Types of Business

Types of Business

• Businesses can be classified based on size, geographical spread, industry sector, and legal structure.

Classification by Size

• Business size is determined by the number of employees, legal structure, annual revenue, market share, and decision-making process.
• Micro businesses employ fewer than 5 people (e.g., home-based).
• Small businesses employ 5-20 people (e.g., local hairdressers, cafes).
• Medium businesses employ 20-199 people (e.g., hotels, engineering firms).
• Large businesses employ 200+ people (e.g., Woolworths, Qantas, NAB).
• Small to Medium Enterprises (SMEs) have fewer than 200 employees and annual turnover under $10 million.

Classification by Geographical Spread

• Local businesses operate in a small area and tend to be SMEs (e.g., corner stores, local cafes).
• National businesses operate across the country (e.g., Coles, Bank of Queensland, David Jones).
• Global businesses (Multinational Corporations) operate in multiple countries (e.g., Coca-Cola, McDonald's, BHP, Google) and expand internationally to increase market share.

Classification by Industry Sector

• Primary industries involve natural resources collection and account for 7.6% of employment in Australia (e.g., farming, fishing, mining).
• Secondary industries involve manufacturing & construction and convert raw materials into products (e.g., car manufacturing, steel production).
• Tertiary industries provide services to consumers and are the largest sector in Australia, employing over 70% of workers (e.g., retail, healthcare, education).
• Quaternary industries involve information processing & knowledge-based services (e.g., IT, finance, research).
• Quinary industries include domestic & personal services and often overlap with unpaid domestic work (e.g., hospitality, childcare, tourism).
• Industry trends indicate growth in the tertiary, quaternary, and quinary sectors due to technological advancements and lifestyle changes.

Classification by Legal Structure

• Sole traders have one owner with simple structure, full control, and unlimited liability, easy regulation and are not incorporated.
• Partnerships have 2-20 partners with shared responsibility, unlimited liability, and divided authority/ownership and are not incorporated.
• Private companies have 2-50 shareholders, are not publicly traded, have limited liability and are typically incorporated.
• Public companies have unlimited shareholders, are listed on the stock exchange, have large scale, limited liability and are typically incorporated.
• Government enterprises are government-owned, provide public services, may operate commercially, and are typically incorporated.

Advantages and Disadvantages of Business Structures

• Sole traders have full control, are easy to set up, and keep all profits, but face unlimited liability, difficulty raising capital, and heavy workload.
• Partnerships share responsibility and have more access to capital, but face unlimited liability, potential disputes, and profit sharing.
• Private companies offer limited liability and easier fundraising, but are more expensive to set up, have more regulations, and more taxes.
• Public companies can raise large capital and offer limited liability, but are expensive to establish, have complex regulations, and risk loss of control.
• Government enterprises provide essential services and access government funding, but are bureaucratic, not profit-driven, and less competitive.

Factors Influencing Business Structure Choice

• Size & Ownership: Sole traders suit small businesses; corporations suit large ones.
• Liability: Companies offer limited liability; sole traders & partnerships have unlimited liability.
• Finance & Growth: Companies raise capital via shares; sole traders rely on personal savings.
• Regulation & Compliance: Companies have more reporting requirements than sole traders.

Key Takeaways

• Businesses vary in size, location, industry, and legal structure.
• SMEs dominate the Australian economy.
• Global businesses operate internationally for expansion.
• Tertiary, quaternary, and quinary industries are growing due to technological & societal changes.
• Companies offer limited liability, whereas sole traders & partnerships have unlimited liability.

Business Environment Overview

• Businesses operate in an ever-changing environment.
• The external environment includes factors beyond the business’s control.
• The internal environment includes factors the business can control.
• Businesses must adapt to changing economic, social, and legal conditions to remain competitive.

External Influences on Business

Economic Influence

• Economic factors impact a business's operations, affecting costs, demand, and profitability.
• Interest rates: Higher rates increase borrowing costs; lower rates encourage investment.
• Unemployment levels: High unemployment reduces consumer spending.
• Inflation: Increases costs of materials and wages, affecting pricing.
• Economic cycles (boom/recession): Affects consumer demand and business confidence.
• Exchange rates: Affects import/export competitiveness.
• Business reports should include economic data, trends, and analysis of how economic conditions affect pricing, wages, and business investment.

Financial Influence

• Financial conditions, including access to credit and global financial markets, impact business growth.
• Interest rates: Affect the cost of loans and business expansion.
• Exchange rates: Influence the cost of imported materials and overseas sales.
• Global financial conditions: Affect investment opportunities.
• Availability of finance: Determines business growth potential.
• Business reports should provide examples of how financial conditions impact decision-making.

Geographic Influence

• Location, population growth, and natural resources affect business operations.
• Proximity to major markets: Impacts transport and distribution costs.
• Natural resources: Determines industries that can thrive.
• Demographics (aging population, migration): Affect demand for products and services.
• Climate conditions: Affects industries like agriculture and tourism.
• Business reports should use maps and statistics to show geographic influences.

Social Influence

• Changing attitudes, values, and lifestyle trends impact businesses.
• Consumer preferences: Growing demand for sustainable and ethical products.
• Cultural diversity: Businesses must cater to diverse customer bases.
• Work-life balance expectations: Employers adapting to flexible working conditions.
• Health-conscious trends: Rising demand for organic and healthy food products.
• Business reports should use consumer survey data to demonstrate social trends.

Legal Influence

• Government regulations affect business operations and compliance.
• Work health and safety (WHS) laws: Require safe working environments.
• Consumer protection laws: Ensure fair trade and prevent misleading conduct.
• Environmental laws: Regulate waste management and sustainability.
• Employment laws: Set minimum wages, working conditions, and discrimination policies.
• Business reports should reference specific laws and include case studies of legal breaches.

Political Influence

• Government policies, elections, and trade agreements shape business conditions.
• Tax policies: Affect business costs and profits.
• Trade agreements: Influence access to international markets.
• Government stability: Impacts business confidence and investment.
• Subsidies and grants: Support industries and startups.
• Business reports should mention recent policy changes.

Institutional Influence

• Regulatory bodies and organizations impact business operations.
• Government agencies (ASIC, ACCC): Regulate corporate behavior.
• Trade unions: Influence wages and working conditions.
• Employer associations: Support business lobbying efforts.
• Stock exchange (ASX): Affects corporate finance and investor confidence.
• Business reports should identify key regulatory bodies.

Technological Influence

• Advances in technology affect efficiency, production, and competitiveness.
• Automation and robotics: Increase productivity but reduce jobs.
• E-commerce: Expands market reach but increases competition.
• Digital marketing: Enhances customer engagement.
• Cybersecurity: Critical for data protection.
• Business reports should use charts showing technology adoption rates and discuss how businesses invest in R&D.

Competitive Situation Influence

• Competition affects pricing, marketing, and business strategies.
• Number of competitors: More competitors lower prices and increase innovation.
• Market concentration: Monopoly vs. oligopoly vs. competitive markets.
• Ease of entry: High barriers limit new business growth.
• Global competition: Requires businesses to innovate.
• Business reports should use market share data to show competitive positioning.

Market Influence

• Changes in consumer demand and global markets affect business performance.
• Globalisation: Expands opportunities but increases competition.
• Changes in financial markets: Affect investment and borrowing.
• Labour market trends: Determines workforce availability.
• Consumer behaviour shifts: Demand for ethical and digital-first businesses.
• Business reports should use global trade statistics to show international market trends.

Internal Influences on Business

Product Influence

• The type and range of goods/services offered affect business structure, operations, and success.
• Product range: Businesses with more diverse products can reach wider markets.
• Level of customization: Customized products require different production processes.
• Product complexity: Complex products need skilled labor and advanced technology.
• Perishability: Short shelf-life products need efficient logistics and storage.
• Business reports should provide examples of businesses with a diverse vs. narrow product range.

Location Influence

• A business's physical or online presence affects customer accessibility, costs, and profitability.
• Proximity to customers: Important for retail businesses and service providers.
• Cost of rent and utilities: High costs in central locations vs. lower costs in suburban/rural areas.
• Accessibility: Ease of transport, parking, and infrastructure.
• Visibility and foot traffic: Higher foot traffic locations often have higher rent.
• Business reports should use maps and location comparisons to show why businesses choose certain areas.

Resource Influence

• Businesses rely on physical, human, and financial resources to operate efficiently.
• Human resources (employees, management skills): Skilled staff improve efficiency and innovation.
• Financial resources (capital, cash flow): Affects ability to invest and expand.
• Physical resources (equipment, facilities): Impacts production efficiency.
• Technology resources (IT systems, software): Affects productivity and data management.
• Business reports should use charts comparing resource allocation across industries.

Management Influence

• Business success depends on leadership style, decision-making, and organizational structure.
• Leadership style (autocratic, democratic, laissez-faire): Affects employee motivation and efficiency.
• Decision-making process: Centralized vs. decentralized decision-making.
• Organizational structure: Hierarchical (formal) vs. flat (flexible) structures.
• Adaptability: Businesses that adjust to market changes are more competitive.
• Business reports should compare different management styles and their impact on business success.

Business Culture Influence

• A business's values, beliefs, and working environment shape its operations and employee engagement.
• Workplace environment: Positive cultures increase productivity and employee retention.
• Ethical standards: Businesses with strong ethics attract customers and investors.
• Communication style: Open vs. rigid communication affects decision-making.
• Innovation and creativity: Encouraging innovation improves competitiveness.
• Business reports should provide examples of businesses with strong vs. weak corporate cultures.

Types of Market Concentration

• Monopoly: Complete concentration by one business in the industry (e.g., Australia Post, Sydney Trains).
• Oligopoly: A small number of larger firms have a greater control over market (e.g., Banks, Oil companies, Car manufacturing).
• Monopolistic competition: Large number of buyers and sellers in a particular market (e.g., Clothing manufacturers, Local retailing shops).
• Perfect competition: Large number of small firms that sell similar products (e.g., Fruit and vegetable growers).

Business Life Cycle

• The business life cycle has four stages: Establishment, Growth, Maturity, and Post-Maturity.

Establishment Stage

• Businesses are vulnerable in the beginning, goal is survival.
• Challenges: Generating sales, high fixed costs, unpredictable cash flow, limited financial resources, and high failure rate (up to 33% in the first year).

Growth Stage

• Rapid increase in sales and cash flow.
• Expansion through new product development, market expansion, mergers and acquisitions.
• Management challenges: Long-term planning, risk of overexpansion, and increasing competition.

Maturity Stage

• Growth rate slows and sales level off.
• Businesses may experience complacency.
• The need for professional management and strategic planning is essential.
• Challenges include maintaining customer loyalty, cost control, and risk of decline if no innovation occurs.

Post-Maturity Stage

• Steady state: Continues at the same level without major expansion.
• Decline: Sales drop, leading to potential business failure.
• Renewal: Business reinvents itself through innovation and market expansion.

Factors Contributing to Business Decline

• Business failure is often caused by multiple factors.
• Financial issues, poor strategic management, market changes, economic conditions, and failure to innovate.

Voluntary and Involuntary Business Cessation

Voluntary Cessation

• Business owners may choose to stop operations due to retirement, financial difficulties, or change of lifestyle.

Involuntary Cessation

• Businesses are forced to close due to financial problems.
• Methods of business closure include bankruptcy, voluntary administration, and liquidation.

Impacts of Liquidation

• Owners: Lose personal assets in some cases.
• Employees: Job loss.
• Creditors: May not recover debts.
• Customers: Lose access to products/services.
• Economy: Loss of production and economic activity.

Mergers & Acquisitions (M&As)

• Strategies businesses use to grow, expand market share, or eliminate competition.
• Combinations of two businesses or one business taking over another.

Reasons for Mergers and Acquisitions

• Expand Market Share, Increase Profits, Diversification, Economies of Scale, Access to New Technologies, Increase resources, Eliminate Competition.

Types of Mergers and Acquisitions

• Vertical Integration: Expands at different but related levels in the production and marketing process (e.g., Backward Integration- Acquiring a supplier and Forward Integration-Acquiring a distributor or retailer).
• Horizontal Integration: Merges with or acquires another company in the same industry and same production level.
• Diversification (Conglomerate Integration): Merges with or acquires another business in a completely different industry.

Advantages of Mergers & Aquisitions

• Increased market power but faces the reduction of competition leading to regulatory scrutiny.
• Economies of scale reduce operational costs but occurs along with high integration costs.
• Diversifies operations but faces cultural mismatches.
• Stronger technology and expertise from the other business is gained, but decision making can become slower due to complex management structures.
• Brand recognition.
• Faster expansions from organic growth face potential job losses as overlapping positions are removed.

Challenges in Mergers and Acquisitions

• Overestimation of Synergies: Expected cost savings or revenue growth may not materialize.
• Management Conflicts: Merging different company cultures can cause leadership issues.
• Integration Difficulties: Merging financial systems, supply chains, and employee structures can be complex.
• Regulatory Barriers: Government agencies may block mergers to prevent monopolies.

Business Expansion Strategies

• Mergers involves two businesses combining resources.
• Acquisitions sees one business take control of another.
• Integration can be vertical, horizontal,or diversification.

Strategies for Business Renewal

• Innovation and diversification
• Cost-cutting measures by retrenching
• Rebranding

Contemporary Business Issues and Strategies

• Economic uncertainty: Diversify revenue streams and lower cost.
• Supply chain disruption: Develop alternative supplier networks
• Cybersecurity Threats: Strengthen cybersecurity.
• Talent shortage & Retention: Offer competitive employee salary and development .
• Sustainability & ESG Compliance: Implement sustainable practices.
• Digital Transformation: Invest in automation technologies.
• Consumer Trust & Brand reputation: Prioritize customer service, and engage in ethical business practices.
• Inflation & Rising costs: Optimize operational efficiency.
• Regulatory changes: Stay updated on industry laws
• Market Competition & Disruption: Foster innovation

Stakeholders and Liquidation problems

• Employees: Job loss - Find help from severance packages
• Creditors: Non payment of debts- Establish payments.
• Shareholders: Loss of Investment- Establish a report around financial risk.
• Customers: Lack of product support and unfulfilled products- provide refunds or another supply location.
• Supplier: Payment for goods and services- secure payment through security.

Strategies for different stages of the business cycle:

• Focus and Market Research, strengthen brand, and have a plan for funding.
• Scale and expand, have and improve sales.
• Increase and strengthen operations, diversify products.
• Create a new business to innovate and adjust.
• Maintain satisfaction in the business.
• Have a long term profitability by consistent innovation.
• Identify any unnecessary costs by rebranding.
• Liquidate assets for debt settlement, ensure less impact on stakeholders and transition to other services.