Finance:

Equity finance: Equity finance includes all funds that are obtained from the
owners or from within the business itself. It is essentially the selling of
shares to increase Capital (the money used to build, run or grow a
business)
Examples:
- Internal:
- Owners funds
- Undistributed profits (Retained earnings)
- Sale of existing business assets
- External:
- Issue of shares

Three advantages of Equity financing:

- Funds do not have to be repaid at all
- Cheaper than other sources of funds since no interest payments are
required
- Less risk for the business and then owner

Three disadvantages of Equity Financing:

- Ownership is diluted when selling shares which may introduce conflict
- Lowers profits and returns to owners, since profit must now be shared
with other owners
- Not well suited to raising funds in a hurry, in response to unexpected
need or opportunity as it is a time consuming process
Debt financing: Debt finance is borrowed funds, generally from financial
institutions such as banks or other businesses:

Advantages of debt financing:

- Ease of accessibility as funds are usually readily available
- Does not divide ownership of the firm
- Interest payments are tax deductible, which reduces the cost of debt
financing.

Disadvantages of debt financing:

- Cost of borrowing can be high, due to interest
- Regular interest and principal repayments must be made within
certain dates
- Increases the gearing levels (the amount of debt – in proportion to
equity capital – that a company uses to fund its operations) which
increases the risk of insolvency
Balance sheet: A snapshot of your business finances as it currently
stands.

Consists of:
- Assets: Includes: Cash, Office furniture, inventory, patents
- Broken up into current and noncurrent assets. Current assets are
what can be sold quickly.
- Liabilities: Debts what you owe to other people. Like credit card
debts, mortgages and accrued expenses. There are current liabilities,
which you owe within the next 12 month. And then long term
liabilities, non current assets
- Owners Equity: Includes capital, retained profit and drawings

Formula for Balance sheet:

Assets = Liabilities + Equity

Income statement: How much money your business has spent and has
earned within a specific time period. Which lets you calculate your net
profit.

Revenue: How much total money earned

Cost of goods sold: How much money it costs to make and distribute your
products or services

Gross profit: Revenue - cost of goods sold (COGS). How profitable your
business is

Expenses: Costs of running a business.

Net income = Gross profit - Expenses

Cash flow statement A financial report that summarizes cash transactions
– involving cash flowing into and out of the business – that have occurred
over a period of time.

Marketing:
The process of planning, pricing, promoting and distributing goods and
services to create exchanges that satisfy individuals. Marketing is vital to
the existence of the business, because without some form, customers may
not be aware of a product's existence.

Identification Of The Target Market

- Target Market: Customers with similar characteristics who purchase

the product
- Mass Market: The seller mass produces, mass distributes and mass
promotes one product to all buyers,
seeking a large range of customers
- Market Segmentation: Occurs when the total market is subdivided
into groups of people who share
common characteristics. The ultimate aim is to increase sales and
profits by better understanding and responding to the target market
- Geographic: characteristics based on what consumers live
- Demographics:Those things concerned with features of the
population, such as age, gender, income, jobs and education levels.
- Psychographics:Include personality, lifestyle, interests and social
class
- Niche Market: A narrowly selected target market segment
Marketing Mix: Product, Price, Promotion, Place

- Marketing Mix: Combination of the four P’s, which include product,

price, promotion and place
- Marketing Strategies: Actions undertaken to achieve the business a
marketing goals

Product: The products quality, design, name, warranty, packaging, and

labeling

- Product Packaging: The development of a container and graphic

design for a product. Well designed packaging will give a positive
impression of the product and encourages first time customers to
purchase it as well as helping to preserve the product
- Product Branding: A name, term, symbol or design that identifies a
specific product distinguished from its competitors

Price: The payment required to purchase a product, a price set too high
could mean lost sales, and a price set too low may give customers the
impression of a ‘cheap’ product. Methods for calculating price include:

- Cost Based: Calculating the total cost of producing/purchasing a

product and adding a mark up for profit-
- Market Based: Setting prices according to what the market is
prepared to pay-
- Competitor Based: Choosing a price that is either below, equal to or
above that of the competitors

Promotion: Methods used by a business to inform, persuade, and remind

customers about its products with the aim of attracting new customers, and
encouraging existing customers to purchase more. Changes in technology
are having a significant impact on how businesses promote their products.

- Personal Selling & Relationship Marketing: The activities of a sales

representative in helping customers, explaining benefits, and
effectively displaying the product
 - Sales Promotion: Activities or materials used by the business to
attract interest and support for the good or service, such as free
samples, and coupons
- Publicity & Public Relations: Any news stories about a business's
products
- Advertising: Prints used to attract potential customers, create a
demand for the product and communicate essential

Management Skills

- Interpersonal Skills: Those skills needed to work and communicate

with others and to understand their needs. It additionally relates to
appreciating the needs of others, showing a genuine understanding,
motivating, leading and inspiring
- Communication: The exchange of information between people.
Communication is important, whether it is verbal or non verbal, as
miscommunication can lead to false messages. Research shows that
about 70% of workplace mistakes are the result of poor
communication
- Strategic Thinking: Allows a manager to see the business as a whole
and take the long term view. The ability to strategically think will allow
the manager to understand the effect of any action on the business,
and identify opportunities or threats
- Vision: The clear, shared sense of direction that allows people to
attain a common goal of what the business will look like in the future.
Without it there can be no sense of cooperation and commitment
- Problem Solving: The process of identifying causes and problems,
gathering relevant information, analysing solutions, implementing
them and evaluating
- Decision Making: The process of identifying the options available and
choosing a specific course of action to solve a specific problem
- Flexibility & Adaptability To Change: Businesses need to remain
flexible/adapt their business to changing circumstances in the internal
and external environments
 - Reconciling The Conflicting Interests Of Stakeholders: Stakeholders
are groups and individuals who interact with the business, therefore
have an interest in its activities. Internal stakeholders include
employees, managers, and shareholders, while external stakeholders
include suppliers, the society and environment. All stakeholders
require something different, and place competing demands upon the
business. To reconcile the conflicting interests, some businesses use
a process of stakeholder engagement, where the businesses shares
information with and seeks input involving stakeholders in decision
making

Management approaches:

Classical approach:

Classical management theory focuses on the rigid hierarchy of the

organizations, the specialization of tasks, and financial incentives for
employees. This type of management focuses on increasing productivity
and efficiency. There are clear expectations for employees and
communication flows from the top down. Its an autocratic leadership style

- Pyramid hierarchical management structure

- One way communication, top to bottom

Strengths Weaknesses
High degree of specialization and Quality issues due to repetition of
division of labor increases boring tasks
productivity
Employees skills are matched to Major division between employees
the appropriate task and managements can cause
conflict
Training maximizes productivity of Human and social needs are
employees ignored
Behavioral approach:

- Recognises that workers have social needs as well as economic

needs
- Teamwork and informal work groups important for productivity
- Development of people management skills, particularly
communication and social motivation skills
- Democratic approach

Organizational structure

- Flat organizational structures

- Two way communication
- CEO, team leaders and employees

Strengths
Focus on effective leadership and
appropriate strategies to motivate
staff
Improved staff morale and
productivity because employees
feel valued and included
Better communication and
understanding of the business
vision and mission
Weaknesses
Decisions can take longer to
implement with employee input
Less suitable for unskilled and
inexperienced workers who need
clear directions
Less suitable for large
manufacturing processes
Contingency Theory stresses the need for flexibility and adaptation of
multiple management practices and ideas to suit the ever changing
circumstances. It considered how no two situations are identical and
require their own solution. Which is why managers should blend a range of
different approaches and practices to maximize the efficiency of their
business.

Strengths
Focuses on flexibility, vision and
adaption
Faster responses to changes in the
business environment mean that a
business can keep its competitive
advantage.
Weaknesses
Resources invested in alternative
plans that may never be needed
Relies on strengths of
management’s skills in solving
complex problems

Change is viewed as an opportunity EMployees and management must

rather than a threat be able to cope with change
Business Life Cycle
Phases: Establishment - Growth - Maturity - Post Maturity
Establishment phase: When the business first enters the market
Characteristics
High costs associated with
establishing a business
Slow growth in tasks
Marketing products may also be
restricted
Limited financial resources
available
Owner must make decisions on the
location of the business, types of
products or services the business
will sell.
Suitable legal structure
Challenges
Generating sufficient revenue to
cover costs and provide a profit to
the owner.
Developing appropriate marketing
strategies to create aware of the
business and the products it sells
Choosing a suitable location that
does put the business in financial
strain and is in proximity of the
potential customers
Ensuring all governmental
regulations are followed.
Growth phase:
Characteristics:
The business is experiencing
increased sales. More customers
are aware of the product.
Subsequently, the business’s
revenue, profit and market share
increase.
The business must look at
developing budgets to ensure
greater organization of financial
issues
Businesses will need to ensure
there is enough cash to fund the
day-to-day operations of the
business, which is the liquidity.
Liquidity is the ability of the
business to fund short term
expenses
Changes in staff; staff have more
responsibilities and recruited in
more specialized roles
Challenges
Developing effective stock-control
methods. Manager will need to
ensure the business is not
overstocked as this presents the
possibility that excess stock is not
sold. On the other hand, it should
be ensured that there is sufficient
stick to satisfy customer demands
The business may need to
oustoruce its non-core activities like
accounting, marketing departments.
Which would allow managers tyo
concentrate in the central activity
Businesses may need to form
partnerships with other businesses
or take over other companies to
remain in the growth phase.
Maturity phase:
Characteristics
The business’s growth and market
share begin to slow
The business faces increased
competition from new entrants in
the market
New form of product innovation
Challenges
Needing to dvelop strategies to
maintain customer loyalty and
interest in product
Motivating employees and
management so tasks do not
become routine and boring
Maintaining an active interest int eh
external environment of the
business in order to be aware of the
changing consumer patterns, new
production methods and
competitors advantage.

Post Maturity
The post maturity phase is the final stage of the business life cycle. During
this stage, key decisions will be made that ultimately affect the long term
survival of the business.

During this stage the long term future of the business will be dictated by
one of four paths:

Steady State: When the business maintains its position in the market and
has a steady rate of profit and revenue.
Challenge: Avoid The business experiencing a state of decline

Decline stage: When the business has not been ab;le to successfully
address the various challenges it has faced in its earlier stages. The
business has lost its competitive edge and now has a decline in sales,
decline in market share. lOss in innovation and failure to keep up with the
changing wants and needs of the customers.
Factors that contribute to business decline:
- Lack of innovation
- Inadequate leadership skills at the top management
- Poor cash management

Renewal stage: The business will provide management with an

opportunity to revitalize the business and/or its product range. DUring this
phase, the business begins to experience growth in sales, market sharem
sales and profit.

Voluntary cessation: The owner decided to close down the business as

they have tried multiple strategies to regain their position back in the
market and keep up with the customers demands but continue in a decline.
External and Internal Influences:

Financial Influences: Deregulation (the removal of government regulation

from industry, with the aim of increasing efficiency and improving
competition) of Australia’s financial system began in 1983 and it continues
to undergo change. This has resulted in a more flexible approach across
the financial sector. The main source of finance for business is debt
finance, which is influenced by interest rates. Global financial speculators
may now easily make transactions spread across the globe.

Geographical Influences: Businesses in Australia may be impacted by its

geographical location within the Asia Pacific region. Changes in any
demographic factors can lead to changes in demand and the nature of
products and services.

Social Influences: Leading to significant changes in business practices,

such as an awareness of our deteriorating environment, family friendly
workplaces, and diversity in the workplace

Legal Influences: Legislation governs how businesses are conducted, and

includes laws on taxation, work health and safety, equal employment
opportunities, anti discrimination, and protection of the environment

Political Influences: As governments at all levels in Australia regularly

face elections, there is an element of politics in most major issues that
affect the business environment. A political influence that is having an
enormous impact on Australian business operations is the policy of free
trade. Free trade policies mean that barriers to trade are removed. One
barrier to free trade is a tariff, which is a tax on imported goods.
Technological Influences: Have changed the workplace, increasing
sufficiency and productivity. It allows for rapidly transmitted information, and
involves the use of hi-tech robots in manufacturing industries

Competitive Situation Influences Ease Of Entry: The ability of an

individual to establish a business within a particular industry and is
determined by the type of market concentration

Internal influences:

Product Influences: The types of goods and services produced will have a
significant effect on the internal operations of a business. Product influence
will be reflected in the type of business, whether it is a service,
manufacturer or retailer. The size of the products may additionally require
different processes and productions.

Location Influences: The location of a business can make the difference

between success and failure. Therefore, a good location will lead to high
levels of sales and profits. The business will require a constant flow of
people walking past their store to attract customers

Management Influences: Rapid advances in technology, due to the

significant pressures on businesses for increased competition, have
resulted in businesses flattening their structures. This means there are
fewer levels of management, and businesses can adapt rapidly to changing
consumer needs, as there are fewer managers who need to approve
decisions. Greater responsibility is additionally given to individuals in the
business, allowing for more involvement and innovative ideas.

Business Culture: Relates to a businesses values, ideas, expectations

and beliefs shared by staff. The style of a business is therefore reflected in
its culture, and can be revealed in the policies, goals or slogans of a
business. It can additionally be seen in the way staff dress, their language,
and the way they treat others. The elements of a business culture include:
Legal structure:

Legal structure is what type of business structure a company has, there are
four:
- Sole trader: Unincorporated
- Partnership: Unincorporated
- Private company: Corporated
- Public company: COrporated

Sole traders:
A person can carry on a business on his or her own behalf, as a sole
trader. A sole trader can trade under his or her own name or a registered
business name. The income earned as a sole trader is taxed at the same
rate as individual taxpayers.

Advantages Disadvantages
Low cost of entry Unlimited liability for debts
Complete control of the company End of business when owner dies
Owner’s right to keep all profits Difficult to operate if sick

Partnership:
Two or more individuals can carry on business in partnership, where the
income from the business is received jointly. Partnerships are relatively
inexpensive to form and operate. Most partnerships are established by a
partnership agreement, which sets out the rights and obligations of the
partners. A partnership itself is not taxable, rather each partner pays tax on
their share of the net income of the partnership
Advantages Disadvantages
Shared responsibility and workload Unlimited liability for all debts
Pooled funds and talent Possibilities of dispute
Business continues after death of pt Divided loyalty and authority
Private company:
A private company is a business structure formed by one or more people
who want to have a business that is a separate legal entity from
themselves. When you form a company, you could become an employee,
director and/or shareholder of the company. Only 2-50 shareholders are
allowed.

Public company:
A public company has the same legal structure as a private company
except that the shares of the public company can be bought by anyone on
the Australian Stock Exchange adn their are no limits to how many
shareholders there can be.

Advantages
Limited liability - separate legal
entity
Enjoys a long life through perpetual
succession
Growth potential is exponential
Disadvantages
Cost of formation is very high
Public disclosure- reporting of
certain information
Double taxation- personal and
company
Quality management
Quality of a business is not just concerned with the goods and services
provided by a business but the whole system of operations

Approaches:
- Quality control: Quality control involves establishing standards and
measuring the outputs of a business against those standards
- The total quality management (TQM) approach to quality
management focuses on continuous improvement in all functional
areas