The Nature of Business

Students learn to: Students learn about:

examine contemporary business issues to:

Role of business
● discuss the global expansion of one Australian
business ● the nature of a business
● discuss the expansion into Australia of one ○ producing goods and services
global business - The role of a business is to produce goods and services for the community.
● explain how changes in external influences - By utilsing raw materials and human skill and labour businesses increase value.
have contributed to the growth of the tertiary, ○ Profit
quaternary and quinary industries in Australia - The financial return businesses gain from providing the community with goods and services.
● identify problems that arise for stakeholders ○ Employment
when companies go into liquidation - The act of hiring people to provide business with paid labour/services
○ Incomes
investigate aspects of the business using - Money received by an individual for their services/labour.
hypothetical situations and actual business case - The different types of income include; wages, salaries, shares and dividends
studies to: ○ Choice
- The ability to select from a range of alternatives, in order to improve quality of life.
● distinguish between the different types of ○ Innovation
businesses - Significantly improving an existing product or service.
● identify actual businesses at different stages in ○ Entrepreneurship and risk
the business life cycle
● outline possible business strategies appropriate - An entrepreneurship is the process of willingly establishing and maintaining a business,
for different stages in the business life cycle despite the financial risk, in the hopes of making profit.
- Risk is the potential of experiencing loss.
○ Wealth
- Wealth measures the value of one’s assets, wealth is distributed primarily by the operation of
businesses
○ Quality of life
- Quality of life refers to the level of well being experienced by an individual and is
compromised by both material and non-material factors.

Types of businesses

● classification of business
○ size – small to medium enterprises (SMEs), large
- Ways to determine the size of a business include;
- The number of employees
- Number of owners
- The size of market share
- The legal structure
- Businesses can be classified as small or medium if;
- The owner makes management decisions
- The owner provides the capital
- The business has little control within the market
- It is independently owned
- The business is locally owned
- Micro business → < 5 employees
- Small business → 5-19 employees
- Medium business → 20-199 employees
- Large business → >200 employees
 ○ Local
- Local businesses have restricted geographical spread and serve the local area. They do not
offer a range of products and are used by nearby consumers.
○ National,
- National businesses operate within a whole country, they typically cater to the national
populations needs.
○ Global
- Multinational companies are those which operate in various countries, national borders do not
restrict the business of these countries.
- In developed multinational companies finance, assets, technology, information, employees,
goods and services all flow freely over national borders.
○ Industry
■ Primary
- ​The primary sector is involved in the extraction of natural resources → agriculture or mining
■ Secondary
- The secondary sector take output from the primary sector to produce either finished or
semi-finished products → manufacturing or construction
■ Tertiary
- The tertiary sector performs a range of services → wholesale, retail or transport
■ Quaternary
- The quaternary sector is involved in the processing of information and knowledge →
communications, finance, real estate
■ Quinary
- The quinary sector provides services which are traditionally performed at home → hospitality
or childcare
○ legal structure
- An unincorporated business is typically a sole trader or a partnership, where the financial
responsibility lies on the owner or the owners
- An incorporated business is one which is a separate legal entity from its owner. The business
exists regardless of what happens to its owner/s.
 ■ Sole trader
- Owned and operated by a singular owner, they are responsible for the finance and
management decisions.
- Not considered a legal entity.
- Unlimited liability means that the owner is financially responsible and may need to sell their
personal assets in order to support the business financially
■ Partnership → (Pty Ltd)
- Is operated by 2-20 people.
- A legally binding agreement or contract is not necessary, however it helps to settle disputes.
- Limited partnerships allows partners to contribute financially but not to the operations of the
business, they are known as silent or sleeping partners.
■ Private company (Ltd)
- Shares are offered, privately, to those who wish to be part owners in the business.
- Shares are not sold through stock exchange.
- Shareholders have unlimited liability protection.
- All shareholders must agree that a company is wound, if the decision is made to shut the
company down.
■ Public company
- Typically large companies, who market a large range of products.
- Public companies must;
- Have at least one shareholder
- Have no restrictions on transferring shares
- Issue a prospectus when first selling shares
- Have a minimum of 3 directors, 2 of which must reside in Australia
- Publish an annual report each year
■ Government enterprise
- Typically provide services such as health, education, roads and welfare.
- Economic efficiency can be increased by transferring from public to private sector, this is
known as privatisation.
 → Optus, QANTAS, Commonwealth and Telstra

● factors influencing choice of legal structure

○ Size
- When a business expands and develops, it will need to adjust the size of the business
accordingly.

→ small business will expand into a medium business, due to their growing nature and higher
demand.

→ a medium business will consider becoming a partnership and or private company, in order
to facilitate their growing financial demand.

- A float is the raising of capital through the selling of shares

○ Ownership
- Once a company floats, the ownership will be divided amongst the shareholders
- In order for the original owner, or any owner, to retain ownership of the company they must
own 50% of the company’s shares
○ Finance
- Lending institutions regard loans to be high risk for small businesses, which makes it difficult
for businesses to obtain loans.
 - Venture capital is money invested into small, struggling businesses who show potential to
grow.
- Debt finance is the capital borrowed typically from lending institutions
- Equity finance is the money invested by shareholders.

Influences in the business environment

● explain how changes in external influences ● external influences –

have contributed to the growth of the tertiary, ○ economic,
quaternary and quinary industries in Australia - High inflation rates increase the costs and also increase wages for employees
● identify problems that arise for stakeholders - High interest rates leads to reduced spending → expensive loans
when companies go into liquidation - Fiscal policies influence the interest rates and tax rates

→ FISCAL; how the government spends their money, is announced in March each year

- Reform policies increase competition

○ financial,
- Debt finance is borrowed money, typically from lending institutions
- Equity finance is when investors purchase shares in business, which assists financially
- High interest rates make debt financing less attractive
- During times of high interest bank deposits are typically lower risk than shares, this is
because higher return on money in the bank
- EXCHANGE RATE
- Lower dollar encourages foreigin investors and tourists
- Higher dollar makes exports more expensive and imports cheaper
- Floating currency refers to the idea that the value of the currency changes in response to the
foreign exchange, response to supply and demand
- Low demand leads to drop in currency
- High demand leads to surge in currency
○ geographic,
- Spatial changes in the market
- Globalisation; integration of national economies
- More free movement of trade, capital and technology opened up the international market
- Greater access to global resources including finance and customers
- Immigration affects the demand for jobs, internal movement also impacts the demand for jobs
- Demographic factors → more old people leads to an increased demand for medical facilities
○ social,
- Businesses must respond to changes in customer tastes → healthy low fat foods are in
demand
- Successful businesses adhere to changes in the society and strive to uphold the reputation of
their business through advertising
○ legal,
- Must adhere to legal requirements → advertising, work hours, food quality, health and
safety, worker entitlements
○ political,
- Political parties serve the interest of their people
- Businesses choose to donate and support political parties
○ institutional,
- ASIC, ACC → work to protect the rights of consumers and businesses
- NSW food authority regulate food safety
- Trade unions → negotiate for improved work conditions
- Fair Work → minimum wages, workers rights, unfair dismissal, workplace disputes,
workplace protection, right of entry and stand down
○ technological,
- Large businesses facilitate changes in the business environment because they have the funds
and resources to produce new goods
- Apple, Toyota, Google and Google Maps are all big businesses facilitating technological
change
○ competitive situation,
- Businesses who sell offer similar goods or services within the industry are identified as
competitors
○ markets
- Dominating business sectors try to differ their products, in an attempt to gain larger market
share
- Monopoly markets are those where one business dominates → sydney water
- Duopoly markets are where two businesses possess the majority of the market share within
the sector.
● internal influences –
○ products
- The types of goods and services
- affect the internal operation of businesses
- Large goods require raw materials and production
- May offer services which are delivered at home, ie Jim’s Mowing
- Larger range of goods or services may require internal expansion of management
- Type of business
- Services, manufacturer or retail will influence the structure of a business →
preparation or delivery
- Size of business
- Will influence the range of goods and services
○ Location
- Complementary businesses which sell a similar range of products are beneficial (to an extent)
for businesses as they attract customers
- Visibility
- When a business is low visibility, customers are not bothered nor attracted
- Hence, locations such as shopping centres are ideal
- Typically, manufacturers are not concerned by high visibility
- Cost
- Leasing cost is heavily dependent on the location and customer flow
 - Changes in technology means businesses do not have to give too much consideration
into location
- Proximity to suppliers
- Size and quantity of raw materials or goods which need to be supplied affects
transportation costs
- florists , bakeries and shoe retailers don’ t need to consider this
- Proximity to customers
- Retailers must choose convenient locations for their customers
- Manufacturers or wholesalers choose locations which are friendly for transport of
goods.
- Proximity to support services
- Small businesses typically seek external support due to limited finances for services
such as accounting, solicitors or government agencies
- Due to a change in technology there is no longer a major focus as services can now be
accessed online.
○ Resources
- Human
- Employees are generally the most valuable resource
- Information
- Knowledge and data required by a business to operate → market research, sales
reports, economic forecasts, legal advice
- Physical
- Equipment, machinery, buildings, raw materials
- Financial
- Funds for a business so that it meets its obligations to creditors
○ Management
- Management is a crucial factor which impacts/determines the business culture, the structure
and the approach to the market
○ Business culture
- Business culture is influenced heavily by the manager; their vision, and how well the
business’ purpose is communicated.
- A business with a strong vision, commitment and inclusive environment is likely to promote a
positive business culture.
- Business culture is reflected through collective values, ideas, expectations and beliefs.
- Elements include;
- Values
- Symbols
- Rituals and celebrations → gatherings develop a sense of belonging
- Heroes → successful employees, role models
● Stakeholders
- People who take an interest in a business and invest in the growth of the business.
- SHAREHOLDERS;
- Are part owners of a company and have a direct influence on the business decisions
made.
- Shareholders desire a profit which pressures/encourages businesses to generate
revenue quicker, which directly impacts the management decisions.
- MANAGERS​;
- Ethical management practices may lead to increased sales.
- Managers must introduce policies and procedures in order to reflect legal issues
and-or requirements
- The style of managing impacts the employees productivity and business culture.
- EMPLOYEES​;
- The quality of products is dependent on the skills of the employees.
- Well treated employees are motivated to work harder.
- CUSTOMERS​;
- Customers are now well informed and will seek compensation or take action if they
are poorly treated.
- Businesses will need to recognise customer needs, wants and tastes in order to ensure
profit.
 - SOCIETY​;
- Businesses will need to recognise the concerns and passions of the society and will in
turn organise charity events
- Some businesses assist local charities or may sponsor local sports teams.
- ENVIRONMENT​;
- Businesses will pursue initiatives to ensure ethical, sustainable and environmental
practises

Business growth and decline

● stages of the business life cycle

○ Establishment
- The first stage of a business, where it is the most vulnerable to failure
- The main objective is to develop a strong foundation, this consists of strong cash flow to meet
basic expenses
- Basic planning is required to overcome initial challenges
- Basic planning helps reduce the risk of failing
- Small businesses have unlimited liability; the owner is responsible for the debts.
○ Growth
- Sales increase and cash flow becomes positive, regular customers and innovative products
encourage positive cash flow
- Long term planning is ideal to establish a competitive edge; otherwise competitors will take
customers and stall your growth
- Growth can occur as;
- MERGER
- Two businesses agree to combine their resources to form a new organisation
- ACQUISITION
- When one business takes over another by purchasing it and controlling its interest
- VERTICAL INTEGRATION
- When a business merges or aquires at related levels of ​production ​(supplying,
manufacturing, importing)
- HORIZONTAL INTEGRATION
- When a business​ merges or aquires​ with firms which sell similar products
- DIVERSIFICATION
- When a business grows/expands into an unrelated industry; entering into new markets
○ Maturity
- The maturity stage requires a professional approach to business planning in order to ensure
the survival of the business.
- Businesses may consider restructuring in order to ensure growth
- When sales begin to increase at a slower rate it is an early indicator of decline and potential
failure
○ Post-maturity
- Decisions made at this stage of business are crucial to determining the survival of a business
- STEADY STATE
- Neither declining or expanding but continuing to satisfy the demand of customers and
maintaining profit.
-
- DECLINE
- Change in customer taste or the entry of superior competitors may lead to decline
- Profits will decline which means;
- Lending institutions will be reluctant to lend money to high risk businesses
- Suppliers will restrict debt and insists on cash payments
- Businesses will have unsold stock
- Employees ay begin to leave for better employment opportunities
- The risk of cessation is greater if a business ‘staggers on’ ​rather than accepting failure​.
- RENEWAL
- Entering into new markets and satisfying unmet customer demand
- The key to recovery is to produce products which customers demand. This can be achieved
through extensive market research to forecast future trends
- Businesses must remain proactive and anticipate change rather than being reactive which
leads to loss in market share
● responding to challenges at each stage of the business life cycle
● factors that can contribute to business decline
● voluntary and involuntary cessation – liquidation