Professional Documents
Culture Documents
Business Studies Prelim Notess
Business Studies Prelim Notess
1. Nature Of Business
2. Business Management
3. Business Planning
NATURE OF BUSINESS
ROLE OF BUSINESS
1. Profit
- What business owners receive for producing goods and services
- Profit = Revenue - Expenses
2. Employment
3. Incomes
- Businesses provide income to shareholders, employees and other business
owners
4. Choice
- Consumers have freedom of choice to purchase goods and services
5. Innovation
- Existing products are improved or new products are created
6. Entrepreneurship and risk
- Businesses provide individuals with opportunities and ideas
7. Wealth
- Business activities result in high levels of economic growth
8. Quality of life
- Businesses offer a variety of products that improve our standard of living
TYPES OF BUSINESS
↳ Size and Geographical Spread
- The size of a business is determined by:
● Number of employees
● Legal structure
● Source of finance
● Market share
Small Business Medium Business Large Business
↳ Legal Structure
Liability = legal responsibility
- Unlimited liability (UNINCORPORATED) = the business and the owner are the same
- Limited liability (INCORPORATED) = the business is legally separate from the owner
and the corporation is responsible for all business debts
● Public Business Enterprises = businesses that are owned by the government (E.G.
Australia Post Office)
Types of Private Business Enterprises:
1. Sole Trader = owned and operated by one person
Advantages Disadvantages
↳ Stakeholders
= anyone who isintersted in the business or is affected by what they do
- Main stakeholders include:
● Shareholders
- Are a type of owner of a business who bring shares to the company
- When a company gives some of its money to each shareholder it is
called a dividend
● Managers
- They are stakeholders because their job is to run the business
- Any decisions made will affect their work adn their income
● Employees
- Employees are stakeholders because they depend on getting paid
● Customers
- Are stakeholders to businesses as they are affected by changes from
the business (E.G. if the menu changes or the stor location)
● Society
- We are all affected by what businesses do (E.G.business donating tio
charities or holding public events)
● Environment
- The environment is impacted by product production when greenhouse
gases are released (businesses have to be environmentally careful)
- Growth
● Increased sales and introduction of new products
● CHALLENGES: not to expand the business to quickly as it can be expensive
leading to high chances of going into debt and business failure
● Merger = when two businesses agree to join together and form a new
organisation
● Acquisition = when one business buys another to have control and use of
their resources
● Vertical integration = when a business expands at different but related levels
in the product and seeling of a product
● Horizontal Integration = when a business expands with another firm that
makes and sells similar products
● Diversification = when a business expands with anothe business in a
completely different industry
- Maturity
● When sales slow down and theres no more room in the market to keep selling
the product
● Business has grown into a medium or large business and is private or public
company
● CHALLENGES: no room is left is the market and sales level off
- Post Maturity
● 3 options for a business once they reach this stage
1. Steady State (keep sales going)
2. Renewal (seel to other business)
3. Decline (sales fall and the business fails)
BUSINESS MANAGEMENT
MANAGEMENT APPROACHES
↳ Classical/Scientific Approach:
- Function of this approach is to: Plan, Organise and Control
Organisation and Business Structure Levels of Management Style
Allocation of Tasks Management
↳ Behavioural Approach:
- Function of this approach is to: Lead, Motivate and Communicate
Organisation and Business Structure Levels of Management Style
Allocation of Tasks Management
MANAGEMENT PROCESS
↳ The Business Functions
1. Operations = activities to make a product
2. Marketing = activities to make consumers want and buy the products (who wants
the product, what it is going to look like, how will it be promoted)
3. Finance = activities involved in organising the business’ money and making sure it
is used effectively (keeping up with financial statements and keeping track of how the
business is doing financially)
4. Human Resources = activities involved with hiring and staff wellbeing
Place (distribution)
= how the product gets to the consumer
Has different channels of distribution (the different ways the product can get to the
consumer):
1. Producer to customer → direct contact with customer
2. Producer to retailer to customer
3. Producer to wholesaler to retailer to customer
- Wholesaler is someone who buys large amounts of products then sells
smaller amounts to businesses
↳ Finance (Business Function)
- Stakeholders use the statements to read them and make decisions
- Managers can look at them and see how the business is going financially
- Useful for shareholders if they are looking to invest
Financial Statements include:
- Cash flow statement = cash going in and out of the business
● Done regularly (weekely or monthly)
● Tells about financial performance → they are done using data over a period of
time
● Cash inflow (cash sales, dividends, payments from debtors) money going in
business and cash outflow (paying creditors,expense such as rent, wages,
insurances) money going out of the business
● Only records cash
- Income statement = about measuring financial performance
● Done less regularly (done once or a few time a year)
● Tells about financial performance → they are done using data over a period of
time
● 5 steps of measuring financial performance:
1. Revenue → all income from seeling products and dividends
2. Cost Of Goods Sold (COGS) → how much it was to make the goods
that were sold
- Opening stock + purchases - closing stock = COGS
3. Gross Profit → = the Revenue - COGS
4. Expenses → the costs the business pays to make revenue
5. Net Profit → the leftover money the business keeps
- Gross Profit - Expenses = Net profit
- Balance sheet = allows the business to compare what the business owns to what it
owes other people
● Done less regularly(done once or a few times a year)
● Tell us about financial position → they are only using data on a set date
● Current assets kept for less than 12 months + non-current assets (land,
building, equipment, car) kept for more than 12 months
- Same with current and non-current liabilities
● Balance Sheet equation:
- Assets = Liabilities + Owners Equity
↳ Establishing SMEs
1. Personal qualities of starting up a business:
- Qualifications and Skills
● Influences what type of business you start up and who else is involved
- Motivation
● The type of ways people are motivated to influence how they will start
up the business and their decisions
- Entrepreneurship
● How innovative someone is when starting up a business
- Cultural background
● Traditions and beliefs that influence our business decisions (influences
the type of products)
- Gender
● Women are more likely to start up their own business
2. Sources of information
= the different places and ways people can get advice and assistance
These include:
- Business contacts
- Businesses in the same market
- Online websites
- Trade associations
- Government agencies
3. Business Idea
= The initial idea that the business is based off
- Must be competitive and provide a sustainable competitive advantage
4. Establishment options
- The set up options faced when starting up a business:
● New business
- ADVANTAGE → make all decisions
- DISADVANTAGE → don't have a definite customer base
● Existing business
- ADVANTAGE → existing customer base and equipment
- DISADVANTAGE →can have a previous bad business image
and resistance to the change
● Franchise
- ADVANTAGE → use a well-established name and advertising
benefits (existing customer base)
- DISADVANTAGE → franchisor can be controlling and have to
share profits
5. Market Considerations
- Who will buy the product?
● Finding target market
- What's the best selling price?
● Using pricing methods to determine prices
- Where is the best location?
● Wanting a visible store or close to distribution and supply channels
6. Finance
= have to make a decision based on the type of finance and its cost
- Debt finance
= loans from banks and finance companies (money you have to put back)
- Have to pay interest
- Equity finance
= money put into the business generally by its owners (you own the money so
you don't have to pay back)
- Might not get a return on your investment
↳ Forecasting
= the businesses predictions about the future
- Total revenue and Total Costs
● Total revenue = the total amount received from the sales of a product
● TOTAL REVENUE = total selling price x the quantity of products sold
● TOTAL COSTS = fixed costs + variable costs
● Fixed costs = stay the same
- Rent
- Insurance
- Salaries
● Variable costs = change depending on how much the business produces
- Raw materials
- Wages
- Transport cost for the product
- Break-even analysis
= how much needs to be sold (total revenue) in order to cover costs (total costs)
● QUANTITY = total fixed costs / selling price - unit variable costs
● Break even point is where the business isnt making profit or losing money
- Cash flow projections
= uses the cashflow statements and budgets to predict cash inflows (receipts) and
cash outflows (payments)
● Helps managers figure out when to pay bills
Manager = someone who coordinates the business’ limited resources in order to achieve
goals
Stakeholders = Anyone who is interested in or affected by business activities
Stakeholder Engagement = sharing information with stakeholders and asking for their
opinions
Private Shareholders = specific people that put money into a business in return for
owning part of it
Goals = a desired outcome to be achieved within a certain time period
Profit = the money left over after all the expenses have been subtracted from the revenue
Revenue = the money made from selling the products
Market Share = refers to the percentage of the total sales in a market earned by a
business
Share Price = how much each share costs to buy
Management Approach = organising and allocating tasks to staff, creating a business
structure, levels of management and the management style
Interdependence = the mutual dependence that the four functions (operations, marketing,
finance and human resources) have on each other
Debtors = people that owe the business money
Creditors = people the business owes money to
Liquidity = ability of the business to pay debts back quickly
Dividends = a sum of money paid regularly by a company to its shareholders out of its
profits
Liabilities = what the business owes other people
Owners Equity = the monet put into the business and it makes the two side of the
balance sheet (assets → what the business owns and liabilities → what the business
owes) equal eachother
Frachise = pay a set fee to open up a store under another company’s name
Franchisee = the person who runs the franchise
Franchisor = the business that allows someone to use their name
Resource Allocation = the distribution of resources to successfully meet the business’
goals and that have been established
● Merger = when two businesses agree to join together and form a new
organisation
● Acquisition = when one business buys another to have control and use of
their resources
● Vertical integration = when a business expands at different but related
levels in the product and seeling of a product
● Horizontal Integration = when a business expands with another firm that
makes and sells similar products
● Diversification = when a business expands with anothe business in a
completely different industry