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Chapter 1 - Business Management (Business objectives (Developing business…
Chapter 1 - Business Management
Sole trader
Individual owns and runs the business
Owner provides finance and decision making
Easily established - only legal requirement is to have a registered business name
Unlimited liability - owner responsible to ensure business is running, personal assets at risk if things go wrong
Advantages - low cost, simple, complete control, no partner disputes, owner keeps profits, less government regulation, profit taxed as personal income
Disadvantages - unlimited liability, difficult to operate if sick or injured, complete management, difficulty in raising finances
Partnership
Group of people own and run the business together (2 up to 20 people)
Owners and business regarded as the same
Partners subject to unlimited liability
Silent partners may be present - financial investment with less business involvement
Advantages - low cost, shared responsibility, pooled funds and experience, minimal government regulation, no taxes on business
Disadvantages - personal liability, possibility of partner disputes, divided loyalty and authority
Private Limited Company
Has at least 1 shareholder, up to 50 non-employee shareholders
Shares only offered to those the business wants to be owners
Separate legal identity with limited liability
Advantages - easier to gain finance, limited liability, experienced management through directors, spread of risk, company tax lower than personal tax, growth potential
Disadvantages - costs, large amounts of tax (company and personal), must produce annual report of accounts, money belongs to business not single person
Public Listed Company
Shares listed on the ASX - general public may buy and sell shares
Large businesses (e.g. Telstra, Westpac)
Minimum one shareholder, no max
Minimum three directors
Certain information must be provided to shareholders
Financial statements must be published each year
Similar advantages and disadvantages to private limited companies
Social enterprise
Produces goods or services but operates to fulfil a social need (e.g. Thankyou Water)
Invests back into business or community
Social enterprises contributed $5.2 bil to Vic economy in 2018
Exist to benefit society rather than for the sole purpose of a profit
Advantages - opening up new markets, meeting social needs, positive impact
Disadvantages - difficulty starting business (especially in terms of finance), operating costs, difficulty managing objectives
Government business enterprise
Government owned and operated
Participate in commercial activities with the aim to make a profit
Deliver community services in both state and federal jurisdictions
Provide returns to shareholder (the government)
GBEs include Australia Post, NBN Co and VicRoads
Advantages - carrying out government policies, delivering for community, operates with some independence from government, competition in sectors
Disadvantages - interference from government, inefficiencies caused by government red tape, less accountability, management less effective
Business objectives
To make a profit
Profit - what is left after business expenses are deducted from revenue
Businesses want to maximise their profit
Other objectives such as increasing sales, expanding business etc. will assist with increasing profit
To increase market share
Market share is usually only an objective for large businesses
Extensive product ranges will help a business gain additional market share
To fulfil a market need
Businesses exist to fulfil a need in the market such as customer expectations or making a certain good or service available
Smaller businesses often better fulfil market needs with a more targeted approach
To fulfil a social need
Production and/or selling of products or services in order to benefit the community
Primary purpose = common good
To meet shareholder expectations
Making profit is important to investors (shareholders)
Shareholders expect to make a return on their investment
Shareholders will continue to support a business if their expectations are met
Setting business objectives
Businesses will have different objectives not just profits
Include customer service, community involvement, environmental concerns and concern for employees
Businesses: set objectives -- develop strategies -- analyse performance (using KPIs)
Developing business strategies
Short term and long term
Outline how the business will achieve its objectives
E.g. to increase market share a strategy may be to target a new group of customers
Objectives and strategies should be linked in all areas of business activities and operations
Analysing business performance (KPIs)
Businesses should analyse whether results achieved were similar to business objectives and strategies
Analyse weak spots to improve upon in the future
Analyse effectiveness and efficiency
Key performance indicators precisely analyse performance using numerical / quantitative data to show success, effectiveness and efficiency
Business stakeholders
Internal
Owners (want business to make profit, social responsibility etc)
Shareholders (want to make a return on investment [shares and dividends], also want social responsibility)
Directors (responsible for overseeing business operations, expect remuneration)
Management (want business to perform well, social responsibility, want good pay and job conditions)
Employees (want fair treatment, good pay, job security etc)
External
Government (put in place laws that impact business, want business to do well for economy)
Competitors (want to have competitive advantage over business, want competitive edge)
Interest groups (ensure employee rights, ensure good products, ethical processes etc)
Customers (want quality products, social responsibility)
Suppliers (provide quality supplies to business, expect to be paid and to have good relationship with business)
Members of the community (expect business will give back to society, show concern for community welfare and environment)