Topic One: The Economic and Business Environment

The Nature of the Economy

 The role of consumers, business government, financial institution, and the overseas sector in the
five-sector circular flow model.

The term circular flow of income or circular flow of economic activity refers to a simple economic
model which describes the circulation/ flow of income between producers and consumers. In the
circular flow model, producer is referred to as firms and consumers are referred to as households. The
major exchanges are represented as flows of money, good and services.

The consumer and business sectors

- The household sector of an economy is made up of consumers, who held economic resources such
as land, labour, and enterprise.
- In simple two sector economic model, the other sector of the economy is the firm’s sector. People
sell their resources to firms (businesses) in exchange for an income.
- Firms then use the resources of households to produce goods and services. This is known as
production.
- Households will then use their income to buy various goods and services. This is known as
consumption
- Consumers and businesses are interdependent on each other.
- This means businesses would not survive without consumers buying their goods and services, and
consumers rely on businesses to provide them with goods and services they demand to satisfy
their needs and wants, and also to provide them with an income.
The financial sector (third sector)

- The financial sector refers to financial institutions such as banks that act as intermediaries
between the savers and borrowers in an economy
- They receive the saving of individuals and businesses and then lend this money to others who
need to borrow money.
- A choice of saving or investment is an important factor within the economy
- Saving (S) refers to putting money away for later use and is a leakage from the circular flow of
income, whereas investment (I) is when money is borrowed and used to expand and grow a
business
- This means investment is an injection into the circular flow of the income

The government sector (fourth sector)

- The government sector refers to local, state, and federal governments and has two significant roles
in the circular flow of income:
1. Taxation (leakage) – the government collects taxes from individuals and businesses when
they earn an income or profit.
2. Government expenditure (injection) – this is when governments spend money raised
through taxation on things sch as infrastructure, welfare payments, education, and health.

The overseas sector (fifth sector)

- A complete approach to understanding economies occurs when the overseas sector is considered.
- This macroeconomic model details global (macro) influences upon a nation’s economy and
successfully explains the role of trade in helping an economy grow. Trade consist of exports and
imports
o Exports (X) – refers to Australian businesses selling their goods or services to overseas
individuals, businesses, or governments. These are an injection into the circular flow of
income.
o Imports (M) – refers to the buying of overseas good or services by Australians. These are a
leakage from the circular flow of income.
The circular flow of income

- The circular flow of income is used by economists to measure changes in the level of economic
activity within the economy.
- This is done by adding up the injections into the economy and comparing them to the leakages out
of the economy
- When injections are greater than leakages, economic growth occurs, and the economy will expand
- When leakages are greater than injections, an economy will experience economic decline
- It is the government’s role to try to manage and maintain a balance within their nation’s economy
by altering flows of money and influencing decisions within sectors.

This means… - Leakages (STM)

o S – Savings
- The economy is in EQUILIBRIUM o T – Taxation
when: o M – Imports
o Leakages = injections
- The economy is EXPANDING when: ABBREVIATIONS
- Injections (XIG)
o Leakages ¿ injections o X – Exports
o Injections ¿ leakages o I – Investment
- The economy is contracting when: o G – Government expenditure
o Leakages ¿injections
o Injections ¿ leakages
  The interdependence between different sectors of the economy, for example the role of the
government in protecting consumers, the role of the financial sector in facilitating business
investment

The role of the financial institutions

Financial institutions act as intermediaries between the savers and borrowers in the economy.
Financial institutions receive deposits and use this money to lend to others who need to borrow
money. Financial intermediaries collect savings of thousands of depositors, and then have large sums
available for businesses to invest in growth.

 Savings and Borrowings: Savings refer to regularly putting aside money that you earn you’re
your own income for future use. Borrowings is an investment used to expand and grow a
business; it is also considered an injection.

Three basic purposes of a bank or financial institution

Keeping money safe Borrowing money from Lending money to its customers
customers
 - Individuals and/or
businesses may open
different types of accounts
at a bank (savings
accounts). However, there
are rules and restrictions in
relation to withdrawing this
money at times.
- As part of insurance policies -
in place, banks promise all
individuals/ businesses will
get their money back.
- When money is deposited in -
a long-term savings
account, banks will use the
money to lend it out to
other customers –
individuals and/or
businesses in the form of a
loan - Individuals/ businesses
When banks borrow money
from their customers, they
pay them interest on the
money borrowed
Banks lend most to their
customers. This is called a
loan. Individuals may take
out loans to purchase
assets. Whereas businesses
may take out loans to
expand business operations
must repay the money
borrowed. Here, the bank
will also charge interest.

The role of the government in protecting consumers

ASIC (The Australian securities and investment commission) is responsible for the regulation of the
financial sector. The government’s role in protecting consumers is:
- Monitoring the financial services industry
- Monitoring the provision of financial services such as investment advice
- Providing consumer protection in financial services, including shares, managed funds,
superannuation, insurance, credit, and deposit taking

 The business cycle and its impact on the economy

A business cycle is a period of macroeconomic expansion followed by a period of contraction

The four phases of a business cycle

1) Expansion: a period of economic growth 3) Contraction: a period of economic decline

2) Peak: the height of the expansion 4) Trough: the lowest point of the contraction

1) Expansion
When an economy is expanding or growing many people have jobs and many goods and services are
being produced and sold. At the peak of the expansion, gross domestic product is as high as it will go
for that particular business cycle.

Key features:

- Rising levels of production (output)

- Increasing consumer spending
- Rate of inflation may rise
- Wage rates eventually rise
- Interest rates eventually rise
- Level of unemployment falls

2) Contraction

During a period of contraction, more people are unemployed and fewer goods and services are being
produced and sold. Not all contractions are equally severe. The trough is the lowest point of the
contraction

Key features

- Falling levels of production (output)

- Decreasing consumer spending
- Rate of inflation may fall
- Wage rates generally fall
- Interest rates eventually fall
- Level of unemployment rises

3) Recession

Recessions are caused by lack of spending, not the inability of the economy to produce goods and
services. Most goods and services are produced before they are sold. The amount produced depends
on how much the business thinks consumers, other businesses and governments will buy, which
in turn is influenced by the level of economic confidence. By choosing to spend some of your money,
you send a signal to businesses to keep making the products you buy. If, however, some products are
not bought, the business may cut back on production and some employees might lose their jobs and
incomes. This causes total spending to fall even further as people’s confidence in the future is shaken.
In this way, a recession spreads and economic growth is slowed. When a recession becomes
widespread and long-lasting, it is called a depression.

Key features

- Income and production are at their lowest level in the business cycle.
- Unemployment is at a high level.
- Wages and salaries either fall or grow very slowly.
- Consumer demand and, consequently, business sales and profits reach their lowest levels.
- Bankruptcies are everyday occurrences, and the business outlook is bleak.
- Businesses have a lot of unused resources and no incentive to purchase new machinery.
- Interest rates remain low, while investment opportunities are few and the number of credit
worthy borrowers is reduced.
- The inflation rate tends to stay low.

4) Booms – too much spending

The upside of the business cycle is growth and prosperity. Production, spending and employment
rise. Businesses expand, employees are hired, and incomes increase. Consequently, total spending
increases even more. Consumer and business confidence are high. However, the economy cannot
keep producing more goods and services indefinitely. There is a limit. When this happens, additional
spending pushes up prices. Inflation, a general rise in prices, now becomes a major economic problem
and will eventually bring an end to the continued growth.

Key features

- Income and production are at their highest levels.

- There is full employment of labour and all other resources.
- Wages and salaries are relatively high. Employees are now in a strong bargaining position as
businesses compete for scarce labour resources.
- Businesses are operating at full capacity. Increases in consumer demand are met by increases in
prices rather than by increases in production.
- Interest rates are high because loanable funds are in relatively short supply.
- The rate of inflation rises sharply.

Inflation

- An increase in the prices of the goods and services that households buy. Measured by the rate of
change of those prices. Typically, prices rise overtime, but prices can also fall (called deflation).
- The most well-known indicator of inflation is from the consumer price index (CPI), which
measures the changes in the price of a typical basket of goods and services consumed by
households.
Importance of inflation

- It is important for the rate of inflation throughout an economy to be managed. A low steady rate of
inflation is good for the economy.
- If inflation is too high, the currency loses its value. If inflation increases at a very rapid rate, it is
called hyperinflation.

The reserve bank

- In Australia, ‘inflation targeting’ was introduced in the early 1990s to control the rate of
inflation. The Reserve Bank of Australia is the country’s central bank. One of its many roles is to
keep inflation between 2 and 3 per cent, on average, over time. Economists at the Bank analyse
data to understand what is happening in the economy
- As a central bank, the Reserve Bank doesn’t hold deposits for, or lend money to, people
and businesses. Commercial banks, however, lend money (in the form of loans) to people
and businesses, and accept deposits of savings.

Influencing interest rates (and inflation)

The Reserve Bank of Australia influences the economy by carrying out ‘monetary policy’. It sets
the ‘cash rate’, which influences the interest rates offered by commercial banks to their customers.
Raising or lowering interest rates can stimulate or dampen economic activity if needed, helping
to achieve a low and steady inflation rate.

 Monetary policy the Reserve Bank using interest rates to achieve economic objectives
 Cash rate the official price of borrowing money; the interest rate that applies to the short-
term money market.

Soothing the business cycle

If the economy is expanding too quickly The Reserve Bank is likely to raise the cash rate. Commercial
banks will raise interest rates, making it more expensive to borrow money, and more attractive to
save money. People will tend to save more and borrow/spend less.
Interest rates

If the economy is growing too slowly the Reserve Bank is likely to lower the cash rate. Commercial
banks will lower interest rates, making it cheaper to borrow money. People will tend to save less and
borrow/spend more.

The Nature of Markets Within the Economy

 Price mechanism and the interaction of demand and supply within a market

What is a market?

A market is where buyers and sellers interact to engage in an economic transaction. Usually this is to
exchange goods or services for a sum of money (not always the case)

Two sides of a market

1. Those who want to buy the product/good/service Those who DEMAND the product
2. Those who want to sell the product/good/service Those who SUPPLY the product

Economic and the interaction of demand and supply is the reason why prices always seem to be
changing. Markets attempt to solve the economic problem of scarcity and the efficient allocation.

DEMAND

This is the quantity of a product that consumers are willing to purchase at a particular price at a given
point in time. As prices increase, demand for that good or service decreases. As the price of a good or
service increases, consumer demand for that good or service will decrease. There is thus an INVERSE
relationship between price and quantity demanded. This is known as the law of demand. This can be
represented on a graph.

o Cyclone Yasi Example – In the year of 2011, cyclone Yasi was responsible for destroying more
than 80 per cent of Australia's banana industry. Due to this cyclone, around $350 million
worth of bananas were completely destructed. Moreover, farm owners in Cardwell, Innisfail
and Tully suffered the majority of the losses.

So basically…
The increase in price, there’s less demand. The decrease in price there’s more demand.

Reasons for changes in demand

Increase in demand for blueberries Decrease in demand for blueberries

- A rise in consumer income
- An increase in the size of the population
- A substitute good becomes more expensive
- A complementary good becomes cheaper
- Prices are expected to rise in the future
- A fall in consumer income
- Changes in consumer tastes and preferences
- A decrease in the size of the population
- A substitute good becomes cheaper
- A complementary good becomes more
expensive
- Prices are expected to fall in the future

SUPPLY

Refers to the quantity of good or service that businesses are willing and able to offer for sale at a given
price, at a given point in time. As prices for a good or service increase, the quantity supplied will
increase. If the price decreases, the supply of that food or service will also decrease. This is known as
the law of supply.

Reasons for changes in supply

Factors that cause an increase in supply for Factors that cause a decrease in demand for
blueberries blueberries
 - Increased efficiency - Decreased efficiency
- A fall in the cost of production - An increase in the cost of production
- Improved climatic conditions - Unfavourable climatic conditions
- An increase in the number of suppliers - A decrease in the number of suppliers

The price mechanism

Once the supply and demand for a good or service has been established, it is possible to plot them
both on a graph. The point at which the demand and supply curve interest is called market
equilibrium.
  The concept of a market and the various types of market, for example retail markets, labour
markets, financial markets, stock markets.

Main types

1) Retail Market
2) Labour Market
3) Financial Market
4) Stock Market

1) Retail markets

Retail markets are markets that allow us to buy most of our goods and services. They include:
- The shopping areas in the central business districts (CBDS)
- The huge suburban shopping malls such as Westfield paramatta
- Local shopping centres with a supermarket and a number of speciality stores
- Online shopping websites

2) Labour markets

- Employees hope to sell or supply their labour to employers. Those employers wish to buy or
demand the skills and effort of suitable employees.
- This combination of buyers and sells of labour constitutes the labour market. The labour market
does not operate in a particular physical location.
- The market relies on a variety of means of communication between the sellers of labour (potential
employees) and the buyers of labour (employers).
- These allow employers to advertise vacancies in their business, and potential employees to fin out
about job opportunities. The operation of labour market can involve.
 3) Financial markets

- The intermediaries (the middleman) between the savers and the borrowers in an economy.
- As households earn an income and businesses make a profit, they may choose to save and so
deposit their money into a bank or other financial institution. On the other hand, others in an
economy need to borrow money.
- People may borrow to buy a car, a house or go on a holiday. Businesses may borrow and invest so
they can grow and expand the business.
- However, just as all goods and services have a price, so too does money. The price of having access
to money that belongs to someone else is known as interest.
- When you deposit your money in a bank account, the bank will pay you interest on your savings.
- Banks then lend out the money that they have deposited with them to other consumers or to
businesses.
- They will usually charge a higher rate of interest to borrowers than they pay to their depositors.
This is how they make a profit.

4) Stock markets

- The stock market is simply a relationship between buyers and sellers.

- It is shares in public companies that are bought and sold (A share is a unit of ownership in a
company).
- Businesses can raise money for investment by selling shares in their companies, and individuals or
other businesses can invest their savings by buying shares in companies.
- The Australian stock market is the Australian Securities Exchange (ASX).

Duopolistic and monopolist markets

A monopoly market is where there are one seller and a large number of buyers. A duopoly market is
where there are two sellers, and a large number of buyers are known as. An oligopoly market is where
there are few sellers and a large number of buyers.

 Customary trading practices

In Aboriginal and Torres Strait Islander society, trading involved swapping, or bartering, one item for
another. Aboriginal and Torres Strait Islander peoples traded, and continue to trade, to improve their
standard of living. By trading they could obtain things that were not available in their area or could
become exposed to new ideas. Trade routes linked Aboriginal and Torres Strait Islander
communities.

Indigenous Australians traded with each other as well as with people in Indonesia and Papua New
Guinea. Trade routes existed across Australia. The trade, or exchange, routes often followed natural
features such as rivers or chains of waterholes.

Before European settlement, Aboriginal and Torres Strait Islander peoples produced many items to
trade. These included stones and shells, such as pearl, baler, and trochus shells. Trochus shells were
(and are) used to make buttons, ornaments, and jewelry, including bracelets and necklaces. Also
traded were ochres (used for paint and body decoration), tools (such as stone axes) and ceremonial
items. Foods, including fish, crab, dugong or turtle meat, yams, bird eggs and turtle eggs were traded
over small distances. Snake skins, mats, spears, and wood carvings were also traded.

Aboriginal and Torres Strait Islander peoples have made use of their cultural knowledge in recent
times in many innovative and enterprising ways. Over the last decade, many Aboriginal businesses
have been formed. Indigenous-owned enterprises operate in areas such as art and craft, cultural
tourism, land management, finance, and mining.

Indigenous tourism is worth billions of dollars every year in Australia and hundreds of thousands of
international visitors arrive every year hoping to have an Aboriginal experience. Many Aboriginal
owned and operated tourism enterprises exist across the country.

 Examine areas of government intervention in the market, for example prevention of

environmental degradation, conservation of natural resources

A market can be a very efficient allocator of resources. This is because the owners of those resources
are always seeking to maximise their profits and incomes. However, at times the profit seeking nature
of businesses can result in negative outcomes for society and the environment.

Governments may need to intervene in the market to reduce these problems. The overuse of natural
resources is both an environmental and economic issue. Natural resources such as fresh water, fish,
agricultural land, and forests need to be conserved so that future generations are not restricted from
using them.

The challenge faced by governments is the trade-off between the short-term exploitation of natural
resources for economic gain and the long-term needs of both society and the economy. For long-term
economic growth, the environment needs to be sustainably managed

Interactions within Markets

 The different types of businesses and their features, for example online, on demand, global,
offshore, small, and large scale, government, not for profit

Type of business Features Examples

- Business which runs some
or all of its business using
the internet is running an
online business. Advances David jones
Online in e-commerce and mobile The iconic
technology such as
smartphones has enabled
an explosion in the number
of online businesses

- People no longer need to

stand in line and physically
 leave their houses to
On-demand purchase ad shop for their Uber eats
goods. On-demand uses Door dash
mobile technology such as
apps to maximise consumer
convenience
- Business that is a large
company that has branches
in many different countries Coca cola
Global - National borders don’t Toyota
represent barriers to trade, Hijab house
they are merely a line on.
Map

- Take advantage of cheaper

production costs in a
Offshore developing country, such as Nike
lower wages or less strict H&M
environmental regulation

- Micro businesses: business

with fewer than five
employees
- Small businesses- business
Small scale and large scale with 5-19 employees
- Medium businesses:
business with 20-199
employees
- Large business: businesses
with 200+ employees

- Government owned and

operated AUS post
Government - Provide essential Sydney trains
community services such as
health and education and
welfare

- Provides services to the

community and does not
Not for profit earn a profit for its owners SES
- Not for profit, business Salvation
receive concessions

 Factors influencing business decisions, for example technology and corporate social responsibility
Factors influencing business decisions

- Technology: businesses can increase efficiency and productivity, create new products and improve
the quality and range of products and services. The use of technology (hi-tech robots) in
manufacturing industries is improving productivity and reducing operating costs and eliminating
repetitive tasks. EFTPOS has reduced communication delays and allowed instantaneous
interactions.

- Business cycle:

- Globalisation: Globalisation is the process by which the world is becoming increasingly

interconnected as a result of increased trade and cultural exchange. It involves reducing the
barriers to trade, investment, and labour across national borders.

Current issues
  A major economic event or development that has affected Australian consumers and businesses,
including causes, impacts, and responses.

The economic impact of COVID-19

What is COVID-19?

COVID-19, also known as coronavirus, is a disease that first broke out in 2019 from Wuhan, China. It
has developed into various strains overtime and affected tens of millions of people. It is like the flu but
more fatal.

What industries can a pandemic, such as COVID-19 impact?

- Households
o Consumers bracing themselves for ‘potential lockdown’ by buying extra needs such as toilet
paper. This caused an extreme price increase in products and grew restrictions on
purchases.
o Bringing forward consumption
o Households forced to stay inside or self-isolate
o Many workplaces encouraging people to work from home
o Growing concerns, uncertainty, and fear.

- Businesses
o Supermarkets seeing a rush in revenue but are low on stock. Suppliers working around the
clock to get stock out.
o Spending redirected towards staple necessities means less money spent on wants and
luxuries. Retail is missing out. For example, cinemas stadiums, theme, and water parks.
o Hospitality industries are seeing less people going out to ear.
o Businesses preparing for ‘shut down periods’ and ensuring all staff have what they need to
work from home
o Any suppliers being manufactured or shipped from China have been delayed

- Commodity markets
o China is the largest importer of raw materials, and commodity markets are consequently
feeling the impact as well
o China buys about a third of Australia’s exports. The main ones are iron and coal.
o As factories in China remain idle, the demand for coal and iron are declines.

- Sport
o Many sport matches are being sold ‘behind closed doors’ overseas and sporting
coordinators in Australia are encouraging people not to attend if they are sick.
o Less people buying tickets to sporting events

- Tourism
 o The airline sector is expected to have a loss in revenue rising up to 29 billion US dollars this
year, as demand for air travel declines for the first time in the last 11 years.
o Travel and tourist businesses experiencing extreme loss of profits
o Travelling to certain countries has been banned by the government.

- Education
o Ban on non-resident foreigners entering Australia from China
o Universities have delayed the start of term as it is likely to affect financial standing because
of relatively lower international enrolments and exchange programs.
o Widespread school closures interrupting education

- Share market
o Aussie share market plummets $66 billion in opening minutes as oil price war heats up
o ASX crashes below 6000 with almost $140b wiped off in worst day since global financial
crisis
o Australian share market opens down after global markets stung by oil prices, coronavirus.

Writing task

Discuss how fear and panic of individuals from the virus, has impacted on Australian businesses.
 Discuss = identify issues and provide points for and or against

Topic 2: Law, Society, and Political Involvement

The Role and Structure of the Legal System

 The nature of laws and the reasons for laws in society in relation to values, morals, and ethics.

Reasons for laws in society

Values morals and ethics

We develop a sense of what is right and wrong from the moral and ethical values of our society.
Usually, this is reflected from the beliefs, attitudes, and values of religious institutions. For example,
murder is considered a serious crime because our society believes human life is precious and should
be protected.

How do our values, morals and ethical standards influence law reform?

A society’s legal system and its religions are often interlinked; the values found in its religious
teachings are often replicated in the legal system. For instance, it is illegal to kill a person in Australia.
The Old Testament says, ‘you shall not murder’. This means that both our legal system and the
teachings of Christianity value human life. Research the beliefs of another religion such as Hinduism,
Islam, Sikhism, Buddhism or Judaism and identify at least three similarities (or differences) in relation
to the values represented in Australia’s legal system.

 The role and responsibilities of the three levels of government, including the division of powers

The three levels of government – Structure of Australia’s government

On 1 January 1901, the Commonwealth of Australia was formed. Before Australia consisted of six
colonies, under the control of the British monarch. Each had its own form of government and set of
laws. The colonies (now states) agreed to join together to become one nation in a process
called Federation. The British monarch (queen or king) was still the head of state, but Australia
became an independent country governed by a constitutional monarchy with three levels of
government — federal (or central), state and local.
Australia’s three levels of government each:
- have their own power to make decisions
- have their own separate responsibilities
- are elected by the people.

Federal State Local

- In Australia there are two - NSW has its own - The LGAs
houses of Federal parliament operate under
Parliament: an upper house consisting of two state
(the senate) and a lower houses — an upper government
house (the house of house (the legislation and
Representatives). Legislative Council) can only make
Features and a lower house rules, called by-
- Prime minister is the head (the Legislative laws, on local
of government and other Assembly). issues.
ministers are appointed to
look after particular - Process is similar to - Are responsible
government portfolios. that of the federal for the needs of
government. the citizens in a
- Cabinet, which includes the particular area
prime minister and senior - Head of the and they obtain
ministers, makes the key government is the most of its
government decisions. Premier and head income from
of state is the land rates.
- Governor-General Governor.
represents the British
monarch as head of state - State government
and usually acts on the obtains most of its
advice given to by the income from
prime minister and other federal government
ministers. grants, and
property and
- Federal government payroll taxes.
controls those things which
affect us all, regardless of - State government
where in Australia we live. controls things
 which affect
- Money the government citizens within their
need to spend on the areas individual state and
they are in charge of is is not already a
mainly raised from taxation responsibility of the
of people and businesses. federal
government.

- Sometimes
responsibilities
overlap.

Responsibilitie - Air travel - Aboriginal welfare - Dog/cat

s - Currency - Agriculture and registration
- Defence fishing - Libraries
- Foreign Affairs - Community - Parks
- Immigration services - Rubbish
- Medicare - Consumer affairs collection
- Pensions - Education - Sewerage
- Postal services - Emergency - Streets and
- Social Security services bridges
- Taxation - Environment - Swimming pools
- Telecommunications and protection - Town planning
broadcasting - Health
- Trade and commerce - Industrial relations
- Law and order
- Public transport
- Roads and railways
- Sport and
recreation

 The key features of Australia’s court system, including the high court and its role in
interoperating the Australian constitution

Court hierarchy

Australia is a federation and as a result there are two levels of law that apply:
- Federal law
- State law

As a result, there are separate state and federal jurisdictions, each having their own court structure.
All courts have original jurisdiction, that is, the power to hear certain cases for the first time. In
addition, many courts have appellate jurisdiction. This means that the court has the right to hear cases
that were originally dealt with by a lower court, but which have been subject to an appeal.
Key terms

- Summary offence – an offence within the scope of a summary court

- Indicatable offence – more serious criminal offences
- Original jurisdiction – a courts power to hear and decide a case before any appellate review.
- Appellate jurisdiction – the power of a court to hear appeals from lower courts

Australia’s court system

- The higher courts, which hear the most serious matters, are at the top of the hierarchy, and
the lower courts, which hear less serious matters, are at the bottom of the hierarchy.
o Each court deals with specific legal matters
- If an individual is unhappy with the ruling of a lower court, they can appeal the decision and have
their case reviewed in a higher court.
o Cost of a trial (a process to determine whether someone committed a criminal act or
caused another person) becomes more expensive.
The local court (bottom tier)

- Deals with minor civil disputes e.g., where people sue other people for damage to property or for
injury claims of up to $100 000.
- Hears summary offences (minor criminal matters) such as stealing, drink-driving, assault,
possession of drugs and Indecent language.
- There is no jury (a group of people (either 12 or six) selected to hear the evidence in a court case).
- Instead, there is a magistrate (a court official who hears cases in the lowest court of law) who
hears the cases, decides the verdict, and sets any punishment.
o Can imprison an offender for up to two years per offence, or a maximum of five years.
o Hears bail (release an accused person who is awaiting trial) applications.
o Issues arrest warrants and search warrants
o Hears applications for Apprehended Violence Orders (AVOs)
o presides over committal hearings [decide whether there is enough evidence to put a
person on trial for an indictable (serious) offence] dealing with indictable
offences (major criminal matters) such as armed robbery, manslaughter, and homicide
to decide if there is enough evidence for the case to go to trial in a higher court.

District court (Third Tier)

- Cases are heard by judges (court official who has the power to make decisions on matters brought
before a court of law).
- Deals with more serious civil cases for claims over $100 000 up to $750 000 and all motor vehicle
accident cases.
- Deals with serious criminal matters such as armed robbery and manslaughter.
- Some cases a jury will decide whether the accused is guilty or not.
o If the accused is found guilty, the judge will decide on an appropriate sentence.

Supreme court (Second Tier)

- Highest in NSW and deals with the most serious criminal cases such as murder, treason and
serious sexual assault.
o Located in Sydney and headed by the Chief Justice.
- Deals with the most serious civil cases involving more than $750 000.
- Also deals with appeals from the two lower courts.
o The judgements of the Supreme Court are binding (compulsory) on all lower courts.

High court (Top Tier)

- Located in Canberra, the High Court deals with appeals from the state or territory Supreme Courts.
- Hears cases concerning the interpretation of the constitution; that is the laws of which Australia is
governed by.
- It reads, interprets, and applies the Constitution and, in reaching verdicts, it creates laws that then
affect the powers of parliaments.
- Decisions are final.
- The High Court is a federal court, which means that any decision it makes applies to the
whole country.
- The High Court consists of seven judges

Other specialised courts

- Other specialist courts on the same bottom level of the court hierarchy as the Local Court are
the Children’s Court (involves the care and protection of young children and deals with
criminal offences committed by children under 18 years) and the Coroner’s Court (inquire into the
causes and circumstances of some deaths).
- Another specialised court is the Family Court assists Australians to resolve more complex family
law matters such as divorce, parenting disputes and the division of property when couples
separate.

 The role of legal personnel and the role and selection of juries

After being arrested, you may end up in court if the police feel they have a strong case against you. If
you plead not guilty, a trial will be conducted. It will take place in a courtroom. In Australia, the
method of trial used is called the adversarial system. This means two opposing sides will present their
arguments to an independent umpire: a judge or a magistrate.
What is a Jury?
A jury is made up of ordinary people whose main role is to be independent and decide on the facts of
the case. Jurors must decide what they believe actually happened according to the evidence they have
heard. In a civil trial they must decide on the balance of probabilities whether the defendant is liable,
and in a criminal trial on whether the accused is innocent or guilty beyond reasonable doubt.

Role of the jury

Juries are used in NSW District and supreme courts to:

1. Hear and determine more serious criminal matters
2. Hear and determine civil matters involving large monetary claims.

During trial, a jury must:

- Listen to all the facts of the evidence, and remember and understand them
- Decide what they believe actually happened according to the evidence they have heard
- Put aside their own prejudices or bias
- Be fair and impartial and Understand points of law the judge explains
- Deliver a verdict on the guilt or innocence of the accused in a criminal trial or decide if a party is
liable in a civil trial.

Empanelling a jury

Once the jury panel is in the courtroom, empanelment, which is the process of selecting a jury, begins.
Potential jurors must walk past the accused and his or her counsel, as well as the prosecution. This is
so counsel can look at them and decide whether they are the type of people they want on the jury.
They have from the time each juror stands until he or she reaches the jury box to make a challenge.

Effectiveness of the jury

Some people say that juries are the best and most accepted method to use in a trial. Others argue that
they are outdated and prejudiced and should be replaced with either trial by judge alone or
professional, specialist jurors.
The jury selection process

1) First ballot
- A computer chooses people (over 18 years of age) at random from the roll (electoral).
- Some people argue that the random selection of jurors increases the risk of selecting someone
that is not suitable for the role.

2) Notice of prospective juror

- If you’re chosen in the first ballot, you receive a letter called ‘Notice to prospective juror’,
which includes a questionnaire and excusal application.
- Complete and send the questionnaire either:
- without excusal application
- with excusal application and supporting documentation. If you’re not excused, you may go
into the second ballot.
- You will not hear anything more if your excusal application is accepted.

3) Second ballot
 - People are chosen at random from the second ballot (those who returned questionnaires who
are eligible and available to serve on a jury).
- You may not get selected in this ballot.

4) Summons

- If selected in the ballot, you receive a summons for jury service stating you may need to come
to court for the jury selection process (empanelment).
- Then your panel name and number is either:
- selected for empanelment and you attend court on the day required
- not selected throughout the jury service period, so you don’t have to attend
court.

5) Empanelment

- If you do attend court for empanelment, your name may be called randomly during the
empanelment process, which means you may sit on the jury.
- If your name is not called, you’re not required to sit on the jury.
- The selection process is long in order to carefully select impartial jurors.

6) Swearing in

- If your name is called, you’re asked to swear in. You’re then directed to a seat in the jury box.
- During swearing in, the prosecutor calls ‘stand by’ or the defence counsel calls ‘challenge’.

Grounds for exclusion

1. Jury service would cause undue hardship or serious inconvenience to you, your family or the
public (such as emergency workers)
2. you have a disability that makes you unsuitable or incapable of effectively serving as a juror,
without reasonable accommodation.
3. Conflict of interest (lacking impartiality).
4. A permanent mental or physical impairment that makes them incapable of doing jury service.

Other legitimate reasons will also be considered, and a person would need to apply to be excused.
These may include:
- Medical conditions
- Education purposes (university or college classes)
- you are absent from New South Wales
- you have transport difficulties, such as unsuitable or unavailable public transport.

 How laws are made, including common and statue law.

Making laws

- The Australian legal system very closely follows the legal system that developed in Britain.
- This system of law—known as English Common Law—is based on laws coming from two sources:
- common law—laws that originate from the decisions of judges.
- statute law—laws made by parliaments.
- In Australia, the law is a combination of both types.

The beginnings of common law

- The justice system in England and Australia is based on common law. When Henry II became King
of England in 1154, in medieval times, people were tried at a number of different courts.
- Most had to prove their innocence by trial by ordeal or trial by combat.
- Henry II decided his people should all have the opportunity for royal justice (that is, the justice of
the king’s court).
- Though the other courts continued, the king’s court began travelling around, hearing cases.
- Judges started keeping records of their decisions, referring back to them when hearing similar
cases.

Common law

- Common law refers to the decisions made by judges, where there is no existing law that regulates
it. Judges can create a new law to settle a dispute.
- New decisions are recorded in Law Reports. These decisions are known as legal precedents.
- The formation of common law is often necessary.

Precedent

- A precedent is something that precedes or comes before.

- The Supreme Court relies on precedents—that is, earlier laws or decisions that provide some
example or rule to guide them in the case they're deciding.
- If your uncle bought your eldest sister a digital camera for her eighteenth birthday, you might
expect to receive a digital camera for your eighteenth birthday, or at least a present of equivalent
value. This is because your uncle set a precedent and you expect to be treated the same.
- Precedent works the same way in law. Traditionally, judges will give similar decisions in cases that
are alike. This is known as the act of precedent. Precedent helps the legal system achieve
fairness and justice as similar cases are dealt with in the same way.

Statutory interpretations

- Courts also make laws when they interpret (decide on the meaning of) words in a law made by
Parliament.
- Laws made by Parliament often use complicated language.
- Although only Parliament can change the wording of a law, when a court interprets a word, this
new meaning applies as law from then on.
- Once a judge decides on the meaning of a word or phrase, that meaning becomes law and must be
followed by other judges in lower courts.

Statue law

- Statute law is now the most common form of lawmaking in Australia.

- It involves parliament passing a Bill, which is a proposed law or a change to an existing law.
- Making statute law can be a lengthy process and involves considerable debate.
- Each member of parliament (MP) may speak either for or against the Bill before it is voted on.
- In the Commonwealth and NSW parliaments, where there are two Houses of Parliament, both
the Upper and Lower Houses must agree to the Bill.
- This means there are many checks and balances to ensure that the Bill will be of benefit to society.
- In addition to being voted on, the Bill must receive royal assent. This means that the Governor-
General (in the case of federal laws) or the Governor (in the case of state laws) must approve the
Bill.
- Their role is to ensure that Bills do not breach the constitution—the laws governing the rights and
responsibilities of government.
- Once passed by the parliament and given royal assent, the Bill will become an Act of Parliament
and therefore law.
Topic 3: Running A Business

Being An Entrepreneur

 Discuss the characteristics of an entrepreneur

What is an entrepreneur?
An entrepreneur is a person who runs a business an doing so, receives the profit (or loss) the business
makes in the process. This is considered the return for the risk the entrepreneur takes and for
organising the business activities.

Characteristics of an entrepreneur

- Identifies a need and fills it - The ability to see and take advantage of an
- Never gives up opportunity
- No fear of failure - The ability to establish a shared vision
- Takes risks - Demonstrate initiative, innovation, and
- Makes things happen resilience
- Visioners - An appreciation of the role of failure in
- Driven by their own ideas success.

Seeing and taking advantage of an opportunity

- An opportunity is something a person can see as an avenue to success. It is often identified when a
person feels they can provide goods or services in a better or different way from that already in
the market.
- Potential business owners are always searching for opportunities, such as new products, new
customers, and new ways of running a business.
- There are many sources of opportunities for business ideas, including innovation and
entrepreneurship, recognising, and taking advantage of market opportunities, changing customer
needs, research and development, technological development, and global markets

Inspiration for ideas and opportunities can be generated by:

- Listening to people (for ideas on goods and services that may not be readily available)
- Reading magazines and books and researching on the internet
- Visiting displays and exhibitions
- Accessing government statistics and research information
- Identifying a “gap in the market” that is not currently being satisfied
- Determining improvements that could be made to an existing product.

Establishing a shared vision

- Vision refers to the clear, shared sense of direction and allows people to achieve a goal.
- Having a shared vision means everyone in the business works together, as a team, to develop and
then accomplish a goal. When this happens, it is much more likely that staff will enthusiastically
contribute to making sure the vision is realised.
- The most effective way managers can share their vision for the business is through the
organisation’s goals.
- Knowing where the business is headed and what it is trying to achieve helps employees
understand where the manager wishes to take the business.

Demonstrating initiative, innovation, and resilience

- Initiative refers to the ability to be resourceful and decide, in an independent way, what to do and
when to do it.
o Doing things without being told; you find out what you need to know; you spot and take
advantage of opportunities; and you keep going when things get tough.
- Successful entrepreneurs need to be resilient. Resilience refers to the ability to cope with the ups
and downs, adapt well to change and bounce back from challenges.
- Innovation generally refers to the process of creating a new or significantly improved product,
service, or process (way of doing something).
- An invention refers to the development of something that is totally new, but innovation and invention
both result in the creation of something unique.

Being self-employed

The business owner’s personality, skills and ambitions need to be analysed because the future largely
with the owner. For this reason, people should carefully consider the advantages and disadvantages of
being self employed

Advantages of being self employed Disadvantages of being self employed

o Be your own boss – independence o Hard work and long hours

possibility of making a profit
o Challenge, reward, and satisfaction
o Increase personal wealth
o Contribute to society
o Develop own creative ideas
o Overcome unemployment
o Achieve a better lifestyle
o Employ family members
o Possible tax advantages
o Other “bosses” – customers, suppliers,
financiers
o Income may fluctuate and be uncertain
o Risk of failure
o Stress and worry
o High levels of responsibility
o Constantly solving problems
o Difficulty in selling the business

Planning For Success

 Examine the key considerations involved when planning and organising a small business,
including
  Opportunities to run a small business, e.g., market research, location, demographics, competition,
target markets

1) Market research
- Once a small business opportunity has been identified, market research is required to investigate
various aspect of the business such as location, competition, and demographics.
- Market research could involve talking with or surveying potential customers and competitors. It
could mean contacting trade or professional organisations for advice about the business and the
locations being considered.
- Market research could become as formal as obtaining data from the Australia Bereu of statistics
(ABS) about the demographics of the people in the area and the other business in the district.
- Market research helps determine:
o What consumers want/need o The ideal price
o If there is any competition o Potential locations and outlets to sell in

 Loyalty cards: Many retailers use loyalty cards to gather market research. Loyalty cards
provide stores with a huge amount of data about their customers, such as their gender, age,
address, and household size. When a customer scans their card, their transaction is recorded,
and over time, the business will be able to create a profile about their buying habits. The
business then uses that data to build a profile of each customer so they can promote their
products in a more effective way.

In order to obtain accurate information, marketers usually follow a three-step approach:

2) Location: A good location can make a difference between success and failure of physical store
businesses. This is important as they need a flow of people walking past the store (visibility). This
will have an impact on profits. Online presence is also important. E-trailers try to gain high google
ranks. The location chosen can affect many aspects of how a business operates, such as total sales
and how expensive it is to run. A good location usually equals higher cost. When determining a
location, a business must consider:
o Cost o Cost
o Closeness to customers o Closeness to competitors
 o Closeness to support serveries o Closeness to suppliers
o Closeness to complementary business o Visibility

3) Target markets: refers to the group of customers which a business intends to sell its product. A
business can have more than one target market. A businesses primary target mark if its main focus
and will be the source of most of the business sales. These are customers who are loyal and make
repeat purchases. A business secondary target market provides an alternative in case there is a
loss of customers for the primary target market. The people that form the secondary target market
purchase products from the business on an infrequent basis.

There are three main approaches to describing a business’s target markets:

i. Mass market: promoted to a large proportion/majority of members of a population
ii. Market segmentation approach: a specific group of consumers with identifiable and similar
characteristics, wants and needs
iii. Niche market: a very specific segment of the market that is targeted due to a specific
characteristic or need

Market segmentations
o Age o Educational o Lifestyles
o Gender background o Family structure
o Income level o Geographical location

4) Competition: An entrepreneur should aim to achieve a sustainable competitive advantage (having

an edge over their competitors) to capture a larger share if the market for a long period of time

SWOT analysis

One way to look at these questions is through SWOT analysis, or test (SWOT stands for strengths,
weakness, opportunities, and threats). The SWOT test should be conducted on competitors. It
should then be compared with a SWOT test on the business to be established. This exercise should
find the factors that will make the new product sell more than the competitors’ products.

Strengths Weaknesses

Characteristics of a nosiness Characteristics of a business

which give it advantages over which make it disadvantageous
its competitors relative to competitors

Opportunities Threats

Elements in a company’s Elements in the external

external environment that environment that could
allow it to formulate and endanger the integrity and
implement strategies to profitability of the business
increase profitability
5) Market segmentation Demographics: marketers break the population into many small parts to
find things that consumers of a product have in common.
i. Demographic characteristics: segmenting a group on the basis of age, family size, gender,
income, occupation, education, religion, or race. It is the most popular and easiest form of
segmenting a market as consumer behaviour is commonly linked to demographics and it is
easy to measure.
ii. Psychographic characteristics: the lifestyle, beliefs and attitudes of consumers will determine
the types of products they buy. This includes their hobbies and interests, attitudes to social
issues. E.g., busier people buy fast-food, active people buy sports goods, ethical views stop
people buying clothing from sweatshops. These are harder to measure and identify.

Marketers use strategies to sell products to customers. The two main strategies they use are:

1. Product differentiation: occurs when products (goods or services) that are the same or similar
are made to appear different from and/or better than those of their competitors. By listing the
differences between one product and another, a business (seller) is simply trying to make its
product more desirable to consumers. The following factors are often used to differentiate
products:
o Customer service o Being socially/ethically responsible
o Convenience o Price
o Environmental friendliness o Quality
o Value for money o Packaging

2. Product positioning: product positioning refers to the creation of a product image in the minds on
consumers compared with the image of competing products. It aims to create positive impression.

 Key features of organisational structures, e.g., sole trader, partnership, private company, and
incorporated association

Unincorporated: Businesses which are not legally separate from their owner. When the owner dies so
does the business entity. This is most common legal structure in Australia, as it is the easiest and
cheapest to establish.
Incorporated: refers to the process companies go through to become separate legal entity from the
owner/s. this means the business exists in its own right and its own legal entity. Regardless of what
happens to individual owners (shareholders) of the company, the business continues to incorporate.

Five main legal structures of privately owned businesses

 Sole Trader

- Unlimited liability and Simplest and cheapest structure to establish

- The sole trader receives all the profit and suffers all the losses.
- A sole trader is a business that is owned and operated by one person. Most common in AUS.
- This means he or she can be forced to sell personal assets such as the house of car to pay for
business debts.

Advantages
o Keep all the profit
o Relatively easy to establish
o Their own boss
o Provides a sense of personal satisfaction
o Work the hours they choose to work
Disadvantages
o Unlimited liability
o Limited access to finance to ‘grow’ the
business
o The life of the business is limited
o Pay income tax rather than company tax
o It is difficult to take time off

 Partnership

- A partnership is a business owned and operated by between two and 20 people, called partners
- Partnerships also have all the owners are personally responsible for the business’ debts
- The partners share their profit and losses. It is common for people with similar skills, such as
doctors and solicitors, to form a partnership.

Advantages
o Partners share any losses
o There may be more capital to establish the
business
o The work is shared between partners, giving
each a chance to specialise
o Partners keep all the profit
o There are more people to make decisions
o It is easier for a partnership to borrow
money
Disadvantages
o Partners must share the profit
o Possibilities of disagreements among
partners
o All partners are responsible for the action
of ant other partners
o Partners have unlimited liability
o If a partner leave or a new partner join the
business, the partnership agreement must
be renegotiated.

 Private (proprietary) company

- Private companies usually have between two and 50 private owners called shareholders
- These businesses tend to be small to medium in size.
- Often family-owned
- Shares in private companies are offered only to those people the business wants as part-owners
(which is why it is called a private company).
- Private companies have the words ‘propriety limited’, abbreviated to “Pty Ltd”, after its name.
- Main advantage of a private company is that shareholders have limited liability. This means that if
the business cannot pay its debts, a shareholder generally loses only the money she or he has
invested in the business.

Advantages
o If anything happens to the company, its
members are not personally affected (limited
liability); members are only liable for unpaid
shares.
o Tax advantages – private companies pay
corporation tac on their taxable profits and
tend to be exempt from higher personal
income tax rates
o Private limited companies enjoy permanent
succession because the company is its legal
entity. Shareholders and employees act as
agents of the company, and therefore, it does
not affect the company if they leave.
o Large profits
Disadvantages
o Shared profits
o Private limited company’s must pay taxes
and insurance for their employees
o Shareholders in primitive limited company
are not able to sell of transfer their shares
to the general public
o Starting a private company can be complect
meaning that lawyers and accountants
almost always need to be involved in the
private limited company from the start,
which can be costly
o Lack of privacy – even though shares in a
private limited company cannot be publicly
traded, information concerning the
company is made public.

 Public company

- A public company can have an unlimited number of shareholders.

- The shares for public companies are listed on the Australian Securities Exchange (ASX), and the
public may buy and sell shares in those companies.
- Most public companies are large.
- Shareholders in public companies have limited liability.
- A public company must have the word ‘Limited’, abbreviated to ‘Ltd’, after its name.

Advantages
o More capital (supplied by shareholders) is
available
o Borrowing money is easier
o The liability of shareholders is limited
o It is a legal entity
o Specialised people and shareholders can be
employed to run different elements of the
business
o Ownership and control can change
frequently without new agreement being
entered into
Disadvantages
o Many governments regulation must be
considered
o Limits are placed on the board of directors
o Owners (shareholder) do not always have
control over the decisions made
o It can be expensive to set up, maintain,
organise, and wind up
o The company may become too large and
inefficient
o The company’s financial affairs are available
to the company
  Incorporated associations

- A group of five or more people may form an incorporated association in New South Wales by
registering with NSW Fair Trading. Incorporated associations are small-scale, non-profit and non-
commercial in nature. They can only conduct business in the state in which they are registered.
- An incorporated association has its own legal identity separate from its members, which provides
protection to members. Small community groups such as sports clubs and art groups usually
choose to register as incorporated associations.
- The incorporated association structure can be more effective for these types of organisations as
they are generally simpler and more affordable than a company structure.

 the range of options for financing a business, e.g., the preparation of a loan application or a simple
prospectus

Organising Finance

Businesses need money to be able to operate and this money can come from one of two sources:
1. Equity finance – from within the business itself where the owners or shareholders provide capital
needed to run the business from their own funds or using profits already earned. Sources of
owners’ equity are therefor:
o The owners saving or assets
o Retain profits of the buisness
2. Debt Finance – funds borrowed from external parties (such as banks) that need to be repaid with
interest. Sources of debt finance include
o Term loans – loans for a fixed period of time to purchase assets such as machinery.
o Mortgages – the borrower provides property as security for a loan
o Bank overdraft – a business has permission to overdraw the funds in their accounts up to
specified limit to help finance everyday payments
o Credit cards – issued by financial institutions to allow purchases to be made for payment at a
later stage
o Trade credit – businesses buy goods and services on credit to the business where it will e paid
back by a specified date in the future. It allows a business to sell the goods before they have
paid for them
Businesses will often lease equipment or buy equipment through a hire purchase agreement to sell the
goods before they have paid for them.

 likely success of small business opportunities, including the factors contributing to the success or
failure of businesses

Keys to success Barriers to success

o Prior work experiences in the field o Unwilling to take risks
o Knowledge of the business o Not enough time or energy
o Ability to learn from mistakes o Difficulty raising capital to finance the
 o Work with a strong team
o Access to information
o Entrepreneurial abilities
 the establishment of a new business or purchase of an existing business, e.g., franchising, staffing,
equipping premises, identifying an appropriate location, obtaining realistic valuations
There are 3 main ways of going into business
1. Setting up a new business from scratch
Advantages
o The owner has the freedom to set up the
business exactly as he or she wishes.
o The owner’s objectives can be matched
more closely to the business.
o The owner is able to determine the pace of
growth and change.
o The owner has more flexibility to select the
location, target market, range of products
and level of customer service.
o There is no goodwill for which the owner
has to pay.
o If funds are limited, it is possible to begin
on a smaller scale.
2. Purchasing an existing business
Advantages
o Sales to existing customers will generate
instant income.
o A good business history increases the
likelihood of business success.
o Stock has already been acquired and is
ready for sale.
o Equipment is available for immediate use.
o Existing employees can provide valuable
assistance.
business venture
o Failure to plan
o Negative cash flow
o Inaccurate record keeping
Disadvantages
o There is a high risk and a measure of
uncertainty.
o Without a previous business
reputation, it may prove difficult to
secure finance.
o Time is needed to develop a customer
base, employ staff and develop lines
of credit from suppliers.
o If the start-up period is slow, then
profits may not be generated for
some time.
o Potential customers may be more
difficult to attract than initially
expected or unforeseen competition
may appear, especially if the level of
planning was inadequate.
Disadvantages
o The existing image of the business may
be difficult to change, especially if the
business had a poor reputation.
o The success of the business may have
been due to the previous owner’s
personality and contacts which may be
lost when the business is sold.
o It may be difficult to assess the value of
goodwill with the likelihood of paying
more than the business is worth.
o Some employees may resent any
change to the business operation.
 3. Purchasing a franchise

Advantages Disadvantages

o Products, equipment, premises design and
marketing are usually established.
o The franchisor often provides training.
o There is less need for the franchisee to have
previous business experience.
o The investment risk may be lower.
o There is immediate benefit from the
franchisor’s goodwill.
o The franchisor usually controls everything
to do with price, suppliers and health
regulations.
o Profits must be shared with the franchisor.
o The franchisor often charges a service fee
for advice.
o Contracts may be biased in favour of the
franchisor.
o The franchisee may merely feel like an
employee, but without the benefits and
security.
o The franchisee has to deal with day-to-day
operations, and they are legally
accountable

Business Operations

 examine key considerations involved in running a small business

Once someone has made the decision to start their own business, there are a variety of factors that
need to be considered. Some of these considerations include:
- Regulations that affect the business’s operations.
- Marketing strategies that can be used to promote the business.
- Ethical decision-making and corporate social responsibility.
- Organizations that provide support and advice to small businesses.

 local, state and federal regulations affecting a business’s operation, e.g. Work Health and Safety,
taxation, environmental regulations

All small business owners would be aware of legislation (law) that affects their business, especially
the regulation, license, and approvals they may require to operate legal. All these levels of government
have regulation that must be followed by small business owners
o Federal o State o Local

Federal State Local

Federal government obligations State government obligations Local government obligations
include: include: include:
 o Payment of Pay As You Go
(PAYG) income tax and
fringe benefit tax, where
applicable
o Goods and services tax
(GST)
o Abiding by unfair
dismissal laws when
dismissing employees
o Ensuring employee
working conditions abide
by the National
Employment Standards
(annual leave, maximum
number of working hours)
o Registration of the
business name unless the
business carries the name
of the owner
o Not engaging in
misleading or deceptive
advertising (Competition
and Consumer ACT
(2010).
Almost every aspect of business is affected by government regulations:
o Provision of employee
entitlements such as
award rates of pay and
conditions
o Abiding by work
health and safety
regulations
o Taking out workers’
compensation
insurance
o Abiding by any
pollution controls
o Observing regulations
relating to the sale of
food, cigarettes and
alcohol
o Adequate and non-
deceptive labelling of
all foodstuffs and
clothing.
o Any business using
premises or land must
first seek local
government approval.
o Local governments have
control over the
following business
activities:
o Determining land zoning
(use) and approving
new development
applications
o Fire regulations,
especially fire
prevention facilities
o Parking regulations
governing the number of
spaces that need to be
provided
o Health regulations,
especially the safe
handling of food
o The size, shape and
location of business
signs.
Three major regulations affecting business operations include work health and safety, taxation and
environmental regulations.

Work health and safety

- A business owner is legally responsible for implementing health and safety practices in the
workplace when he or she establishes a business.
- The Work Health and Safety Act 2011 is the main law covering WHS.

Some of the main obligations under this law include the following:
- Employers must ensure the health, safety and welfare at work of all employees by providing a safe
system of work.
- Employers must ensure that all employees are adequately trained in relation to WHS.
- Employers must ensure that machinery and substances are used, handled, stored and transported
safely.
- All employers must take out workers’ compensation insurance.
- Corporations may be fined up to $3 million and individuals $300 000 and/or a five-year prison
sentence for serious breaches.

Taxation

- Taxation is the compulsory payment of a proportion of earnings to the government.

- Some of the main taxes that affect a business are shown in the table below.
Environmental regulations

- All levels of government administer environmental protection laws in Australia.

- The Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act) is the Federal
government’s main environmental law.
o Focused on the protection of threatened species; World Heritage Sites; the Great Barrier
Reef Marine Park; etc.
- In NSW the Protection of the Environment Operations Act 1997 (POEO Act) is the main law
regarding environmental protection.
o Administered and enforced by the Environment Protection Authority (EPA).
- It’s important that all business owners make sure they comply with all environmental laws as
there are serious penalties if these laws are breached.

 Appropriate marketing strategies for promoting a business and selling products or services

Promotion

Promotion refers to methods used by a business to inform, persuade, and remind customers about its
products. Some of the main forms of promotion include:
- Personal selling: involves the activities of a sales representative directed to a customer in an
attempt to make a sale.
- Relationship marketing: refers to the development of long-term, cost-effective, and strong
relationships with individual customers.
- Sales promotion refers to activities or materials used by the business to attract interest and
support for the good or service — e.g., free samples, coupons, and point-of-purchase displays.
- Publicity: refers to any free news story about a business’s products.
- Public relations: those activities aimed at creating and maintaining favourable relations between a
business and its customers.
- Advertising: where print or electronic mass media are used to communicate a message about the
product.

Since each promotional strategy has different benefits, it’s important for businesses to use a mix of
these strategies in order to cater to the needs of everyone in their target market.

 The importance of ethical decision-making and corporate social responsibility

Ethical decision-making and corporate social responsibility

- Concerned with what is morally right or wrong.

- Socially aware business owners recognise the importance of planning business objectives that
incorporate corporate social responsibility.
- Corporate social responsibility (CSR) refers to the way that a business considers the financial,
environmental, and social impacts of its decisions.
- A socially responsible business will attempt to achieve two goals simultaneously: increasing profit
as well as providing for the greater good of society.

Benefits of ethical decision making and corporate social responsibility

- Improved business reputation

- Increase sales
- Increase employee satisfaction and productivity
- Marketing opportunities if the business receives publicity in the media
- Attracting better employees who want to work for organisation that are socially responsible
- Helping business achieve a sustainable competitive advantage

Socially responsible approaches to business

  organisations that provide support and advice to small businesses in Australia

Sources of Support and Advice

Business owner can receive assistance from a large number of government and private support
agencies including:
- Solicitors - Libraries and reference material
- Accountants - ABS
- Networks - Federal business government websites
- Bank managers - NSW department of industry
- Manage consultants - Chambers of commerce

Maintaining Financial Records

 explain the importance of maintaining financial records and minimising risk

Financial records enable business owners to manage their cash flow. Accurate financial records allow
business owners to see how much money they have available and whether or not with this will be
sufficient to meet their obligations when they fall due

 the purpose and use of financial records, e.g. to inform decision-making and fulfil legal
requirements

Purpose and Use of Financial Records

All small business owners need a set of accurate and up-to-date financial records to track the success
of their business and to help minimise risk.

To inform decision making

- Business owners needs good financial records to be able to monitor the progress of their business.
Business owners need to know where their organisation stands so they can make informed
decisions about the business
- Accurate financial records allow the business owner to see whether sales are increasing or
decreasing, what their expenses are, which items are selling, whether they are meeting their goals,
how much stock they have on hand and how much they need to order.
- From this information, business owners can make informed decisions about how to operate more
efficiently and profitably, which will increase the likelihood of business success.

Fulfil business requirements

- Business owners are required by law to keep a range of records for their businesses including
business registration documents, leases, contracts, records relating to income and expenses, who
they employ, where their business operates from and insurance documentation.

To Meet Tax Obligation

- Business owners are responsible for meeting their federal and state obligations
- They need to keep accurate records to help them prepare their activity statements and annual
income tax return.
- Some tax records and business owners have to keep include sales records, purchase/expense
records. Year-end income tax records, banking records and payments to employees and
contractors.
- Without accurate records, business owners can under-pay or over-pay on their taxes, which might
get them in trouble with ATO.

To Obtain Funding for a Loan

- Lenders and investors will want to see accurate financial records such as a balance sheet and
income statements before they loan money to a business
- They would be unlikely to invest in or make loans to business that cannot demonstrate its financial
position.

How long do financial records need to be kept

- Legally, business owners need to keep records and documents for different lengths of times
depending on the government department that needs the information or your business structure,
- In general, sole traders and partnerships must keep records for at least five years and companies
for a minimum of seven years.
In summary
  The features of key business documents and how to interpret them, e.g. profit and loss
statements, balance sheets, cash flow and taxation records

Records kept by businesses

Record Examples
Financial Receipts/invoices, staff hours and payments, banks statements, register of
business assets, tax returns and activity returns, loan or financing
contracts.
Legal Business registration; leases; supplier contract, insurance
Employee Bank account, tax file number, superannuation details, contact details,
work performance, work injuries
Policy and procedures Workplace health and safety plan, conduct code, operations and training
manuals
Other Customer quotes, customer complaints, disputes, marketing/promotion
strategy and outcome
Profit and loss statement

- A business earns income by selling a good or service to its customers. This is known as trading.
- To measure how successful a business is at trading, a financial report called a profit and loss
statement, or an income statement is drawn up.
- An income statement is a summary of the income earned and the expenses incurred over a period
of trading.
- It allows business owners to see exactly how much money has come into the business as revenue,
how much has gone out as expenditure and how much has been derived as profit.
- A profit and loss statement can be prepared using the following steps:
o Step 1: Record the revenue, which is the income earned by a business from sales. (215,000)
o Step 2: Record the cost of goods sold (COGS). This refers to the value of stock (inventory)
that a business has sold to its customers. (90,000)
 o Step 3: Calculate the gross profit. This is done by subtracting COGS from revenue, i.e. gross
profit = revenue – COGS. (125,500)
o Step 4: Record and total the expenses, which are the costs incurred in running the business.
Common expenses include wages and salaries, purchases of raw materials, payments for
telephone, electricity and so on. (63,500)
o Step 5: Calculate the net profit or loss. A net profit/loss is the i.e. net amount remaining
when the expenses are deducted from gross profit ie. Net profit = gross profit – expenses.
(61,500)

Features of profit and loss

- How much income the business earned from sales

- The expenses a business incurred over a period of time
- How much money the business spent on stock (cost of goods sold)
- How much gross profit the business made over a period of time
- How much net profit the business made over a period of time.

Balance sheet

- The balance sheet, or statement of financial position, shows the financial position of a business at a
particular time.
- It records three different sets of accounts — value of assets; value of liabilities; and proprietorship
or owner’s equity.
- The balance sheet is called the balance sheet for a good reason — it should always balance.
- This means that the total of items on the left-hand side (the assets) must total the sum of items on
the right-hand side (liabilities and owner’s equity).
- This is summarised in the basic accounting equation:

assets = liabilities + owner’s equity

Features of a balance sheet

  Assets

Assets are the resources that a business uses to operate its business such as cash, inventories, land
and buildings, and equipment. Essentially, assets are any items of value owned or controlled by the
business that contributes towards generating revenue. Assets are categorised as:
- Current assets: are items of value that are expected to be consumed or converted into cash within
the next 12 months. Examples include cash, inventory that is turning over regularly and accounts
receivable.
- Non-current assets are not expected to be consumed or converted into cash within the next 12
months. Examples include assets that the business would generally keep for more than one year
such as plant and equipment, cars, and buildings.

 Liabilities

Liabilities are the financial obligations or debts of the business and include claims that creditors have
on the business’s resources such as accounts payable, bank overdrafts, provision for employees’
annual leave and long service leave, tax liabilities, and loans payable. Essentially, liabilities are
amounts owed by the business to external parties. Liabilities are categorised as:
- Current liabilities: are expected to be paid within the next 12 months and include creditors,
(accounts payable), inventory purchases, overdraft, short-term loans and credit card debts.
- Non-current liabilities are not expected to be settled within the next 12 months and include
mortgages on buildings and equipment, and long-term loans.

 Owners’ Equity

- Owners’ equity is the residual interest in the assets of a business after liabilities are deducted. It is
the net worth of a business and equals the difference between assets and liabilities.
- Equity represents the amount belonging to the owner once all financial obligations have been met.
- Equity includes the initial and ongoing capital investments made by the owners, retained earnings
(or accumulated losses), and reserves.
- Capital is any cash or assets the owner has contributed to the business. Retained earnings are any
profits that are reinvested in the business. Reserves are profits set aside for purposes such as asset
replacement, or major building maintenance.
- Owner’s equity is also referred to as proprietorship, member’s funds, capital, or shareholders’
equity

Cash flow

- A cash flow statement indicates the movement of cash receipts (inflows — such as money from
sales), and cash payments (outflows — such as payments for expenses), over a period of time.
- By regularly comparing the totals of receipts and payments, a business is able to calculate its
surplus or deficit of cash.
- This is an important indicator of a business’s liquidity — the ability of a business to pay its short-
term debts on time.
- A cash flow can show whether a firm:
o Generates a favourable cash flow
 o Pay its f9nancial commitments as they fall due (e.g., interest on borrowings, repayments of
borrowing and accounts payable)
o Have sufficient funds for future expansion or change
o Obtain fiancé from external sources when needed

CASH INFLOWS  CASH OUTFLOWS

Cash sales  Payments for stock

Credit sales when paid  Payments for expenses (wages,

insurance, etc)

Other income (e.g., interest from  Payments for non-operating expenses

investments, non-operating income)

Taxation record

- Business owners need to be aware of exactly what taxation records they need to keep and for how
long.
- Generally, business owners must keep records for five years from the data they lodge their tax
return. Business owners can keep records in paper in digital format. If a business uses digital
records, it is recommended that they keep back up
- The types of records that should be kept can be organised into the following categories:
o Payments the business has received
o Expenses related to payments the business has received
o Records relating to the purchase or sale of assets
o Tax-deductible gifts, donation, and contributions

 strategies which businesses may put in place to minimise risk and avoid insolvency and
bankruptcy, e.g., proposing a course of action for a hypothetical business

- There are many risks that small business owner must be prepared to take and manage.
- However, there are strategies which businesses may put in place to minimise risk and avoid
insolvency and bankruptcy. Risk management is the process of:
o Evaluating the risks faced
o Calculating the possible costs
o Implementing procedures to minimise such risks
- Unexpected occurrences may be costly and threaten the viability of the business. Some events
could lead to the insolvency of a company or to a personal bankruptcy.
- Thorough planning is required to minimise the damage of these unexpected events.
- Below are some possible strategies to help reduce their impact on a business.
 Possible risk Risk minimisation strategy
Risking bad debts If customers are consistently late in paying, enforce a strict
credit policy. The policy could include charging customers late
fees for any late payments
Lawsuits Comply with statuary regulations and take precautions not to
harm others – a reasonable duty of care
Failing sales Conduct market research to find out why sales are failing. Try
to reduce costs to ensure the business survives.
Machinery breakdowns Set aside money to cover the costs of repairs and service
equipment. Regularly. Ensure machinery is inspected and
serviced regularly and that staff are trained on how to use the
machinery correctly.
Physical damage Take out an appropriate insurance policy such as fire, storm,
flood, or earthquake.
Copyright infringement Obtain protection of your new product or idea (patent).
Supplier problems Use a number of suppliers. Do not rely on only one
Ill health Death or disability insurance can protect your business
Tax obligations Keep up to date with changes to taxation and keep detailed
records
Expanding too quickly Slow the growth rate to a more sustainable level
Writing cheques in excess funds Examine your cash position and talk to your suppliers
Theft Put in place stock loss and crime prevention measures and
improve security
Computer security Install antivirus software, operate from a secure site, use a
VPN (virtual private network) and back up all files.

 the ways businesses respond to changing economic conditions

the Australian economy experiences economic ‘boom’ and ‘bust’ cycles. These periods of high anf low
economic activity are referred to as the business cycle. After a period of prosperity, business activity
gradually slows down until a recession or depression is reached. Eventually, business picks up again
until prosperity is restored. This completes the cycle

economic forces have an enormous impact on both business and customers. They influence a
businesses’ ability to compete and a customer’s willingness and ability to spend.

The ways businesses respond to changing economic conditions is summarised in the table below:

Business responses to peaks Business responses to troughs

o Increase employees’ wages and salaries o Keep employees’ wages and salaries at
o Increase production to take advantage of current levels
an increase in sales o Decrease or maintain production at
o Hire more staff current levels
 o Increase prices o Decrease the size of the workforce
o Expand business o Keep prices at the same level
o Invest in new equipment, technology, or o Put a stop to expansion or possibly chose
assets some locations
o Maintain current equipment, technology,
or assets.

There are four main key business functional areas – operations, marketing, finance, and human
resources. Some of the key issues, processes and strategies related to running a business have been
categorised under these functional areas and are summarised in the following graphics.
Topic 4: Promoting and Selling

The selling process

 outline key features of the selling process

 how businesses differentiate products

What is product differentiation?

When products that are same or similar are made to appear different and/or better than those of their
competition. Examples include:
o Jeans from Target v Levies Jeans
o Coca Cola soft drink v home brand soft drink
o Apple smart watch v a G-shock watch
o Mercedes Benz car v Toyota Corolla

Factors which differentiate products

1) Customer service

- Consumers expect a high level of customer service. Ore-ales and after sales service are very
important to consumers purchasing expensive items such as cars or electrical appliances
- Services may also include the presentation of the premises, the atmosphere, or the range of
products that set a business apart and capture the consumer’s interest.

2) Convenience

- Consumers are busy so they will often select products that are convenient to use such as prepared
meals as they have no time for their own meal preparation.
- Food manufacturers have developed a range of convenience good products. The packaging an
cooking requirements are designed to make the preparation as convenient as possible.

3) Environmental issues

- Businesses that create pollution may risk losing customers, whereas businesses that adopt a
‘green’ philosophy and produce environmentally friendly products may see their sales increase.
- For example, the body shop us committed to producing products that are sensitive to
environmental concerns. It sells all its products in reusable or recyclable containers, many of
which are reifiable.

4) Social and ethical issues

- A growing number of consumers are becoming more ethically minded and will actively purchase
products or brands that they believe do not exploit workers, producers, or the environment.
- Ethical consumerism provides a business with opportunities to satisfy the demands of this
growing number of consumers. For example:
 o in response to the dislike of genetically modified (GM) foods by some consumers, various
producers are labelling their products as GM-free
o the Fairtrade Certification system is gaining influence, with more consumers choosing to
buy products carrying the FAIRTRADE Certification Mark, ensuring minimum prices, fair
labor practices, sustainable production, and an additional premium for community
development
o the cosmetic industry is delivering more natural products that are not tested on animals.

5) Value of money
- As a consumer, you want the best value for your money. To satisfy this requirement, sellers will
offer and promote a range of products at different process.

Product positioning

- Closely tied to product differentiation is the practice of product positioning. This refers to the
creation of a product image in the minds of consumers compared with the image of competing
products.
- Some brand names, such as Rolex, Ferrari and Louis Vuitton, can immediately suggest an image of
the product’s quality. This image gives the product its position within the market.
- In highly competitive markets, businesses will attempt to create an image that differentiates their
product.

 the social, ethical, and environmental considerations involved when promoting products
 the nature of product promotion, eg the role of gender

Role of gender in product promotion

- Males and females are frequently portrayed in advertising in ways that appeal to certain sections
of the population.
- Often this reinforces existing ideas about the sexes and their relationships.
- This occurs because advertising often involves the use of stereotypes- exaggerated pictures or
images of particular groups.
- Stereotypes are often applied to the sexes.
- For e.g.
o In childhood, all girls love dolls and all boys love toy cars and guns.
o Women are portrayed as beautiful, tall and thin. Men are portrayed as wealthy, good
looking, well dressed and athletic.

 appropriate target markets for particular products

Market segmentation

- Market segmentation: is when the total market is subdivided into groups of people who share one
or more characteristics.
- The main features used to segment the total market are:
o Age
 o Gender
o Income level
o Educational background
o Geographical location
o Lifestyle
o Family structure
- Once the market has been segmented, the business selects one of these segments to become the
target market.
- The ultimate aim of market segmentation is to increase sales and profits by better understanding
and responding to the desires of target customers

 how promotion strategies target young people and particular groups in the community

Target market

- Sales are the lifeblood of the business, so it is necessary to have a good understanding of one’s
target market.
- Target Market: is the group of customers to which the business intends to sell its products.
- Once the target market has been identified, the business concentrates its marketing activities on
that group.
- For example, the target market for a women’s fashion boutique in central Sydney would consist of
the following types of customers:
o Female
o 24-45
o City-based
o High income

- Primary target market: these are the customers who are loyal to a particular business and make
repeat purchases. A business’s primary target market will generate most of its revenue.
o E.g., McDonalds’ primary market is families, students, working adults
- Secondary target market: this market provides an alternative in case there is a loss of customers
from the primary target market.
o E.g., McDonalds’ secondary market: health-conscious individuals
- Niche market: this is a very small segment of the total market. In a sense, it is a segment within a
segment, or a “micro-market”.
- For example, in a newsagent you will see rows of magazines, each appealing to a specific niche
market:
o Male
o Female
o Young
o Old
o Urban
o rural.
o Outdoor lifestyle
o Indoor lifestyle etc
  legal and ethical issues which may arise from particular product promotion strategies

Legal Issues

- The Competitor and Consumer Act 2010 (Cwlth) makes false and misleading advertising illegal.
- Advertisements must not use words that are deceptive or claim that a product some specific
quality when it does not.
- The most common methods used are:
o Exaggerated claims: these are claims that cannot be proved. For example, a certain
shampoo is superior to any other on the market cannot be confirmed by consumers.
o Vague statements: this involves using words ro ambiguous that the consumer will assume
the advertiser’s intended message. For example, ‘help’ is a common vague word. ‘Helps fight
against’ or ‘helps restore’.
o Before and After advertisements: consumers may be misled when ‘before’ images are
worsened and after images are enhanced.
o Special offers: it is misleading to imply that a special offer is available for a limited period
when, in fact, the offer is continuously available.

 Analyse selling techniques used by businesses to promote a product or service, including:

 The range of selling techniques used to market a good or service
 The effectiveness of selling techniques used for a particular product or service
 The factors influencing contemporary selling techniques, eg technology, social media, global
markets and government regulations

Aims of promotion

- Increase sales
- Change perception and attitudes
- Inform, persuade and remind
- Attract new customers
- Change behaviour
- Increase market share
- Brand recognitions

Selling techniques

1) Advertising: Advertising is a paid, non-personal message. Print and electronic mass media are
used to communicate a message about a product.
o Advantages: reach a wide audience, creates awareness, control over the message being
promoted
o Disadvantages: often expensive, impersonal
2) Personal selling: Personal selling involves the activities of a sales representative directed at a
customer in an attempt to make a sale. Because of its one-on-one nature, personal selling can be
much more persuasive than advertising. In addition, the message can be modified to suit the
individual customer’s circumstances
o For example, a real estate agent uses personal selling when he or she shows a house and
tries to persuade the potential homeowner to purchase it.
 o Advantages: message is personalized, can convey more information, higher customer
attention, persuasive impact, ability to develop a relationship
o Disadvantages: can only reach a limited number of customers, labor intensive, expensive
3) Public relations: Good public relations involved not only creating favourable publicity but also
minimising the impact of negative situations.
o Advantages: Can reach a wide audience if story is picked up by news outlets, Cost effective-
can be a cheaper way of reaching wide audiences than paid advertising, Influence- audience
more likely to trust a message from an objective source rather than paid advertising. More
credible and persuasive.
o Disadvantages: Hard to measure success, No direct control over how business is portrayed
in the media, No guaranteed results- can’t guarantee your story will be published
4) Sales promotion: When a business offers a direct incentive to customers in an attempt to sell more
if its products.
o Advantages: Helps create awareness of a new product, encourages people to try a product
they may never have tried before, helps to sell more stock faster
o Disadvantages: Can lower the perception of a brand is sales promotion is overused,
Repeated use of sales promotion may cause customers to wait until the product is on sale
before buying
5) Internet marketing: uses the internet to deliver promotional marketing messages to consumers
o Advantages: Effective way to reach many customers- most Australians spend more time on
the internet than TV, Lower cost- especially compared to traditional methods of advertising
o Disadvantages: Viewing problems such as low connection speed or lags in websites,
Customers can ignore ads by closing them or not clicking
6) Social media: Brands use social media to raise awareness of their products and allow people to
connect with the brand online.
o Advantages: Businesses can create fan pages which customers can follow, Low cost-
majority of social media sites are free, Ability of users to share news or tag people in the
post
o Disadvantages: Managing an account takes time and effort, Information is only visible for a
short time before a newer post replaces it, Unhappy customers can easily publish negative
comments which can go viral
7) Sponsorship: Sponsorship is when an organization or event is paid to use your branding and logos.
o Advantages: Raises awareness- visibility in media coverage e.g. Telstra stadium, Brand
enhancement- associating brand with another individual or event that has a strong
reputation
o Disadvantages: Sponsorship can be very expensive, Negative image association- e.g. if
sportsperson is caught cheating