Understanding the Nature and Functions of a Business

• A business is an organization that produces and sells goods or services to satisfy needs and wants for profit.
• Needs are essential, while wants are desires that improve life standards.

Nature of a Business

• Businesses produce goods (tangible products) and services (labor or skills provided by others).
• The primary purpose of a business is to generate profit, distinguishing it from non-profit organizations.
• Goods are tangible, services are intangible.
• Goods tend to be standardized, services are generally customized.
• Goods can be owned and transferred, services cannot.
• Goods can be stored, services are used once by one customer.
• Goods production is more capital intensive, service is more labor intensive.
• Goods are usually found in the primary and secondary sectors, services in the tertiary sector.

Functions of a Business

• Satisfying customers is a key function.
• Businesses hire people, contributing to employment.
• Profit is a financial return that encourages risk-taking.
• Risk is the uncertainty and possibility of financial loss.
• Businesses offer choice through various goods and services.
• Innovation involves creating new ideas or products through research and development (R&D).

Entrepreneurs and Risk

• Entrepreneurs start, operate, and assume the risk of a business to make a profit.
• Successful entrepreneurs are curious, adaptable, decisive, and risk-tolerant.
• They also possess innovative thinking and maintain a long-term focus.

Wealth Creation and Quality of Life

• Businesses generate wealth by paying employees, buying resources, and paying interest on loans.
• They improve the quality of life by providing a wide range of products and designing them according to consumer interests.
• Wellbeing of individuals in relation to both material and non-material benefits

Types of Businesses

• Businesses can be categorized by size (small, medium, large).

• Micro-businesses have less than 5 employees, often home-based, with most having no employees and being sole proprietorships.
• Businesses can be classified by industry (primary, secondary, tertiary, quaternary, quinary) and legal structure (sole trader, partnership, private company, public company, government enterprise).

HSC Verbs

• Identify: Name and define.
• Outline: Major points, brief answer.
• Describe: Give features and characteristics with examples.
• Explain: Purpose/function, cause and effect with examples.

Businesses by Geographical Spread

• Local businesses serve nearby needs and often have limited market share, supported by online orders and home deliveries.
• National businesses operate across the country, holding a greater market share with multiple locations.
• Global businesses (TNCs) operate internationally to increase profit and market share, typically with public shareholders.

Expansion Reasons

• Reasons to expand for a successful business is to increase sales, enhance profit, increase market share.

Industry Categories

• Primary industry: Extracts raw materials (e.g., fishing, farming, mining).
• Secondary industry: Produces finished products from raw materials (e.g., steel manufacturing).
• Tertiary industry: Provides services (e.g., dentists, barbers).
• Quaternary industry: Offers services related to finance, education, technology, and communication.
• Quinary industry: Provides services that can be done at home like cooking or hospitality.

Legal Structures

• Sole trader: Owned by one person with unlimited liability.
• Partnership: Owned by 2-20 people, also with unlimited liability.

Advantages/Disadvantages of Sole Trader

• A sole trader has personal decision making and keeps all the profits while there are less guidelines from the government.
• The cons include unlimited liability, a heavy workload, and business ceases if owner is sick.

Advantages/Disadvantages of Partnership

• Workload and financial support are shared as well as potential creativity while there are low start up costs
• Cons include possible disputes, shared profits, and challenges in finding the right partners.

Incorporated vs. Unincorporated

• Unincorporated businesses (sole traders and partnerships) do not have separate legal entities from their owners.
• Incorporated businesses (private and public companies) are separate legal entities.

Proprietary (Private) Companies

• Proprietary companies are owned by 2-50 private shareholders with limited liability, often small to medium-sized.

Public Companies

• Public companies have shares listed on the stock exchange and owners have limited liability
• Has min one shareholder, no max #
• No restriction on transferring shares
• Min 3 directors
• LTD in its name
• Publish financial report

Trusts

• Trusts are legal entities that hold and manage assets on behalf of beneficiaries.

Government Business Enterprises (GBE)

• Government Business Enterprises are owned and run by the government and include Australia Post, public transport, and Water.

Franchises

• Franchises buy the right to operate under another business's name.

Franchisor/Franchisee

• A franchisor grants the franchise right, while a franchisee buys it.

Factors Influencing the Business Environment

• The business environment includes all conditions surrounding business operations.
• External environmental influences have limited control, while internal influences have some control.
• The business cycle involves upward and downward movements of gross domestic product (GDP).

Economic Impact

• Strong economic growth has higher employment, increased consumption, and rising inflation.
• Economic recession causes higher unemployment and decreased consumption.

Deregulation

• Deregulation opens financial industry to competition
• Demography affects demand.

Australian Population Impact

• Australia's ageing population impacts businesses and economy

External Influences

• External influences on a business include economic, political, market, institutional, financial, social, competitive, technological, legal, and geographic factors.

Internal Influences

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

Economic Indicators

Legal Influences

• Laws and regulations define legal activities, and compliance can be costly and time-consuming.

Trade Practices Act 1974

• This is now know as the Competition & Consumer Act 2010 and is administered by the Australian Competition and Consumer Commission

Political Factors

• Government policies affect business operations, and constant political change can lead to uncertainty.
• Current political issues affect the operation of a business like labor market reforms and taxation.

Institutional Influences

• Institutional influences come from government bodies and regulatory bodies

Technology

• Innovation improves existing creations or finds new applications for inventions.

Competitive Situation

• Market concentration ranges from monopoly to perfect competition.

Marketing

• Influence occurs through measures taken by competitors.

Financial, Labor & Consumer Markets

• Deregulations increase the flow of funds.
• The level of unemployment and supply & demand on labor affect the wages
• Consumers taste will affect the level of supply and demand

Internal Controllable Factors

• Factors that a business can control include product, location, resource and management

Transformation Process

• Depending on business type: manufacturer, service provider or retailer, the business with be structured differently with either goods and services

Location Influences

• The location of a business will depend on: if it is Close to suppliers, its Cost, and if it is Visibly obvious to the Customer.

Resources Influences

• It will depend on human resources (such as employees), information resources (such as data), physical resources (such as machinery), financial resources (such as funds).

Management Influences

• It will depend on the management structure as some are hierarchical, flat, centralised and power is or isn't shared

Business Culture

• Business culture reflects the values, ideas, expectations, and beliefs shared by members of an organization.
• Key cultural elements include values, symbols, rituals, and heroes.
• A strong business culture leads to higher achievement and success.

Stakeholders

• Stakeholders have interests in or are impacted by business activities.
• Primary stakeholders are shareholders, employees, managers, consumers, and society or environment.

Business Lifecycle

• The business life cycle includes establishment, growth, maturity, and post-maturity stages.

Establishment (Startup)

• Goals are to survive and set a foundation for growth.

Growth Stage

• The growth stage introduces new products, increases employees, and potentially loses control.

Merger and Acquistion

• Expansion can happen as a way to increase profit.
• Adapt more accounting processes.

Maturity Stage

• Maturity is when there is market saturation or a slow reaction to market change.
• Strategies include Continued product innovation (i.e. differentiation) to find new areas of increase.

Post Maturity

• Outcome will either be steady, declined or renewed.
• It is important sell new shares, review management and invest in R&D.

Reasons For Business Decline

Cessation

• Voluntary cessation happens when the owner wants to stop trading and involuntary happens when forced by creditors.
• Bankruptcy is a declaration that business or person is unable to pay their debts.

Cessation of a Company

Voluntary

• Voluntary Cessation is when an independent administrator is nominated to run a business, hopefully to solve the present financial problems.

Liquidation

• Liquidation (or winding up of a company) occurs when an independent person is appointed to take control of the business by selling all the assets to repay the creditors.
• The company has an end of it's life and results in a company who can't pay its debts and had become insolvent
• Liquidation and receivership

Receivership

• Receivership: A business where receiver is appointed by creditors to take charge of the affairs of business.

Stakeholder Impact From Liquidation

Company Directors

• Loss of directorship, fines/imprisonment and losing personal assets

Creditors

• A small % may be recovered

Employees

• Loss of jobs and wages

Shareholders

• Unlikely to receive anything

Economy

• Loss of production, low confidence and higher employment