Role and Types of Business

Role of Business

• A business aims to produce products that meet consumer needs and wants.
• Goods are tangible (groceries), while services are not (haircut).
• Businesses need to generate profit by producing goods that satisfy consumers.
• Employing people boosts the local community.
• Income is provided to owners/shareholders and employees through wages, salaries, dividends, bonuses, and commissions.
• Research and development improves existing products, while business encourages people to turn passions into livelihoods.
• Economic growth and wealth increase, improving consumers' living standards with diverse products to fulfil needs.

Types of Businesses

• Businesses are classified by size, geographical spread, industry sector, and legal structure.

Business size

• Small businesses: 1-2 owners, under 20 employees, partnerships/sole traders, local market share.
• Medium businesses: 2-50 owners, partnerships/private companies, dominant market share.
• Large businesses: Over 1000 owners, over 200 employees, public companies, larger market share as a multinational corporation.

Geographical spread

• Local businesses serve nearby customers, often small/medium businesses (newsagents, pharmacies).
• National businesses operate in one country with a range of products and online stores (David Jones).
• Global businesses operate in many countries (multinational corporations).

Industry

• Primary industry involves producing raw materials (agriculture, mining, fishing).
• Secondary industry involves manufacturing and construction, converting primary output into finished/semi-finished goods (steel to cars).
• Tertiary industry provides services, including selling and distributing products (retailers, banks, doctors).
• Quaternary businesses transfer and process information/knowledge via technology and intellectual activity (telecommunications).
• Quinary businesses provide domestic services, including activities done at home as non-profits (hospitality, childcare).

Legal structure

• Sole traders: Owned by one person with unlimited liability, responsible for business actions and debt.
• Partnership: Owned by 2-50 people via a contract, unlimited liability, limited partnerships with financial contribution but no operational involvement ("silent partner").
• Public companies: Unlimited owners/shareholders, limited liability, shares listed on the ASX.
• Private companies: 2-50 owners/shareholders, limited liability, funding in exchange for dividends.
• Government enterprises: Government-owned, specific functions, privatized to transfer to private sector.

Factors Influencing Legal Structure

Size

• Small/Micro businesses: Legal structure is a sole trader or partnership due to simplicity and minimal requirements.
• Medium-sized businesses: Legal structure consists of a partnership or private company because expansion may require more capital.
• Large National/Multinational Corporations: Legal structure consists of a public company where shares are sold to the public.

Ownership

• Sole Trader: Ideal for owners with complete control and unlimited liability.
• Partnership: Sharing ownership, contributing capital, skills, and expertise while also sharing liability.
• Private Company: Balancing control and liability, limiting shareholders to 50.
• Public Company: Divided ownership, retaining control requires over 50% of shares.

Finance

• Sole Traders & Partnerships: unlimited liability and limited assets mean raising finance can be challenging.
• Private & Public Companies: limited liability protection provides easier access to finance.

Influences in the Business Environment

• The business environment consists of internal and external conditions.
• External factors include economic, financial, geographic, social, legal, political, institutional, technological, and competitive situations.

Economic Influence

• The business cycle includes growth and decline due to fluctuations in economic activity (consumer spending, employment).
• Government ensures growth without inflation using fiscal (taxation/expenditure) and monetary (RBA cash rate) policies.
• Consumer spending is the total spending on goods/services for personal use/employment.
• Necessity-based businesses may maintain sales during a recession, luxury businesses may experience decreased sales and profits.

Financial Influences

• Deregulation increases efficiency/competition.
• Businesses relying on financial institutions are impacted by interest rates, with higher rates increasing loan costs.
• Technology development allows overseas borrowing.

Geographical Influences

• Demographics (age, gender, culture, income) lead to changes in goods/services.
• Australia's aging population increases demand for age-related services.
• Globalisation reduces trade barriers.
• Increased market competition due to transport/communication technology, leading to competition, consumer choice, and lower prices.

Social Influences

• Social influences (tastes, attitudes, culture) lead to sales/profit but can threaten stability if ignored.
• Successful businesses implement environmentally sustainable practice to reduce waste and recycle.
• Workforce diversity is essential; a diverse business could increase moral and competitive advantage.
• Businesses are accommodating family-friendly options such as childcare.

Legal Influences

• Laws govern business operations at all government levels.
• Competition and consumer act 2010 are enforced by the ACCC, which protects consumer rights and ensures fair competition.
• Penalties can be up to $1.1M for companies and $220,000 for individuals.

Political Influences

• Government policies and political party changes can create uncertainty.
• Each political party has different views on regulating business and consumer protection.

Institutional Influences

Government

• The three levels of government in Australia includes Local , State, and Federal.
• Each level uses regulations to standardize dealings with consumers/competitors.

Regulatory Bodies

• EPA partners to reduce pollution, and NSW Fair Trading promotes fair marketplaces
• ASIC regulates the financial industry, and ACCC protects consumers and promotes competition.

Other

• Employer associations represent interests, trade unions represent employees, the ASX operates the share market.

Technological Influences

• Global innovation has improved efficiency and reduced costs.
• Leading-edge technology can be risky; established technology is safer.
• Robotics improve manufacturing.
• Communications technology reduces delays and improves supplier/customer interactions.

Competitive Situation

• Sustainable competitive advantage involves developing successful strategies.
• Greater efficiency leads to better quality at a lower cost.
• Managers must monitor competitors.
• Number of competitors affects market concentration, with types including monopoly, oligopoly, monopolistic competition, and perfect competition.
• Ease of entry impacts industry establishment.

Market

• Markets are where goods/services are traded in the commercial world.
• Due to world trade, countries (Australia) specialize in production and must import products they cannot produce.
• Communications allows Australian businesses to reach larger markets and use bulk production for economies of scale.
• Globalization and communication enhance access to financial and share markets.

Labour markets

• Decrease in unskilled migrants due to local workers and restricted entry.
• Increase in skilled migrants with Temporary Skills Shortage visa to assist with shortages.

Internal Influences

Internal influences are controllable and include products, location, resources, management, and business culture.

Products

• A marketing approach is important as businesses will be competing to meet the needs of consumers .
• Factors to consider includes the goods/services produced and the type of business.

Location

• Good location will lead to high levels in sales and profits, poor location will hurt sales and profits
• Factors to consider includes Visibility, Cost, Proximity to Suppliers/Customers

Management

• The number of levels that a business has where supervisors have direct authority over employees is important.
• Flat management employees work in teams and share responsibilities and have less management levels.

Business culture

• Business culture reflects the values, ideas, expectations, and attitudes of management and staff.
• Official elements includes policies, goals, slogans, and facilities, while the unofficial part is informal rules of dress, staff treat each other

Resource:

• Businesses use Financial funds to meet obligations, maintain Human resources, and Physical assets like equipment Building, physical Equipment stocks and raw materials.
• Business also needs to maintain Information (market research and sales).

Stakeholders

• Owners/shareholders influence decisions, expect returns, and impact reputation.
• Managers oversee operations, influence workplace culture, ensure legal compliance, and impact customer satisfaction.
• Employees affect business through productivity, job satisfaction, and advocating for better labor practices.
• Customers drive success through purchases and influence product development, and expect companies to be more environmentally responsible.
• Society expects ethical conduct and community contributions, influencing sustainability and brand reputation.
• Environment requires sustainable practices, which can improve brand image and impact waste/emissions regulations.

Business Growth and Decline

• Businesses face different challenges and operate differently at each stage of the life cycle, with no time limit for each phase.
• To successfully move through stages, business owners must consistently assess and develop strategies.

Stages

• Establishment: Entering the market, detailed planning needed.
• Growth: Steady sales and cash flow
• Maturity: Growth slows, market share decreases
• Post-Maturity: Final stage consists of steady-state, renewal, decline, or cessation

Post-maturity stages

• Steady-state: Maintaining current position with customer loyalty.
• Renewal: Revitalising the business and reexperiencing business/market share growth.
• Decline: Inability to address challenges, lost competitive advantage, falling sales.
• Cessation: Decision to close or involuntary, due to challenges.

Challenges

• The establishment stage involves survival and building a foundation, so cost-effective strategies are key.
• Optimizing operations, adapting to market feedback, and building brand awareness are important.
• Businesses need to use mass marketing during the growth stage to maintain new growth.
• Constant innovation is needed to expand products and leverage economy of scale to remain competitive.
• In the maturity stage, finances should be devoted to developing new products and improving efficiency.

Strategies

• Implement lean management techniques and allocate funds to develop in order to stay vigilant in efficiency.
• In the post-maturity stage, new strategy includes creating a new organizational development program with leaders that employees can talk to.

Factors that can contribute to business decline:

• Lack of management/expertise and of sufficient finances.

Cessation

• Business ceases operating voluntarily or involuntarily.

Voluntary Cessation

• Owner ceases/closes trading and sells assets.
• Bankruptcy can be avoided

Involuntary Cessation

• Forced closure by creditors
• Assets are sold and owners may operate though they are in financial difficulty.
• For sole traders/partnerships involves bankruptcy (owners/creditors apply to court).
• Public/private companies face liquidation by selling all assets to pay creditors.
• Voluntary administration (trading out for financial problems) that may lead to receivership, liquidation, or receivership.

Liquidation

• Equivalent of bankruptcy as it involves 3rd party coming in to sell assets to pay creditors with any possible surplus cash going to shareholders. Creditors gets to vote on liquidation if successful.

External Influences

• Atlassian expanded to the U.S and Europe, increasing market and competition.
• Tesla expanding to Australia benefits the growing demand of EV cars but it must compete with High labour (Australia)

Growth of industries

• Growth of the tertiary industries stems from strong economy expansion.
• Digital technology has allowed growth for quaternary.
• Senior living has allow decision and healthcare from quinary to expand.

Problems Arrises for Stakeholders

• Stakeholders must realize that the director loses all ownership of company plus potential fines. Creditors are unsecured
• Employees are at loss of jobs as liquidator attempts to liquidate the company assets.
• Society are also impacted by production loss

Sole traders, partnership and limited companies are compared across market in detail. Canva (startup), Afterpay (growth) and Commonweatlh Bank Australia are compared across market with stages. Outlining possible business strategies for different stages.