AOS 2: Business Environments

AOS 2 Summary

• This study guide focuses on key aspects of establishing and managing a business, including environmental factors, legal structures, business models, resource management, location strategies, financial resources, support services, and social responsibility.

Internal and External Business Environments

• The business environment includes all the conditions surrounding the business operations, divided into internal and external factors.
• Stakeholders have a vested interest in the business, placing different demands that may generate conflicts that managers must control.

Internal Environment

• It includes elements with business has some control such as employees, managers, management style, corporate culture, and policies.

External Environment

• It includes all the elements outside a business that may pressure business operations.
• Legal, political, social, economic, technological, global, and corporate social responsibility factors are external factors.

Operating vs Macro Environments

• The external environment is further divided into the operating environment and the macro environment.

Stakeholders in Different Environments

• Internal: Includes employees, managers, legal business structure & business model
• Operating: Customers, competitors, and suppliers
• Macro: Corporate social responsibility, global issues, economic conditions, and government regulations

Business and Environment Interactions

• Businesses impact their operating and macro environments, and, in turn, are affected by the external environment.

Types of Legal Structures

• Main types: sole trader, partnerships & companies
• These can be further broken into:
  • Unincorporated: sole traders and partnerships.
  • Incorporated: privately and publicly owned companies, and Government Business Enterprises (GBE).

Sole Trader

• It is owned and operated by one person who has full control and keeps all profits, but also carries unlimited liability.

Partnership

• It is owned by two or more people, sharing responsibilities, workload, pooled funds, and talent.
• With few exceptions, partnerships have a maximum of 20 partners.
• Partners share unlimited liability.

Incorporation

• It involves changing the ownership structure into a company, granting shareholders limited liability.
• Incorporation must be done through ASIC, issuing an Australian Company Number (ACN).

Private Limited Company (Pty Ltd)

• Most common type of company in Australia.
• It can have unlimited shareholder numbers, however it can only have a maximum of 50 non-employee shareholders
• The business must have 'Pty Ltd' after its name.

Public Listed Company

• Shares are available on the Australian Securities Exchange (ASX) for public purchase.
• It has a minimum of three directors (two must live in Australia.)

Social Enterprise

• A business that produces goods and services for the market, while also fulfilling a social need.
• They make a profit that is reinvested instead of returning the funds to shareholders

Government Business Enterprises (GBE)

• Owned and operated by the government, aiming to make a profit while carrying out government policies.
• Examples: Australia Post, NBN Co, and VicRoads.

Business Models

• A business model is a description of the way that a business will operate
• Is constantly updated to keep on top of circumstances
• Key elements may be considered as part of planning a business model such as the main goal of the business, the goods/services offered, how sales take place, target customers, expected business costs, and whether a new business or franchise agreement will be created.
• 5 types: online, direct-to-consumer, bricks-and-mortar, franchise, importer/exporter

Online Business

• Operates solely on the internet.
• Avoids costs associated with physical stores but has disadvantages related to credit card theft.

Types of Online Business

• Advertising-based: Offer free content, generating revenue through ads.
• Freemium: Attract a customer base with free services, then generate income by selling ads or offering a subscription premium service option.
• Brokerage: Bring buyers and sellers together charging a brokerage fee on sales.

Bricks and Mortar

• Refers to businesses with a physical location, such as a retail store.
• More expensive to maintain than online businesses.

Direct-to-Consumer (DTC)

• Sell products directly to consumers without intermediaries.
• Takes the form of bricks-and-mortar, clicks-and-mortar & online retail businesses

Franchise

• A person buys the rights to use the business name and distribute a product
• Franchising is the fastest area of business growth in Australia
• McDonald's, Subway, Nando's, 7-Eleven and Starbucks are examples of franchised businesses.
• The franchisee must follow the franchise agreement

Importer/Exporter

• The business model is generates revenue by trading internationally.

Import and Exports Defined

• Imports: Goods and services produced overseas to be sold to Australian consumers
• Exports: Goods and services produced in Australia to be sold overseas.
• Provides the prospective business owner with the potential to grow and expand their business
• Reduces its dependence on the local market and open new markets

Costs and Benefits of Purchasing an Existing Business

• When planning a business, one decision would be whether to purchase an existing business or to establish one from scratch
• When Purchasing, everything is included in the purchase: the stock, premises, the employees, existing customers
• It is important to know the reason the existing business is going up for sale and it financial performance fro the last 3 years
• Each option has advantages and disadvantages.

Purchasing

• Instant income, easier to obtain finance, stock and training

Starting a New Business

• Freedom to set the business as desired,.but with high risk and uncertainty.

Business Resource Needs

• Businesses must determine what resources they need for the future and how can they continue to grow or function as a business.
• Key aspects to consider: are will these resources be found; what is the price for these resources etc

Natural Resources

• Includes items from the natural environment like, land, water, and raw materials.
• Consider sources, sustainability, waste reduction, environmental impact, and sustainable designs.

Labour Resources

• It is the skills, effort, & knowledge given by employees to perform certain tasks for the business.
• Businesses is a ethical conduct, as decision making may impact a workers life

Capital Resources

• Tools equipment used to perform a service.

Business Locations

• Determining an appropriate location is crucial to a business's success.

Location Types

• Shopping centres: Benefit from established traffic but can be more expensive and require adherence to strict operational hours.
• Retail shopping strips: Cheaper rents and local customers but can lack parking and weather protection.
• Online presence: Expands customer reach but poses implementation and security risks
• Home-based: Reduce overhead, but can blur work-life balance.

Factors Affecting Business Location Choice

• Visibility: Essential for retail and service businesses.
• Cost: Requires careful evaluation to ensure sales match rental expenses.
• Proximity to customers and suppliers: Retailers prioritize customer access, while manufacturers need transport routes to suppliers.
• Proximity to competitors: Important for retail and service businesses, huge advantage being the first store of its kind
• Complimentary businesses: Can bring in more customers

Types of Finance

• External: debt + government grants
• Internal: equity or crowdfunding

Equity Finance

• Funds contributed by the business owners to start and then expand the business.
• Advantages: no repayment, no interest on the payment
• Disadvantage: Harder to obtain profit

Internal Sources of Funding

• Self-funding: Owner's personal finances
• Family & Friends : Easy way to obtain extra finance, but must come with a well thought out arrangement.
• Private Investors: Expected contribution and investment income are an attractive source of funds.
• Shares: More funds are available to public companies than private limited companies, which are covered later.
• Crowdfunding: Use social media or an online platform to generate funds, setting goals for amount of funds needed

External Source

• Money borrowed from banks, government, and/or suppliers to be paid back with interest.

Short-Term Borrowing

• Generally repaid within one to two years.
• Methods: bank overdraft, bank bills (over $100,000 paid back in 90-180 days), and trade credit (supplier giving 30-90 day period)

Long-Term Borrowing

• Loan: Where interest is charged
• Mortgages: Used to purchase property.

Other Types of Finance

• Leases: Businesses has equipment form lessors for a set period of time and are charged a fee or interested
• Government Grants: Can support businesses with finance, are generally for small businesses and are used specifically for the community

Factors Affecting Choice of Finance

• Terms of finance
• The business structure
• Overall Cost
• Flexibility
• Level of control

Business Support Services:

• Before starting a business, consulting experts is a key aspect for success.

Legalities

• Legal and financial advice to ensure properly planned business.
• Access expertise of Lawyers who can inform business structures, regulations, contracts etc.

Finances

• Finance and banking expertise with access to all aspects of the bank.
• Accountants who can provide all financial issues.
• Having effective computer networks to improve business efficiency.

Australian Gov Support

• 'business.gov.au' which provides free practical advice on a range of topics.
• Finding the right local level support group
• The local level community can help enhance reputation and business practices.
• Business Enterprise Centres (BEC)
• Small Business Centres Victoria (SBCV) are non-for-profit

Formal Networks

• These include Chamber of Commerce (local), the Victorian Chamber of Commerce and Industry (VCCI) or Small Business Association of Australia