners to withdraw more money than
is available in their account.

5. Describe a scenario in which an owner would need to use the bank overdraft facility.
When a business is faced in a situation where they have no cash on hand.

6. Give two reasons why a business owner might opt for a larger commercial bank, even
though they have higher fees and interest rates than a smaller bank?
1. Larger banks are more reputable
2. Larger banks have greater marketing reach and tends to attract more customers.
Business | 4: Legal requirements and financial considerations Gewargis

4.5 Establishing financial systems | Notes

 Financial control systems – process, methods, tools to accurately monitor and manage
financial performance

 Budgeting – predicting or estimating the businesses financial performance for a given period
of time

 Cash flow – money being transferred into and out of the business

 Accounts receivable – outstanding payments a business owed by its customers

 Inventory control – system to ensure the costs associated with maintaining inventory of
materials are kept to a minimum

 Inventory – materials on hand to complete production

 Auditing – testing and evaluating businesses accounting process and internal controls
Business | 4: Legal requirements and financial considerations Gewargis

4.5 Establishing financial systems | Activities

1. What are financial control systems?

The processes, methods and tools that allow a business to accurately monitor and mange its
financial performance.

2. Explain what budgeting is and why it is an important financial control system.

Budgeting refers predicting or estimating the business’ financial performance for a given
period of time. It is important financial control system because business’ are able to
compare actual with planned results, the business can figure out why certain targets weren’t
reached or why results were better than expected.

3. How important is cash flow to a business, and what can be done to improve it?
Cash flow is important for the business to maintain the business to maintain payments to
creditors, and to ensure that other obligations such as wages, utilities expenses and tax can
be covered.

Cash flow can be improved by:

- Keeping track of money that is owed to the business and chasing up outstanding debts
- Hiring accounts receivable staff to ensure that customers are paying the full amount on
time
- Preparing a cash-flow projection or budget

4. Why is it important for a business to monitor its cash flow?

For the business to survive, a business needs to have cash to pay its day-to-day outgoings to
avoid trouble.

5. Outline what accounts receivable refers to.

The outstanding invoices or payments that a business has, that is, the money that the
business is owed from its customers.
Business | 4: Legal requirements and financial considerations Gewargis

6. Explain how accounts receivable can ensure cash flow in the business.
Ensuring the right credit terms can improve cash flow, a business might introduce shorter
terms so that the business is paid faster.

7. What is inventory?
Goods and materials held as stock by a business to complete production.

8. What is the main benefit of inventory control?

Minimises costs by not allowing materials to remain idle in storage and by making sure that
materials are available for production when needed.

9. Explain how inventory control can be used to improve a business’s financial performance.
Bar coding and computerised stock records to control inventory. Computerisation can help
to minimise lost and provide information about stick levels. Signals can alert management
when it is time to order new materials and how much to order. Stocktakes can reveal any
differences that would indicate problems with stock control. Just I Time ensures that the
correct materials arrive just as they are needed for production, which can reduce risk of
waste occurring in storage.

10. Outline why it is vital for a business to make use of auditing.

Auditing tests and evaluate a business’ accounting processes and internal control and can
lead to great improvements.

11. How do you think the financial control systems of a chicken shop might be different to that
of a builder? Highlight at least two differences.
1. A chicken shop will have the majority of its transactions on site, making it easier to record
2. A builder is likely to have various subcontractors who will require monitoring and regular
payment

12. As a business consultant, you have been asked to advise the manager responsible for the
area affected in each of the following situations. Describe the financial control problem that
exists and suggest ways to deal with the situation.

a. The accounting area is confused about why the business invariably seems to struggle
to pay for expenses, which always seem to emerge unexpectedly.
Unexpected expenses – The business should introduce budgeting, use a cashflow
budget, a budgeted income statement, budgeting balance sheet

b. The finance manager is concerned about cash flow and suspects that some
employees are collecting money from customers and keeping a proportion for
themselves.
Cash flow (theft by staff) – Introducing auditing, test and evaluate the business’;
Business | 4: Legal requirements and financial considerations Gewargis

accounting processes and internal controls

c. Accounts receivable has found that approximately one in five accounts has become
a bad debt. Easy credit terms are offered, and many customers end up not repaying
all of their debts.
Accounts receivable – Introducing shorter credit terms and late payment fees

d. The production manager claims that inventory often seems to be missing. It might
be theft or there is the possibility that stock has deteriorated and has been disposed.
Missing stock – Introducing inventory control, computerisation to minimise loss, Just
In Time to ensure that the correct materials arrive just as they are needed for
production.

13. Explain why an external auditor might provide more useful feedback to a business than an
internal auditor.
An external auditor will be unbiased in their approach, has experience identifying common
problems with financial control systems and can provide guidance on what they have seen
other businesses implementing.

4.6 Establishing record keeping strategies | Notes

Record-keeping systems / strategies

 Accurate records – obligation, invaluable tool for decision making

 Required to keep records of transactions for at least 5 years

Source Documents – original documents recording transactions

 Provide data for financial reports

Cash book

 Summary of business’ cash receipts and cash payments

 Monitor cash flow

 Determine cash balance

Business | 4: Legal requirements and financial considerations Gewargis

Income statement

 Calculate how much profit has been made over a period of time

 Shows revenue earned, expenses incurred, profit or loss

Balance sheet

 Shows assets and liabilities at a point in time

Other

 Hiring bookkeeper

 Establishing filing system

 Keep records simple

 BE organised

 Separate business and personal finances

 Seek advice when needed

4.6 Establishing record keeping strategies | Activities

12. Outline the importance of a business developing effective record-keeping strategies.  

Record-keeping strategies are the systems that allow a business to monitor, manage and
report its financial performance. Maintaining accurate records is an obligation of a business
but is also invaluable for decision making. It is important for a business to develop effective
record-keeping strategies because, without accurate records, a business owner will have a
restricted understand of the business’ performance and where improvements need to be
made.

13. Explain one record-keeping strategy that a business might use to improve its financial
performance. 
One record-keeping strategy is the use of source documents. Source documents are original
Business | 4: Legal requirements and financial considerations Gewargis

documents that provide evidence of a financial transaction. Examples of source documents

include cash register dockets, credit card or EFTPOS vouchers and purchase invoices.
Common features in most source documents include the date the transaction occurred, the
names of the parties involved, what the transaction was, and the amount of money involved.
A business will keep source documents and use the data to produce financial reports.

14. Distinguish between financial control systems and record-keeping strategies.  

Financial control systems are the processes, methods and tools that allow a business to
accurately monitor and managing its financial performance. While record-keeping strategies
are the systems or methods that allow a business to monitor, manage and report its financial
performance
Financial control systems are more focused on monitoring and managing financial
performance, whereas record-keeping strategies, while performing these functions, are also
focused on reporting financial performance.

4.8 Choosing suppliers | Notes

 Procurement – researching, selecting suppliers, establishing payment terms, negotiating

contracts, purchasing resources

 Price – keep costs low, should not be the only deciding factor

 Quality – goods/material quality determine end product quality

Business | 4: Legal requirements and financial considerations Gewargis

 Reliability – businesses with fast turnover of stock need to rely on timely deliveries

 Proximity – Close distance to suppliers save a business time and money

Corporate social responsibility

 Suppliers meet to meet corporate objectives

 Avoid materials produced by socially irresponsible suppliers

 Consider the environmental, social, economic impacts from purchase

4.8 Choosing suppliers | Activities

1. Why is it important for a business to choose the right supplier?

If a business chooses a supplier that fails to act ethically and be socially responsible it can
damage the reputation of the business as well as the integrity and culture within the
Business | 4: Legal requirements and financial considerations Gewargis

business.

2. Define the term ‘procurement’.

The process of researching and selecting suppliers, establishing payment terms, negotiating
contracts and the purchasing of resources that are vital for maintaining the production of
the business’ good or service.

3. List five considerations for a business when choosing a supplier.

Price, proximity, quality, reliability and corporate social responsibility.

4. Why is the location of a supplier an important factor for many businesses?

If the location of the supplier is closer to the business, the business can save time and
money. Also sourcing supplies locally is more environmentally friendly, and it supports the
local economy.

5. Outline the benefits and limitations for a business that chooses to source materials from
socially responsible suppliers.
Benefits:

- Improve reputation, members of the community are likely to perceive the business as
meeting wider community expectations

- Customers who are aware that the business is using socially responsibility are likely to
purchase from the business

- Inventors are more likely to invest if the business is using socially responsible suppliers.

Limitations:

- Sourcing socially responsible suppliers are likely to pass costs of production onto the
business

- Maintaining a supply chain that sources sustainable materials will be more expensive and
time consuming

- The quality of the materials may be lower than the standard required by the business

6. Read ‘Rana Plaza’ and answer the following questions.

a. What happened on 24 April 2013 in Bangladesh?

The Rana Plaza building collapsed, killing 1134 garment workers and injuring many
Business | 4: Legal requirements and financial considerations Gewargis

more.

b. Outline the working conditions that the garment workers faced prior to the collapse.
Workers earned only $40 per month and were often physically abused and forced to
work inhumane conditions for long hours.

c. Why do you think businesses allowed the workers of their suppliers to be treated in
a way that they would not treat their Australian workers?
- Business may be unaware of the worker’s environment
- Australian workers are protected by law
- Business’ may just only care about profit

d. To what degree do you think the Australian retailers were responsible for the poor
working conditions and eventual collapse of Rana Plaza?
I believe Australian retailers weren’t responsible for the poor working conditions
created but I do believe Australian retailers were responsible for the workers to
continue working in that environment and are the reason for the eventual collapse
of Rana Plaza.

7. Why is it important for a business to ensure it sources inputs that are in accordance with
Australian standards for quality and safety?
Different nations have different standards for quality and safety but ultimately the
Australian business is liable for ensuring the product it sells are in accordance with
Australian standards. Failing to do so may result in serious legal consequences for the
business.

4.9 Policies and procedures | Notes

 Policies – written set of broad guidelines to be followed by all employees

Business | 4: Legal requirements and financial considerations Gewargis

4.9 Policies and procedures | Activities

1. What is the purpose of policies and procedures?
Policies and procedures ensure the daily action of every employee are consistent with the
Business | 4: Legal requirements and financial considerations Gewargis

business’ values, objectives and strategies.

4. In what ways is a policy different from a procedure?

A policy is a set of broad guidelines to be followed by all employees when dealing with
important areas of decision making, whereas a procedure is a s series of actions that enables
a policy to be put into action.

6. Explain how a business can ensure that policies and procedures achieve compliance with
legal requirements and establish business routines.
Following research and analysis, a draft policy or summary of changes should be provided to
all stakeholders, seeking feedback. Once a decision has been made to proceed with the
policy development, a team would be formed to write the new policy and incorporate the
feedback of stakeholders and any changes to legislation. The policy would then be revised,
and a final policy, be presented to senior management for approval, then distributed to all
other stakeholders. After the policy has been introduced it will need to be monitored to
make sure it is easily understood and is being followed, as well as being evaluated for its
success.

7. Outline the advantages and disadvantages of establishing policies and procedures.

Advantages:
- Provide a framework for consistent decision making and clear actions in routine situations
- Can prevent legal problems
- Provide owner or management with a means of communicating information to new
employees

Disadvantage:
- Difficult to communicate polices throughout the business
- Employees might view polices as a substitute for effective management
- Polices can restrict innovation and flexibility
Business | 4: Legal requirements and financial considerations Gewargis

*if you notice class activities missing, it’s because the laptop I had from before KDC when into
lockdown, broke during lockdown, so I had no way of getting my documents back. I re-did all
the notes/activities again, hence this document.