SUMMARISED BUSINESS.pdf

External Influences on Business 1. Economic Influences: - Economic cycles of growth and recession affect businesses differently; luxury goods suffer in recessions, while budget retailers may thrive. - The COVID-19 pandemic led to a recession, increased unemployment, reliance on gov aid. - Busi...

External Influences on Business 1. Economic Influences: - Economic cycles of growth and recession affect businesses differently; luxury goods suffer in recessions, while budget retailers may thrive. - The COVID-19 pandemic led to a recession, increased unemployment, reliance on gov aid. - Businesses use indicators like inflation and consumer confidence to guide decisions, while global factors like trade impact Australia's economy. 2. Finance: - Interest rates heavily influence debt financing decisions. - Global financial markets have evolved rapidly, enabling widespread international transactions, impacting businesses' access to capital and financial stability. 3. Geographic Influences: - Australia's climate, resources, and location in the Asia-Pacific region influence business activities, offering opportunities and challenges for expansion. - Demographic trends ( aging population), affect demand for products and services, like healthcare 4. Societal Influences: - Societal attitudes, like environmental awareness and family-friendly policies, affect how businesses operate and their public image. - Businesses adopting practices and supporting work-life balance gain customer & employee loyalty. 5. Legal Influences: - Must comply with regulations related to tax, safety, anti-discrimination, and environmental protection. - Regulatory bodies ensure compliance and fair practices, influencing how businesses operate. 6. Technological Influences: - Technological advancements improve productivity, connectivity, and operations but pose challenges such as job reductions and shorter product life cycles. - Businesses must adopt new technologies to stay competitive. 7. Competitive Situation Influences: - Market concentration and ease of entry impact competition within industries. - Foreign competitors introduce complexity and create opportunities for local businesses to expand 8. Market Influences: - Financial markets have become more integrated, affecting access to international investments. - The labor market remains less globalized, but immigration and visa policies, especially impacted by COVID, influence workforce availability. Internal Influences on Business 1. Product: - The type and range of goods or services impact internal processes and business structure. - Expanding product lines requires adjustments in management and operations. 2. Location: Business location affects visibility, cost, and operations. Retail and service businesses require high-visibility locations, while manufacturing businesses may opt for lower- cost sites. 3. Resource Influences: Human resources, information, physical resources (machinery, buildings), and financial resources are crucial to business success. Proper management of these resources determines operational efficiency. 4. Management: Ranging from autocratic to laissez-faire, it influences decision-making, staff direction, and organizational structure. Modern businesses favor flatter structures for quicker adaptation to market changes. 5. Business Culture: Values, rituals, and heroes, influences employee behavior and overall success. strong, positive cultures lead to higher employee engagement and goal achievement. Stakeholders: - Owners: Influence decisions and profitability, balancing returns with sustainable practices. - Managers: Ensure profitability and ethical practices, impacting productivity and business culture. - Employees: Their skills and treatment affect product quality and productivity. - Customers: Drive business success through their demand for high-quality, competitively priced, and sustainable products. - Society: Businesses to address community and environmental concerns and engage in CSR. Environment: Pressures businesses to adopt sustainable practices and develop environmental policies. THE BUSINESS CYCLE Establishment: In this initial stage, businesses struggle to generate sufficient sales, manage high costs, and secure funding. Marketing focuses on product strengths with low-cost strategies. Profits are often slow and reinvested. Informal management and building customer relationships are crucial, with a high failure rate necessitating careful planning. Growth: This stage sees accelerating sales and cash flow, requiring businesses to enhance competitiveness, expand their customer base, and adopt advanced financial and management systems. Merger: Businesses may combine through mergers or acquisitions to expand product ranges, prevent obsolescence, or eliminate competition. Integration can be vertical (within the supply chain), horizontal (within the same industry), or diversified (across unrelated industries). Maturity: Sales growth slows, leading to potential complacency. Businesses need structured management, cost control, and efficiency improvements to maintain success. The risk of failure increases without adaptation. Post-Maturity: Businesses face three potential outcomes: - Steady State: Maintain current performance without growth. - Decline: Sales and profits fall, risking failure. Renewal: Growth resumes through new opportunities and market adaptation, requiring proactive planning and strategic efforts. Steady: Stability without growth may lead to stagnation if the business fails to adapt to market changes, eventually leading to decline. Decline: Severe cash flow issues, obsolescence, and employee loss characterize this stage, making recovery difficult and increasing the likelihood of business failure. Renewal: Businesses can counter decline through strategic planning, market adaptation, and focusing on customer demands, though it requires significant effort and timely action. Voluntary and Involuntary Cessation Voluntary Cessation: When an owner decides to close due to retirement, lifestyle changes, or death. This involves selling the business's assets. Some businesses also choose voluntary cessation to avoid further financial problems when facing increasing debts and negative cash flow. Involuntary Cessation: Business is forced to close by creditors due to financial difficulties. Despite the owner's hopes for recovery, creditors may compel the business to cease operations if decline continues. Bankruptcy: A legal declaration that a person or business cannot pay their debts. It can be initiated voluntarily by the debtor or involuntarily by creditors through a court order. The court appoints a representative to liquidate assets and distribute the proceeds among creditors. Recent reforms include raising the debt threshold to $20,000 and extending response times. Voluntary Administration: Company in financial trouble appoints an independent administrator to manage the business and resolve financial issues. The administrator works with creditors to assess and improve the company's situation. If successful, the business can continue; otherwise, it may move to liquidation. Liquidation: Involves appointing a liquidator to sell a company’s assets to pay off creditors. It can be initiated by shareholders, creditors, or the court. If funds remain after settling debts, they are distributed to the owners. Liquidation usually marks the end of a company and is like bankruptcy for individuals. Types of Liquidation: 1. Creditors' (Voluntary) Liquidation: Initiated by creditors or shareholders after voluntary administration. 2. Court (Involuntary) Liquidation: Ordered by a court, after a creditor, shareholder, or director's application. Problems for Stakeholders: - Directors: Risk of losing their positions, personal assets, and may face fines or imprisonment. - Unsecured Creditors: May recover little or nothing after liquidation costs. - Employees: May lose jobs but are entitled to unpaid wages and superannuation if funds allow. - Shareholders: Unlikely to receive payment and may need to cover unpaid shares. - Society and Economy: Lost production, social difficulties from job losses, and reduced economic confidence. FINANCE DEBT Borrowing money from external sources for short-term or long-term needs. Its main advantages include not requiring the sale of business ownership and offering certain tax benefits. These factors make debt financing a popular choice for business owners starting a business. short-term — less than one year (money to fund the day-to-day workings of the business) long-term — greater than one year. Short-term finance overdrafts: where the bank allows a business to overdraw their account up to an agreed limit for a specified time to overcome a temporary cash shortfall commercial bills: primarily short-term loans issued by financial institutions for larger amounts (usually over $100 000) for a period of generally between 30 and 180 days factoring: selling of accounts receivable for a discounted price to a finance or factoring company. Long-term finance include: mortgage: a loan secured by the property of the borrower (business) debentures: issued by a company for a fixed rate of interest and for a fixed period of time Unsecured note: loan from investors for a set time. Not secured against the assets. EQUITY Funds from the business owner(s) without requiring repayment, as it doesn’t involve interest. Owners retain control but may face high return expectations and limited funds. Types include: Self-funding: Personal finance with the risk of losing the investment if the business fails. Family or Friends: Quick funding but may strain relationships and require profit-sharing. Private Investors: Offer funds for a share of profits and equity, and may provide advice but reduce owner control. Shares:By public companies to raise capital through the stock exchange, complex & costly.  Crowdfunding: Online platforms to raise funds by setting goals and inviting contributions, but success is not guaranteed and may impact the business’s reputation if unsuccessful Sources of Planning Ideas Business planning depends on gathering accurate and relevant information from both internal and external sources: Internal Environment: Includes factors within the control of business owners, such as management levels and employees. External Environment: Comprises broader factors outside the business's control, including economic, political, social, technological, geographic, and legal influences. Specialists: Accountants, finance brokers, consultants, bank managers, and solicitors provide valuable insights for planning. SWOT Analysis Generates extensive information, it should be complemented by market research and a business plan. It does not provide solutions or prioritize information, but it aids in setting goals and improving financial positions. Organizing Resources : Vision & Goals: After vision and objectives, SME owners organize resources like human effort, time, money, equipment, and materials. Defining tasks, responsibilities, and needs, leading to a clear organizational structure. Resource Allocation: Effective organizing includes resource distribution, task assignments, and scheduling to establish a clear chain of command and coordinate work efficiently. Operations: Transformation Process: Converting inputs (raw materials) into goods/ services. Considerations: equipment and material needs, supplier selection, budget allocation, storage, delivery systems, and technical expertise. Marketing: Integration & Training: Successful= cross-departmental integration and adequate resource allocation, (training for employees &necessary funds and resources for marketing staff). Finance: Financing Sources: SME owners must choose suitable financing sources, balancing debt capital and equity. Gov grants are available for specific purposes like expansion and innovation but are less common for start-ups. Human Resources (HR): Employee Organization: Determining the number and skills of needed employees, recruitment, motivation, retention, fair compensation, legal responsibilities, and dispute resolution. Location: The business location should align with the availability of the required workforce. Forecasting: Predicts future outcomes for effective planning, using both internal and external data. It is crucial for planning labor, materials, finance, and facilities. Total Revenue: Total revenue is calculated by multiplying the price of a good/service by the quantity sold. Forecasts are refined with market research and historical data. Break-Even Analysis: Determines the sales level needed to cover production costs, including fixed and variable costs. Sales above this level yield profit, while below it results in loss. - Cash Flow Projections:  Estimates changes in cash position over a period, detailing expected cash inflows and outflows. It helps forecast bank balances, identify potential shortfalls, and manage surpluses. Unlike past cash flow statements, projections anticipate future cash needs and demonstrate creditworthiness to lenders. Classical Approach to Management Summary: The classical approach to management, emerging from the Industrial Revolution, is centered on planning, organizing, and controlling within a hierarchical organizational structure and often involves an autocratic leadership style. Classical-Scientific Approach: Frederick W. Taylor emphasized efficiency through task analysis and a production line method. His principles: scientific examination of tasks, training in efficient methods, cooperation, and clear division of responsibilities. Systematizing work into simple, repetitive tasks with control and a hierarchical structure. Classical-Bureaucratic Approach: Max Weber and Henri Fayol developed this approach, emphasizing structured hierarchies and efficient management. Weber advocated for clear roles and impartial evaluations, while Fayol introduced essential management functions like planning, organizing, and controlling. Aimed to enhance efficiency but often led to drawbacks such as decreased job satisfaction and stifled creativity due to its rigid structure. Management Functions: Planning: The process of setting goals and developing strategies. It includes: - Strategic Planning (long-term): Focuses on positioning the business in the market. - Tactical Planning (medium-term): Supports strategic plans and adapts to changes. - Operational Planning (short-term): Manages operations to achieve immediate goals. Organizing: Plans by managing resources, involving: Determining and grouping tasks & assigning work and delegating authority. Controlling: Evaluating performance, comparing outcomes with goals, and making adjustments to improve results. Hierarchical Organizational Structure: - Arranges a business into levels of authority, often visualized as a pyramid. It includes: - Rigid communication lines and numerous management levels. - Clearly defined roles, responsibilities, and a chain of command. - Centralized control with strategic decisions made by senior management. Autocratic Leadership Style: Centralized decision-making without employee input. This style is effective in crises or with less skilled employees but can lead to decreased job satisfaction and morale due to its lack of employee engagement and strict control. Behavioral Approach to Management: The behavioral or ‘human relations’ approach emerged as a response to the limitations of scientific management, which often failed to address the social needs of workers. This approach, led by Elton Mayo, emphasizes worker participation and acknowledges the importance of social factors in enhancing job satisfaction and productivity. Worker satisfaction extends beyond economic needs, highlighting importance of social and psychological factors. Modern Implications: Businesses now recognize the value of social responsibility to employees by providing support facilities and flexible working conditions. Managers are encouraged to address social needs in addition to production efficiency, requiring skills in communication, social motivation, and democratic leadership. Advantages: Increased employee empowerment and motivation & Improved manager-staff relationships. Disadvantages: - Reduced control and potential disruption by influential individuals, confusion due to non-hierarchical communication, challenges in predicting employee behavior. Management Functions: 1. Leading: - Involves motivating and influencing employees to achieve business goals. - Effective leadership is based on trust, empathy, and high expectations. - Leaders should be open-minded, share information, build a clear vision, and inspire others. 2. Motivating: - Crucial for performance and productivity, with key motivators including recognition, self-worth, and positive reinforcement. - Effective managers create a motivating environment through trust, respect, and team rewards. 3. Communicating: - Essential for helping employees understand and achieve business goals. - Communication: sharing goals, plans, and financial results to avoid demotivation from minimal information. Teams: - Modern workplaces are shifting towards team-based approaches for improved performance. - Self-directed work teams have redefined management roles, with a focus on collaboration and consensus rather than authority. - Managers now act as facilitators, balancing team and business needs, and moving from autocratic to participative leadership. - Increases job satisfaction and output. Advantages of Team-Based Approach: - Two-way communication improves relations and reduces disputes. - Enhanced motivation and job satisfaction. - Skill acquisition and power sharing foster team development and high commitment. - High levels of trust lead to improved performance. Disadvantages of Team-Based Approach: - Decision-making may be slow and compromised. - Weakened management control and potential for internal conflict. - Potential collapse of management due to minimized formal structure. - Uneven participation among employees. Contingency Approach to Management Summary: Emphasizes the need for flexibility in management practices, advocating for the adaptation of strategies to suit changing circumstances. It highlights that each situation is unique and requires a tailored solution. Adapting to Changing Circumstances - Contingency theorists argue traditional management approaches may not always be adequate for modern needs. - Managers: adaptable & flexible, selecting the most effective management practices from a diverse range of ideas. - This approach, sometimes called the "smorgasbord" approach, involves blending past and present management theories to address specific business requirements. Key Concepts - Managers should select and apply the most effective ideas and practices for their specific situations. - Different scenarios may require different management responses, encouraging exploration of various approaches to find the best solution. Coordinating Key Business Functions and Resources: - Business functions are interdependent, relying on each other for effective performance. - As businesses grow, they often divide functions into specialized departments, requiring increased coordination to ensure smooth operations. - Interdependence among departments is crucial for achieving unified business goals, as it ensures that all areas work collaboratively towards common objectives. OPERATIONS Operations involve transforming resources into goods or services, central to achieving business goals like profit maximization. Operations management includes strategies for efficiently producing these goods or services, managing inputs, overseeing production, and ensuring product availability to meet customer demand. Effective operations management improves a business's competitive position by controlling product quality, production costs, and timely availability. Goods are tangible products, such as cars, that can be stored and require no customer involvement during production. Services are intangible, like haircuts, requiring customer presence and cannot be stored. Manufacturing businesses focus on standardized goods with minimal customer interaction, while service businesses offer personalized services with customer participation. Modern businesses provide products with related services, such as cars with warranties. THE PRODUCTION PROCCESS The production process in a business consists of three key elements: inputs, processes, and outputs, which differ between manufacturing and service businesses. Effective operations management is essential for efficiently producing goods or services to meet customer needs. Inputs: Resources used in production, categorized into: - Transformed resources: Materials, info, and customer choices that are altered during production. - Transforming resources: Human resources and facilities that facilitate the transformation. Transformation proccess Main concept is transformation, which involves converting inputs (resources) into outputs (g or s). This process includes both physical changes and the creation of services. Operations managers are responsible for creating, operating, and controlling this transformation process. The nature differs between manufacturing, which is more visible and quantifiable, and service-based businesses. Transformation process in manufacturing businesses Can vary. It may involve directly converting basic resources into final goods for consumer use, or it may include multiple transformation steps across different processors and businesses. Transformation process in service businesses Service vs. Manufacturing Outputs: - Stocking Outputs: Service businesses cannot stock outputs in advance, unlike manufacturing businesses. For example, a bank cannot store transactions for future use. - Customer Interaction: Service businesses depend heavily on customer interaction to determine output, such as requiring customer input for services like loans or withdrawals. - Labor-Intensive: Service businesses are more labor-intensive, requiring skilled employees to maintain service quality. Outputs Results of a business’s efforts, either goods or services delivered to consumers. Toyota engages in manufacturing and service operations, with actuaries that are crucial, not directly involving customer interaction. Operations managers must ensure that transformation processes align with customer demands, balancing quality, efficiency, and flexibility with resources and strategic goals. Outputs also encompass customer service and warranties, which affect customer satisfaction and the business's reputation. Quality management Focuses on ensuring that goods or services meet a high standard of excellence and fulfill their intended purpose. A quality product should be reliable, user-friendly, durable, well-designed, timely, include after-sales services, and have an attractive appearance. The main strategies for quality management are quality control, quality assurance, and total quality management. Total Quality Management (TQM) Commitment to excellence that focuses on continuous improvement across all business operations by involving every employee. Aims to create defect-free processes and maintain a strong customer focus, enhancing competitiveness through employee empowerment and a focus on customer needs. W. Edwards Deming: involving employees in quality solutions and understanding customer requirements for both external and internal processes. Quality circles, where teams meet to address quality issues, are a common practice, leading to cost savings and performance improvements. Continuous improvement (Kaizen) Constantly evaluating and enhancing processes. It sets progressively higher standards across all business areas, emphasizing the pursuit of improvement rather than perfection. Benefits of quality management practices Benefits of quality management practices include reduced waste and defects, consistent output quality, an enhanced competitive position, improved reputation and customer satisfaction, lower costs, and increased productivity and profits. Key strategies for achieving these benefits are quality control and quality assurance. Quality Control Involves inspecting production stages to identify and correct defects, reducing errors and waste. By setting benchmarks and comparing actual performance to these standards, businesses can meet customer expectations and improve competitiveness. In service industries, it includes monitoring employee performance, such as evaluating bank tellers' accuracy and call center interactions. Quality improvement Focuses on two aspects: total quality management and continuous improvement  MARKETING Essential for business success, as effective promotion is needed to attract customers, even for innovative products. Over 80% of new products fail within the first year due to poor marketing, while successful marketing can turn modest products into bestsellers. Marketing involves planning and executing the conception, pricing, promotion, and distribution of goods and services to meet both individual and organizational goals. It connects buyers and sellers and applies to not-for-profit organizations as well. Unlike selling, which focuses on moving existing stock, marketing aims to attract and satisfy customers through effective communication and relationship-building. Contemporary marketing emphasizes understanding customer needs and relationship marketing, leading to increased sales and success compared to traditional methods. Identification of the target market Most businesses cannot afford to market their products to all consumers or businesses, nor would they want to, as few products suit everyone. Instead, businesses focus their marketing efforts on specific groups of customers known as target markets. A target market is a group of customers with similar characteristics who are likely to purchase the product. The three main approaches to selecting a target market are mass marketing, market segmentation, and niche marketing. Mass market approach Mass-producing, distributing, and promoting a single product to all buyers, aiming at a broad range of customers. It uses one marketing mix for the entire market, with minimal product variation, a universal promotional program, a single price, and a uniform distribution system. Today, few products are marketed this way, as increased choice, higher incomes, and a demand for personalized products have led to a shift towards segmented or niche markets. Market segmentation Dividing the total market into groups based on demographic, geographic, psychographic, and behavioral characteristics. This approach allows businesses to tailor marketing strategies to specific customer groups, improving sales and profits by addressing their unique needs and preferences. Some businesses, like Lush, target multiple segments, including higher-income women as well as men and children. Selecting target markets is crucial for an effective marketing strategy. Niche markets Narrowly selected market segment. In a sense, it is a segment within a segment, or a ‘micro market’ Marketing Mix Marketing strategies aim to achieve business goals through the marketing mix, which includes the four Ps: product, price, promotion, and place (distribution). For services, the extended marketing mix also includes three additional Ps: people, processes, and physical evidence. After defining the four Ps, a business must tailor each variable based on the product’s positioning or stage in its life cycle. An exclusive product will require a different marketing mix than a basic item, and the mix will vary depending on whether the product is in its introduction phase or decline stage. Product Encompasses various elements, including quality, packaging, design, name, labeling, exclusive features, and warranty/guarantee. These elements combine to create a product that meets customer needs and offers intangible benefits like security, prestige, and satisfaction. Important for sales, as it can make a strong first impression, suggest luxury, and help preserve and promote the product. Branding is also crucial, with brand names and logos serving as powerful marketing tools. For example, Mercedes-Benz’s star, Coca-Cola’s bottle shape, and McDonald’s golden arches are iconic symbols that reinforce brand recognition and association. Price Setting the right price for a product is crucial, as pricing too high can lead to lost sales unless supported by excellent customer service, while pricing too low might imply poor quality. Business owners typically use one of three pricing methods: Cost-based Pricing: Setting a price based on the total cost of production or purchase plus a profit mark-up. Market-based Pricing: Setting prices according to market supply and demand. Competition-based Pricing: Pricing relative to competitors, either below, equal to, or above their prices. Promotion Involves influencing customer behavior through information or persuasion to boost product sales. It aims to attract new customers, increase brand loyalty, and encourage repeat purchases. Key components: - Personal Selling and Relationship Marketing: Direct sales and building long-term customer relationships. - Sales Promotion: Techniques like free samples, coupons, and displays to generate interest. - Publicity and Public Relations: Free news stories and efforts to maintain positive customer relations. - Advertising: Using mass media to communicate product messages, create demand, and provide information. Technological advances, in ICT, are transforming promotion strategies. The internet offers tools like social media advertising, which is popular for its cost-effectiveness and broad reach. Businesses are increasingly integrating social media with traditional promotion methods to enhance effectiveness. Place Distribution involves making products available to customers at the right time and location through channels, using wholesalers or retailers. The common distribution channels are: Producer to Customer: Direct distribution without intermediaries, used for services like tax advice or car repairs. Producer to Retailer to Customer: Retailers buy from producers and sell to customers, suitable for bulky or perishable products. Producer to Wholesaler to Retailer to Customer: Wholesalers buy in bulk from producers and sell in smaller quantities to retailers, commonly used for consumer goods with many retailers. Non-store retailing is more popular, with e-commerce (buying and selling via the internet) and mobile commerce (m-commerce, using mobile devices) as rapidly developing methods. People Everyone involved in the production of a business, whether directly interacting with customers or having an indirect connection. Their involvement can impact the mix. Managers establish a culture that can positively/ negatively influence perceptions of the business and products. Processes Flow of activities or mechanisms involved in interactions between customers and a business, including product delivery, product discovery, selection, and purchase. Businesses establish operating systems and processes to ensure these interactions are effective. Customers value reliable systems and a smooth purchasing experience, which is crucial for achieving satisfaction. Physical Evidence All visual and tangible aspects a customer encounters when engaging with a business, such as product features, the physical environment (store design or website layout), and customer feedback. Crucial for brand positioning and attracting the target market. Since customers may not understand a product's features, demonstrating these features, providing detailed explanations, and assisting with brand comparisons can help customers make informed purchasing decisions.  FINANCE Sourcing and managing funds, while accounting provides info about a business's financial status. Effective financial management begins with securing funding and ensuring its proper use, with cash flow management being crucial. Cash flow (lifeblood) of a business requires anticipating expenses, maintaining adequate reserves, and preparing for unexpected challenges. Business leaders need an understanding of principles for successful management. Accounting Managerial tool for recording all financial transactions, allowing the tracking of money flow over time. This involves documenting transactions from stock orders to sales, using records like invoices and receipts. Transactions are entered into accounts and summarized into financial reports, which provide an overview of the business's financial status. These reports help managers assess the company’s financial health. Accounting provides valuable information to internal and external stakeholders, such as employees, owners, suppliers, and the public, offering insights into financial position, cash flow, funding, profitability, and potential risks. Its purpose is to deliver accurate info to support financial decision-making, planning, management confidence, and accountability. Finance statement Business owners use financial statements to make informed decisions about their business's direction. Key reports include cash flow statements, income statements, and balance sheets. These statements help assess whether cash flow is sufficient to cover debts, determine profitability, and understand the overall financial health of the business. Examine effective cash flow management Effective cash flow management involves using cash flow statements to summarize past financial activity and link it to budgets that estimate future cash flows. These statements provide crucial information on payment timing and income, helping businesses track cash movements, predict future cash flows, and plan for payments. By monitoring inflows and outflows over time, businesses can control finances, strategize for financial benefit, and forecast cash flow trends. Cash Flow Statements for larger business’s Cash flow statements for larger businesses categorize cash flows into three main activities: Operating activities include cash inflows and outflows related to the core business operations, such as providing goods and services. Investing activities - cash flows from buying and selling non-current assets and investments. Financing activities - cash flows related to acquiring and repaying debt and equity finance. - For large businesses and public companies compared to the more detailed statements used by smaller businesses. Income statement An income statement, also known as a revenue statement, profit and loss statement, or statement of financial performance, measures a business's trading success over a period. The statement should include a heading indicating the reporting period (e.g., yearly, quarterly), with revenue listed at the top and expenses deducted to determine the net profit. Calculates net profit and assesses financial performance by showing: - Income or revenue earned - Costs or expenses incurred to earn that revenue - Whether a profit or loss has been realized For trading businesses, the statement includes: - Revenue or income: Total income earned - Cost of Goods Sold (COGS): Cost of acquiring goods sold - Gross Profit: Revenue minus COGS - Expenses: Costs incurred in earning revenue - Net Profit: Gross profit minus expenses Steps 1. Calculate revenue or operating income: Determine net sales by - sales returns and discounts from gross revenue. Net sales reflect the revenue earned after accounting for returns and discounts. 2. Calculate cost of goods sold (COGS) and gross profit: COGS = Opening Stock + Purchases - Closing Stock. Gross profit is calculated as Revenue - COGS. Gross profit = mark-up on the cost price of goods sold and is crucial for assessing overall income. For service-based businesses, income and gross profit are typically the same, as COGS applies to businesses with inventory. 3. Itemize all other expenses: Separate expenses into categories such as: - Operating expenses: Costs of day-to-day operations (e.g., rent, utilities, salaries). - Administrative expenses: Costs related to general management (e.g., office supplies, salaries). - Selling expenses: Costs for promoting and selling products (e.g., advertising, sales commissions). 4. Calculate net profit: Net Profit = Gross Profit - Expenses. The net profit (bottom line) - the business's overall profitability after all costs and expenses. Proportions of gross and net profit relative to sales provide insights into the business's financial health and spending patterns. Balance Sheets Snapshot of financial position at a specific date, showing assets, liabilities, and owner's equity. Helps monitor debt and equity levels, evaluate financial stability, and aid in decision-making. Organized with assets on one side and liabilities and owner's equity on the other, maintaining a balance where the total value of assets equals the combined total of liabilities and owner's equity ("T-format."). - Assets = Liabilities + Owner’s Equity: Accounting equation, ensuring that the balance sheet is correctly prepared. Equation helps confirm the accuracy of the balance sheet. Key components of a balance sheet: Assets: Current Assets: Items expected to be used or converted into cash within 12 months, such as cash, accounts receivable, and inventory. Non-Current Assets: Assets with a life longer than 12 months, including buildings, land, machinery, vehicles, and furniture. Intangible Assets: Non-physical with value, such as goodwill, trademarks, copyrights, and patents. Liabilities: Current Liabilities: Debts expected to be repaid within 12 months, such as bank overdrafts, credit card debts, accounts payable, and accrued expenses. Non-Current Liabilities: Long-term debts with repayment periods extending beyond 12 months, including mortgages, leases, debentures, and retirement benefit funds. Owner's Equity: Money provided by the owners to start the business. It increases as the business earns profits and retains them for future use, reflecting the owner's growing claim on the business. This growth rewards owners for their initial investment and risk. Assess the role of the income statement and the balance sheet when describing the financial performance of a business Income Statement: Revenue, expenses, and profit. Helps stakeholders understand the business's profitability and the effectiveness of its financial strategies (pricing, sales, and stock valuation). Balance Sheet: Financial stability indicating whether the business has enough assets to cover debts, repay borrowed money, and use assets effectively for profit. Reveals the return on investment, the ability to meet financial commitments, and compares current figures with past performance and competitors HUMAN RESOURCES Effective human resource management (HRM) is crucial for business success as it involves managing the relationship between employers and employees. Key aspects of effective HRM include: Hiring the Best Talent: Skilled individuals who align with the company's goals and culture. Developing Productive Relationships: Fostering a positive work environment and cooperative relationships among staff. Motivating Staff: Encouraging employees to perform at their best through motivational strategies. Training and Development: Offering opportunities for skill enhancement and career growth. Retaining Skilled Employees: Ensuring that talented and motivated employees stay with the company to contribute to long-term success. As businesses grow, they must continually evaluate and adjust their staffing strategies to maintain the right balance of skills and capabilities. Human Resources cycle Effective management of these functions helps in building a productive workforce and achieving business goals. Acquisition: Recruiting and selecting employees to meet business needs, including planning staffing requirements, attracting candidates, and choosing the most qualified individuals. Development: Enhancing employees' skills through training and development, including induction programs and ongoing skill development. Maintenance: Retaining employees by providing financial and non-financial benefits, fostering a supportive work environment, and rewarding performance. Separation: Managing the departure of employees, whether voluntary (e.g., retirement, resignation) or involuntary (e.g., retrenchment, dismissal), ensuring fairness and legal compliance. Recruitment Initial stage: focused on attracting and hiring suitable staff. Begins with a job analysis to define the role, producing 2 documents that guide the recruitment process, internal (promoting existing employees) or external (seeking candidates outside the organization). The goal is to identify and attract suitable candidates for the job vacancy. Job Description: Details the job's duties, responsibilities, working conditions, and performance standards. Job Specification: Lists the qualifications required, such as education, skills, experience, and personal attributes. Internal recruitment Filling a vacancy with an existing employee through promotions or transfers. Preferred for familiarity with the candidate and the organization. Internal job openings can be communicated via email, noticeboards, the company intranet, or word of mouth. Many businesses use various advertising channels to attract a wide range of applicants. Employment agencies, particularly those specializing in certain industries, are often employed to handle recruitment. Despite being costly, these agencies are effective as they perform initial screenings and provide candidates who meet the required experience, education, and training criteria. - Advantages: Easier selection process for familiarity with the employee, applicants understand the business, objectives, and culture and reduces advertising costs and avoids external recruitment agencies. - Disadvantages: Lack of suitable internal candidates, potential conflicts or jealousy among employees, possible resistance to new ideas or changes from internal candidates. External recruitment External recruitment involves seeking candidates from outside the organization to fill new or vacated positions. - Advantages: Offers a wider pool of applicants, brings new ideas and fresh perspectives and allows for specific qualifications and experiences in job ads. - Disadvantages: Unfamiliar candidates can make the selection process more challenging, involves costs for advertising and can be time-consuming, may cause resentment among existing employees, especially if external candidates are hired for managerial roles. Choosing suitable candidates Job vacancies are commonly advertised online through platforms like SEEK and social media sites, with traditional newspaper ads still used but less prevalent. Social media helps in sharing job openings, researching candidates, and networking. Encouraging current employees to share their positive experiences on social media can enhance the recruitment process. Once candidates are shortlisted, the selection process involves evaluating their skills and qualifications against the job requirements to find the best fit. Selecting the most suitable candidate involves several steps: 1. Application: Candidates may submit written or online applications, including a résumé 2. Testing: Psychological and work tests, assess aptitude, intelligence, and specific job skills. 3. Interviews: Structured interviews with common questions help ensure consistency and evaluate suitability. 4. Background Checks: Verify the accuracy of the applicant’s experience and past performance. Best applicant – fits job description Training Training and development aim to enhance employees' skills and prepare them for future roles, contributing to both personal and business growth. Training improves current job performance by upgrading skills and knowledge, while development focuses on preparing employees for advanced roles. Effective training programs are essential for maintaining a business's strategy and competitive edge, especially with technological advancements and global competition. Many businesses operate as learning organizations, continuously engaging employees in knowledge development. Benefits for Employees: Opportunities for promotion and self-improvement, increased job satisfaction and performance, enhanced future employability. Benefits for Employers: Higher productivity and efficient resource use, more capable and adaptable workforce. Training and development methods for employees include: - Off-the-Job Training: Conducted away from the workplace, often at specialized institutions like universities or colleges, or through industry-specific providers. It helps employees gain relevant qualifications and skills. - On-the-Job Training: Using existing equipment and resources. Occur during regular duties or in a designated training space, and is delivered by experienced colleagues, managers, or external providers. - Universities: Partnerships between businesses and academic institutions to develop customized training programs, as seen with companies like Coles and Qantas. - Online Training (eLearning): Training delivered through digital devices connected to the internet, offering flexible learning options that can be accessed anytime and anywhere. Programs for developing effective managers may include: - Job Rotation: Exposure to various aspects of the business to apply management skills in different contexts. Preventing boredom and reform - Mentoring: Support and guidance from experienced individuals within the business. - Formal Business Training: Advanced programs like MBAs. Employee Contracts - An employment contract is a legally binding agreement between an employer and an employee, established when a job offer is accepted. - The contract must comply with the Fair Work Act 2009, the National Employment Standards, and any relevant awards or enterprise agreements. - It outlines key terms and expectations: Adherence to company policies, job title and start date, supervisor details, duties and responsibilities, work hours, pay rates, leave and superannuation arrangements. The contract must comply with the Fair Work Act 2009, the National Employment Standards, and any relevant awards or enterprise agreements. Common law rights and obligations of employers and employee Shaped by court decisions and precedents over time. Outline fundamental rights and duties for employers and employees. This body of law is developed through judicial rulings that interpret and apply legal principles to specific cases, influencing the expectations and responsibilities in workplace relationships. Minimum employment standards National Employment Standards (NES), legislated by the federal government in 2010, provides set of minimum conditions for full-time and part-time employees. These standards generally exclude casual employees. 1. Hours of Work: Full-time employees typically work between 35 and 38 hours per week, with compensation required for longer hours. 2. Parental Leave: Employees are entitled to 12 months of unpaid leave for the birth or adoption of a child. 3. Flexible Work for Parents: Employees with over 12 months of service can request flexible working arrangements for children under school age. 4. Annual Leave: Employees receive four weeks of leave, with part-time employees receiving a pro-rata amount. 5. Personal, Carer’s, and Compassionate Leave: Full-time employees get ten days of paid leave per year, with part-time employees receiving a pro-rata amount. 6. Community Service Leave: Employees can take unpaid leave for jury duty or emergency service work, with some compensation for jury service. 7. Public Holidays: Employees paid for public holidays even not working, with possible penalty rates for working on these days. 8. Workplace Information: Employers must provide a 'Fair Work Information Statement' to new employees, detailing the NES and other employment issues. 9. Notice of Termination and Redundancy: Most employees are entitled to notice or pay in lieu of notice based on their service, excluding casuals and those on probation. 10. Long Service Leave: Permanent employees qualify for long service leave after a specified period, which varies by occupation and industry. Awards Awards are legally binding agreements that set minimum wages and employment conditions for specific employee groups. Effective since January 1, 2010, modern awards cover ten key areas: minimum wages, types of employment, work hours, overtime, penalty rates, annual salaries, allowances, leave, superannuation, and dispute resolution. Awards provide a baseline for pay and conditions, they lack flexibility and don’t account for performance differences. Over 100 awards exist in Australia, often forming the basis of employment contracts. Enterprise Agreements Allow businesses and their employees to negotiate terms that exceed those set by awards. These collective agreements, made between employers and unions or employee groups, include provisions like a nominal expiry date, dispute resolution, flexibility terms, and employee consultation on major changes. They must be approved by the Fair Work Commission to ensure they benefit employees more than the relevant award. - Advantages: Greater employee involvement and empowerment through consultation, Increased flexibility in negotiating terms - Disadvantages: Time-consuming due to detailed workplace-level negotiations, administrative challenges in ensuring legal compliance Individual Common Law Contracts These contracts allow high-paid professionals, earning above a set threshold (e.g., $153,600 for 2020–21), to negotiate terms outside the standard award conditions. These contracts are enforceable in courts like any other legal agreement, making awards less relevant for high-income earners. Separation of Human Resources Refers to the termination of employment relationships, which can be voluntary or involuntary. Factors like business restructuring and international competition often lead to redundancies and changes in work patterns, affecting how HR manages separations. Voluntary Separation Occurs when an employee leaves a business of their own accord. It includes: Retirement: Employees choose to permanently leave the workforce. There is no official retirement age, and people may retire early or gradually reduce their working hours. Financial readiness is a key factor, and businesses often provide support for retirement planning. Resignation: Employees end their employment voluntarily for reasons like new opportunities, career changes, or personal preferences. Notice periods vary and are usually outlined in contracts or awards. Voluntary Redundancy: Employees opt to leave their positions when their jobs are no longer needed due to organizational changes. They receive a redundancy package as an alternative to being involuntarily retrenched. Involuntary Separation Occurs when an employee is required to leave the business against their will, including: Involuntary Redundancy: Employees are laid off because their jobs are redundant. They receive a redundancy package, but the separation is not due to any fault of their own. Dismissal: Dismissal occurs when an employee's behavior is deemed unacceptable, necessitating the termination of their employment. Immediate dismissal may occur for serious breaches, such as misconduct or criminal activity, without notice. For poor performance, dismissal on notice is required, with the length of notice or payment in lieu depending on contractual terms, age, and tenure. To avoid legal issues, employers must adhere to proper procedures and comply with unfair dismissal laws under the Fair Work Act 2009. Written warnings and confirmations are recommended to prevent disputes. Unfair dismissal claims can be reviewed by the Fair Work Commission, which assesses the fairness of the termination based on procedures and reasons.