ROLE OF BUSINESS

A business is an organisation that attempts to satisfy the needs and wants of

the community by providing goods and/or services. To provide goods and
services to the community, businesses make use of inputs or raw materials.
By combining inputs with equipment and human skill, businesses add value.

Profit
Profit is essential if a business is to meet day-to-day expenses (such as
production costs, wages, insurance, electricity and rent) and provide a return
on the owners’ financial investment.

Wealth creation
By increasing sales and developing strategies to promote brand awareness
and sales, the management of a business hopes to increase the value of the
organisation. This, in turn, will increase the value of the funds that owners
have invested in the business.

Employment
With this labour, businesses are able to offer the community a diverse range
of goods and services. In return for their services, a business will pay a form
of income to their workforce. This allows the workforce to spend part of its
income on satisfying its needs and wants.

Innovation
This is the process of improving the features of a product.

Quality of life
Business research and development has also contributed to a significant
improvement in our quality of life.

Choice
A primary function of business is to produce goods and services for
consumers to satisfy their needs and wants. This, in turn, provides consumers
with choice.

Entrepreneurship and risks

Entrepreneurs take risks by developing strategies for their ideas to come to
fruition.
TYPES OF BUSINESS
Business Classification
A business can be classified according to:
 its size
 its legal structure
 the industry sector it is in
 its location.

The Legal Structure of a Business

The legal structure of a business refers to how the ownership of the business
is registered. There are seven main types of legal structure:
 sole trader
 partnership
 private company
 public company
 company limited by guarantee
 cooperative
 trust

When classifying a business according to industry sector, there are five

classifications:
• Primary
 e.g. Mining, Agriculture, Forestry.
• Secondary
e.g. Car Manufacturing, Cabinetry
• Tertiary
e.g. Doctor, Plumbing (providing a service)
• Quaternary
e.g. Information Processing, IT Analysis, Financial Planners
• Quinary.
e.g. Ironing Service (anything within the home)

The classification of a business according to its size is determined by the

Australian Bureau of Statistics:
Large – is a manufacturing organisation with 200 or more employees or a
non-manufacturing organisation with over 20 employees.

Small – is a manufacturing organisation with fewer than 100 employees or a

non-manufacturing (service-based) organisation with 20 or fewer employees.

Micro – is an organisation with a workforce of five or fewer employees.

Businesses can also be classified according to whether they are owned and
operated by the government (public sector businesses) or by a private group
of individuals (private sector businesses).

National and global business

A further way to classify businesses is based on whether they are local,
national or global. This method examines where the business is based and in
which country its goods are manufactured
INFLUENCES IN THE BUSINESS ENVIRONMENT
Gross Domestic Product – Measure if the final amount of goods and
services produced in an economy.

The Economic Cycle:

The economic cycle refers to the changes in consumer and business
spending over a period of time. It influences:
 the level of employment and investment in an economy
 the profitability of business
 the amount of goods and services produced.

Policies:
The Australian Government makes use of three key policies to influence the
level of economic activity in Australia:
 Fiscal Policy:
Fiscal policy is government actions, such as the use of taxation (revenue)
and expenditure that are intended to influence the level of economic
activity in Australia. It mainly operates through the Commonwealth Budget.

 Monetary Policy:
Monetary policy is actions taken by the Reserve Bank to influence the
level of interest rates in the Australian economy.

 Microeconomic Reform:
Microeconomic reforms are the policies developed by the government to
promote greater competition within a particular industry.
Finance:
The two main sources of finance for business are debt finance and equity
finance. Both of these are greatly influenced by the level of interest rates. As
interest rates are the cost of borrowing money, increases in interest rate
levels may reduce the amount of debt finance undertaken by a business.

Equity Finance:
Internal sources of finance; that is, finance provided by the owners. The
owners can give the business capital or can contribute cash by buying shares.
Also refers to any net profit reinvested in the business.

Geographic Influences:
Geographic influences on Australia include:
 its location in the Asia-Pacific region
 population shifts from rural to urban areas
 population shifts from inland to coastal regions
 population shifts to warmer locations the increased average age of our
population
 variations in the number of refugees and skilled migrants accepted into
Australia
 the rapid economic growth of nearby Asian countries
 the increased international standing of Australian cities as hosts for
international sports events.

Federal and State Institution

 Environment Protection Authority
 Australian Taxation Office
 Australian Securities and Investments Commission
 Australian Competition and Consumer Commission
 NSW Office of Fair Trading
 BUSINESS GROWTH AND DECLINE
There are four phases of the business
life cycle:
• Establishment
• Growth
• Maturity
• Post-maturity.

The Establishment Phase

The establishment phase is where the business first enters the market. The
owner must decide on the location of the business, the types of products the
business will sell, how to find motivated, appropriately trained staff and the
most suitable legal structure.

The Growth Phase

The growth phase is characterised by increasing sales and revenue for the
business. Customers are now aware of the business and/or product and the
business begins to increase its market share.

The Maturity Phase

During the maturity phase, business growth and market share begin to slow.
The business is faced with increased competition from new entrants.

Post-Maturity Phase
The post-maturity phase is the final stage of the business life cycle. There are
four very different stages in the post-maturity phase: steady state, decline,
renewal and cessation

Cessation
• Cessation refers to the closure of a business.
• Voluntary cessation occurs when the owner of a business decides to
cease the operations of the business.
• Involuntary cessation occurs when the closure of the business is forced on
the owner. The most common cause of involuntary cessation is the
inability of the business to repay its debt.

Bankruptcy
• Bankruptcy occurs when a sole trader or business partnership is unable to
repay the financial obligations (debt) of the business.
• A business will enter liquidation when an independent party is appointed
by the court to sell the assets of the business so as to recover all
outstanding debt owing to the business’s creditors.