1196229280 2006 Business Studies Notes

8/9/2019 1196229280 2006 Business Studies Notes

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YEAR 11 1/2 yearly SUMMARYBus-business

Nature Of a Business

PRODUCTION AND CREATING VALUE/BENEFITS

Terms:

Business- organized effort of individuals to produce and sell for a profit the products that satisfy

needs and wants of customers

Finished product- one ready for customers to buy and use

Production- activities undertaken that combine resources to create products which satisfies needs

and wants

Ingredients of production: natural, capital and labor resources

Intermediate product- product produced then used as input by another business

Value of production = value of sales – value of intermediate products sold

- Total value added in monetary terms

Value added- difference b/w raw materials and amount received when product is sold

Input - materials with which a business starts

Output- final products ready to sell and achieve profit from.

Value adding- creation of extra/added value through the stages of production

Operating epenses- costs involved in daytoday production

!ealth creating- adding to the economy

!mall businesses are important for these reasons

". !atisfy needs and wants of consumers consumers personal needs and wants are

addressed and businesses satisfy these at a hope of making a profit.

#. Improves standards of living goods and services are made to save time, money or lives.

$. Increases wealth in economy businesses pay taxes which contribute to running of

economy

%. &mployment approximately '(.')* of +ustralians are employed by small businesses.

"uestions:

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!hat is the function of a #usiness$ To turn inputs into outputs by adding value to it through

manufacturing. +lso to satisfy the needs and wants of consumers. They also exist to provide

employment to the community.

%o& do #usinesses achieve their function= businesses first decide on creating their final

product. They collect their inputs and get skilled employees to prepare the input into a final product

and pays employees before making a profit.

!h' are #usinesses important$ -easons why businesses are important are:

• They contribute products/ services and opportunities to our society

• They serve the needs and wants of consumers and come up with goods/services

according to society demands

!hat activities are underta(en #' a #usiness$=

". roduction creating goods and services

#. rganizing natural, capital and human resources

$. 0istributing goods and services 1products2

%. lanning finances, production and business needs

). 3orecasting sales, expenses and profit4. 5ontrolling productionn 6uantity and 6uality

7. 8arketing products

'. 8anagement coordinating the business9s limited resources in order to achieve specific

goals.

Importance of small-mid #usinesses

• These businesses play an important role in +ustralia as they are a maor source ofemployment and their total output adds to the economic growth and well being of +ustralia.)#* of private businesses are small businesses. +lso they earn more profit so they paymore taxes than large businesses.

• 8any have established profitable overseas markets, which generates much needed export

income. This has an important on +ustralians balance of payments.

• -esearch and development undertaken adds to the number of inventions and innovations

in +ustralia. !mall businesses provide %(* of all the products produced each year.

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• The total impact of individual small businesses is huge.

)O*I+, +N .*ONO/I* 0O,.) OF B1)IN.))

Terms:

Innovation- something established is improved upon

Invention- producing a new product

0esearch and evelopment 2034- activities undertaken to innovate, invent and develop more

ways of marketing and distributing

"ualit' of life- overall wellbeing; combination of both material and nonmaterial benefits

*hoice- act of selecting among alternatives

.ntrepreneur- someone who starts, operates and assumes the risk of a business venture in the

hope of making a profit

The economic role of businesses


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value

• wners and

investors can

receive money if

sales exceed

normal prices

• oods and services aresold at fair prices.

&nvironment =usinesses take undertakesafe and environmentallyaware operations and treat theland with sustainability.

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>overnment &xternal stakeholder becauseit cannot influence businesspolicies. + business paysappropriate taxes to thegovernment and abides by its

legislations and thegovernment in return ensures asafe business environment

!uppliers and creditors =usinesses pay debts to thesuppliers/creditors on time andact ethically and honestly withproducts/services given.

B1)IN.)) 6O+,)

Financial goals- goals focusing on financial success

3inancial:

• Increasing profit of employees

• Increasing return on investment 1whether land, shares, other assets2

• Increase sales

• Taking and capturing market share

)ocial goals- aiming to bring benefit to sectors of the community; are to build reputation and to

ensure community is satisfied

• rovide community services e.g. donation to charity

• To introduce sustainable practices in a workplace e.g. using recycled paper

• ursue social ustice issues in the workplace e.g. in employment e.g. occupational and

health act

• rovide employees with employment, income and career/opportunity paths. &.g. giving

obs

Personal goals- not planned by bus but may affect it

• Increase power and status

• Increase wealth

• rovide business opportunities for family in present or future

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!rite a#out a case stud' relating to social7financial7personal goals .

!ocial goals 8c 0onald9s

8c 0onald9s is a worldwide franchise that has huge social goals. They do lots of charity work andhelp people in need in +ustralia. ?ocal fundraisers e.g. fundraising balls are held 6uarterly everyyear. rincipal store promotions e.g, collecting @" from every =ig 8ac on 8c Aappy day is heldyearly. They have also established its own charity called the B-onald 8c 0onald Aouse 5harityB.-easons for existence of the charity are to:

• To build accommodation near hospitals for families with seriously ill children.

• To have Bcatch upB learning programs where sick children are provided an education.

• To support umbilical cord blood banks

The running of the running of the restaurants and charities are different as 8c0onalds therestaurant has ##* of its money also going to charity to sponsor the charity work 8c0onalds does.The charity uses this money for its resources/staff. 8c 0onald9s are also sponsors of sporting andTC events that are important in society. -onald mc 0onald teams up with cocacola who givescharities free coke machines at every house and free coke to use in 8c0onald restaurants.

/ar(et share- proportion of a productDs total market and bus. controls

*OO0IN+TIN6 T%. B1)IN.))

*oordinating- management task of ensuring parts of the business operate well with each other

)'nerg'- whole being greater than sum of parts; known as E"F"$D effect

&ffective coordination ensures minimal wastes, greater efficiency and superior products

-e6uires coordination of human, financial, physical and information resources

% basic functions of managing 2P,O*4:

o P,+NNIN6- establish obective, plans to achieve obectives

o ,.+IN6- motivate, direct and guide, inspire

o O06+NI)IN6- coordinate resources, delegate tasks, manage info, manage flow

of funds

o *ONT0O,,IN6- evaluate performance, monitor progress, execute corrective

action

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B1)IN.)) .NVI0ON/.NT

Business environment- surrounding conditions

- Internal- micro environment; the bus has some degree of control

- .ternal- macro; the bus has little control over

B1)IN.)) ,IF. *8*,.

Business life c'cle- stages of growth and development a bus experiences

% stages: establishment, growth, maturity, post maturity

.)T+B,I)%/.NT

!ets up to build solid foundation or failure

0ecisions need to be made legal structure, financial backing, location, costs, A-

5osts high, returns low needs to promote and build clientele

&mploying and also borrowing of money/ land other assets

?ittle output due to lack of money

5hallenges:

". 5hoosing an appropriate product with distinctive advantage over the competition.

#. 3inding the right size and location of premises

$. 3inding the best angles for marketing

%. +nticipating the business entire financing re6uirements throughout its establishment phase

60O!T%

+ccelerated growth, customer base, supplier network

Geed to: develop A- management, policies, continual improvement in working capital,

financial management, outsource, control inventories, develop long term goals

The challenges for a business are:

• &nsuring that the 6uality of service or production is maintained as output grows

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• 0eveloping accounting and financial information systems which provide management with

detailed information about the performance of the different aspects of the business

• 8anaging cash flow and taking into account the financial re6uirements involved in

expanding the business

• Taking the opportunities of improving economies of scale with the increased production

levels

• !ustaining growth and not letting the successes of the business create a sense of self

satisfaction or laziness

• -ecruiting new employees and delegating responsibility

• -edefining the role of management so that the manager9s workload is not overwhelming.

/+T10IT8 Increased comp sales stage

rofessional managers used

The responsibilities faced in this stage:

• !taying responsive to changes in consumer demands

• Identifying opportunities for innovation in products and services

•

!ustaining the motivation of management and staff and avoiding laziness or complacency

• -ationalizing business operations and minimizing costs

PO)T /+T10IT8

Three stages: steady state, decline and renewal

)T.+8 )T+T.

left to operate at current level

neither expanding or declining

only satisfying customer and maintaining profit

.*,IN.

sales slow fail

difficult to overturn

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0.N.!+,

increase in sales and profits

undergoes revival

Video: Futura graphics- a #usiness #' )ofia9 )teve and Penelope

&stablishmentsteve and !ofia sell tshirts at local craft markets. They decide to establish a shop.

They had to bribe the council for allowing of shop and had devised a plan to deligate roles in the

business.

Incorporation a year later they are experiencing cash flow difficulties and donDt have the necessary

cash to purchase new e6uipment and undertake marketing. They had been employing people

overtime and had investments that people wanted to buy

>rowth futura graphics has grown 6uickly and in # years a thriving business but with this growth

comes problems. They are having financial worries

0iversification futura grows but has a new competition called ?ookers who grab some of futura9s

market share with highly competitive pricing. 3uturas response was to have penelops son as a spy.

They had got some marketing strategies and had people lie/fib about their company.

5risis the business reaches a place where their surfing line fails in the market place. Their

response to this crisis is to cut costs and switch/remove items. !ales go down and they li6uidify

their items. They get to a point of deciding to shut down their business but then bounce back again.-enewal they are faced with several difficult decisions like:

". >etting employees to stick with company

#. !tarting to make decisions together and being able to trust one another

$. &xceeding products when business is restructured

%. !elling directly to the public

". The definition of a small business according to the +ustralian bureau of statistics are:

• &mploying fewer than )( employees

•


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Aaving an asset value of less than @) million. They are independently owned and operated and is

closely controlled by the owner/manager. The decisionmaking is done principally by the

owner/manager. 8ost of the operating capital is contributed by the owner/manager.

Three main areas of small #usinesses are:

5onstruction there is a need for constructing infrastructure regularly for personal/business

purposes. These are spread out evenly and have a significant importance as we need

maintenance of our infrastructure and also need to expand areas occasionally. It doesnDt need

much skill, which attracts people, as it9s easy to get into this business.

roperty and business people need to buy/sell houses and need a real estate in every suburb.

They also a need for services on how to maintain their house and other assets e.g. cars, property

area etc.

-etail we wear clothes all day, everyday so there are establishment and existence of businesses

as they feel consumers would want a variety of clothing9s and different types. +lso that you can

make profit in this industry.

B1)IN.)) F+I,10.

)olvenc'- where debts can be paid

Insolvenc'- inability to meet debts

Ban(ruptc'- declaration that a bus is unable to pay off debts

0eali;ation- converting assets into cash

Voluntar' cessation- when you stop operating bus at own agreement

Involuntar' cessation- forced to stop trading

*reditor- people/bus who are owed money

,i


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/ar(et share- percentage of the total sales of a product captured by a particular business in the

industry during a set time period.

1ndercapitali;e- the situation in which owners of a business provide insufficient capital 1funds2 to

meet the high cost of establishment

Brea( even anal'sis- techni6ue commonly used to assess expected profitability of a company or

single product. It determines of what point revenue e6uals expenditure.


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B1)IN.)) .NTITI.)

Business entit'- any organization involved in production

% ways to classify a business: legal structure, public/private sector, industry and

international/transnational/national

Incorporated- a separate legal body from its owners

1nincorporated- entity F owner "

)ole trader- business owned and operated by one person

+dvantages isadvantages

5heapest body

5omplete control

less costly

all profits

simplest form

less regulation

no disputes

unlimited liability

bus dies when owner dies

burden of management

difficult to expand

Partnership- owned and operated by ##( people


low start up unlimited liability

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less costly

pool funds and talent

less regulation

shared responsibility and workload

disputes

divided loyalty and authority

difficult to find partner

*O/P+NI.)

*ompan'- incorporated, registered separate legal entity

To become incorporated: "2 lodge an application with +!I5 and receive cert. of Incorporation

#2 complete 8emorandum of +ssociation and +rticles of +ssociation

$2 -eceive +5G, pay fees to +!I5

Prospectus- document stating financial info, assets and liabilities, future prospects; issued by

public companies to shareholders annually

ublic companies: min. of ) shareholders, listed on +!N and no restrictions on transfer of

shares, audited financial accounts

,imited lia#ilit'- limits ownerDs financial liability; if company goes into li6uidation they canDt be

forced to sell their personal assets

/emorandum of +ssociation- document governing relationships b/w third parties. !tates: name,

purpose, initial capital, liabilities of shareholders, statement that subscribers wish to form a

company+rticles of +ssociation- set of rules of bylaws that govern the internal running of company of incl.

share transfers, election/removal of directors, meetings, profit distribution, etc.

roprietary 1private2 companies has #)( shareholders, smallmedium size, usually family

owned

*ooperative- group who oin for a particular purpose

Trust- relationship where trustee holds trusts property on behalf of beneficiary; trustee not liable for

debts

Franchise- license to sell or manufacture someone elseDs products as your own; a license to

operate and individually owned bus as if it is part of a chain of outlets/stores

Franchisor- individual granting franchise

Franchisee- person buying franchise

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*,+))IFI*+TION B8 IN1)T08 ).*TO0

Industr'- bus involved in similar types of production

Primar' industr' collection of raw materials; beginning of production

)econdar' industr' taking raw materials and making it into a product

Tertiar' industr' performing a service

"uaternar' industr'- services involving transfer and processing of info and knowledge

"uinar' industr' services traditionally performed at home

*,+))IFI*+TION B8 P1B,I*7P0IV+T. O!N.0)%IP

Pu#lic #usiness enterprise 2PB.4- govt. owned and operated; $ types:

• 6ovt statutor' #od' established under +ct of arliament to

carry out specialized function

• 6ovt corporation

• )emi govt authorit'

Private #usiness enterprise- bus owned and operated by private individuals

Privati;ation transferring from govt. bus to private sector

).,.*TIN6 T%. 0I6%T ,.6+, )T01*T10.

% main factors to consider: size of bus, ownership structure, finance, privatization

Float- raising capital through sales of shares

Venture capital- money invested in struggling bus, which has potential

*,+))IFI*+TION +**O0IN6 TO 6.O60+P%I*+, )P0.+

International #us- produces output in one country but exports

Transnational *orporation 2TN*4 - home base in one country operating partially/wholly in other

countries/ulti domestic corp- in many countries acting independently w/ own domestic market

6lo#al #us around the world; produce and sell specialized product

)/.s IN +1)T0+,I+

"uantative measurement- based on stats

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"ualitative measurement- way bus is organized, structured and managed

F+T- 0ept. of 3oreign +ffair and Trade; uses O of employees defines !8&s as: manufacturing

b/w "(()(( employees; nonmanufacturing b/w #()(( employees

+B)- +ust. =ureau of !tatistics; defines !8&s as manufacturing P"(( employees; non

manufacturing P#( employees

!iltshire *ommittee- " or # persons making critical decisions, relies on support services and

employees P"(( people

Turnover- volume of sales in monetary terms or 6uantity

/icro#usiness- P)employee incl. owner

)O%O- small office, home office

6P- >ross 0omestic roduct; total monetary value of goods and services produced in +ust.

BOP- =alance of ayments; records of countryDs trade and financial transactions globally

+ustrade- operate programs encouraging exports

)1**.)) +N F+I,10. OF )/+,, B1)IN.))

) pointers to success: entrepreneurial abilities, access to info., flexibility, focus on market

niche, reputation

!mall bus has failed when "2. it is unincorporated and declared bankrupt

#2. Incorporated and li6uidated%igh technolog' 2hi-tech4- new and innovative bus depending on advance scientific and

engineering knowledge

Value chain: -Q0designproductionmarketingdistributionservice

T%. B1)IN.)) .NVI0ON/.NT +N IT) I/P+*T

.conomic c'cles- periods of growth 1boom2 and recession 1bust2 that occur as a result of

fluctuation in general level of economic activity

The economic cycle

The level of economic activity in country is determined by economic cycle.

It is impossible to save when a boom/recession period will happen. There are upswings anddownswings of the economy.

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=oom

Aigh employment, inflation increase, wage increase, increased consumer spending and highconfidence by consumers, government and businesses

0own swing

?oss of confidence by consumers, government and business sales growth decreases, increasedunemployment and increase in competition between businesses.

-ecession

Increased unemployment, decrease in sales 1maybe inflation2, not many wage rises, consumerspending decreases and low confidence by consumers

Kpswing

!ales start to increase and businesses conditions improve. &mployment levels increase aconsumer confidence increases.

*ustomer tastes- influenced by income, age, fashion and trends

Productive diversit'- range of products produced by a business

)ustaina#le competitive advantage- ability of a business to develop strategies to ensure it has

an edge over its competitors

% types of market concentration: /onopol'- complete control and there is no substitute

product or services for these businesses and has the ability to decide the price of the product,

as there are no competitors.

Oligopol'- small no. of larger firms have greater control of

market and where there are few competitors 1between $"#2.

These businesses are able to determine the price, as there

are so few of them. &.g. banks, supermarkets

/onopolistic- large no. f buyers and sellers in a particular

market as this is a market where there is many sellers and

more variety and some are able to influence the price of the

products because they have market power. Their products are

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not exactly the same as there are minor differences in

packaging, customer service and distributing.

Perfect- sells similar products unable to differentiate

products. There is normally minimal advertising, as it doesnDt

necessarily increase market share. This can normally be done

through competitive pricing.

.ase of entr'- ability to establish within in an industry

,ocal competitors- competitors which produce/sell in the same market

eregulation- removal of govt laws

/+05.TIN6

/ar(eting- total system of interacting activities designed to plan, price, promote and distribute to

customers

Product differentiation- same products appearing different

)u#stitutes- a direct alternative

Target mar(et- group w/ similar characteristics, which a bus is aimed

Niche mar(et- breaking down market into groups w/ similar characteristics

/ass mar(et- market in general all consumers

/ar(et segmentation-

PO,ITI*+,7,.6+, INF,1.N*.)


conducted on e6uitable basis

certain standard of 6uality

control bus impact on environment

provision of assistance for bus seeking

market o/s

restricts free operation

fees and charges

.T%I*+, +N )O*I+, 0.)PON)IBI,ITI.)

Bus ethics- application of moral standards to bus behavior

*onflict of interest- taking advantage of a situation for their own gain

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.thicall' responsi#le )ociall' responsi#le

act honestly/morally

honour commitments

not engage in deceptive practices

rovide safe work environ.

!tructures organization fitting environ.

?aws

>ood rep

-ecognizes contribution

.nlightened self interest- belief bus helps itself when solving societyDs problems

)ocial audit- report of what bus has done and is doing regarding social issues

%+0/+- managers acting ethically; free of self interest

5.8 B1)IN.)) F1N*TION)

% key #usiness functions:

o Operations- process involving production

o +ccounting and finance

o &mployment relations

o 8arketing

utsourcing contracting out some bus functions

lanning the process of deciding what is to be done, when and how it will be done and who will doit. lans provide direction for action

5ontrolling the process of measuring whether the obectives set out by planning have beenachieved. 5ontrolling involves measuring the actual performance, comparing the performance totargets and correcting variations from targets

functional structure organizes business around the different functions, a product structureorganizes employees around specific products

0ivision of labor separates parts of obs to different people. The advantage of this is greaterefficiency

The span of control the number of people who report to a manager

The chain of command the line of authority. The biggest boss is at the top and etc

Interdependence key bus functions working together

8ission statement written statement summarizing aims and goals

Cision statement written statement summarizing hopes for the future

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!eparation division of funcs into specialized units

8arketing

8arketing maximizes profitable sales. It is the total system of business activities designed to plan,

price, promote and distribute wantsatisfying products and services to markets in order to achieve

the obectives of the business

• The target market can be either:

- 8arket aggregation 1seeing the target market as one single unit2- 8arket segmentation 1breaking the market into smaller sections2

• 3urthermore, market segmentation can be divided into:

5oncentrated marketing 1focusing on one single segment20ifferentiated marketing 1targeting a number of different segments2

% variables when segmenting:

0emographics 1age, gender, income, religion etc2>eographic where consumers live 1city/town, urban/rural2 roduct related tangible or intangiblesychographics 1social class, life style, personality2

% Ds: product, price, place, promotion

roduct is a set of tangible and intangible features. !trategies includes etension R addingnew products, contraction R when a business stops making a product and reuvenation R

redesigning/repackaging a product

rice: % methods of calculation

o *ost plus margin- adding * for profit

o /ar(et price- according to production and 6uantity customers want

o *ompetitor>s price- below/e6ual/above competitors

o

iscount- reduced price romotion: romotion is the approaches used to get a good or service noticed by potential

customers. +pproaches used are personal selling, sales promo, publicity, advertising,

sponsorship

lace is where the exchange between buyer and seller occurs. lacing strategies include

intensive 1where product is available at every possible outlet i.e. coke2, selective 1wide

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distribution of products without intensive i.e. shampoo at hairdresser2 and exclusive 1limited

supply, implies elitism2

8arketing environ: technical forces, competitive forces, political forces, economic changes,

legal forces, societal forces

+**O1NTIN6 +N FIN+N*.

+ccounting- management tool; provides info on financial affairs

*redit rating- scale summarizing financial track record from view of lenders

0ecords- bookkeeping; summarized into reports and statements

+udits- where errors are corrected

+ccounta#ilit'- when a bus acts in best interest of its owners

)te&ardship- accurate info summarized and based on true and actual transactions

+ccounting provides info about financial status, cash status, financing info, cash flows,

profitability, trends in earning and borrowing

Finance- how a bus funds

FIN+N*I+, )T+T./.NT)

Balance statement

-ecords the vale of business assets and liabilities at particular dates and differs from a revenue statement

as it accounts for assets and liabilities of business rather than income and expenses. +ssets are anything

owned that adds value to the business. ?iabilities something business owes and must be calculated a given

date than over period of time

+ll assets all liabilities

5urrent assets business intends to convert into case within accounting period. &.g.

5ash on hand or at bank/institution

!tock 1inventories2

+ccounts receivable

Gon current business assets use to carry out operations and donDt intend to convert into cash in the

accounting period. &.g. motor vehicles, furniture, land/buildings, fixture and fittings, furniture

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Intangible assets:

atents

-eputation

5opyright

Trademark

>oodwill is value placed on business reputation or size of customer base

?iabilities include

5urrent debts the business owes to stakeholders outside the business which must be paid off in full within

accounting period and include:

verdrafts, shortterm loans or accounts payable

Goncurrent long term liability in accounting period which is extended as long as needed an includes

mortgages and term loans

+ssets liabilities F owners e6uity

*ash flo& statement- records cash transactions of a business over a period of time and accounts for cash

inflows and outflows creating a balance

urpose ensures business had ade6uate level of cash and li6uidity within a business and prepared each

month to record times business experiences cash shortages or surpluses. It9s crucial for:

5ash to proximate suppliers as needed to provide stock and can mean potential fall in sales and ultimate

profitability in no existence of it

=usiness may become insolvent leading to cessation of business

5ash flow statements classified into:

5ash receipts flow of cash into business and rises as cash does. ccurs when increase in sales, debaters

paying back to business, business assume funds from bank in form of loan or overdraft and business selling

off noncurrent asset/s

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cash payments increase in expenses and less cash flow. ccurs when there is increased cost of wages,

increased expenditure on stock and inflation within economy

key uses of financial statement:

- !ummary of financial transactions of a business over a period of time. The information

contained in the financial statement is analyzed and used by management to assist

making business decisions.

It can be used to measure business performance and expected and planned performance.

-evenue statement:

-ecords expenses and income of business over a defined period. It shows the profitability over given period

and commonly prepared at the end of each month.

-evenue money flowing into business which business earns by arriving out its operations

P,+NNIN6 +N *ONT0O,,IN6

)trategic plan- longterm plan/goal that re6uires the commitment of each business function

Operational plan- shortterm plan helps bus manage and achieve goals

Planning- managerial and leadership task involves looking ahead to see whether the bus is doing

what it needs to achieve market potential

F1N*TION+, +N /+05.T )T01*T10.)

Functional structures- operations organized according to key functions and geographic factors.

They are either specialized into divisions according key functions to meet the needs of a market/ar(et structures- types of organization based around markets/consumers

IVI)ION OF ,+BO10

ivision of la#our- separation of power that occurs within an organization on the basis of

responsibility and expertise

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,a#our- a bus workforce

/anagers- people who have greater responsibility; makes decision affecting resource use, use of

funds and charges to behave ethically

)P+N OF *ONT0O,7*%+IN OF *O//+N

)pan of control- no. of people for whom a manager is directly responsible as well as the ratio of

managers to subordinates across successive layers

o&nsi;ing- reducing labour and encourage more flexible skills

*hain of command- flow of authority from snr management to supervisors then workers

/+N1F+*T10IN6 B1)IN.)).)

.T/- elaborately transformed manufactures; goods highly processed and valued complex b/c of

amount of processing done

)T/- simply transformed manufactures; characterized by ability to be further processed

P10*%+)IN67)1PP,8 *%+IN /+N+6./.NT

)uppl' chain- range of suppliers from which bus purchases from

,ead time- length of time taken to meet needs of customers thru provision of good/service

)upplier rationali;ation- process bus goes thru when it reviews and reduces no. of suppliers*I/- computer integrated manufacture; manufacturing process characterized by linking key bus

functions

/0P- materials re6uirements planning; anticipate levels of demand for a product and order

supplies of re6uired inputs accordingly

0O)T.0IN67)*%.1,IN6

0ostering- process of organizing workers in the bus so that work can be completed; forming a

timetable showing availability of employees

8ain tools used to schedule: "2 rogram &valuation -eview Techni6ue 1&-T2

#2 5ritical ath +nalysis 15+2

$2 >antt 5harts

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&-T and 5+ show what needs to be done and how long it takes and order. >antt charts

outline activities, order and expected time.

T+)5 .)I6N

Tas( design- classifying ob activities in ways that make it easy for an employee to perform and

complete the task successfully

rocess: "2 define what needs to be done in a general statement

#2 +nalyze ob into duties

$2 +llocate difficulty and time

%2 8atch tasks to awards

)2 +rticulate task via ob descriptors and pay a scale to allow a range of experience in

a range of work settings

lant layout is the physical organization of the plant. 5an be:- 3unction ?ayout R all machines undertaking the same process located together- roduct ?ayout R traditional assembly line, each process is completed in order

!+0.%O1)IN6

!arehousing- storage of raw materials and inventories


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*+/- computer aided manufacture; software that controls manufacturing processes; can be linked

to 5+8 to allow instantaneous manufacture of designs that are accepted by clients

INV.NTO08 *ONT0O,

)toc( ta(e- the physical counting of goods to determine how much of each stock item the bus has

at a certain point

?IT- ust in time; ordering stock when needed saves bus on storage costs, handling costs,

stocktaking, security and problems associated with slow turnover

P0O1*T ,+8O1T7OFFI*. ,+8O1T7P0O*.)) ,+8O1T

/ass production- characterized by manufacture of high volume of constant 6uality goods

!or( stations- desk areas re6uired by office workers

Process la'out- characterized by grouping together machinery with similar function

"1+,IT8 /+N+6./.NT

# types 6uality assurance and 6uality control

"ualit' assurance is a precontrol process; characterized by a series of steps taken prior to

processing to ensure 6uality goals are met

"ualit' control- a series of controls designed to bring attention to areas where 6uality parameterare not met

TOT+, "1+,IT8 /+N+6./.NT 2T"/4 +N [email protected]

5ai;en- a system of continuous improvement

TS8 based on % principles: kaizen, prevention, focus on customer and client, whole bus

responsibility

0.*O0) /+N+6./.NT

0ecords management- an administrative task involving collection of data

./P,O8/.NT 0.,+TION)

.mplo'ment relations- types of interactions among people

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%uman resource manager- coordinates activities involved in ac6uiring, developing, maintaining

and separating organizationDs human resources

%uman resource management- effective management of formal relationship b/w employee and

employers

%0 *8*,.

• +c6uisition involves three key stages

". Identifying staffing needs 1by analyzing tasks involved in obs and creating a obdescription2

#. -ecruiting 1making contact with suitably 6ualified people2$. !election 1identifying the best possible candidate for the ob

• 0evelopment can be achieved through training, either on or off the ob

• 8aintenance is keeping the employees. This can be done through monetary benefits 1pay

rise, etc2 or nonmonetary 1company cars, discounts, etc2

• !eparation can be voluntary 1retirement, resignation, etc2 or involuntary 1redundancy,

retrenchment, dismissal etc2

+*"1I)ITION OF %0

%0 planning- development of strategies to meet the bus future A- needs

Natural attrition- normal loss of employees from retirement, resignation and promotion

0eplacement chart list of key personnel with possible replacements

?o# anal'sis- systematic study of each employeeDs duties, tasks and work environment

?o# description- written statement describing duties, tasks and responsibilities

?o# specification- list of key 6ualifications needed to perform a particular ob in terms of skills and

experience

0.*01IT/.NT +N ).,.*TION.mplo'ment process- bus matches staffing needs with available A-

0ecruiting- process of attracting employees

.mplo'ee selection- gathering info abt applicants for a position then using info to choose the

most appropriate applicant

Orientation- process of ac6uainting new employees with and their ob

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T0+ININ6 +N .V.,OP/.NT OF %0

.mplo'ee training- process of teaching staff

evelopment- preparing supervisors and managers to assume greater levels of accountability and

responsibility w/in an organization

Performance appraisal- formal assessment of how efficiently an employee is working

+T+B+).)

)(ills inventor'- database containing info on skills, abilities and 6ualifications of existing staff

).P+0+TION OF %0

)eparation- ending of employment relationship

Voluntar' separation- employee chooses to leave the bus

0etirement- employee decides to give up full time work

0edundanc'- a particular ob is no longer re6uired

Involuntar' separation- employee asked to leave

0etrenchment- dismissing an employee b/c not enough work to ustify pay

ismissal- behaviour is unacceptable and becomes necessary to terminate contract

five classifications for employees: casual, probation, temporary, fixed term contract, permanent

0I6%T) +N 0.)PON)IBI,IT.)

.mplo'ee contract- legally binding formal agreement b/w an employer and employee

-ights and responsibilities:

.mplo'er .mplo'ee

roviding work and tasks

ayment of income and expenses

To abide by and meet re6uirements of

industrial relations legislation

bey lawful and reasonable commands

Kse skill and care

+ct in good faith

..O +N I)*0I/IN+TION

A +nti iscrimination +ct ACC 2N)!4- makes it unlawful to discriminate b/c sex, race,

marital status, disability, homosexuality, age

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D +ffirmative +ction 2..O for &omen4 +ct AE 2common&ealth4- strives to correct

imbalances

O**1P+TION %.+,T% +N )+F.T8

% main aims: "2 ensure health and safety and welfare

#2 rotect other people in the workplace

$2 romote a working environment, which needs to be adapted to physical and

psychological needs

%2 rovide a simple framework for protection of employees

.)T+B,I)%IN6 + B1)IN.))

• .ntrepreneurship: a business provides the opportunity to be an entrepreneur. +nentrepreneur is a risk taker, they take educated risks. +ny person owning a business is anentrepreneur

• Personal


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i *ulture: culture is beliefs and rituals. The way people act, dress, their customsetc. culture could affect your business because:a. Religious beliefs: how you dress, presentation.


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- franchisor- +ustralian taxation office

• *onsiderations: There are important practical considerations that must be taken into

account even with a well researched and potentially lucrative business opportunity.- do you have the time to invest in the proect

- is it something that you are really interested in!kills, financing and competition are three important practical areas that an entrepreneurmust consider before thy can being confident that the business opportunity is worthwhile.

S"ill Re*ui#eme$&s: depending on the skill re6uirements for the business, a business operatorshould have a skill set that is relevant to the operations of the business. This is especially importantin a small business start up. If the business owner is lacking experience or ability in any crucialareas, they must either 6uite the skills or else find someone appropriate to oin the venture. Twomethods of gaining skills. 1i2 &ducation; T.+.3.&, Kniversity, !chool. 1ii2


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i /ass mar(et: product 1in theory2 could be consumed by almosteveryone. They are generally marketed to the widest possible audience

ii Niche mar(et: product only designed for a sector of the community. Gichemarkets usually conduct marketing so that it is focused only on therelevant sectors of the community

The two categories, Giche and 8ass, reflect the proportion of the population who potentially couldbe new customersiii Potential mar(et: potential markets exist where existing products /

services donDt satisfy consumer needs

.T.0/ININ6 *O/P.TITIV. +V+NT+6.

=usinesses need to distinguish their businesses from the competition. To maintain andincrease market share, the business must establish an advantage of some sort over thecompetition

i value

- in many markets customers pay a higher price for aservice that offers additional value or benefits- rather than varying the price of their services, they

emphasise the 6uality of the service / range of productsand convenience

ii #enefits- businesses may offer benefits such as loyalty cards 1eg:

=oost uices2- 0iscounts or a free product after a certain period of time if

they have been a loyal customer. !ome insurancecompanies offer something like, if you havenDt had a

claim in $ years your premium goes downiii price- the business operator may choose to sacrifice some of

their profit in order to reduce prices- in extreme cases businesses with enough savings in

reserve may price their product below cost to build uplarger customer base

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5.8 *ON)I.0+TION) IN ).TTIN6 1P + B1)

!tarting from scratch


3reedom to establish as they wish

+ble to determine pace of growth

Go goodwill

ossible to begin on smaller scale

Aigh risk

0evelop customer base

0oesnDt generate profits 6uickly

=uying an existing business


!ales to existing customers

8aybe good history

roven track record

!tock already ac6uired

+dvice and training

&6uipment and existing employees

&xisting policies and image hard to

change 0ifficult to assess goodwill

?eased premises difficulty w/

landlord

&mployees may resent change

3ranchise


Training

Go experience needed

?ower risk

&6uipment and premises design

established


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- visibility is advantageous as it creates: higher potential sales

consumer awareness of the store and product

potential for advertising

increased opportunity for walk in traffic

- some businesses do not regard visibility as a high priorityeg: manufacturing

- business which rely on visibility tend to be retial andcustomer services

ii cost- cost for business location depends on the nature of the

ownership of the business- premises can be occupied by a business either as;

freehold: advantage is the business has the right

to make any alterations it wants and thedisadvantage is the high cost

?ease hold: means the business pays rent to the

owner of the premises entitling them to exclusiveuse of the property for a set period of time.+dvantage is that it is cheap and does not tie upthe capital of the business. The disadvantage isthe restrictions placed upon the business interms of making alterations and when the leaseexpires the business may have the move out

iii proimit' to suppliers- one way to reduce costs is to be close to suppliers

because you are then closer to raw materials- perishable products may consider being closer to

suppliers- Transport networks create links reducing the time for

delivery. !ome businesses locate close to maor transportlinks to improve delivery and distribution channels

iv *ustomers- retail and service based businesses want to located close

to their customers- manufacturing businesses do not regard it as high priority- locations close to customers tend to be more expensive

)upport services: is any function of a business either within or external to the business which

assists the business in carrying out its prime function. !ome support services such as I.T support

may be advantageous for the business to locate near by, however other support services where

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location isnDt relevant is due to technological advances in communications eg: accounting,

marketing

*+PIT+,

)ource: businesses can either have debt finance or e6uity finance.

E*ui& fi$a$!e: when establishing a business, e6uity can be raised by inviting other individuals orbusinesses to share in the ownership of the business or from personal wealth. !ome sources ofe6uity finance include:

i. ersonal wealth

-etained earnings; the existing business earnings to finance the new operation. Instead ofdistributing the earnings as profit returns to the owners, the owners may decide to use the existing

businesses profit to establish the new business

!hare capital; selling shares in the business , public / private company

artners; from a partnership, invite new partners

Centure capital; venture capital is money invested by an individual company into the company.Ksually venture capitalists invest between @""( million. + venture capitalist is an individualcompany who sources funds from investment banks and financial institutions and invests on theirbehalf in a high risk but generally high returning company. Centure capitalists will take ashareholding 1usually less than )(*2 and an active role in management. +fter the businesses hasbeen established for a few years 1$ R ) years2 the venture capitalist will look to sell theirshareholding in the business

Deb& fi$a$!e: money borrowed from sources outside the business which must be repaid withinterest. !ome sources of debt finance include:#an( overdraft:


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, administered by +ustrade, provides assistance to small and medium +ustralianexporters to develop export business for tradeable goods, services and intellectual property andknowhow by repaying part of their promotional expenses.To be eligible: +ustralian based enterprises spend at least @") ((( on eligible export promotionp/a, total business turnover less than @)( million and export earnings less than @#) million in thegrant year.

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http://www.ausindustry.gov.au/tdphttp://www.ausindustry.gov.au/tdp


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,+a& is (#o)i%e%: up to )(* of export promotion and marketing expenses is reimbursable, less thefirst @") (((. 8aximum grant @#(( ((( p/a; minimum grant @#, )(( 1for the first two years2Fu#&+e# i$fo#ma&io$: www.austrade.gov.au

cost

Deb&:

i. interest paymentsii. principal amountiii. establishment fees and charges 1statistic: banks make @#% billion per

year. )(* of that is through establishment fees2

E*ui&:

profit proportional to the amount of e6uity

dilution of partnership, means sharing control

6earing: gearing refers to the proportion of debt finance compared to e6uity finance.

-ig+l gea#e%: relying to heavily on debt, more debt than e6uity =+0

Lo. gea#e%: relying more on their e6uity than debt >0

=usinesses can either be classified as having a high gearing ratio 1highly geared2 or a low gearingratio 1low gearing2. 3or most small businesses the generally accepted level of gearing is between

'0 1 '2 : 3'

+ high gearing ratio exists when the value of debt is greater than or e6ual to the value of e6uity eg:

3:3 o# 4'5:3

,.6+, *ON)I.0+TION)

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FORMULA FOR GEARING RATIO:

DEBT FINANCE = Gearing ratio

EQUITY FINANCE

D = G

EWritten as a e!i"a# $oint or $er!entage

De%t : e&'it(

http://www.austrade.gov.au/http://www.austrade.gov.au/


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registration of a #usiness namea' ,+ %o ou #egis&e#: business names are registered for tax purposes and to

identify the various businesses operating. To prevent any other businessesfrom using the name you must trade mark it, merely registering it will still allowother businesses to use that name. Got all businesses have to register. If the

owner is using their own name as the name of the business such as Hohn!mith and 5o, then they donDt have to register.b' -o. mu!+ %oes i& !os&: @"#4.((!' ,+o %o ou #egis&e# .i&+: you register with the 0epartment of 3air Trading,

and you must reregister every three years

;oning%' .+a& is 6o$i$g: zoning refers to the regulations placed on the land use of an

area. The regulations state where certain businesses can operate and whereothers canDt. The zoning laws reflect the changing demands of an area.

e' .+a& is &+e (u#(ose of 6o$i$g: the purpose of zoning is to minimise conflict

between land uses and use of land for different purposesf' ,+e#e %oes 6o$i$g a((l: Moning classifications apply to individual blocks orentire areas =usinesses which are run from home may avoid zoningrestrictions

g' .+o !o$ols 6o$i$g #egula&io$s: local government eg: Gorth !ydney 5ouncil+' &(es of 6o$i$g:

- residential housing

- residential / neighbour hood business- commercial- industrial 1heavy and light2- transport

- waterfront- public / private recreation- bushland

i' O&+e# lo!al go)e#$me$& #egula&io$s: for any developments, businesses mustsubmit 0.+Ds 1development applications2. They need to be submitted for:

a. planning approvalsb. building approvalsc. waste disposal and management approvalsd. hazardous material storage certification

health regulations:

7' ,+a& %o +eal&+ #egula&io$s aim &o %o: the regulations aim to protectemployees and consumers from unsafe business practices."' ,+o %o &+e a((l &o: certain businesses are subect to certain health

regulations. They apply to:i. premises: ensuring the physical structure is clean

ii. operations: ensuring the operation functions meet stated guidelines!pecific types of businesses are subect to stringent health regulations. Theseinclude:

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3' Foo% se#)i!e busi$esses 8 +eal&+ #egula&io$s #ela&e &o:- food storage- food servicing e6uipment- storage and serving temperatures- kitchen layout

- floor and wall tiling- employee clothing- food handling procedures

9' S"i$ Pe$ea&io$ Busi$esses- hairdressers- acupuncturists- tattoo parlours- body piercing

4' Cooli$g &o.e#s- cooling systems of many businesses re6uire cooling

towers to be installed

- these must be cleaned, maintained and expected yearly- improper management can result in the growth of?egionella bacteria which put staff and consumers at risk

l' ,+o is #es(o$sible: the local government. They send out health inspectors tothe businesses to make sure they are complying with the regulations

trade practicesm' ,+a& is &+e a%e (#a!&i!es a!&: The Trade ractices +ct 1"V7%2 is a federal

law. There are separate +cts for each state. The Gew !outh


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*' ,+a& is a (a&e$& la.: it is legal protection of an invention / product. It protectsintellectual property

#' .+a& is a (a&e$&: it is intellectual propertys' .+e#e %oes i& a((l: it applies internationally including the country in which it

was registered. In +ustralia it lasts up to #( years

&' .+a& %oes i& aim &o %o: it recognises the right to ownership of intellectualproperty. The legal protection of a device, substance, method or process which has been invented and is useful.

u' T(es of i$&elle!&ual (#o(e#&:- copyright- trade mark- design

trade secrets 1confidentiality agreements2

.)T+B,I)%IN6 )1PP,8 +N I)T0IB1TION N.T!O05)

• .sta#lishing suppl' and distri#ution net&or(s: supply and distribution networks areimportant when getting a business started. =usinesses want to be able to deliver theirproducts to maximise the number of potential customers. =usinesses want to have reliableaccess to high 6uality inputs at a low level cost

)uppl':3' .+a& is a su((l $e&.o#": a supply network is simply the

group of companies chosen to supply the input materials andservices that the business need. Gew suppliers can be usedto create products and services that are different or better tothose already on the market. 8arket differentiation can often

be achieved by importing supply from other countries orsourcing goods from smaller scale, high 6uality producers

9' .+a& %oes i& aim &o %o:- minimise cost- maximise the reliability of supply- maximise the 6uality of inputs

istri#ution: distribution networks play an important role in maximising sales. These networks canbe indirect or direct:

a. 0irect: direct distribution is where the businesssupplies the product directly to the consumer andcollects the payments

b. indirect: indirect distribution is where products aresold in significant 6uantities to other businesses thatsell those products to consumers at an increasedprice

• %iring staff: for most businesses, labour costs are the single biggest expense. There are

many ways to hire staff such as:

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A%)e#&iseme$&: reaching a larger number of people will generally increase the chances of findingthe right person for the ob. The advertisement should give a brief description of the position; skillsneeded and will usually ask the applicant to provide a 5C. It is important to then hold an interviewthat is focused on the re6uirements for the ob.

ob Age$!: for a fee an employer can go to an employment agency and hire a worker throughthem. They agency will identify the most suitable employee they can find and then set up aninterview. +dvantage of using an agency is that it saves the employer time and energy

Pe#so$al !o$&a!&: employing someone already known to the business is common. 0ownside to thisis that it is a lot harder to dismiss an employee with whom the employer had a relationship withprior to employment

Pe#so$al #e!omme$%a&io$: someone who comes with the recommendation of a friend whose udgement is respected by the employer is more likely to be an effective employee than someone who was not previously known to the employer.

O1T)O10*IN6

.+a& is ou& sou#!i$g: the contracting of a person or other business to carry out one or more of thebusiness functions

,+ %o busi$esses ou&sou#!e: outsourcing is a conse6uence of the need to specialise and allcompanies must do it at some degree. =usiness operators often choose to specialise in doing asmall number of things well and outsourcing more of their functions. =usinesses generallyoutsource because they donDt have the facilities or skills to do the ob, eg: accounting or advertising

.+a& #ole %oes ea!+ (a#& (la: the business is the contractor because they have a contract withthe business to provide a service

.+a& a#e &+e &.o (#i$!i(als be+i$% ou&sou#!i$g:a' lower costs that come with specialisationb' 6uality and reliability that expertise bring

O(e#a&io$s: on a per unit basis, most services are cheaper to provide in larger rather than smaller6uantities R such services are said to possess economies of scaleJ.


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A!!ou$&i$g: accountants provide specialist knowledge on taxation issues, finance, assessing theviability of a new business and the profitability of an existing one. utsourcing the accountingfunction can ensure a reliable assessment of a small business

S&affi$g: if things donDt work out between the employer and the employee, then the process of

dismissing a staff member can be complex and can involve legal action. If you have hired throughan employment agency, the employer has no ongoing commitment to that worker and canimmediately dismiss them if unsatisfied. 5ontract workers do not get many entitlements andbenefits. This means they have less secure sources of income because they donDt know when they will be working. TempsJ or temporary positions are still the most commonly outsourced position.Hob agencies fulfil similar function to labour hire firms except that they find employees who are thenemployed by the company itself

T+G+TION

Taation: most taxes are collected by the 5ommonwealth >overnment including company, incomeand the >!T tax

F..0+, T+G.):Com(a$ &a!T at a rate of "(*. +ny >!T paid by a business on its input materials can be claimedback by the tax office. >!T returns can be filed monthly, or 6uarterly depending on the turnover ofthe business

Pa As ?ou Go &a< =PA?G>: + business must take +U> tax out of the pay of all employees eachmonth, according to the tax scale and the persons income level

Ca(i&al Gai$s TaT on any profits made on the sale of assetssuch as real estate, goodwill and shares

)T+T. T+G.)

S&am( %u&: payable as a percentage of the purchase price of selected assets. &g: cars, land etc

Pa#oll Ta


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Su(e#a$$ua&io$: compulsory feature of wage structures in +ustralia. 8eans of ensuring incomesfor people in retirement as governments are unlikely to be able to afford to provide the agedpension in future decades due to the ageing population. +ll employers must establish asuperannuation accounts for employees who earn more than @%)(.(( per month. It is 'V* of theirpay. The money belongs to the worker but it cannot be obtained until they reach retirement age.

,o#"e#s !om(e$sa&io$: covers any inury/death of an employee while carrying out their duties.5alculated as a percentage of the businesses total payroll

-oli%a lea)e: "7.)* of the employees pay during their first four weeks of annual leave

.V.,OPIN6 + B1) P,+N

Bus plan- written statement of goals and obectives for the bus and steps to be taken to achieve

them

"( steps to making a =: "2 ownership structure who owns and is responsible for

business

#2 roducts and services what products and services will the

business be selling

$2 8arket info who, size, competitors of a target market

%2 8arket plan how business will promote % p9s

)2 !ales plan who will be involved in selling of product/service anad

what dveloment satrategies can be implemented in the future

42 perations plan where will the business be located, its layout and

machinery

72 3inancial plan capital needed to commence the business and

what finance will be ade6uate and who9ll provide it

'2 A- plan how many and how employees will be recruited and

what training and development of employees is needed

V2 =us environment what are the prevailing external environmental

conditions and how these factors affect the business

"(2 -isk management how business will deal with diverse mattes

such as increased competition; obsolete stock, general insurance and

product liability.


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3eatures of a business plan include:

&xecutive summary a brief overview of the plan

bectives/goalswhat the business hopes to achieve

!trategies how a business will attempt to achieve the obectives

=usiness description and outlook an overview of the industry in which the business will operate

8anagement and ownership the nature and type of organizational structure

perational plans details the production process and the people re6uired now and in the future.

8arketing plans the product, price, promotion and distribution details

3inancial plans description of businesses financial needs and methods for evaluating its

performance

urposes and benefits of a business plan

+ct as map for establishing, expanding and operating a business

rovide information re6uired by financial institutions when finance is being sought

!how the feasibility of the business on paper before any money is commiited to the venture

utlining procedures for organizing and operating the business

Aelps maintain a clear focus and direction for the business

+ct as a reference point when evaluating business success

=enefits include:

• 3orces business owner ton ustify his/her actions

• Identifies the business9s strengths and weaknesses

• Tests viability of a business

• +ssists in maintaining the business operation especially focusing on the goals and

obectives

• Indicates owners ability and level of commitment

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• Aelps owner be proactive than reactive

=usiness plan needs to analyse the whole business by examining all parts of the operation and as

a result each part of the business can function effectively and achieve its obectives helping overall

success of the business

Information is essential to prepare the business plan and needs to be updated, accurate and is

obtained from different sources within and outside the business. -esearch and development use to

to contribute to planning. 8anagements attitude to environemnbt matters, technology and availibity

of resources iflucence decisions about planning and may include the firms organizational

obectives.

&xternal enviro is a soruce of idea for planning as ec(onomical, social, technological, geographical

and legal factors may have an effect on the business.

)O10*.) OF P,+NNIN6 I.+)

)!OT- strengths, weaknesses, opportunities, threats, analyses internal and external environment

Aelps to set new obectives

e.g. of a swot analysisstrengths-

• satisfying consumer needs

• enthusiasm and commitment to business

• working business plan

• good customer base

• flexibility in adopting new methods

&ea(nesses

• poor cash flow

• irregular invoicing

• failure tom compete paperwork

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• undercutting on a ob

opportunities

• sound advice from her accountant

•

ability to provide personalized service• possibility of taking over dissatisfied customers from other businesses

threats

• economic downfall

• fall in new house construction

• payment default by # maor customers

/ar(et anal'sis- involves collecting, summarizing, analyzing info abt state of market, customer,

threats and opportunities and any adv/disadv it has over competitors

)ales of o#ectives- desired level of sales

1nit sales- a measure of the actual no of products sold

ollar sales- measure of total monetary value of bus sales

)ocial ustice- bus terms adopting a set of policies to ensure that employees are treated

e6ually

Function structure- organizing bus according to different activities or functions w/in it

FO0.*+)TIN6

Forecasts- predictions about the future

Brea( even anal'sis- determines level of sales that needs to be generated to cover the total cost

of production; total sales revenue total operating costs

• Importance management can determine the level of sales re6uired to obtain a profit. +lso

can be used to determine the effect on profit if sales increase or decrease.

=reak even sales can be calculated using formula:

Suantity total fixed price

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Knit pricevariable costs per unit

e.g. better rackets produces different lines of tennis goods including rac6uets, tennis balls and

tennis bags. It plans to introduce a new style of tennis rac6uet and estimates the new racket should

be priced at @#((. 3ixed costs are @4((((( and variable costs are @'( per rac6uet. The number of

units, which need to be produced to break even:

6 4(((((

#(('(

4(((((

"#(

)((( units

• break even analysis is point where sales e6uals costs and no money is lost but no profit is

made.

ecision tree- a diagram that reps different courses of action, possible outcomes of each actionand the probability of success; presents alternatives as branches

0ecisions trees can help to determine:

•


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e.g. of a decision tree

a toothpaste manufacture decides to develop a new line of toothpaste. Its estimated if the new

toothpaste is a success that the company will make @")(,((( in the first promotion. Aowever if not

popular there will be a loss of '(,(((. the company plans to do a number of promotions over the

next two three years and estimates the costs of marketing to be @)(,(((. it must consider the

conse6uences of taking one or other possible branches of decision tree.

• =udgets reflect the strategic planning decisions about how resources are to be used and

provide financial information for specific goals of a business and are used in strategic,

tactical and operational planning. =udgets enable constant monitoring of obectives and

whether they are being achieved. =udgets emphasizing the corporate obectives of the

business and provide a basis for administrative control, direction of sales, control of

expenses and production cost control.

It accounts for various factors such as :

". -eview of past figures and trends and estimates gathered from relevant departments inthe business

#. otential marketers or market share and tends and seasonal fluctuations in the market

$. roposed expansion or discontinuation of proects

%. roposals to alter price or 6uality of products

). 5urrent orders and plant capacity

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0ecisions


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4. 5onsiderations from external environment

Types of budgets include:

• 5apital expenditure planned expenditure on items such as plant and machinery and the

expected revenue to be generated from these items. 5apital expenditure budgets are part

of longer term planning and the strategic planning process.

• 5ash budgets plans of anticipated receipts and payments and the resulting cash balance.

They indicate ash re6uirements during a period, usually for time periods between " month

to " year. 0etermine whether business can meet financial commitments, anticipating

shortfall or determining excesses of cash, which could be invested. It is complete when all

other budgets are as it incorporates these

• -aw materials labour hours budgets and production budgets are used in manufacturing

firms to estimate the amount of raw materials that needs to be purchased to produce the

products. -aw materials include stock, work in progress, semi finished goods, components

parts and subcontracted work.

• ?abour hours budgets estimate the amount of labour re6uired in the production process

and their cost. ?abour hours include direct and indirect labour and overtime.

• roduction or output budgets estimate the cost of materials, labor and overheads re6uired

generating the amount of production that achieves the forms obectives. That is the

determines the cost of output once the volume of output has been determined. The

production budget analyses the elements that make up the production costs and thereforecombines the information from the raw materials budget and labor hours budget.

/ONITO0IN6 +N .V+,1+TIN6

=asic steps of planning context: "2 analyse bus environment

#2 set goals and obectives

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$2 &stablish strategies

%2 Implement plan

)2 8onitor performance

42 &valuate performance against planned performance

72 8odify plan if necessary

/onitoring- process of measuring actual performance against planned performance through

knowing what business wants to achieve and are they being achieved. These should be

considered at every stage of the business plan and such monitoring involves establishing forecast

performance standards and comparing actual performance with forecast performance.

Performance standard- forecast level of performance against which actual performance can be

compared. &.g. )* increase in monthly sales

.valuating- process of assessing whether the bus has achieved stated goals

*ontrolling- process of measuring the bus performance against its plan and taking corrective

action if necessary. Three specific areas include:

• !ales comparing budgeted sales against actual sales and making changes where

necessary and are important for credit and cash sales. 8oney should be kept securely toavoid theft and should be banked promptly. !eparation of duties and electronic banking

reduce fraud. 8anagement of credit sales is an important aspect as time lags between the

purchase of inventories, the credit sales transaction and the collection of amounts owing

may cause cash flow problems for management. 5ontrol is needed to minimize time lags.

• 8arketing reports effective marketing control hinges on the 6uality and 6uantity of the

market reports available to the owner and the time taken to prepare them. The control

process should allow a rapid flow of information so the owner can detect any differences

between actual and planned levels of performance.

• =udgets should be prepared and regularly compared with actual revenue and expense

amounts to detect any discrepancies. &.g. once the owner has determined the goals they

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can then estimate the business9s various costs and its revenue. + profit budget will

establish the viability of the business by predicting how much profit is likely to be made

form expected sales.

• 8odifying the process and changing existing plans using updated information to shape

future plans.

.,./.NT) OF BP

)tructure of plan:

Part +-

0escription of business location, owners, market, products and ownership structure. urpose of

plan. 5oncise statement of the business9s goals. !ituational analysis investigation of marketing

opportunities and potential problems.

Part B- description of products, production process, future research and development plans and

skills analysis personal needs and re6uirements

art c analysis of existing competition. !ales forecast, predicting market growth and marketing

strategies for % p9s

art d finance plan breakdown of present financial re6uirements, financial forecasts for the next

$) years, an accurate system of record keeping and financial control strategies.

)ituational anal'sis- detailed description of internal and external environment

)trateg'- plan defining approaches to achieve specific obectives

)(ills audit- systematic process establishing current skills levels and future skills re6uirements

)(ills inventor'- computerized database containing info on skills and experiences of present

employees

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8arket analysis involves: research of market size, number and size of competitors, overall

market growth, average profit level for each competitor, segments of market bus intends to

target. ?ocation of target market and info on target

/ar(eting strateg'- plan outlines how bus will use its resources to achieve marketing obectives

*ash flo& proections- show changes to cash position. 3rom info owner can estimate the bank

balance and identify extent and duration of possible cash shortfalls

Profit and loss proections- consists of monthly forecasts of sales, cost and profit

Balance sheet proection- provides info on total assets and liabilities

Brea( even point- helps owner determine profitability of diff combinations of resources; reps level

of sales that must be reached before any profit is made

Financial controls- tools used to monitor and control the financial aspects

5hanges affecting a = include: changes to tech, competition, economy, customerDs needs

*O/P.TITIV. +V+NT+6.

Price cost strateg'- wanting to be leader w/in industry; leads way by achieving lowest production

costs that in turn allow reduced product price

.fficienc' of operation- ability to streamline processes in bus

.conomies of scale- reduce cost of inputs and increase level of outputs

,o& cost la#our- decrease labour and use techifferentiation strateg'- offering something not offered by competitors

.N)10IN6 ,ON6 T.0/ )1**.))

8ust be able to resist actions of competitors who introduce new strategies

?imit advances of competitors a bus must protect itself and reduce opportunities available

to competitors. +chieved through: -Q0, copyrights, patents, contracting w/ suppliers, lobbying

govt to limit foreign competition

+VOIIN6 OV.0.GT.N)ION OF FIN+N*IN6

Bus planning- involved completion of cash flow proection, preliminary establishment costs,

personal financial budgets and financial statements

+void overdependence on debt financing

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0o long term financial planning

1)IN6 T.*%NO,O68

Technology available: communication e6uipment, machinery. Internet, transportation of

products and raw materials, customer transaction

Non material tech- includes knowledge, processes and methods

/+N+6IN6 *+)% F,O!

*ash flo&- money coming into bus in form of cash receipts and money leaving as cash payments

$ main probs will affect busD cash flow and lead to danger of failure: poor stock

management, collection of debt, personal use of funds

Documents

1196229280 2006 Business Studies Notes