Running a Business: Term 4 Topic PDF

Content - Being an Entrepreneur Seeing and taking advantage of opportunity; establishing shared vision; demonstrating initiative; innovation and resilience; appreciating the roles of failure in success Qualities and capabilities that contribute to the success...

Content - Being an Entrepreneur Seeing and taking advantage of opportunity; establishing shared vision; demonstrating initiative; innovation and resilience; appreciating the roles of failure in success Qualities and capabilities that contribute to the success of individual entrepreneurs - Planning for success Key considerations involved when planning and organising a small business including: - opportunity (e.g. market research, location, demographics, competition and target markets), - key features of organisational structure (e.g. sole traders, partnerships, private company and incorporated association), - The range of options for financing a business (e.f. The preparation of a loan application or a simple prospectus) - The establishment of a new business or purchase of an existing business (e.g. franchising, staffing, equipping premises, identifying an appropriate location, obtaining realistic valuation) - Likely success of small business opportunities (including the factors contributing to the success or failure of a business) - Business Operations Examine key considerations involved in running a small business, including: - local, state and federal regulations affecting a business’s operation, eg Work Health and Safety, taxation, environmental regulations - appropriate marketing strategies for promoting a business and selling products or services - the importance of ethical decision-making and corporate social responsibility - organisations that provide support and advice to small businesses in Australia - Maintaining financial records explain the importance of maintaining financial records and minimising risk, including: - – the purpose and use of financial records, eg to inform decision-making and fulfil legal requirements - – the features of key business documents and how to interpret them, eg profit and loss statements, balance sheets, cash flow and taxation records - – strategies which businesses may put in place to minimise risk and avoid insolvency and bankruptcy, eg proposing a course of action for a hypothetical business - – the ways businesses respond to changing economic conditions - - Current issues Discuss the characteristics of an entrepreneur Definition Entrepreneur: Someone who assumes the risks of a business venture in order to make a profit. It allows the entrepreneur to take risks, be creative, confident in decision making and taking responsibility for all decisions and flops (failures). Benefits Burdens Allows a sense of some freedom, Requires a lot of attention and effort pride and independence Freedom and flexibility is often illusive Gives person more control over their May need to reinvest the profits and destiny not draw a salary until business is Satisfaction of the businesses growth. more established Characteristics/Qualities of an Entrepreneur Initiative Wide Knowledge Willingness to Assume Risks Open Minded/Optimistic Outlook Adaptability Self-confidence Leadership Qualities Orientation towards Hard Work Planning for success Factors that an entrepreneur needs to consider: 1. Market Research: gathering information through statistics about target audience needs and preferences. This helps an entrepreneur to determine whether a product is worth pursuing. How top brands use market research - with examples - Attest Explains - youtube channel  - Determine whether buyers are long-term or short-term - Ask customers what they want 2. Competition: knowing who competitors are and what they are offering. This helps entrepreneurs to make their product/service and marketing stand out. The entrepreneur can also set their prices competitively and marketing campaigns. 3. Location: business needs to consider their location and the accompanying factor (that include: Closeness to customers (in the middle of nowhere) Proximity to home and family Zoning regulations (allowed to put things outside) Number of nearby competitors Future plan to the area Assess the suppliers Visibility from passing traffic (how easy is it to get there in traffic) Adequate parking 4. Target Market: understanding who entrepreneur is selling to. Certain characteristics include Demographics (age, gender, income, religion, education) Geographic (location, climate) Psychographics (values, lifestyles, personality) Behavioural (occasion, loyalty, usage) Organisational Structures Five main types of legal structures of a privately owned businesses 1. Sole Traders (entrepreneur has all the income and all the benefits but are also responsible for legal entity - all assess are liable - house - care - simplest form of business body, self employed) 2. Partnerships (where two to about fifty entrepreneurs partners - difference between this and sole trader is that both are shared responsibility and both assets are financially liable, both split profit and benefit) 3. Private Company (at end of title must have Pty Ltd (limited liability - separate legal entity) )which identifies that it is a private company, entrepreneur has legal protection and only assets that can be taken are the assets of the company. Only way you can be share partner/owner need to be invited) 4. Public Company (get rid of Pty but keep Ltd, means that entrepreneur is public company and still have limited liability) 5. Incorporated association (For specific types of businesses) Sole traders Partnerships Private Public Incorporated Company Company Association  Unincorporated business entities. Incorporated Business Entities. It is more expensive - I Both options are simple and have to pay an accountant and do company tax straightforward returns. - Unlimited Liability - Limited Liability Incorporated refers to the process companies go through to become a separate legal entity from the owner/s. Unincorporated refers to a business that has no separate legal existence from its owner(s). This means that the business entity and the owner (s) are one in the same. Franchise is more of a model than a legal structure, but would fit under a private company. Type Description Examples Advantages Disadvantage Sole traders Simplest and - Startups Simple and Has unlimited most affordable - Side inexpensive to liability business hustles establish. Can't split structure. A - Business business person trading es from Full control of as the individual home business legally - Contract decisions and responsible for ors assets. ALL aspects of (tradies) the business - Medical Minimal (including debt, practition reporting losses etc which ers requirements cannot be shared with Any losses anyone.), incurred by controls assets. business can be offset against other means of income Allows you to use your individual Tax File Number to lodge tax return Partnership Between 2 and - Law firm -Relatively ⭑ The 20 people, - Accounti inexpensive and partner called partners. ng simple to are The partners establish jointly share their -Minimal and profits and reporting severally losses. It is requirements liable  common for -Shared control people with -Partnership similar skills to losses are form a distributed to partnership. partners to be They have offset against unlimited liability, other income. - all of the owners are personally responsible for the business’ debts. Private - Lego Company Public -Most are large - Loreto Company in size and Kirribilli (limited) market a large range of products. - ltd in its name Have shares (stock or security in the Incorporated -A group of 5 or - NSNA associated more people Netball Registering with NSW Fair Trading. Incorporated associations are small-scale, non-profit and non-commercial in nature. Can only conduct business in the state in which they are registered. - An incorporated association has  its own legal identity separate from its members, which provides protection to members. Small community groups such as sport clubs and art groups. The incorporated association structure can be more effective for these types of organisations as they are generally simpler and more affordable than a company structure. Which structure and why? 1. A dog-walking business: Sole Trader 2. A law practice in Kirribilli: Partnership 3. A manufacturing business producing eco-friendly paints: Private Debt VS Equity Selecting a structure: - Legal liability: does the owner need to protect their assets - Taxation: more options open for companies (companies: 25% to 30% tax rate compared to up to personal 45%). That is cheaper but there can be double tax (for companies). - Cost/complexity of formation; sole trader easy to set up and administer - Control; if the owner wants complete control- set up as a sole trader. - Future needs; sole trader or partnership- business will cease when either dies. The range of options for financing a business. People are looking for money to start up their business, but in examples on shark tank they have already received money. After the start up of a business, other funds may be needed in growing the business. When need funds Establishment/Start Up Growth Equity: the money the business owner can contribute (capital, retained profit, ordinary shares) from their own funds. They become a shareholder/part owner of the business. E.g. $100k for 20% Stake - Does not have to be repaid unless owners leave the business - It is also cheaper than debt finance because there are no interest payments Have to have the savings - may not have enough money Loan (debt) : obtain money from other people from banks, finance companies or trade suppliers. E.g. $100k loan - Owner does not have to sell any ownership in the business to raise funds - Has certain taxation advantages (pay less tax e.g. business income, need to state income expenses as a business including interest repayments. Meaning that when paying tax on is reduced by all expenses associated with running a business) - Most popular source of finance used by business people when starting a new business BUT will have to pay interest (interest = cost of borrowing, expressed as a percentage rate paid over a year. E.g. 5% per annum) Loan Application Loan: an agreement to borrow a set amount of money that needs to be repaid within a certain period of time (this is called a term - term of a loan can vary). The higher the loan, the longer the term Different types of loans Mortgage - loan for property (tends to have the longest term) Business Loan - loan to run or establish a business Personal Loan - use to go on holiday Consumer Credit - like a credit card, for everyday purchases Anyone that borrows money will need to pay interest on the amount they borrow. This interest may be at a fixed rate, where the interest rate is locked for the term or variable rate, where the interest may go up or down. Recession = interest rates fall Loan repayment (2 components) - Initial amount borrowed - Interest (cost of borrowing) If paid higher than the minimum amount, interest can decrease. Secured Loan - Borrower offers an asset as security such as a car or a house, for the loan. - If they don't repay the loan, the lender may sell that asset to get their money back - Secured loans offer a lower interest rate but run the risk that the lender may have the right to sell the security if the borrower can't pay Unsecured Loan (most commonly used by businesses) - The borrower does not need to have an asset to offer as security - Interest rate is usually higher A person wishing to get a loan will need to consider carefully which type of loan best suits their need Prospectus: a legal document issued by companies that are offering security (share) for sale The establishment of a new business or purchase of an existing business Establishment options 1. NEW - Setting up a new business from scratch 2. EXISTING - purchasing an existing business. 3. Buying a FRANCHISE 1. Establishment option - NEW Advantages The owner has the freedom to set up the business exactly as they wish. The owner is able to determine the pace of growth and change. There is no goodwill (have to make the business -monetary value attached to the reputation of a particular business - goodwill = relationship built up with clients) for which the owner has to pay. If funds are limited, it is possible to begin on a smaller scale. Disadvantages There is a high risk and a measure of uncertainty. Without a previous business reputation, it may prove difficult to secure finance. Time is needed to develop a customer base, employ staff and develop lines of credit from suppliers.  If the start-up period is slow, then the business may not generate profits for some time. 2. Establishment option - EXISTING Advantages Sales to existing customers will generate instant income A good business history increases the likelihood of business success. A proven track record makes it easier to obtain finance Stock has already been acquired and is ready for sale. The seller may offer advice and training Equipment is available for immediate use. Existing employees can provide valuable assistance. Disadvantages The existing image and policies of the business may be difficult to change, especially if the business had a poor reputation. The success of the business may have been due to the previous owner's personality and contacts, so may be lost when the business is sold. It may be difficult to assess the value of goodwill, with the likelihood that the newcomer will pay more than it is worth. If the business premises are leased, the new owner may experience difficulties with the existing landlord Some employees may resent any changes to the business operation 3. Establish Option - Franchise Franchise: buying the rights from another business to distribute its product under its name. Franchisor: an individual or business that grants a franchise (person who gives you access) Franchisee: an individual or business that purchase a franchise (wants to run an already existing store) Franchisor (creator of business/idea) give A successful/proven business idea: expertise, brand, processes, training, guidance, establish equipment, stock (volume discounts) Franchisee (person who wants to run a store from a business) give: Profit Share, Investment $, Commitment (contract/obligation to follow) Purchase a business model and run it how it has already been running Advantages The franchisor often provides training. The franchisee does not need to have previous business experience. The investment risk may lower. There is immediate benefit from the franchisor's goodwill  Equipment and premise design are usually established and operational Well-planned advertising often exists. Volume buying is possible,often resulting in cheaper stock. Disadvantage The franchisor controls the operations. The threat of franchise termination can be carried out in some circumstances. Profit must be shared with the franchisor. The franchisor often charges a service fee for advice. The franchisee is often required to purchase stock from the franchisor. Contracts may be biassed in favour of the franchisor. The goals of the franchisor may be incompatible with those of the franchisee. The franchisee may merely feel like an employee, but without the benefits and security The franchisee must share any burden of the franchisor business mistake "David has great people skills, is interested in establishing a new bakery business however he has limited expertise in the Bakery trade." Identify three (3) ways David can set up his cafe business. Discuss each of the options and provide a recommendation for David David can either set up a new or existing business, or buy a franchise. The first option for David is creating a new business. This involves a lot of investment of money, time and energy - however will allow David to control the pace and growth (and other contributing factors of the business). Additionally, David does not have the expertise in the Bakery trade, meaning that starting from scratch is not the best business model for him. While the second option, which is where David can choose to buy an existing business. This is a business that has already been established and has existing customers and suppliers. Some downsides with this model are that the business could be based off of the personality and contacts, which could cause the downfall of a business, this would be a suitable model for David as it allows him to utilise his people skills and have some backing in the business. The final model that David can choose is becoming a franchisee. This model means that David purchased a part of a business idea, and would continue to run it, following the rules and guidelines. Imagine you had $200,000 and the desire to own and operate your own retail business. Each of the businesses for sale would enable you to establish a sandwich shop. You have already done a great deal of research and decided that because of the large number of offices and commercial activities in the area, a sandwich shop would meet a customer's needs. Establishing a Subway franchise $190,000 Purchasing an existing takeaway $200,000 Empty shop premise available for $200 a week Staffing People are a business's most valuable asset, so it is important to hire the best people. Also, when an employee turns out to be an excellent worker, retaining that employee may be crucial to ongoing business success. Low turnover of staff is vital in an environment, because it suggests that lots of people are coming and going. Therefore, the management of the staffing function - the recruiting, selecting, maintaining, training and separating (termination of employment) of employees - must be undertaken with care. Identifying an appropriate location Closeness to suppliers: How long it takes to access deliveries and the expenses accompanied with it Visibility: is the location easy to see by cars and people. Closeness to complementary business: businesses that offer a product or service that relates to your business and appeals to customers BUT don't take the place of what you offer. Closeness to support service: this refers to the activities needed to assist the prime function of a business e.g. accountants/solicitors Closeness to customers: important for retailers, not so much wholesalers/manufacturers Cost: buying or leasing a property Closeness to Competitors: ability to attract your competitors through differentiation or better marketing. Equipping premises Business owners need to ensure that they have the correct equipment, fittings, furniture and technology so their employees can work effectively. This is especially important for those businesses that rely on visual appeal to attract customers, such as a shop or restaurant (ambience). Obtaining realistic valuations WHEN PLANNING ON PURCHASING AN ESTABLISHED BUSINESS  There are many considerations that should be taken into account when estimating a business's value including sales, costs, profits, assets, liabilities, tax and legal issues. Likely Success of Small Business opportunities Small to Medium Enterprise (SME) failure rates from year of establishment Period from commencement Cumulative total of approximate failure rates (%) After 1 year 25 2 years 42 3 years 54 4 years 64 5 years 71 Total sum of incremental additions Successful Business Case Study 1. Peter Alexander 1. What year did Peter start the business and how did it begin? It began in 1978 when Peter began making pyjamas in his parents house. 2. When did Peter become successful and how? A year later Peter was able to sell his pyjamas to a major department store after having been rejected on his first tries. In 1989, his pyjamas began to gain serious media attention and popularity with celebrities and numerous TV shows talking about his pyjamas 3. How has the business changed? It started from Peter Alexander making pyjamas in his parent house on the dining room table to upgrading to a warehouse and beginning to make use of the new digital age. 4. Why is this business classed as successful? "It came down to having the right product at the right time" and advertising himself well. BlockBusters 1. Why does it no longer exist? They were unable to adapt to the digital age which left them behind in the market and ultimately resulted in their bankrupt BOOST 1. Why is it successful Janine was able to identify a gap in the market and create a product to fill that gap. She then built an experience in Boost that takes place every time when someone enters the store. Business operations Local, state and federal regulations affecting a small business Federal Government State Government Local Government Taxation requirements of Taxation requirements of Zoning (Land Use) business: GST, PAYG (pay as businesses: Payroll tax you go), company tax and FBT (fringe benefits tax) Registration requirements: Work Health and Safety Development applications TFN ABN (Tax file number, australian business number) Consumer protection Workers Compensation Health regulations (Competition and Consumer Act) Fair Work Act (National Anti-Discrimination Act Fire regulations workplace relations system) Unfair dismissal legislation Environmental protection Parking regulations Compulsory superannuation Food labelling Licences (i.e. signage, table and chairs) Intellectual property regulations Company regulations (ASIC - ensures companies are not breaking the law) Regulations prohibiting anti-competitive behaviour (ACCC) Work Health and Safety Employers must put in place control measures if they cannot eliminate health and safety. A business owner is legally responsible for implementing health and safety practices. An example of a control measure is the use of personal protective equipment (PPE). PPE refers to anything used or worn that can minimise the risk of the workers' health and safety, e.g. boots, ear plugs, masks, gloves or hard hats. Employers must ensure the health, safety and welfare at work of all employees by providing a safe system of work. Employers must ensure that all employees are adequately trained in relation to WHS Employers must ensure that machinery and substances are used, handled, stored and transported safely Each state has their own authority to look after their own health and safety. Safe Work - NSW - report on recent incidents Taxation Taxation is the compulsory payment of a proportion of earnings to the government. Some of the main taxes that affect a business are shown in the table below. Types of Tax Overview Income Tax - pay as you go (PAYG) Imposed on the employee Taken from the employee's salary or wage directly Taxed at progressive tax rates - the more you earn, the higher you rate of tax Company tax - structure of business (sole Paid on the earnings of a company trader etc) and calculated on the company's Only if you are company → private or taxable income (which is income left public after allowable deductions are calculated) 27.5% of taxable income for small businesses or 30% for larger businesses Goods and Services tax (GST) A broad-based tax of 10% on the supply of most goods and services consumed in Australia Environmental regulations All Federal, state and territory governments, and local governments jointly administer environment protection laws in Australia. The Environmental Protection and Biodiversity Conservation Act 1999 (EPBC Act) is the Federal government's main environmental law. The EPBC Act is focussed on the protection of nine 'matters of national environmental significance'. The matters include threatened species; World Heritage Sites; the Great Barrier Reef Marine Park; and water resources in relation to large coal mining and coal seam gas development. (STATE GOV) In NSW the Protection of the Environment Operations Act 1997 (POEO Act) is the main law regarding environmental protection. This law is administered and enforced by the Environmental Protection Authority (EPA). The EOA partners with business, government and the community to reduce pollution and waste, protect human health, and prevent degradation of the environment. They are responsible for issuing and monitoring environment protection licences and have the power to fine or sue businesses and individuals who break the law. It's important that all business owners make sure they comply with all environmental laws covering water, air, land, noise pollution and waste management. There are serious penalties if these laws are breached. Everyone involved in the business including owners, managers, operators, supervisors, contractors and subcontractors need to understand and comply with the government. Appropriate marketing strategies for promoting a business and selling products or services Personal selling Relationship Marketing Sales Promotion Publicity Public Relations Advertising The importance of ethical decision-making and corporate social responsibility Corporate Social Responsibility (CSR) refers to the way that a business considers financial, environmental and social impacts of its decisions and is often referred to as its 'triple bottom line.' e.g. - Not exploiting wages (pay wages correctly) Corporate social responsibility is a business model by which companies make a concerted effort to operate in ways that enhance rather than degrade society and the environment. CSR can help improve society and promote a positive brand image for company CSR includes four categories: environmental impacts, ethical responsibility, philanthropic endeavours and financial responsibility Case Study - Ethical Clothing 1. What is the purpose of Ethical clothing in Australia It brings awareness to underpaid workers, and helps them to know their rights (such as vacation and holiday) and ensures that they are paid properly (not underpaid etc). Additionally it helps to educate the workers to avoid risks of exploitation. Prevents workers from being exploited and allows them to ensure that they are working in a safe and secure environment. 2. Why would businesses want to be accredited with ethical clothing It is in a businesses best interest to be visible in the market and since customers and workers are being educated in ethical clothing and the importance of it, it encourages and promotes ethical production and work to be conducted by a business. One example of a lack CSR company is Volkswagen - in relation to their lack of environmental concern. Fashion Reimagined Why is ethics and corporate social responsibility important for businesses? A large majority of clothing is put in the landfill due to fast fashion and it is resulting in the contamination of water, land and animals. The designer in the video provided discussed how she was motivated and in the midst of creating a business. In her business she says that she will ensure that all her products, which are items such as dresses and other similar various outfits which are, 100% organic and sustainable. Organisations that provide support and advice to small businesses in Australia Small to Medium Enterprises (SME) owners cannot be experts in all areas of their business They do not normally have funds to employ a specialist to assist with management The business can receive assistance from a large number of government and private support agencies Not hyperlinked Solicitor (legal advice) and Accountant (financial advice+tax returns) Organisation Type of support Solicitorss Legal Advice  Chambers of Commerce Financial and legal services + networking opportunities + lobbying the government to help businesses Accountant Financial, Tax Returns Business Connect Legal and development of business Small Enterprise Associates - Training + advice and networking with university + research Australia and New Zealand and policy development ABS Provide relevant statistics Sources of support and advice Trade association (associations for specific industry) Small enterprise association of Australia and New Zealand Libraries and reference materials (good for apprentice and getting staff + skills) Chambers of Commerce Australian Bureau of Statistics Federal Government's business Business Connect Management consultants Bank Managers Universities, TAFE, Colleges Networkers Solicitors Accountants Maintaining Financial Records The purpose and use of financial records, eg to inform decision-making and fulfil legal requirements Financial records evaluate a businesses financial position and earning potential. They provide key performance indicators such as profitability, liquidity and solvency which assists investors, lenders, creditors in their decision making. Reasons why it is important for businesses to maintain financial records:  Inform decision making: business owners need good financial records to be able to monitor the progress of their business. To fulfil legal requirements: business owners are required by law to keep a range of records for their business including business registration documents, leases, contracts, records relating to income and expenses, who they employ, where their business operates from and insurance documentation Meet tax obligations: business owners are responsible for meeting their federal and state tax obligations. To obtain funding or a loan: lenders and investors will want to see accurate financial records such as a balance sheet and income statement before they loan money to a business. To enable business owners to manage their cash flow: accurate financial records allow business owners to see how much money they have available and whether or not this will be sufficient to meet their obligations when they fall due. The features of key business documents and how to interpret them, eg profit and loss statements, balance sheets, cash flow and taxation records Financial Year Starts on 1 July ends 30 June E.g. 2025 Financial Year is 1 July 2024 to 30 June 2025 Practice 1) 12/3/19 -- 2019 financial year 2) 1/6/22 -- 2022 financial year 3) 18/11/07 - 2008 financial year First 6 months in our calendar is that year's financial year. End 6 months in our calendar is the next year's financial year Financial Statements Each financial statement has a title that includes: - Name of the business - Type of statement (e.g. income statement) - Period of time (dated for the financial period), this is usually one year but could be a quarterly report (3 months including, June, September, December and March) Types of statement (can have alternative names)  1. Income/Revenue/Profit and Loss Statement It is a financial statement that shows whether a business has made a profit or loss during a period of time. Example Dipak's Diner Income statement for the year ending 30 June 2019 Summative end of year report - all the amounts are added up (accumulative) $ (often subtotals) $ Revenue 215 000 less Cost of goods sold 90 000 Gross Profit 125 000 less Expenses Wages 38 000 Rent 20 000 Electricity 5 500 63 500 (minus from gross profit) Net Profit 61 500 (answer) less = minus (-) PRACTICE A$ B$ C$ D$ Sales (revenue) 500,000 300,000 200,000 340,000 COGS (200,000) (140,000) (120,000) (100,000) Gross Profit 300,000 160,000 (80,000) 240,000 Expenses (150,000) (100,000) (90,000) (110,000) Net Profit 150,000 60,000 (10,000) - Debt 130,000 (expenses over gross profit) Putting brackets means going to minus that number Instead of putting dollar signs all throughout the table, accountants often put it at the top. Revenue = sales from the business Cost of goods sold (COGS)= inventory costs Gross Profit = Sales - Cost of goods sold Net profit = Gross Profit - expenses Expenses = all other cost associated that the business has 2. Balance Sheet/Statement Shows a business's assets, liabilities and owner's equity at a specific date (what a business is worth - monetary value). Not cumulative. Dipak's Diner Balance sheet as at 30 June 2019 Assets $ $ Liabilities $ $ Current Current Assets Liabilities Cash at Bank 68 000 Accounts Payable Stock on 22 300 90 300 Hand Non-Current Liabilities Non-current Bank Loan Assets Equipment 58 000 Motor 37 000 Owner's Vehicles equity Glass and 12 500 107 500 Net profit 61 500 Cutlery retained Capital 46 300 Total Assets 19 Total liabilities and owner's equity Asset = all resources owned by the business (something physical that can be sold) Assets consist of: Current Assets (CA)= that will be converted into cash within 12 months (i.e. cash, account receivable (debtors/tabs - expecting to receive something of value), stock (inventory) Creditor = you owe money Debtor = you are owed money Non-current asset (NCA)= assets that will NOT be converted to cash within 12 months (i.e. property, land, motor, vehicles, equipment. Liabilities = all the money owed by the business (future obligation) Liabilities consist of Current liabilities (CL) = these are expected to be repaid within 12 months, i.e. accounts payable (creditors), overdrafts Non Current liabilities (NCL) = these are expected to be paid over a longer period of time i.e. mortgages, long term loans Creditor = you owe money Debtor = you are owed money Owner's Equity (on the balance sheet) = the net worth of the business. It is the money that the business owes the owners Equation: A = L + OE Assets = Liabilities + Owner's Equity Liabilities are not negative in this accounting equations - they are added to the owner's equity Need to make sure that they will balance - double entry accounting (not to expensive) Identify CA, NCA, CL, NCL or Owner's Equity CA NCA CL NCL OE Accounts Car Accounts Mortgage Owners capital receivable Payable Plant Term loan Net Profit Stock (machinery) and Bank Overdraft (depends on equipment time frame) Inventory Credit Card (Stock) Furniture Cash Revenue = sales from the business/money coming into the business Cost of goods sold = inventory cost Gross profit = revenue - cost of goods Net profit = gross profit - expenses Capital/Equity = initial money invested in bank Total assets - equal liabilities +owners equity 3. Cash Flow Statement Cash flow shows the movement of cash inflows and outflows over a period of time. Like a bank account. Cash inflows = payments coming into the business Cash outflows = payments going out of the business Dipak's Diner Cash flow statement for the year ending 30 June 2019 $ $ Opening cash balance Cash inflows Cash Sales Interest received Total cash inflow (TCI) Cash outflows Wages Rent Electricity Practice Jan ($) Feb ($) Mar ($) Opening (1st of 300 200 (from closing 300 (from closing March) balance january) balance february) Cash INflow 100 400 500  Cash OUTflow 200 300 200 Closing Balance (last 200 300 600 day month 31st) Like a bank statement Closing balance = (opening + inflow) - outflow Balance sheet is a current snapshot at that time the position of the business Closing Balance and current assets would match up/be equivalent Net worth is owners equity Creditors (account payable)= liabilities Debtors (accounts receivable) = asset Activities (from textbook) 1. Julian Moley Blue Hills Corner Store Income statement for the year ending in 2024 $ $ Revenue 178 000 Less Cost of Goods 75 000 Gross Profit 103 000 Less Expenses: Electricity 1 800 Advertising 2 200 Interest Charges 3 000 Salaries 12 000 Rent 15 000 34 000 Gross Profit 69 000 2. Sandra Dyer Sandra Dyer Jewellery  Balance sheet as of 15th of October 2024 Assets $ $ Liabilities $ $ Current Current Assets Liabilities Accounts 800 Accounts 6 500 receivable Payable Cash at Bank Stock 2000 3 000 Non-current Non-Current Assets Liabilities Building 17 800 Mortgage 5 500 Motor 7 000 Owner's Vehicles equity Machinery 5 200 30 000 Net profit 10 000 retained Capital 11 000 21 000 Total Assets 33 000 Total liabilities 33 000 and owner's equity 3. Adriana Adriana's craft shop Cash flow statement for July $ $ Opening cash balance Cash inflows Cash Sales 8 200 Interest received 200 Total cash inflows (TCI) 8 400 Cash Outflows Wages 1350  Rent 350 750 Electricity 150 Equipment 28 000 Total cash outflows (TCO) 30 600 Net cash flow (TCI-TCO) Closing cash balance 4. Taxation Records Business owners must keep taxation records for at least 5 years according to the Australia Taxation Office (ATO). Records that must be kept are: Need to have records to pay taxes Receipts and other evidence of all sales and purchases made for the business. Tax invoices, wages and salary record. All documents about GST (goods and services tax) Records of all purchase, sale and other costs of any business assets. All records relating to tax returns, activity statements, fringe benefits and contributions to employee superannuation Strategies which businesses may put in place to minimise risk and avoid insolvency and bankruptcy, eg proposing a course of action for a hypothetical business Strategies to minimise risk and avoid insolvency and bankruptcy Insolvency: when an individual or a company can no longer meet their financial obligations. Risk management is a process of: Evaluate the risks faced Calculating the possible costs Implementing procedures to minimise such risks Scenario Risk Identified Minimization Strategy Isabella runs a make-up store in a busy Theft Put in place stock shopping strip in Sydney. There has been an loss and crime prevention measures increase in theft on the street where her and improve security business is located. In addition to this, there has been an increase in theft in her store. She calculated that in the last six months, she lost $3000 worth of stock, mainly due to shoplifting. Alex runs a shoe store in a shopping strip in Falling Sales Conduct market Parramatta. Most of the store’s sales come research to find out why sales are falling. from passing trade, i.e. people walking past Try to reduce costs to his store. A new shopping centre opened a ensure the business month ago, within walking distance from survives Alex’s store. Since it opened, there have been fewer people passing by his shop. Jenny owns a café. She has recently Injuries at Work Ongoing training and experienced a decline in sales due to a new and Falling Sales support for staff/Induction café opening nearby. There has also been an program. increase in the number of employee injuries. AND Many of these injuries have occurred due to Conduct market sharp objects in the kitchen, spillages and research to find out manual handling. why sales are falling. Try to reduce costs to ensure the business survives Michael owns a bakery store. He wants to Food Spoiling Storing food in fridges increase the variety of baked goods he sells. Prematurely - Not and baking more having fresh regularly. Before he decided on which new pastries, product. AND breads and cakes to sell, he realised that AND and can lead Comply with statutory some new items will contain ingredients with to a Lawsuit regulations and take a shorter shelf-life. As a consequence, he is precautions not to concerned about the risk of food poisoning harm others - a as well as whether or not customers will like reasonable duty of care. the new options. The way the business responds to changing economic conditions Peak/Boom Trough/Bust Expansion - key features (entire phase from trough to peak) Increasing consumer spending Business expectations increasingly optimistic Increasing business investment Sales and profits rising Unemployment falling Contractions - key features Decreasing consumer spending Business expectation increasing pessimistic Decreasing business investment Sales and profits falling Unemployment rising Peaks - key features Wages and salaries at high levels Business operating at full capacity Sales and profit at highest levels Low level of employment Trough - key features Wages and salaries at low levels Business operating below full capacity Sales and profit and lowest levels Consumer spending at lowest levels  High levels of unemployment Expansion Customers are spending more money Businesses will start to invest (good time to start a business or put more money in business to expand. More workers are going to be higher Peak ⬇️ Sales and profits are at the highest level. Employment is also high ------- ⬇️ Negative: Prices inflate Contractions Consumers spend less Decreasing business sales and profit Decrease of employment Trough ⬇️ Wages and salaries are low Business sales and profit revenue at a low High levels of unemployment And the cycle repeats Business response to peaks ⤴️ Increase employee's wage and salaries Increase production to take advantage of an increase in sales  Hire more staff Increase prices Expand Business Invest in new equipment, technology or assets Business response to trough Keep employee's wages and salaries at current levels Decrease or maintain production at current levels Decrease the size of the workforce Keep prices at the same level Put a stop to expansion or possibly close some locations Maintain current equipment, technology or assets Key Issues, processes and strategies related to running a business Be specific - need to write sentence Management of Operations: Issues Inputs - determining and purchasing resources to produce goods and services Transformations - converting all the resources into the final goods and services Outputs - deciding on the final products and/or services that will be produced Inventory management - to have the right amount of stock on hand Supply Chain - determining how to manage the flow of supply Quality management - ensuring that goods and services are produced to meet set standards Management of Human Resources: Issues Acquisition - recruitment and selection of staff Training and development - teaching staff skills so they can do their jobs more effectively Motivation - rewarding people to achieve the business goals Performance Management - assessing the performance of employees Resolving workplace disputes -implementing procedures to resolve disputes effectively Separations - managing when and how employees leave the business Management of Finance: Issues Sources of Funds - determining where to get funds from Preparing financial statements - cash flow statements, income statement and balance sheets Financial ratios - analysing and interpreting financial statements Cash flow management - implementing strategies to ensure the business has enough funds to meet their obligations Management of Marketing: Situational analysis - understanding the business's current position through undertaking a SWOT analysis Market research and marketing objective - conducting research and setting clear and achievable goals Target market - determining the group of customers the business intends to sell products to Product - quality, design, branding and packaging Price - setting the correct price for the goods and services Promotion - methods used to inform, persuade and remind customers about the products Place (distribution) - how to get the good or service to the customers Definitions - Assets - items of value (e.g. equipment) - Liabilities - the debt owed by a business to others (e.g. credit card debt) - Insolvency: when an individual or a company can no longer meet their financial obligations. - Creditors (account payable) - liabilities - Debtors (accounts receivable) - asset - Balance sheet - a current snapshot at that time the position of the business - Cash inflows - payments coming into the business - Cash outflows - payments going out of the business - Revenue = sales from the business/money coming into the business - Cost of goods sold = inventory cost - Gross profit = revenue - cost of goods - Net profit = gross profit - expenses - Capital/Equity = initial money invested in bank - Total assets - equal liabilities +owners equity - Contraction - decline in economic output/sales