Business: Roles, Types, and Classifications

Role and Types of Business

• A business utilizes resources (inputs) to generate goods and services (outputs).
• Businesses aim to satisfy societal needs and wants, typically with the financial goal of making a profit.

Profit

• Calculation: Profit = Revenue - Expenses
• Revenue is the income a business receives from customers for products.
• Expenses are the costs a business incurs.
• Businesses prioritize profitability as a sign of success.
• A standard retail markup is around 50% to 60%.

Business Classification: Size

• Micro Business: 0-5 employees
• Small Company: 5-19 employees
• Medium Company: 20-199 employees
• Large Company: 200 or more employees
• SMEs (Small to Medium Enterprises): Fewer than 200 full-time equivalent employees and/or less than $10 million in annual turnover.

Business Classification: Scope

• Local businesses operate within a specific geographic area like a city or town.
• National businesses operate across an entire country.
• Global businesses operate internationally in multiple countries.

Business Classification: Industry

• Primary industry involves the collection of natural resources.
• Secondary industry transforms raw materials into finished or semi-finished products (manufacturing).
• Tertiary industry provides services.

Legal Structures of Business

• Legal structure defines how the business is recognized by law
• It impacts the legal responsibility of the owner(s) regarding business debts.
• The legal structures are sole trader, partnership, private company, and public company.
• Legal structures can be unincorporated (sole trader, partnership) or incorporated (private company, public company).

Incorporation and Liability

• Incorporation makes a company a separate legal entity from its owners.
• Incorporated businesses have limited liability
• Owners' personal assets are protected from business debts.
• With unincorporated businesses, the owner(s) and the business are not legally separate.
• Unincorporated businesses have unlimited liability, potentially risking the owner's assets.

Sole Trader

• An unincorporated business owned and operated by one person with unlimited liability.
• Advantages: Simple, cheap to set up, owner retains full control and profits.
• Disadvantages: Unlimited liability, harder to raise funds, no continuity if the owner dies.

Partnership

• An unincorporated business owned and operated by 2-20 people, with unlimited liability.
• A written partnership agreement is advisable
• Advantages: Low startup costs (potentially), shared responsibility and workload.
• Disadvantages: Unlimited liability, need to share profits, potential for disputes, harder to raise funds.

Private Company (Pty Ltd)

• An incorporated business with 1-50 private shareholders.
• Shares are privately owned.
• Advantages: Limited liability, easier to obtain funding, the company can continue indefinitely, easier to change ownership.
• Disadvantages: More expensive to set up and maintain, more complicated tax requirements.

Public Company (Ltd)

• An incorporated business whose shares can be bought/sold on the stock exchange(ASX).
• Advantages: Limited liability, easier to change ownership, opportunity to raise significant equity funding, prestige.
• Disadvantages: Most complex and expensive to set up and maintain, giving up some control.

Factors Influencing Choice of Legal Structure

• Size: Small businesses may prefer sole trader or partnership; larger businesses may choose a company.
• Ownership: Sole trader for one owner; partnership, private or public company for multiple owners.
• Finance: Companies may find it easier to borrow funds; sole traders/partnerships suitable if funding needs are low.

Economic Contribution of SMEs

• SMEs contribute to Gross Domestic Product (GDP).
• SMEs contribute to employment, providing income.
• SMEs contribute to innovation.

Internal Influences

• Internal influences are factors within a company affecting its operations and performance.

Location

• Location influences a business's operations, sales, and costs.
• Factors: visibility, cost, proximity to suppliers and customers, proximity to support services.

Management and Business Culture

• Business culture reflects the values, ideas, expectations, and beliefs shared by members.
• A strong culture correlates with success.
• Example components include innovation/creativity, customer focus, consistency/efficiency, sustainability/social responsibility, expertise/autonomy.
• Business culture is evident in its management structure.

External influences

• External influences are factors outside a business's control that significantly affect its operations.
• Managers must understand and respond to these changes.

Competitive Situation

• The competitive situation involves changes in the number/nature of a business's competitors.

Monopoly

• One business dominates the entire market with no competitors.
• The business is a price maker.
• High barriers to entry prevent competition.

Oligopoly

• A small number of large businesses dominate the market.
• Barriers to entry are high.
• Businesses have some influence over prices.
• There may be less incentive to innovate.

Monopolistic Competition

• Many buyers and sellers offer similar but differentiated products.
• Barriers to entry are low.
• Sellers have some power to determine pricing.

Perfect Competition

• Many small firms sell identical products.
• No barriers to entry.
• Individual firms have no market power.

Competitive Advantage

• A competitive advantage gives a company an edge over competitors.
• Forms: cost advantage, product differentiation.

Cost Leadership

• Cost leadership provides products or a service at a lower cost than competitors.

Product differentiation

• Product differentiation occurs when a company produces slightly different products to its competitors to gain an edge in the market

Business Cycle

• The business cycle includes expansion, peak, contraction, and trough phases.
• Expansion: GDP increases (economic growth).
• Peak: The end of expansion before contraction.
• Contraction: GDP decreases (negative economic growth).
• Technical recession: two successive quarters of negative economic growth.
• Trough: The end of contraction before expansion.

Social External Influences

• Social influences are shifts in societal values, preferences, and attitudes.
• Flexible working arrangements, a shift toward a cashless economy, changes in body image trends, changes in fashion, alcohol consumption, social media, healthy eating, wellness, environmental sustainability, and social justice issues are examples of this.