Preliminary Topic 1: Nature of Business

The Importance of Business

1. What is the function of business?
The function of a business is to provide goods and services to society, create employment
opportunities, and create income for managers, stakeholders and employees along with
creating a choice and entrepreneurship.
2. What are the social and economic roles of business?
Social and economics roles of a business include:
Wealth creation- the generation of profit is the primary role of business, the production of
goods and services is the means of fulfilling the role
Employment- one of the most important role businesses plays in society is the provision
of employments. There is an independence that exists between its business and its staff.
Businesses attract staff by offering good pay and work conditions, a career path,
promotion and interesting work
Innovation- for one business to capture and maintain a competitive edge over businesses
it need to be constantly seeking ideas for new products, product modification or different
markets for existing products. Research and development can help achieve stronger
sakes and export growth.
Choice- through competition and trade consumers have access to a wide range of goods
and services
Entrepreneurship- refers to the leadership management and risk-tasking roles that
owners or managers of business must undertake in order to achieve the goals of a
business
Quality of life- business enable the production of an enormous range of goods and
services that improve our standard of living
3. Who are the stakeholders of a business?
A stakeholder of a business is an individual or another business with a vest interest in the
business achieveing its objectives. Some common stakeholders include- employees,
shareholders, costumers, owners/employers, suppliers, communities and government
4. What are the goals of business?
Goals of a business include the following Financial goals- goals of the business that focus either directly or indirectly on the
financial success of the business
Social goals- goals of the business that aim to bring benefit to certain sectors of the
cimmunity while still achieving financial goals
Personal goals0 goals of the employees or owners that are not planned by the business
by may influence elements of the business
5. What is the importance of small business?
A small business is an enterprise hat is generally categorised as small business as it has the
following characteristics Independently owned and operated
Closely controlled by owners and managers, who also contribute most, if not all of the
operation capital
The principle decision-making functions rest with owners or managers
Great than 5 employees, less than 10
Small businesses are extremely important in Australia as they Include over 1 million business entities
Make up 95% of all business
Provide 50% of all private sector employment
Produces 40% of all products each year
Coordinating the Business

1. What is the value chain?

Value chain is a set of linked activities that add value to a product or service. These linked
activities may extend from the source of the raw materials to the end use of the good or service
produced.
2. What is management?
Management is the coordination of the activities of others to produce goods and services
effectively. The art of conducting and supervising a business.
3. What is the role of management?
Management is the process of getting things done through others activities. In business,
management involves creating an environment that encourages individuals to carry out acts
designed ot achieve personal as well as corporate goals.
4. What is the business environment?

5. What is the internal business environment?

Internal environment are the operations of a business that the business does not have control
over. Includes:
Managers
Legal Structure
Management styles
Employees
Shareholders
Choice of resources
Objectivies
Production methods
6. What is the external business environment?
External environment are the factors that the business cannot control. External business
environment includes
Levels of education
Societys attitudes and values
International influences
Political structure and influence
Government policy
Competitors
Technology
Geographical influences
Laws and regulations
Institutional influences
Economic conditions
Physical environment
Business Life Cycle
1. What is the business life cycle?
The business life cycle refers to the stages of growth and development a business can
experience
2. What are the phases of the business life cycle?
There are four phases of the business life cycle, they are:
Establishment- where the business entrepreneurial idea is created. The setting yp and
creation of the business. The entrepreneur is faced many challenges, how he/she reacts
and the decisions that are made will either build a solid foundation for the business to
grow or set up for failure.
Growth- the essential feature of this stage is the continual improvement in the
businesses working capital and the protection of its initial investment. The amount of
difficult task the manager needs to complete increases; legal structures also need to be
considered.
Maturity- at this stage, the business growth and market share start to slow down, this
could be because of more competition in the marketplace or manager running our of
ideas and enthusiasm. A common feature is that management becomes more routine.

Post-Maturity- what happens in the post-maturity stages depends on how managers

react to the challenged that faced in the maturity stage. During the post-maturity stage
the business could take one of four different paths:
Steady state- will see the business continue on as usual and see a greater
emphasis on service as it works to maintain it costumer base
Renewal phase- will see the business expand by the introduction of new products
or the takeover of its competitors
Decline Phases-Cycle- occurs when the business loses its competitive advantage
and profits fall as a result
Cassation-occurs during the Decline Phase Cycle, the owners may seek to close
the business completely (cessation) before it starts to make a loss

3. What are the challenges presented at each stage of the business life cycle

4. What is voluntary cessation?

A voluntary cessation occurs when directors write a solvency declaration or shareholders past a
resolution. A liquidator is appointed by shareholders and converts all the companies assets to
cash and pays creditors in order of priority.
5. What is involuntary cessation?
An involuntary cessation occurs when the court makes an order to wind up the company. A
liquidator is appointed by the court who converts all the companies assets into cash and pays
creditors in order of priority.
Types of Business Entity
1. Why are there different types of business structures?

2. How are types of business structures classified?

There are many ways in which a business can be classified, including:
Industry/economic structure~ primary, secondary, tertiary, quaternary, quinary
Size~ large medium, small, micro
Industry~ agriculture, construction, financial, management, mining
Legal structure~ sold trader, partnership, private company, public company,
cooperatives, trust, statutory body, Government business enterprise (GBE)
3. What factors influence the type of legal structure a business chooses?
Factors that influence the type of legal structure a business chooses include:
Advantages/disadvantages
Structure of the business
Capital
Small-medium Enterprises (SMEs) in Australia

1. What is a SME
A small-medium enterprise (SME) is a non- agricultural business that uses employment as the
main basis of classifying is size. SME can be defined by the following:
Micro business- employing less than five people
Other small business- employing 5 or more but fewer than 20
Small business- employing fewer than 20 people
Medium business- employing between 20 and 200 people
Large business- employing 200 or more people
2. How many SMEs are there?
SMEs represent 99% of all firms in Australia. The following is the amount of SMEs in Australia:
Total small business- 94%
Micro business- 64%
Other small business- 30%
Medium business- 6%
Large business- <1%
3. What contribution do SMEs make to the economy?
SMEs contribute to the economy in a numbers of ways, they provide considerable employment
opportunities with local communities; many act as a distribution outlet for larger firms; act as
suppliers to larger organisations; enable consumers to obtain a greater variety of goods and
services; and operate in areas that larger organisations would find uneconomical.
4. What are some reasons for small business success?

5. What are some reasons for small business failure?

There are numerous reasons why small business fail, some include:
Failed to plan
Economic downturn
Lack of information
Taxes
Incorrect marketing strategy
Insufficient capital
Net competitors
Lack of management experiences
Supplier issues
Staff difficulties
Poor use of external support services
6. What are the future prospects of small business?
Small business future prospect is to increase Australias living standards and create jobs, this
will be achieved by national policies makers and small business themselves seizing new
opportunities in the years to come.
The Business Environment and Its Impact on Business
1. What are economic factors that impact on business?
The economic cycles impact on the business, these include economies experiences booms
and busts, growth and recession at different types.
2. What are the social factors that impact on business?
The social factors that influence in business are forever changes, this is as factors include;
consumer taste (changes are they get older, enter new living arrangements, earn more money
and respond to new technology) and cultural and product diversity (different people want
different products).
3. How does the competitive situation impact on business?

Competitors influence business greatly, some factors include

Number of competitors- business compete for market share, for how much of the
product they supply compared with other businesses in the industry
Ease of entry- some industries require large investments or the product is owned by
a patent dealer
Local and foreign competitors- competition from overseas firms as well as local ones
Marketing strategies- promotion
Substitutes- other products could be consumers instead of the product a certain
business is selling
4. How does the government impact on business?
Laws and regulations- these provide a set of legal and ethical rules that the business
must follow
Regulatory bodies- these organisations create and enforce rule that all businesses must
follow
5. What are the other institutional factors that impact on business?
Other institutions that have impacts on business are other bodies; there are many nongovernment organisations that influence what businesses produce.
Ethical and Social Responsibilities of Business
1. What are social and ethical responsibilities?
Ethical responsibilities refer to the business doing the right thing by its stakeholders while
social responsibilities refer beyond the prime function of the business (to produce a particular
good or service) and their financial goal, such responsibilities improve profits if the pubic
perceives the business to be good fro society and expresses its approval through increased
sales.
2. Why does business have ethical and social responsibilities?

3. How can the conflicting interests of stakeholders be reconciled?

Preliminary Topic 2: Key Business Functions

Interdependence of Business Functions
1. What are business functions?
The prime business function is the main purpose of the core activity of the business.- the
reason for its existence. Business functions can often be determined by the businesses name
(i.e. Sanitarium Health Food Company), some however cannot (i.e. Beaurepaires~ this name
do not indicate that it is a specialist in tyres and associated with car services). Business also
perform the function of providing a profit for its owners or shareholders, supply a product or
service to consumers, provide employment for workers and assist economy by providing
products, services and employments and by purchasing many supply items.
2. How do the business functions contribute to achieving the prime function?

All business functions contribute to achieving the prime function of the business and this is
explained below-

3. What is planning?
Planing is the key to successful management and entails:
Establishing specific objectives for the firms, so that employees know what has to be
done
Determining strategies that will enable the firms objectives to be achieved
Setting evaluation procedures that will provide employees with information about how
successful the firm has been in achieving its objectives
Planning is an ongoing responsibility of mangers, and there are usually three levels of
planning; strategic, tactical and operational planning.
4. What is controlling?
Controlling refers to any monitoring activity that compares what actually happened with what
was planned. Controlling operation ensure that product s are produces on time and are of high
quality. Managers need to constantly review the manufacturing process for efficiency and
smoothness of production. The monitoring process is then followed by moderating and
regulating. This involves deciding what actions are required to correct any blocking situations.
In extreme cases, where no amount of moderating and regulating is likely to lead to the
business achieving its planned standards, other corrective action such as modifying or
changing an already established plan may be necessary.
5. What are functional structures?
A functional structure is the organisation of a business where the specific jos that must be
completed in various departments are considered. Functions such as production, marketing,
finance and human resources are the coordinating units. By communicating information
between each specialised group, the business is able to work efficiently, imputing specific
information to the production process.
6. What is the division of labour?
Division of labour refers to the separation of power that occurs within organisation on the basis
of responsibility and expertise. It involves breaking down tasks to the simplest level and
designing jobs and employing people to do these jobs. Job specification occurs when a person
focuses on his/her skills in one specific area e.g. accounting
7. What is the span of control?
Span of control refers to the number of people for whom a manager is directly responsible, as
well as the ratio of managers to subordinates across successive layers in an organisation. The
ideal span of control is said to be around six to nine subordinates (that is, about nine people and
their activities is as many as an individual manager can satisfactorily coordinate and supervise).
A large span of control means fewer intermediate levels of authority operating in the
organisation and hence faster communication.
8. What is chain of command?
Chain of command is the flow of authority from senior manager down to supervisors and the
workers. It refers to the way a business structures its channels of authority 1, power2,
accountability3 and responsibility4. In a traditional business the chain of command starts with
1

Refers to the right a manager has to make certain decisions and to require a subordinate to carry out certain task in a
satisfactory way
2
is the ability to cause subordinates to do what is required of them
3
is the duty an employee had to carry out certain organisational tasks or functions
4
means that each work will have their performance judges by someone who has authority over them

the chief executive officer and the authority and power will move down through the various
levels of management, supervisors and workers. The chain of command can be shown as an
organisation chart and has some linked teams that show the important of each level.
9. Are the business functions interrelated?

10. What is an annual report?

An annual report is a report which provides investors and the share market with financial and
other information of a certain business or company. An annual report is required by legislation
and is a requirement of listing as a public company on the stock exchange.
11. What is an annual report used for?
An annual report is used to inform traders of the businesses/companies recent success or
failure. It also provides traders with a financial statement (balance sheet) and revenue
statement (profit or loss statement), information on the businesses prime function, the
management team, major shareholders, activities and operations.

Yearly Revision
Shareholder- people who own shares in a business and therefore are part owners of a business (a
share is a part of ownership)
Operations- a function of the business where it produces goods and services
Stakeholders- anyone who has a vested interest in a business; stakeholders include shareholders,
employers, suppliers, consumers, lenders, government and community
Prime Function- the core or main activity of the business
Executive Summary- the part of a business report that summarises the main points of the report. It is
usually short.
SpecialisationSWOT analysisCompetitive Advantage- gaining a price advantage over competitors because of a lower cost structure.
Situational AnalysisStrategic plans- long term plans (over long period of time) that set out the objectives of the business
and show how the business can achieve them
Business Plan- a detailed written document which sets out the steps and requirements for the future
development of the business.
Break even point- the amount sole where total revenue from sales equals total cost of production. Also
the minimum amount of sales required to cover total assets
Variable CostsFixed Costs- costs that do not vary with production, sales volume or production activity. Fixed costs
include items such as buildings, which do not increase or decrease when production increases and
decreases.
Capital- funds of money which can be used for investment to help produce goods and services. To
produce goods, money is needed to purchase all the things needs for production to start.
Assets- things of value that are owned by the business
Liabilities- what is owed by the business to others
Current Assets- those business assets which are likely to be used up or converted into cash during the
normal operating cycle (usually a year)
Current Liabilities- liabilities which must be paid within the normal trading period (e.g. creditors and
bank overdrafts)
Fixed Liabilities- money that the company owes which will not e paid back over the next twelve months
(e.g. rent or mortgage, depreciation of assests)
Life cycleTarget marketMarketing Mix- developing plans and strategies to market (sell) goods and services to particular groups
of consumers. The plans include developing a marketing mix using the four ps- price, promotion, place
and product.
Span of Control- the number of employees that a manager can supervise efficiently and effectively.
Chain of Command- the line of authority from the top of an organisation to the bottom, and the chain of
reporting relationships from top to bottom
1. Outline the importance of business
In everyday living we constantly come into contact with business. All businesses offer something
to the community and all have an important role to play. Businesses provide goods and services to meet
the wants and needs of the community, and also employ many community members. Businesses play a
large social (improving quality of life and happiness of community members) and economic role (creating
wealth, employments, choice and entrepreneurships) in our society.
2. Describe the function of business
The function of a business is to provide goods and services to society, create employment
opportunities, and create income for managers, stakeholders and employees along with creating a
choice and entrepreneurship.
3. Explain the stakeholders of a business

A stakeholder of a business is an individual or another business with a vest interest in the business
achieving its objectives. Some common stakeholders include- employees, shareholders, costumers,
owners/employers, suppliers, communities and government
4. Describe and explain the business life cycle
The business life cycle refers to the stages of growth and development a business can experience.
There are four phases of the business life cycle, they are:
Establishment- where the business entrepreneurial idea is created. The setting yp and creation
of the business. The entrepreneur is faced many challenges, how he/she reacts and the
decisions that are made will either build a solid foundation for the business to grow or set up for
failure.
Growth- the essential feature of this stage is the continual improvement in the businesses
working capital and the protection of its initial investment. The amount of difficult task the
manager needs to complete increases; legal structures also need to be considered.
Maturity- at this stage, the business growth and market share start to slow down, this could be
because of more competition in the marketplace or manager running our of ideas and
enthusiasm. A common feature is that management becomes more routine.
Post-Maturity- what happens in the post-maturity stages depends on how managers react to the
challenged that faced in the maturity stage. During the post-maturity stage the business could
take one of four different paths:
Steady state- will see the business continue on as usual and see a greater emphasis on
service as it works to maintain it costumer base
Renewal phase- will see the business expand by the introduction of new products or the
takeover of its competitors
Decline Phases-Cycle- occurs when the business loses its competitive advantage and
profits fall as a result
Cassation-occurs during the Decline Phase Cycle, the owners may seek to close the
business completely (cessation) before it starts to make a loss
5. List the types of business entity
Industry/economic
size
sector
Primary
large
Secondary
medium
Tertiary
small
Quaternary
micro
Quinary

industry

ag.
Construction
Financial
Management
mining

Legal structure

sole trader
partnership
private company
public company
cooperatives
trust
statutory body
Government
Business Enterprise
(GBE)

6. Outline the typical feature of SMEs

A small-medium enterprise (SME) is a non- agricultural business that uses employment as the main
basis of classifying is size. SME can be defined by the following:
Micro business- employing less than five people
Other small business- employing 5 or more but fewer than 20
Small business- employing fewer than 20 people
Medium business- employing between 20 and 200 people
Large business- employing 200 or more people
7. Identify the success and failure of SMEs
Some reasons for success of SMEs include Good planning procedures
Adequate information
Correct marketing

Growth
New technologies

There are numerous reasons why small business fail, some include:
Failed to plan
Net competitors
Lack of information
Supplier issues
Incorrect marketing strategy
Poor use of external support services
8. Explain how the business environment impacts on business
9. Outline the social and ethical responsibilities of business
Ethical responsibilities refer to the business doing the right thing by its stakeholders while social
responsibilities refer beyond the prime function of the business (to produce a particular good or service)
and their financial goal, such responsibilities improve profits if the pubic perceives the business to be
good fro society and expresses its approval through increased sales.
10. Explain the interdependence of business functions
The interpendance of business functions include the four main business functions, which are
operations, employment relations, accounting and finance and marketing. These are explain below Operationsthe business processes that involve transformation or production. In manaufacuting it refers to
the process involved in turning raw materials and resources into finished goods or products e.g. a
vechile manufacturer turning steel into cars.
In services it refers to the processes involved in actually carrying out the service e.g. the
provision of professional advice by a solicitor, cutting and styling of hair by a hairdresser.
Employment Relations
The people the business employs and the issues arising from their employment, includes
acquiring, developing, maintaining and motivating staff.
Marketing
Looks at all aspects of buying and selling, from the analysis of why people buy to pricing, product
development, promotion and distribution. Marketers attempts to maximise the earning capacity of their
businesses though sales.
Accounting and Finance
Recording and summarizing financial transactions into a series of reports that can be easily
interpreted.
11. Outline the importance and role of operations to a business
There are three key elements of an operations system in any business, they are inputs,
processes and outputs.
Inputs
Are resources used in the process of productions. Some resources are already owned by the
business, while others come from suppliers. There are a number of differn inputs including material,
capital equipment, labour, information, time and money
Process
Process/transformation is the coversion of inputs (resources) to outputs (good/services).
Elaborately transformed manafacutres (ETMs) are manufactured good that are highly processes and
values, they are complex bacuse of the amount of processing they have undergone.
Simply transformed manufactures (STMs) are characteristic by their ability to be further processes nto a
wide range of products
Outputs
Refer to the end results of a business efforts- the service/product that is delivered or provided to
the consumer.
12. explain the important of supply chains for business
Supply chain is the range of suppliers from which the business purchases materials and
resources. It is important to have supply chains for business so businesses can get the products they
need in the time available for the cheapest possible price.
13. Explain what Total quality management is and how it can be used in business?
Consumers seek to buy products of quality with value for money. Making a quialiry product
benefits the producer.
A product that is reliable and works properly encourages consumer to buy it (reputation for quality)
A product that is made well will not need to be attended and readjusted within the factory before it
leaves to be sold and wont have to be returned for warranty repairs once it is sold.

Internal methods of quality control are developed by an organisation to ensure the production of a
quality product. This involves all employees being aware of the need to monitor all levels of productions
in order to ensure that production is always of the highest possible quality.
14. outline the important and role of employment relations
15. describe the four phases of the human resource cycle
1) Acquisition
A key role pf employment relation is to make sure the business has enough employees, with the
right skills and experience to be as competitive and as profitable as it can.
The three stages of the acquisition process are:
Identifying future staffing need
Recruiting potential job candidates
Selecting the best possible person
2) Development
An employer who develops skills and abilities becomes a much more valuable resource. Human
resources are the key to a distinct competitive advantage. The aim
The aim of training employees is to increase their ability and improve performance of the
business as a whole.
3) Maintenance
A major function to employment relations management is keeping values employees. By keeping
high performing employees the business not only kept is competitiveness but also increases productivity
and reduces absenteeism, turnover and disputes.
The maintenance of employees can be achieve through monetary rewards such as pay, bonus,
profit shares, share options and salary packages and non-monetary rewards such as; company car,
medical plan, discounts, expense account, company parking, child care, low interest loans, holiday
expenses, insurance etc.
4) Separation
All employment relations must come to an end. There are two types of separation they are:
Voluntary, such as retirement and resignation
Involuntary, such as dismissal, retrenchment and redundancy
16. Outline the role and importance of marketing
Marketing is the process and executing the conception, pricing, promotion and distribution of ideas,
goods and services to create exchanges that satisfy individual and organisational objectives.
Marketing concept- I the idea that the business objectives will be achieved if the business understands
and satisfies the needs and wants of its targeted customer better than its competitors can.
Target Market- is a group of consumers in the total market in which marketing objectives are directed
Specific Segmentation- is the segmentation of the total available market into specific sectors, which can
be then targeted for marketing purposes. There are three specific segmentation groups
1. Mass Marketing- 1 product of the total market
2. Different Marketing- focusing on a number of different market segments within the total market
3. Concentrated Marketing- the selection of a particular market within the total market
17. Explain the marketing mix
The marketing mix is the core of the marketing planning process and the organisations marketing plan.
There are four elements in the marketing mix which are also known as the 4 Ps. The 4 Ps are- Product
- Price
- Promotion
- Place
18. Outline the role and importance of accounting and finance
Accounting and finances support the operations of a business. Accounting allows business performance
to be monitors. It is concerned with information management. Money comes into the business (revenue),
usually the result of sales, and goes out of the business, usually as payments for materials and services
(for expenses), as there flows of money are recorded. Finance relates to the external sources of funding
that allow the business to perform its prime function and to more a profit using borrowed fund.
In large organisations there functions may be carried out by separate departments. In a small
business the owner is responsible and will probably outsource.

Accurate information in both accounting and finance is essential to maintain profits and ensure
business growth into the future.
19. outline the role of the business plan
A business plan is a key to overall success. Whether a business is new or continuing, the
business plan is essential in outlining
where the business is now
where it is going in the future
how it is going o get the
if the goals are being achieved
A business plan is essential for a new business seeking finance. A well-constructed plan will
convince investors or financiers that the business is worth funding. Business plans vary greatly. They can
be scribbles on the back of an envelope or a 100 page document.
20. describe the elements of a business plan
A business plan consists of the following Start-up plan
Establishment plan
Maturity plan
Growth plan
Change plan
21. Outline what an Entrepreneur is and the qualities they need to succeed
Entrepreneurship is a willingness and ability to turn ideas and capabilities into reality. An Entrepreneur is
the kind of person who:
Identifies a need
Develops the idea
Takes the risk to get the idea into the market (but is a risk manager rather a risk taker)
Is often passionate about their idea

Creative
Risk taker
Passionate
Ability to identify
needs
Hard working
Enthusiastic
Original

Attributes of an Entrepreneur
Convincing/persua
sive
Friendly
Assertive
Co-operative
Confidence
Good judgement
Experience

Knowledge
Dependable
Organisational
skills
Good planners
Patient
Motivated
Ambitious

22. Outline sources of information that could be useful for an entrepreneurs starting a business
or when making decision
Sources that could be useful for an entrepreneur starting a business include Location
Suppliers/distributors
New business, existing business or
Staff
franchise
Consumers
Where will capital be obtained
Competitors