Business Focus Pearson

Easy-to-follow and student-friendly text that will help students to
understand the complex concepts associated with business studies
Business Focus: up-to-date case studies that appear throughout

each chapter to help students contextualise information and
prepare for assessment
978 1 4425 2909 0
Major Business Focus: a detailed case study that reflects the content
of the whole chapter
Unit reviews that include key terms and concepts as well as structured activities,
which will help students engage in a range of skills, including literacy, thinking,
creating, and ICT
At the end of each chapter: mind maps that summarise and connect the content
taught and exam-style questions that will help students prepare for the HSC
Links in the text to the regularly updated Pearson Places web destinations page,
to provide teachers and students with additional content and references.
Pearson Places is the online destination that is constantly evolving to give
you the most up-to-date educational content on the Web. Visit Pearson Places
to access educational content, download lesson material, use rich media and
connect with students, educators and professionals around Australia.
www.pearsonplaces.com.au
PEARSON
www.pearson.com.au/schools
Horsley Terry-Armstrong Biddle Mulas Anderson
Chapter openings that provide a contextual introduction to the

content. Chapter opening activities help teachers and students
recognise and organise existing knowledge
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FO
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IN
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Y
Full-colour design with an abundance of content, including tables,

statements and photographs, that helps students engage with the
material and which supports different learning styles
ES
978 1 4425 2906 9
Preliminary
Key features:
SIN
The BUSINESS FOCUS author team has a wealth of experience

in teaching, curriculum development and research, resulting
in a text that reflects best practice in teaching business studies
to NSW students, while being closely aligned to the syllabus.
BU
series written specifically to meet the requirements of the revised

Business Studies Stage 6 syllabus being implemented in 2011.
BUSINESS FOCUS
BUSINESS FOCUS PRELIMINARY is the first book in a new two-book
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Sydney, Melbourne, Brisbane, Perth, Adelaide

and associated companies around the world
Acknowledgements
The publishers and authors would like to thank the following for their contribution to Heinemann Business
Studies Preliminary: Earle Barker, Brad Greene, Andrew Watson and Graham Harper. We would also like
to thank the following for permission to reproduce copyright material. The following abbreviations are used
in this list: t = top, b = bottom, l = left, r = right, c = centre.
AAP, Australian Associated Press: Joe Castro, p. 7.
ABS, Australian Bureau of Statistics: Commonwealth of Australia, (plusAustralian Bureau of Statistics (ABS)
and ABS Year Book Australia 2008), p. 6.
Agius, Anthony: p. 111.
Alamy Ltd.: p. 92; Danita Delimont, p. 187; guatebrian, p. 55t; Iain Masterton, p. 27; John Warburton-Lee,
p. 155t; Richard Levine, p. 167.
Apple Inc: pp. 155b, 265.
Atkinson, Lisa: p. 175.
Austrade: Australian Trade Commission/Tim Harcourt, p. 60.
The Australian: Smarty pants by Katrina OBrien, 6 March 2009, pp. 60-62.
The Australian: Unhappy little Vegemites kill off the iSnack by Simon Canning, 1 October 2009, p. 106.
Boost Juice Ltd: p. 40.
Chester, Jane: Black Sheep Business Plan, pp. 275-292.
Coca-Cola AmatilCCA: pp. 13, 54-58, 107.
Commonwealth Copyright Administration Copyright Law Branch, Attorney-Generals Department: Speech
to the 2009 National Small Business Summit, Sebel Hotel, Albert Park (Melbourne), Former Prime Minister
Kevin Rudd, 9 June 2009, copyright Commonwealth of Australia, reproduced with permission, pp. 34-35.
Corbis Australia Pty Ltd: p 79; Chuck Savage, p. 43; Rudy Sulgan, pp. cover, i, iii, iv, v, vi, vii, viii, ix, x, xi;
Steve Raymer, p. 18; Todd Gipstein, p. 112.
The Daily Telegraph: New perks to keep the workers loyal by Henry Budd, 4 August 2007, p. 141.
Dreamstime: pp. 15t, 275.
Fairfax Media Publications Pty Limited: Domino Postiglione, p. 183; Paul Harris, p. 34.
Financial Times: Reality check for Gen Y and its managers by Emma Jacobs, 14 May 2009, pp. 184-85.
Getty Images Australia Pty Ltd: pp. 103, 243; Regis Martin, p. 181.
Holden HSV: Image supplied courtesy of Holden, p. 105.
Kirkwood, Ian, 30 jobs lost at Steggles, 30 July 2009. Reproduced with permission of The Newcastle Herald
Copyright 2010: p. 114.
L & M Designs Pty Ltd: pp. iv(b), 172, 226-229.
Linfox Logistics: p. 114.
News Limited Images (Newspix): pp. 106, 191, 247.
OneSteel Ltd: OneSteel Ltd Annual Report 2009, p. 32.
Pearson Australia: Alice McBroom, pp. 3b, 116, 303.
PepsiCo Inc.: pp. 164-166.
Photolibrary Pty Ltd: Alex Mares-Manton, pp. v(b), 298; Benjamin Rondel, p. 55b.
Planet Cake: Image courtesy of Planet Cake, p. 192.
Reverse Garbage: p. 28.
Seduberry: Images courtesy of www.seduberry.com, p. 197.
Shutterstock: pp. iv(t), iv(m), v(t), 1, 3t, 5, 67, 69, 70, 75, 81, 84, 98, 100, 104, 115, 118, 119, 123, 126, 132,
133, 136, 138, 145, 153, 154tc, 154bc, 154b, 160, 201, 236, 234, 237, 241, 246, 255, 254, 300, 302,
306.
SmartCompany: SmartCompany.com.au, pp. 175-177.
Stormy Australia: p. 202.
The Sydney Morning Herald: Advice from the breadwinners by Sue White, May 2009, pp. 127-128.
The Sydney Morning Herald: AMEX campaign aims beyond old men in suits by Julian Lee, 16 October 2009,
p. 112.
The Sydney Morning Herald: Creep? Probably a manager by Adele Horin, 15 July 2009, p. 87.
The Sydney Morning Herald: Dominos franchise moves afoot by Eli Greenblat, 1 October 2009, p. 211.
The Sydney Morning Herald: Keeping good company with your staff by Julianne Dowling, 19 May 2010,
pp. 73-74.
The Sydney Morning Herald: Jim backs down on fees by James Adonis, 21 October 2009, p. 213.
The Sydney Morning Herald: Jims franchise wants to cut and run by Chalpat Sonti, 20 Oct 2009, p. 212.
Telstra: p.187.
Thinkstock: pp. 49, 109, 154c, 204, 263, 279, 282, 301.
Veuve Clicquot, Krug and Ruinart Mot Hennessy Australia & New Zealand: reproduced with permission
from Veuve Clicquot, pp. 9-12.
Virgin Atlantic Airways Ltd: p. 249.
The Weekend Australian: Soft skills lead to success by Vivienne Reiner, 30 Aug 2008, pp. 134-35.
Weekly Times Now: Take heart in Seduberries by Sandra Godwin, 18 January 2010, pp. 197-98.
Wesfarmers Limited: p. 4.
Board of Studies Material Board of Studies NSW for and on behalf of the Crown in right of the
State of New South Wales: Business Studies Stage 6 Syllabus p. x.
Every effort has been made to trace and acknowledge copyright. However, should any infringement
have occurred, the publishers tender their apologies and invite copyright owners to contact them.
Contents
CHAPTER 1
Series features
How to use this book
Outcomes
vi
viii
x
THE NATURE OF BUSINESS
1
3
17
32
1.1 The role and importance of business

1.2 Types of business
1.3 Internal and external influences
on business
1.4 Business growth and business decline
1.5 Influences on the business environment
and their impact on business
Major Business Focus: AussieBum
Chapter 1 review
CHAPTER 2
BUSINESS MANAGEMENT
2.1 The nature of management
2.2 Approaches to management
2.3 The management process
2.4 Management and change
Major Business Focus: PepsiCo International
Chapter 2 review
CHAPTER 3
42
52
60
63
67
69
78
98
153
164
168
BUSINESS PLANNING: STARTING AN SME 172

3.1 Small business enterprises
3.2 Key personal qualities in establishing
a business
3.3 Identifying business opportunities:
Sources of information and ideas
3.4 Identifying the target market
3.5 Key considerations in setting up a business
Major Business Focus: Flipsters
Chapter 3 review
174
179
190
200
209
226
230
CHAPTER 4
THE BUSINESS PLANNING PROCESS

4.1
4.2
4.3
4.4
The role of the business plan

The business planning process
Elements of the business plan
Critical issues in business success
and failure
Major Business Focus: Example business plan
The Black Sheep
Chapter 4 review
234
236
240
261
264
275
293
APPENDICES
Appendix A: Business research task: Research
and plan a business
A.1 Organising the business research task
A.2 The business investigation
A.3 The business plan
Appendix B: Assessment requirements
in the Preliminary course
Appendix C: Assessment terms used
in Business Studies
Appendix D: Glossary of terms
Index
299
299
301
308
310
315
317
326
Series features
Business Focus Preliminary
Student books
Business Focus Preliminary and HSC student books
incorporate the best practices in teaching and learning
in a new series that reflects the revised Business Studies
syllabus (2010).
The Business Focus author team has a wealth of
experience in teaching, curriculum and researchall
of which have combined to create a text that reflects
the best practice in teaching business studies to NSW
students as well as closely aligning itself to the syllabus.
This full-colour series has been structured to follow
the progression of teaching and learning, introducing
students to the knowledge and skills that they need to
succeed in the Business Studies course and providing
opportunities to gain the knowledge and skills necessary
for working in the business world.
Up-to-date statistical data as well as relevant and
meaningful case studies help students to develop a deep
knowledge of Business Studies.
Exam Caf CDS
Ready-for-it checklist
Your study program
Check that you have:
s REVISEDALLCOURSECONTENT
s ADDRESSEDAREASYOUAREUNFAMILIARWITH
s READOVERYOURREVISIONNOTES
s HIGHLIGHTEDIMPORTANTPOINTS
s SUMMARISEDEACHTOPIC
s READASMUCHOTHERRELEVANTMATERIALASTIMEPERMITS
s ATTEMPTEDPRACTICEEXAMQUESTIONSINTHEAPPROPRIATETIMELIMIT
s READEXAMINERSREPORTSONPASTEXAMPAPERS
The exam
sCHECKEDTHEEXACTEXAMREQUIREMENTS
s OBTAINEDANDREADCAREFULLYTHEINSTRUCTIONONTHESAMPLEEXAM
s PLANNEDHOWTOBESTUSEYOURREADINGTIME
Practical steps
s ASSEMBLEDPENSHIGHLIGHTERSARULERANDANYOTHERMATERIALSREQUIREDANDALLOWED
s DOUBLE CHECKEDDATESANDTIMESFOREACHEXAM
s REMEMBEREDYOURSTUDENTNUMBER
s ARRANGEDTRANSPORTALLOWINGAMPLETIMETOAVOIDRUSHINGANDALLOWINGFORDELAYS
s PLANNEDAPPROPRIATEMEALSANDDRINKSASEXAMTIMESVARYAVOIDHEAVYMEALSBEFORE
EXAMSASTHEYMAKEYOUSLEEPY
vi
The Exam Caf CD contains the student book, in PDF form, that allows students to
engage with the content outside the classroom when preparing for HSC assessments.
Available on the Exam Caf CD are:
Glossary terms
Preparing for exams
Handling exam questions
Daily study planner
Revision planner
Pearson Places
Pearson Places is the online destination that is constantly evolving to give you the
most up-to-date educational content on the Web.Visit Pearson Places to access
educational content, download lesson material, use rich media and connect with
students, educators and professionals around Australia.
For teachers:
Teacher lounge: One location for teacher support material, state curriculum
grids, teaching programs and more!
For students:
Student lounge: One location for student support material including web
links and assessment guidance.
Exam Caf: The perfect place for senior students to practise, revise and study
for exams. Available online are:
Glossary terms
Preparing for exams
Handling exam questions
Daily study planner
Course content checklist
Revision planner
Web destinations
Practice exams
Quizzes
Access these resources through the Exam Caf CD or Exam Caf Online
at www.pearsonplaces.com.au.
For more information on the Business Focus series, visit the Bookstore
at www.pearsonplaces.com.au.
vii
How to use
this book
Business Focus Preliminary incorporates the best practices in teaching and learning
in a new series that reflects the revised Business Studies syllabus (2010).
The Business Focus author team has a wealth of experience in teaching,
curriculum and researchall of which have combined to create a text that reflects
the best practice in teaching business studies to NSW students as well as closely
aligning itself to the syllabus.
Chapters
Half-page photographs and a short, yet comprehensive
summary, open each chapter.The photographs and text
help to activate student pre-knowledge as well as provide
opportunities to prepare students to engage with the
content they are about to encounter.
Introductory activities encourage students to
connect with their existing knowledge about business
as well as help teachers assess what their students know
prior to starting work.
Units
Each chapter is divided into units. Units contain the
most up-to-date information, statistics and examples
taken from a range of businesses on a regional, national
and global level.
Unit reviews
viii
The unit reviews help

students to revise,
consolidate and explore the
material in the unit. Key
terms and concepts are provided to help students revise
and engage in literacy activities. Business thinking skills
help students engage with the content and concepts in
the unit. Business creativity and extension help to extend
students knowledge and understanding. Business ICT
helps students to engage in meaningful ICT tasks to
extend knowledge or develop business skills.
Business Focus
Business Focus are case studies that provide students with real-life examples of the
content they are studying. Business Focus activities encourage students to make
links between the case study information and the skills and knowledge they have
learnt in the unit.
Major Business Focus

Major Business Focus are large case studies that contextualise an entire chapter.
Students can use these to prepare for assessment, prepare for exams and to make
deep links between the content in the student book and the business world.
Chapter review
Pearson Places
For a full list of relevant websites, navigate to the web destinations for Business
Focus Preliminary via the Student Lounge at www.pearsonplaces.com.au
We
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A concept map helps students to visually connect the concepts they have learnt
in the chapter.
An HSC-style preparing for assessment section provides students with ongoing
opportunities to practise for the HSC written exam, while consolidating and applying
the knowledge and skills learnt within the chapter.
ix
Outcomes
The student
Chapter
Objectives
Outcomes
The nature, role and

structure of business
P1 discusses the nature of

business, its role in society
and types of business structure
Internal and external

influences on
business
P2 explains the internal

and external influences
on businesses
P3 describes the factors

contributing to the success
or failure of smallmedium
enterprises
The functions and

processes of business
activity
P4 assesses the processes

and interdependence of key
business functions
Management
strategies and their
effectiveness
P5 evaluates the application

of management theories and
strategies
P6 analyses the responsibilities

of business to internal and
external stakeholders
Investigate, analyse,
synthesise and
evaluate business
information and
issues for actual and
hypothetical business
situations
P7 plans and conducts

investigations into
contemporary business issues
P8 evaluates information
for actual and hypothetical
business situations
Communicate
business information
and issues using
appropriate formats
P9 communicates business
information and issues in
appropriate formats
Apply mathematical
concepts appropriate
to business situations
P10 applies mathematical

concepts appropriately
in business situations
Introduction
This book has been written for Preliminary course students following the
development of the revised Business Studies course in New South Wales 2010 for
implementation in 2011. It is designed to assist students in achieving the outcomes of
the course by highlighting real-life examples from the world of business. The focus
of this book is small to medium enterprises in Australia. There are also examples from
global business.
Every effort has been made by the authors to incorporate the changes in content,
direction and approach required by the new course. In particular the text develops
the case studies approach and includes assessment material to prepare students and
teachers for the new-style HSC standards. The series has been written with the best
pedagogical practices in mind.
Each chapter has been designed to follow the syllabus closely. Chapters feature
introductory activities which will help teachers activate students prior learning at
the beginning of each syllabus topic. The textbook highlights key vocabulary in the
unit review and builds on literacy by including literacy activities throughout. Chapters
also include a wide range of ICT activities to help students develop the skills necessary
for small business competency and success. Activities include many of the general
capabilities mandated by the Australian curriculum.
A range of up-to-date Business Focus and Major Business Focus sections helps
students identify key concepts in real businesses. They have been designed to enhance
students understanding of business knowledge, skills and values. The Major Business
Focus in the text cut across topics with real business examples so that students can
integrate the knowledge they have gained from concepts within the topic and outside
itreflecting the breadth of knowledge important in business success.
At the end of each chapter, a review and summary allow students to review and
revise the important business ideas. The Preparing for assessment section at the end
of each chapter is designed to introduce students to the new assessment approach
for HSC study.
Mike Horsley
Natasha Terry-Armstrong
Ian Biddle
Robert Mulas
Sonja Anderson
xi
Chapter 1
The nature of business
Summary
Business is at the centre of the economic system we enjoy in Australia. It is the

provider of employment, the source of goods and services, an outlet for innovation
and entrepreneurial skill, and it is the cornerstone of the choice and high standards
of living we enjoy today.
Micro-, small and medium-size business enterprises are the growth sectors in
Australia. These sectors contribute more to economic growth and employment
opportunities than larger enterprises do.
The external environment lies outside the formal boundaries of a business.
The internal environment consists of those factors that occur within the organisation.
The forms of ownership of a business organisation can be defined according to size,

economic sector, industry or legal structure.
All businesses pass through a business life cycle. Managers must be able to
recognise the different phases of the life cycle.
Regulations are designed to ensure that all parties are treated equally in their
commercial dealings.
Social responsibility refers to a businesss obligation to engage in activities that

protect and contribute to the wellbeing of society.
Ethics are a set of standards and codes of conduct that defines what
is right, wrong and just in human actions.
Increasingly, ebusiness is becoming an important aspect of business.
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Introductory activities
Business literacy
1 Complete the following statements:
If I could start up any business it would be _____ because _____ .
People who go into business are _____ because _____ .
We need business to _____ us with _____ .
2 Using the glossary in this text or a dictionary, find the meaning
of the following terms:
business establishment
company
competitor
entrepreneur
environment
management
primary
quaternary
quinary
small business
sole trader
stakeholder
secondary
tertiary
Business numeracy
3 Conduct a class survey to find out how many parents/guardians/family members
work for themselves and how many work for someone else. Construct a table
showing your results.
Business teamwork
4 Construct a table with the headings Business name and Business activity.
Under Business name, compile a list of all the businesses you have come into
contact with over the past week. In the Business activity column write down
the main activity of each business. When you have filled in the table, complete
the following tasks:
a In pairs, compare the different businesses you have come in contact with
and add your partners businesses to your list.
b Identify some of the needs that businesses have satisfied for you over
the past week.
5 In small groups create a mind map showing why we need businesses in society.
6 On the blackboard or an overhead transparency build up a mind map showing
the ideas of all the groups.
Business ICT and thinking skills
7 Using the website of The Body Shop, Coca-Cola or Pepsi investigate
the following:
the companys products
the size of the company
the type of business structure
how long the company has been operating
the companys role in the community.
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Unit 1.1
The role and importance
of business
What is business?
The word business has many meanings. It can
refer to a persons occupation (their business or
profession); to a type of occupation (a plumbing
business); to a persons behaviour when they
buy and sell (a businessman or businesswoman);
to trade and commerce (business); or to a
firms activity (car sales or retail business). The
modern word business comes from an old
English word which meant to do things.
Nowadays business is about buying and selling.
Business is the way that buyers buy and sellers
sell goods and services. For sellers, business is
about how they do their selling and
receive their money and income. For
buyers, business is about how they get Web Destination
what they want.
Business in everyday life
Figure 1.1.01 The Sydney CBD is the heart of

the business community in New South Wales.
In our everyday living we constantly come into contact with business. All businesses
offer something to the community; for example, the local newsagency provides
customers with newspapers and other stationery needs; large stores such as
Woolworths and Coles provide their customers with their grocery needs. No matter
how big or small, businesses have an important role to play in society.
Figure 1.1.02 Large shopping complexes provide goods
and services that meet community wants and needs.
The Nature of Business
Next time you visit a large shopping complex (such as Westfields), just stop and
take in the variety of shops. Stores aim to meet the specific needs of certain groups.
Sportsgirl, Country Road and Witchery, for example, all aim to meet the need for
womens clothing. Other stores are more general in their market group. Department
stores such as Kmart, Target and David Jones carry womens clothing but also an
enormous range of household items ranging from socks to television sets. Even
though these stores represent a small part of the business environment, they play
important roles within our society. They provide goods and services to meet the
wants and needs of the community. They also employ many community members.
Why is business important?

Social and economic roles of business
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Businesses play a large social and economic role in our society. The social role can be
seen when the actions of businesses contribute to the quality of life and happiness
of members of our society. When, for example, McDonalds holds its McHappy Day,
it is playing a social role in society by donating money to Ronald McDonald House, a
rest house for families of terminally ill children, and assisting a variety of local charities.
Businesses also play an enormous economic role by creating wealth, employment,
choice and entrepreneurship. Businesses provide employment and investment
opportunities. Through the skill of business people, new ideas are transformed into
products that enable us to enjoy a high standard of living.
Wealth creation
The generation of profit is the primary role of business. The production of goods
and services is the means of fulfilling this role. An example of this is Wesfarmers. By
working towards achieving its aims, Wesfarmers hopes to increase its market share and
maximise the return to investors in the company. The investors are the shareholders
in Wesfarmers.
Aims of Wesfarmers
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Satisfying the needs of customers through the

provision of goods and services on a competitive
and professional basis.
Providing safe and fulfilling working environments for employees,
rewarding good performance and providing opportunity for
advancement.
Contributing to the growth and prosperity of the countries in which it
operates by conducting existing operations in an efficient manner and
by seeking out opportunities for expansion.
Responding to the attitudes and expectations of the communities in
which the company operates.
Placing a strong emphasis on protection of the environment.
Acting with integrity and honesty in dealings both inside and outside
the company.
Source: Wesfarmers website, 2010
Generation of profit
Investment in business provides people with an opportunity to create additional wealth.
Business provides wealth not only for those individuals who invest but also for society
as a whole.The taxation on profits generated by business enables the government to
move this money into society. Money raised by the government through taxation is
used to build roads, provide health services and employ emergency services staff such
as the police and fire brigade.The export of goods and services also generates foreign
exchange and enables the purchase of imports from other countries. For example, the
sale of coal and iron ore to China enables Australians to earn Chinese Yuan with which
to purchase Chinese manufactured goods such as electrical equipment.
Figure 1.1.03 Australias coal exports are the leading Australian export business.
Employment
One of the most important roles business plays in society is the provision of
employment. An organisation needs to be aware of the interdependence that exists
between its business and its greatest assetits staff. Business organisations attract
people into their employment by offering them things they value, including good
pay and work conditions, a career path, promotion and interesting work.
Figure 1.1.04 Employed persons 200607

Category
Professionals
19.3%
Intermediate clerical and service workers
16.5%
Associated professionals
12.9%
Tradespeople and related work
12.7%
Elementary clerical, sales and service workers
9.3%
Labourers and related workers
8.6%
Managers and administrators
8.2%
Advanced clerical and related workers
3.8%
Source: Adapted from Employed Persons, ABS website, 2009
People are employed in a vast array of businesses, large and small, including
primary production, retailing and manufacturing as can be seen in figure 1.1.04.
Figure 1.1.05 Australias largest employers, 2006
Company
No. of employees
Woolworths
94 408
Coles Myer
94 000
Queensland Health
47 520
Telstra
44 452
National Australia Bank
38 933
Commonwealth Bank Group
36 664
Australia Post
34 842
Qantas
34 832
BHP Billiton
33 184
10
ANZ Banking Group
32 256
11
Rio Tinto
31 854
12
Wesfarmers
30 000
13
Spotless Group
29 200
14
Toll Holdings
28 000
15
Westpac Banking Corporation
27 138
16
Leighton Holdings
25 405
17
Amcor
24 538
18
Centrelink
23 315
19
Tempo Services
21 844
20
Australian Taxation Office
21 511
Source: IBIS World
The importance of big businesses as employers can be seen in figure 1.1.05.

Australias largest employer as at the most recent census (2006) is Woolworths with
more than 94 000 employees. Australias biggest company is BHP Billiton (the Big
Australian) with over 33 000 employees.
Even though large businesses employ many thousands of working Australians,
small businesses employ more Australians.Very small businesses with fewer than nine
employees employ over 16% of the workforce. Businesses with fewer than a hundred
employees employ over 42% of the workforce.
Innovation
For one business to capture and maintain a competitive edge over other businesses
it needs to be constantly seeking ideas for new products, product modifications or
different markets for existing products.
Importance of research, development and innovation
Research and development (R&D) can help

achieve stronger sales and export growth.
It is important for businesses to have a
commitment to R&D to help maintain
competitiveness and ensure their future
prosperity. R&D also allows society as a
whole to benefit from innovation. For
example, research conducted by Telstra
to ensure their competitiveness in the
telecommunications sector has been
applied to the development of a bionic
ear, improving the life of many people
with hearing deficiencies. Eventually an
Australian company, Cochlear, developed
a bionic ear, which it now sells all over
the world. By seeking new and better
products to attract customers, businesses
can more efficiently produce a wider range
of superior products and services. The search
for new products and ways of doing things,
however, can be very time consuming and thus
very expensive.
Figure 1.1.06 Cochlear developed

the bionic ear and sells it all over
the world to assist the deaf to hear.
Choice
Within a free enterprise system, such as that operating in Australia, the means of
production and distribution are mostly privately owned. The forces of supply and
demand determine the allocation of resources in the economy. Supply is concerned
with how much the producer is willing to provide to the market at a given price level.
Demand is concerned with how much the consumer is willing to buy at a particular
price level. Consumers have freedom of choicethe choice of what to purchase and
where to purchase it. Businesses have a choice of what they produce. They can choose
which resources to purchase, how much to purchase and which markets to allocate
these resources to. This choice of production and purchasing encourages competition
between businesses to produce products and services at the lowest possible price and
of the highest possible quality.
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Consumers have freedom of choice
The production of similar goods and services by different businesses means that each
seeks an advantage over its competitors in order to attract customers. If consumers
are unhappy with the quality or price of an item produced by one business, they may
choose to purchase the item from a competitor. It is through the production of similar
but not identical products that competition occurs; prices can be forced down and
quality up. This choice offered to businesses and consumers is at the centre of our
economic system.
Entrepreneurship
Entrepreneurs are risk takers
An entrepreneur is willing to take risks to start and develop business. Entrepreneurs

have the ability to combine the resources of land, labour and capital to produce a
product. Entrepreneurs develop their innovative ideas through business, enabling
society to benefit and themselves to make a profit. Well-known Australian
entrepreneurs include Dick Smith, founder of Dick Smith Electronics; Gerry Harvey,
owner of Harvey Norman furniture stores; Lindsay Fox, the transport entrepreneur;
and Carmen, the owner of Carmens muesli bars. Chapter 4 examines the concept
of entrepreneurship in greater detail.
Quality of life
The products and services provided by business increase the quality of life for all
Australians. Business influences quality of life directly by providing access to a range
of goods that we would not have the time, resources or knowledge to make ourselves.
For example, few of us would have the knowledge to build a television set. Business
provides an opportunity for individuals or groups to use their skills to produce goods
and services efficiently and meet the needs of others.
New ideas from business improve the quality of life by providing goods
and services to meet consumers needs
The potential to create wealth through business encourages innovation and

entrepreneurial skill. New ideas create labour-saving devices, such as washing
machines, dishwashers and computers. These devices reduce the time needed to
complete certain tasks, resulting in increased leisure time. The search for profits drives
pharmaceutical businesses to invest millions of dollars in research and development
to find drugs that cure or help prevent the diseases that cause us pain or death. When
business finds a new method of production that enables the price of the item to be
cut, we benefit by having more money to spend on other things.
Our quality of life at work has also increased as a result of innovations. Business
provides ways to exchange our skills and labour for money. It enables us to find a
source of employment with the benefits we require. Most people spend eight hours
a day at work, so conditions significantly affect quality of life.
The economic role of business is usually the first thing we think of when we
explore why business is important, but it is what we do with the wealth created
by business that enables us to increase our quality of life.
8. Choice
Through competition and
trade, consumers have
access to a wide range
of goods and services.
7. Quality of life
Business enables the
production of an enormous
range of goods and
services that improve our
standard of living.
6. Wealth creation
Business provides an
avenue for investment
and the potential to
make a profit.
1. Entrepreneurship
Business provides the
opportunity for individuals
with ideas to develop them
and gain rewards.
The roles and

importance of business
5. Source of
government revenue
government with revenue
from taxation.
2. Innovation
incentive and the resources
needed to maintain
continuous R & D programs.
3. Employment
Business provides almost
80% of the opportunities
for employment in
Australia.
4. Provider of goods
and services
Business combines labour
and other resources to
produce goods and services
beyond the ability of most
individuals to produce.
Figure 1.1.07 The roles and importance of business
Business Focus
The Veuve Clicquot Award
celebrates innovation and vision
on International Womens Day
Sarina Bratton, 2006 Veuve Clicquot

Award Winner. Photo: Bill Hearne.
The worlds first female founder of a shipping line, Sarina

Bratton, has been honoured on International Womens Day,
winning the coveted 2006 Australian Veuve Clicquot Award.
The Australian winner of the global Award, which is
presented in 16 countries, was announced in Sydney at the
Veuve Clicquot Award Lunch, attended by many of Australias
most powerful and successful business women.
Janet Holmes Court, a previous winner of the Award and
member of the Australian judging panel, believes the Award is
a fitting celebration of International Womens Day in Australia.
The Inspiration behind the award

Founded in 1772 by the Clicquot family, the House of Veuve Clicquot Ponsardin established
its reputation on the outstanding quality of its champagnes. The House excelled under the
leadership of la veuve Clicquot who, having lost her husband Franois in 1805, took over
the family business to become one of the first business women of all time.
With courage and fortitude, she overcame the Napoleonic trade blockade, opening
up a profitable market at the Imperial Russian Court and constantly expanding her
distribution network in other European countries.
She became known as la grande dame de la Champagne for her incredible
contribution to champagne, including the invention of the table de remuage, intrinsic
to the riddling process that leaves champagne so brilliantly clear. Her invention was
subsequently adopted by all champagne Houses. Over two centuries of passion for
quality have given Veuve Clicquot a reputation for unrivalled excellence recognised
throughout the world.
Source: Adapted from Veuve Clicquot website, 2006
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The Veuve Clicquot Award celebrates Australian businesswomen and the impact they have made
both on the local and global economies it focuses not only on their success, but also on the way
that they achieved, she said. I think it is fitting that we showcase their extraordinary qualities on
International Womens Day because they are an inspiration to all Australians.
The Award commemorates La Veuve (the widow) Clicquot. The winners in each country are the
women who judges consider best exemplify her qualities.
Madame Clicquot was a risk taker, a leader, an opportunist and an optimist, said Janet Holmes
Court. She was brave, daring, tenacious, resilient, unconventional and innovative. These are the
qualities the Veuve Clicquot Award recognises and celebrates.
Nominations were received from throughout Australia, with judges selecting the following five
finalists:
Sarina Bratton founder and Managing Director of Orion Expedition Cruises, a five-star boutique
soft adventure cruising experience, showcasing pristine wilderness destinations.
Zahava Elenberg co-founder of Elenberg Fraser Architecture and Zacamoco, and founder of
Move-in three companies that reflect her passion for the man-made environment and the way we
interact with it.
Sue Ismiel the founder of Nads Hair Removal Gel the green goo she invented at her kitchen
sink is now a household name in Australia and the USA.
Phoebe Lane the founder of PKL Pty Ltd, a niche recruitment company she established when she
was 25 and that 10 years later has revenue sales of more than $18 million dollars.
Varina Nissen Managing Director, Manpower Australia and New Zealand, Varina is one of
Australias most successful entrepreneurs with an impressive track record of providing strategic focus and
implementing organisational change to grow profits for organisations in the UK and Australian markets.
The calibre of all the nominations we received was extremely high and the five finalists in
particular are extraordinary women who in their own ways embrace Madame Clicquots qualities and
embody her spirit, said Janet Holmes Court. The judging process was very difficult, but at the end
of the day we felt Sarina Brattons entrepreneurship, audacity and vision singled her out. Through
Sarinas persistence and perseverance she is creating a company that is exciting and innovative.
Sarina Bratton is the worlds first female founder of a shipping line. In fact, she has founded
two lines, but her journey has not been without heartache. Her first start-up cruise line, Norwegian
Capricorn, was a joint venture that sailed to immediate success, but was dissolved after the hostile
takeover of her major partner.
What happened next is what makes Sarina so extraordinary, said Holmes Court. She was
devastated, but giving up was never an option. With the same entrepreneurial drive that took her to
the top of Holland, America and Cunard cruise lines, she started again, seeking out new opportunities,
new destinations, new venture capitalists and private equity partners and a new ship. She remained
true to her vision and to herself.
Two years ago Sarina Brattons dream of starting her own line, showcasing her own country as
a destination, became a reality with the launch of the Orion. Like Madame Clicquot she developed
her business in a hands-on manner nurturing every detail from the galley to the engine room. She
hand-picked wilderness destinations and worked with local communities to create infrastructure that
would allow her ship to travel where none had gone before. Sensitive to the importance of protecting
the natural beauty of her destinations for future generations, she ensured the Orion is a world leader
in environmental sustainability for the marine leisure industry. She created opportunities for Orion
Expedition Cruises and Australian tourism with the Orion taking holidaymakers from around the
world to pristine wilderness areas of Australia, the Antarctic, East Timor and Papua New Guinea.
I believe that the economic gains that this country can derive through increasing and growing a
small business like the one we have pioneered has tremendous long-term benefit to this nation, she said.
Sarina Bratton, who lives on Sydneys northern beaches with her husband and daughter, has
always been competitive. Aged 17, she held three national sporting titles in gymnastics, diving and
trampoline. Sport taught her discipline and focus as well as the importance of not being afraid to take
a risk and move out of her comfort zone in order to succeed at the highest level. It also taught her to
deal with disappointment when injury shattered her dream of becoming an elite athlete. In a move
that foreshadowed her reaction to the dissolving of Norwegian Capricorn Line, she went in search of
new opportunities, found a career in tourism and went on to win numerous accolades as an industry
leader both in Australia and internationally.
At home, I have a saying by Winston Churchill that is never, never, never give up, she says. Its tough
starting a new business, you work for very long hours and you have to put everything into it, which is
what we do and what Im not afraid of. Ive got the best ship for the job, Ive got a fantastic team working
with me shore side a wonderful team of people onboard the ship as well. Were a long way down the
track but theres still somewhere we can go and we can never be complacent about anything we do.
Today, the Veuve Clicquot Award honours Sarina Bratton as a respected leader, an astute and
intuitive business woman, a resilient and audacious risk taker. She has her own style and her own way,
but in every way she embraces the spirit of Madame Clicquot.
I think about what that woman did in the years that she did it and thats an inspiration,
she said. Im still on this journey and I havent got there yet, but to be recognised as
somebody who possibly has similar characteristics and drive as Madame Clicquot to me is
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just absolutely fantastic.
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Source: Veuve Clicquot Award media release, 8 March 2006
Each year the Veuve Clicquot Business Woman Award honours an outstanding
Australian business woman who embodies the values of Veuve Clicquot and its
pioneering entrepreneur, Madame Clicquot.
On 8 March, International Womens Day, Sarah-Jane Clarke and Heidi Middleton,
co-founders and co-directors of sass & bide, were announced as the Australian winners
of the Veuve Clicquot Business Woman Award 2010. The announcement was made
by the global president of Veuve Clicquot, Stphane Baschiera, at the Veuve Clicquot
Business Woman Award lunch in Sydney, attended by some of Australias most powerful
11
and successful business leaders. The Award commemorates Madame Clicquot, who
was arguably the first woman entrepreneur. Janet Holmes Court, a previous winner
of the Award and chair of the Australian judging panel, believes Sarah-Jane Clarke
and Heidi Middleton are outstanding winners of the Award. Madame Clicquot was
an innovator with global ambitions; creative, brave, tenacious, unconventional and
ahead of her time. said Janet Holmes Court. These are qualities the Veuve Clicquot
Business Woman Award recognises and celebrates, and which Sarah-Jane and Heidi
possess in abundance.
Source: Adapted from Veuve Clicquot website, 2010
Business Focus activities

1
2
3
Describe the qualities of a person who would be nominated for the Veuve Clicquot Award.
Research one of the finalists for the award and explain to the class why this woman deserves
to win the award.
Explain the qualities Sarina Bratton has that make her a good businesswoman.
Business goals
Business goals are the things a business hopes to achieve through its operation.
Business goals include financial, social and personal goals. All businesses have goals.
The goals of each business will differ depending on its size, ownership and how long
it has been operating. Large businesses spend a considerable amount of time working
out exactly what goals they wish to achieve over different periods of time. Through
goals a business works towards achieving its mission.
There are four categories of business goals:
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 community while still achieving financial goals.
Personal goals: goals of employees or owners that are not planned by the
business but may influence elements of the business.
Corporate social responsibility: these goals of business may include
environmental sustainability as well as social and financial goals.
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Financial goals
Business by its very nature requires a financial goal. There are different type of financial
goals. The reason most people invest their money and time in business is to make
money. For the owners of a business to make money the business must make a profit.
Profit is the amount of money left after expenses have been deducted from the money
generated by sales. The larger the profits of a business, the greater the potential for the
business to give its owners a good return on their investment. Return on investment
is a measure of the percentage earned on money invested in a business or business
activity. As a general rule, the higher the risk of business failure, the larger the return
on investment required to encourage investment.
Another common financial goal is increased market share. Market share refers to
the proportion of a products total market a business controls, in terms of sales. The
larger the market share a business has, the more potential there is to make a profit. By
selling more items, even at a lower profit per item, a business can spread costs, such
as advertising, over a larger number of items. A larger market share means a business
becomes larger compared with its competitors. This may have the effect of driving
competitors out of business, allowing the company to increase its prices at a later stage.
Most businesses actively seek growth to enable them to become more efficient and
thus generate larger profits.
Social goals
In addition to financial goals, many businesses have social goals. A large international
company such as Coca-Cola, for example, has financial goals that satisfy the
shareholders need for a return on their investment, and at the same time has social
goals to ensure that the company is seen by the community as environmentally
friendly. Coca-Cola Amatil at Northmead, New South Wales, helps achieve its social
goals through its reduce, recycle, reuse environmental policy. It also has social goals
concerning employees. By encouraging employees to undertake further study at the
expense of Coca-Cola, the company ensures that its employees are more productive
as well as happier.
Business F cus
Coca-Cola Amatil
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Sustainability@CCA
The success of CCAs business is due in part to the way in which social and environmental
considerations have been integrated into the core business. In 2008 the construction of huge
underground rainwater harvesting tanks in CCAs largest production facility in NSW was undertaken
to increase water efficiency. A long-term commitment to water saving strategies under the CCAs
National Environment policy and significant investment in new technology resulted in CCA maintaining
its position in 2008 as one of the most water-efficient beverage bottlers in the Coca-Cola system. Dry
Lube (waterless lubrication) has been installed on all Australian production lines, saving 95 million
litres of water annually. CCAs manufacturing operations are relatively low emitters of carbon. However,
the company measures and reports energy use and greenhouse gas emissions and continually looks for
ways to reduce these emissions. CCAs new distribution centre at Eastern Creek in NSW, has rain water
tanks and solar power, and is seeking Australias first green star rating for an industrial building.

1
2
3
4
Identify the core business of CocaCola Amatil.

Explain how social and environmental considerations have been applied to this core business.
Outline two reasons for this environmental policy.
Explain the effect this policy might have on the financial goals of Coca-Cola Amatil.
Source: Adapted from Coca-Cola Amatil2008 Annual Report,

Coca-Cola Amatil website, 2009
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Personal goals
Businesses plan and state their goals to help them achieve success, but the personal
goals of the owners and employees also have an effect. Personal goals of employees to
earn promotion, for example, might contribute to the businesss success by providing
increased productivity. Other employees might have the personal goal of doing as little
as possible, which could work against what the business hopes to achieve. Successful
businesses tap into the personal goals of their employees and owners in order to
increase productivity.
Figure 1.1.08 shows some of the most common business goals.
Figure 1.1.08 Common business goals
Financial goals
Social goals
Personal goals
Profit maximisation
Community service
Prestige
Return on investment
Environmental protection
Power and influence
Increased market share
Employee satisfaction
Job satisfaction
Increased sales revenue
Continued employment
Financial reward
Primary producer
Warehouse wholesaler
Service
provider
Retailer
Manufacturer
BUSINESS OWNERS/OPERATORS
The operations of our business
serve the interests of others
Customer
Community
BANK TELLER
Government
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Shareholder
Employee
Meat supplier
Figure 1.1.09 The nature of business
Creditor
Competitors
Corporate social responsibility

Businesses need to make profits to survive and return income to their owners.
They must also be good corporate citizens and follow social goals to assist their
communities. Businesses must also be environmentally sustainable to conserve the
worlds limited natural resources. Businesses often combine these goals into a term
called corporate and social responsibility.
The triple bottom line
Corporate, social and environmental responsibility has also been termed the triple
bottom line. This is because businesses must make a profit, protect the planet and
serve the people.
Stakeholders
Business is at the centre of the process that every day sees men and women across
the world exchanging their labour and skills for money to buy goods and services
produced by themselves and others.
Every business, through its range of functions or operations, serves the interests
of customers, owners, employees, suppliers, creditors, governments, society and even
competitors. Such groups are sometimes referred to as stakeholders, because they
all have a stake in the continuing successful operation of the business.
Different types of stakeholders
The importance of business to stakeholders is shown in figure 1.1.10.

Figure 1.1.10 Stakeholders and businesses
Stakeholders
How businesses serve their interests
Customers
Provide goods and services
Owners
Generate profits; pay dividends.
Employees
Provide jobs; pay wages and salaries
Suppliers
Buy their products, e.g. raw materials, goods, services,

component parts and equipment
Creditors
Pay interest
Governments
Pay taxes
Society
Supports/provides for sectional concerns, e.g. sponsor local

activities
Competitors
Promote efficiency and increase potential for profits

Figure 1.1.10 can be broken down even further into internal and external
stakeholders.
Internal stakeholders are those that the business can influence directly. For
example, employees are internal stakeholders; the business can decide how many
people to employ and the tasks to be undertaken by employees. The government is
an external stakeholder because businesses cannot directly influence the government
and its policies.
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Unit 1.1 Review

Key terms and concepts
business goals
financial goals
interdependence
personal goals
quality of life
social goals
corporate social responsibility

goods and services
market share
primary production
research and development
taxation
entrepreneur
innovation
mission statement
profit
return on investment
triple bottom line
Business literacy
1 Define the following terms in your own words:
a Research and development
e Business goals
b Innovation
f Social goals
c Quality of life
g Corporate social responsibility
d Interdependence
2 Using Wesfarmers as an example, write a one sentence aim for McDonalds.
3 Identify and explain three different business goals.
Business numeracy
4 Using figure 1.1.05, complete and create a table with two columns. In the first
column list Australias ten largest employers, and in the second column write down
what you think is the core activity of each employer.
Business teamwork
5 Working in pairs, write down ten businesses from your local area and indicate
whether they have fewer than 10, between 10 and 99, or over 100 employees.
6 Using figure 1.1.07, classify the eight roles as either social or economic.
Compare your classification with others in your class and discuss any differences.
Business thinking skills
7 Suggest three reasons why many believe the amount being spent on research and
development in Australia is inadequate.
16

8 Visit the NSW Small Business website and select Regional Development. Explain
the roles of business in assisting development in regional areas.
Unit 1.2
Types of business
Classification of businesses and factors
influencing the choice of legal structure
There are many ways in which a business can be classified, including:
which industry it belongs to
the size of the business
the industry/economic sector
its legal structure.
Figure 1.2.01 lists some of the ways of classifying a business.
All businesses need to ensure that they choose a legal structure that best suits the
particular needs of the business at all points in time. There are a number of different
structures to choose from, and each one has its advantages and disadvantages. As a
general rule, the more complex the legal structure, the more difficult and expensive
it is to establish.
Figure 1.2.01 Classification of businesses by sector, size, industry and legal structure
Industry/
economic sector
Size
Industry
Legal structure
Primary
Large
Agriculture
Sole trader
Secondary
Medium
Construction
Partnership
Tertiary
Small
Financial
Private company
Quaternary
Micro
Management
Public company
Mining
Cooperative
Quinary
Trust
Statutory body
Government business enterprise (GBE)
Businesses can also be classified according to whether their transactions are

confined to one country or span more than one country. Most businesses produce,
market and sell products entirely within one country. These are domestic businesses.
Improvements in communications, marketing and transport have enabled many
businesses to operate across national boundaries. The internet has allowed many
businesses to sell goods and services all over the world from the one location. The
term international business is a broad term referring to any business involved in
international business activities. These activities could range from fully integrated
value-adding activities in a wide range of countries to simply supplying products
to consumers in other countries.
17
International businesses operate in many countries
Various terms are used to describe the range of international businesses.

The term multinational corporation is the generic term used to describe a
corporation having subsidiaries in more than one country. Such corporations own
and control value-adding activities in more than one country. These activities are
usually coordinated from one central headquarters. The term world company
would refer to a corporation that has dispersed ownership and multi-centred
points of control. It is unlikely that any corporation has reached this stage,
although Nestl would be a close example.
A multi-domestic corporation is a corporation that has subsidiaries in many
countries. Each acts independently and focuses on its own domestic market.
A global business sees the world as a single market and produces products with
little or no variation for a range of markets. Producers of luxury products fit
into this category.
A transnational corporation is an integrated business using local efficiencies
and economies and specialised functions in particular world locations, with
an integrated network of worldwide operations (e.g. car manufacturers).
Some degree of overlapping exists with these terms. The terms multinational
corporation and transnational corporation are often used interchangeably. The
United Nations uses the term transnational corporation while the term multinational
corporation is the term most often found in the media.
Figure 1.2.02 Ford: a global business

and a multinational company
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Sole trader
A sole trader is someone who conducts a business on his or her own and is solely
responsible for managing and financing the business enterprise. This definition
applies whether the sole trader has employees or not. Sole tradership is one of the
most common forms of business enterprise since it is relatively simple to create and
operate. Sole traders are found in all business activities, including farming, hairdressing,
consultancy services and retailing.
Sole traders manage all aspects of the business themselves
Figure 1.2.03 lists the advantages and disadvantages of a sole tradership.

Figure 1.2.03 Advantages and disadvantages of sole traderships
Advantages
Disadvantages
Owner is his/her own boss.
Owner must bear all the losses of the business.
Owner is responsible for all decisions made that

concern the business.
Owner is personally liable and responsible for

debts (unlimited liability), which means personal
assets may be at risk.
An inexpensive business structure to establish

and maintain, with less responsibility to the
government.
Owner is responsible for the business and

therefore might not be able to take a holiday
because no one else has the expertise.
All profits belong to the owner.
Owner needs to wear many hats.
Owner may offset business losses against other

income.
Business F cus
Ebon Hair
Mr Greg Caldow is a sole trader who owns and operates a hairdressing business in Ballarat, Victoria.
He has successfully operated the business since 1989 and currently employs two people. Greg tries
to provide professional and personalised service to each of his clients. He has operated his business
as a sole trader for 20 years and has no intention of changing this ownership structure.
The structure
Under our legal system, a business organisation must have some clearly defined structures that
enable it to operate as a legal entity. The structure of an organisation needs to reflect the goals and
objectives of the business and the complexities of the marketplace in which it operates. Greg has
chosen to operate as a sole trader because the structure best reflects the nature, size and capacity
of the business organisation. Greg believes that being a sole trader allows him to manage his
organisation effectively, and ensures that he is 100 per cent involved, that he continues to provide
a high-quality service to his customers, and that the business continues to be profitable.
19
The key to success

The success that Gregs business has enjoyed during the past 20 years has been the result
of careful planning and careful consideration of how his business should operate. People
starting a small business need to determine the most appropriate structure and form of
ownership for the organisation, whether it is a sole trader, a partnership or a company
structure. Small business operators must also recognise the need to constantly review
the business and monitor the success and failure of business decisions. Planning and
evaluation are both essential.
Source: Interview with Greg Caldow, Ebon Hair, Ballarat, Victoria

1
2
3
Describe the structure or form of ownership that Greg Caldow chose for his small business.
Explain why Greg feels that operating a sole tradership is the best form of ownership for his small
business.
Discuss the factors Greg feels are important in running a successful small business.
Partnerships
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Partnerships consist of two or more people who join together to operate a business.
The Partnership Act 1892 (NSW) sets out the number of people who are allowed to be
in a partnership. In practice, the usual number for partnerships is two to four people.
Partnership requirements
Establishing a partnership can help overcome some disadvantages associated with sole
traders. A partnership enables a group of people to contribute their knowledge, time
and talents towards running a business. Most importantly it allows financial assets to
be combined. All partners play an equal role in management decisions and take an
equal share of the profits (or losses). Under the Partnership Act, if the partnership ceases
to exist, all profits (or losses) and assets are divided up among the partners equally,
unless they have a partnership agreement stating how much equity each partner
contributed to the business.
20
Partnership agreements
A written copy of the partnership agreement must be lodged with the Australian
Taxation Office with the partners first tax return.
A written partnership agreement not only covers how much equity each partner
has contributed but also matters such as:
how profits (or losses) will be distributed
name of the partnership
the roles of individual partners in the business
how the finances will be conducted within the business
any restrictions that partners must abide by when doing business on behalf
of the partnership.
Having a written partnership agreement makes sense, and it is important that
partners have a solicitor draw up an agreement to ensure that every eventuality is
thoroughly covered, especially as many partnerships arise from friendships.
Partnerships, like sole traderships, are relatively easy to establish and inexpensive
to start.
Partnerships have their advantages and their disadvantages (see figure 1.2.04).
One of the greatest disadvantages is that the owners have unlimited liability.
Figure 1.2.04 Advantages and disadvantages of partnerships
Advantages
Disadvantages
The responsibility for running the business is

shared.
The partners have unlimited liability.
The ability to raise finance for the business is

enhanced, as the business is able to take on
more partners.
If one partner incurs any debts or dies, the other

partners are left with the liabilities.
Establishment costs are low compared with

setting up a company.
No one person has complete control. Decision

making is shared by partners, which can result
in disagreements and delays in making a
decision.
Each partner is able to specialise in one area of

the business, for example accounts or marketing.
The availability of capital is restricted.
Taxation obligations may be minimised,

especially if members are husband and wife.
Limited and incorporated limited partnerships

The Partnership (Limited Partnership) Amendment Act 1991 was introduced as
an alternative way to enable people to invest in partnerships and for partnerships
to raise equity for the business. Limited partnerships allow a partner to invest capital
into the business without the risk of losing all their personal assets, since they have
limited liability. Limited partnerships are becoming increasingly popular in the areas
of real estate developments, mining projects, arts, theatrical and film undertakings, and
agricultural schemes. Limited partners do not take any part in the management or
decision-making activities of the business.
Different types of partnerships

Limited partnerships must have one or more general partners who manage the
business and have unlimited liability, and one or more limited partners. More recently
NSW established a special type of partnership, the Incorporated Limited Partnership
(ILP). This partnership structure was developed to support venture capital investment
partnerships, to improve the flow of venture capital to businesses.
Companies are a more complex structure that can be used to run a business. For an
organisation to become a company it must be incorporated, which means that there
are certain legal requirements that the organisation must follow. Once a business
becomes incorporated it becomes a separate legal entity from its owners. This enables
the business to buy property and equipment in its own name rather than its owners
name. It also means that the company can sue or be suedit has its own legal identity.
Another distinguishing feature of companies is that they do not cease to exist if any of
the shareholders die or chose to sell their shares. This is known as perpetual succession.
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Companies
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21
Limited liability is a great advantage of the company structure
Once a business is incorporated it means that the shareholdersthe owners of the

companyhave limited liability. This means the shareholders liability is limited to the
value of the shares they own in the company. Limited liability is a legal concept that
protects shareholders if the company has debts exceeding the value of the shares of the
shareholders. The advantage of limited liability is that shareholders will not lose any
other personal assets if the company failsunlike sole traders and partnerships.
ASIC
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The Australian Securities and Investments Commission (ASIC) has the

responsibility of regulating companies in Australia. Companies are regulated
by the Corporations Act of 2001 passed by the Federal Parliament.
Different types of companies

Companies can take the following forms:
proprietary companies
public companies
companies limited by guarantee
no-liability companies.
Companies can be distinguished in many different ways. One way is to look
at who owns them. For example, public companies and proprietary companies are
owned by shareholders. Public company shares are offered to members of the public,
whereas proprietary company shares are offered privately to selected people. Another
way of distinguishing the wide range of company structures that can be registered
in Australia is by the form and extent of the liability of their members. With public
companies, liability is limited by shares, while the extent of liability of other company
forms is indicated by their type name, for example, no-liability companies.
Private and proprietary companies

The most common form of company structure in Australia is the Proprietary Limited
Company. Most companies in Australia are proprietary companies. Figure 1.2.05
illustrates how to incorporate a proprietary company under the Corporations Law.
Select a name
Write replaceable rules and possibly a constitution
Obtain consents from

member(s)
director(s)
secretary(ies)
Complete and lodge the application form
Australian Company Number is issued
22
Figure 1.2.05 How to form a company
Characteristics of a proprietary company
A Proprietary Limited Company is known as a private or proprietary company

and has the abbreviation Pty or Pty Ltd after its name. These companies have
between 1 and 50 owners who contribute capital to the business by buying
shares. Once incorporated, the company becomes its own legal entity separate
from its owners. The business will carry out day-to-day functions in order to
make a profit, which may be distributed to shareholders as a dividend. Figure
1.2.06 outlines the main advantages and disadvantages of private companies.
Figure 1.2.06 Advantages and disadvantages of private companies
Advantages
Disadvantages
Shareholders liability is limited to the amount of

shares they own.
Establishment costs are high in comparison with

sole traders and partnerships.
Shares can be sold without disrupting the

operations of the company.
Finance is restricted since the upper limit of

shareholders is 50.
It is easier to increase ownership of the company.
Shares cannot be offered to the public.
Perpetual succession means that the business

does not have to be wound up in the event of
the death or replacement of the directors or
shareholders.
The company must lodge a return with ASIC for

each financial year.
Lenders will often seek personal guarantees

from directors before making a loan to the
company.
Public companies
The initial steps in setting up a public company are the same as in setting up a private
company. The main difference is that public companies have to issue a document
outlining the companys management structure, history, financial record, past and
projected performance, and any other relevant material. This information is released
to the public in a document known as a prospectus. The prospectus is registered
with ASIC and it is through the prospectus that many potential investors will decide
whether to buy shares in the company. Unlike private companies, public companies
are listed on the stock exchange where the general public can buy and sell shares
freely. This is probably one of the biggest advantages of public companies, as it enables
the business to raise capital by issuing more shares. Other advantages include the
ability of members to realise their investments in the company (by selling their shares
through the stock exchange) without disrupting the running of the company. The
company is run by a board of directors so there is no need for shareholders to become
involved in the operation, although shareholders do have voting rights in the election
of the board of directors. Shareholders also have voting rights at the first meeting of
a new financial year, known as the annual general meeting.
23
Business F cus
Motive Power Pty Ltd
Prime function
The prime function of Motive Power is to assist customers to overcome technical obstacles in the
production of special vehicles.
Personal goals
After 15 years running a major engineering department for a large public company I decided that there
must be a better way of earning a living. Basically, what I needed was something with no stress, lots
of interesting things to do, the potential for extensive travel, and, of course, a little profit. I had had
some 20 years experience in the field since gaining a B. Eng. (Mech.) at the University of Sydney. That
experience included the design of large mining dump trucks and specialised underground vehicles.
The vehicle design work was chosen because of my personal preference, and perhaps even a flair,
for the subject. In addition, it was something that I had worked at for 20 years for other people, and
I had a very unusual mix of skills as a result.
What sort of vehicles are they? Well, they are the sort you dont see on the roads. Usually they
are hidden in restricted areas, such as wharves, airports or military reserves. We design for mining,
military, marine and aviation industriesall places where extreme and unusual conditions have to
be met and overcome.
The business allows the use of personal skills without the stressful and repetitive work required
from someone working as an employee of the manufacturer. Basically, we handle the interesting parts
of the jobs, and hand over the rest to the manufacturer.
Legal structure
The business has only one employee, the sole director, who keeps tight control of the activities and
finances of the business.
The business is structured as a Proprietary Limited Company, primarily to protect my personal
assets from any assault on the business as the result of any problems in the field, customer
disagreement, etc. Operation as a sole trader or some other structure would not have offered the same
level of protection. The company also carries a $1 million insurance policy to cover customers who
might be given incorrect advice.
Motive Power Pty Ltd was established to provide two things:
a means of entering into other interesting business ventures (it is a trustee for a partnership
dealing in high-technology applied electronics)
a means of permitting the director to work in the area of his first interestspecial, highperformance vehicles.
24
Business life cycle

Motive Power Pty Ltd has been in operation for 12 years now, and has operated throughout Australia,
in South-East Asia and the Middle East. In terms of the businesss life cycle, it is now established, with
many repeat customers. I am currently working to expand activities further overseas, and hope that
there will be a growth in turnover as the result of new business interestsparticularly in the military
support area internationally. As consultants, we can only sell our expertise, measured by our time.
There is little scope to value-add and to earn more than we can charge for our labour. Therefore we
actively seek other areas to be involved insuch as combining the efforts of two distinct customers
to achieve a bigger resulta result that we may have a share in.
Because it is not a capital intensive operation (needing only office equipment and computers)
we did not have to go through the usual growth phases experienced by most businesses. We had
already targeted specific industries and customers, and now benefit from that. We do not wish to
grow considerably because that would mean employing additional staff, and the structure of the
business would change. We do run the risk of being very slack between contracts, and very busy
when under contract. As a result, we need to carefully manage our cash flow. However, this aside,
the business provides a suitable lifestyle.
Government regulations
Because we operate as consultants, we are affected very little by government regulations. We do
not have a factory that employs lots of people or have to worry about large health issues. Of course,
we do have to pay tax and provide superannuation, etc., but in the scheme of things, these are fairly
small issues.
We are members of some industry associations such as the Institution of Engineers Australia
and various trading bodies (such as Chambers of Commerce) in order to keep up to date with current
practices, and to develop contacts that might later be useful in business.
Responsibilities to society
We have only a few responsibilities to societyto provide the best possible equipment designs for
the people who have to use them, and to promote the capabilities of Australia when we are operating
overseas. Australians are not very good self-promoters and in general our customers are unaware of
our huge capabilities. By promoting Australian products and services to them, we can enhance our
position with them.
The business is important to its owner, as an interest and as a measure of success. Overall it is
also important to the region it is based in, and to the country as a whole. Our turnover assists our
local area, and if it is international income, it helps the country. By promoting this fact, we give
ourselves additional opportunities for business.
The role of management
Source: Lance Proctor, Director, Motive Power Pty Ltd.
There is no more important aspect of a business than active, involved and knowledgeable
management. We are a vehicle design consultancy, but what we really do is design managed
business solutions. If we have a customer needing a Tank Transporter, that isnt really what he
wants. He wants a solution to his problem, and brings in all sorts of other issues. He will want it
to be cheap (to reduce costs), reliable, integrated with the rest of his operations (for simplicity),
long-lived (so costs do not become excessive in the long term), and so forth. Sometimes it is
important to build the machine locally to enhance the local image, and sometimes it must be
imported, for the same reason.
The point is, although we operate in a technical marketplace, technical issues are not the whole
matter, and insightful management is necessary to identify the real solution to the customers
requirements and ensure that these requirements are met.
Customers have both wants and needs. When customers describe their requirements, they are
often describing their wants, and it is common for these not to match their needs. In other words,
if they get what they ask for, it wont work. Management has to struggle around these issues to
determine the best way to satisfy the customer. That is what Motive Power has been doing since its
inceptionsatisfying customers. We intend to continue to do so, while enjoying an interesting lifestyle
and meeting all our obligations.
25

1
2
3
4
5
Describe why Lance Proctor chose this form of legal structure for his business. Why is there only
one director in Motive Power Pty Ltd?
Explain the reasons Lance Proctor started his own business.
Assess the challenges Motive Power faces in its current stage in the business life cycle.
Explain why is it vital that Lance has good management skills.
The Motive Power Business Focus is written as a narrative. A narrative consists of a description
of a series of incidents. After rereading the Business Focus, rewrite the personal goals section
in a report format. Use the following headings:
choosing the business
experience of the entrepreneur
We
interests of the owner.
b Desti nation
The two forms of company ownership are compared in figure 1.2.07.

Figure 1.2.07 Comparison of private and public companies
Private companies
Public companies
There is a limited opportunity to purchase or sell

shares.
The general public are able to purchase and sell

shares easily on the stock exchange.
The minimum number of shareholders is one

and the maximum is fifty.
The minimum number of shareholders is one

and there is no maximum limit.
There is a small management structure.
The company may borrow additional funds from

the public.
The company is required to make its financial
reports available to the public.
There is a large management structure.
26
Companies limited by guarantee

Companies limited by guarantee are usually referred to as non-trading bodies;
examples are professional associations, charitable organisations and sporting clubs.
Basically these companies run in order to provide a service to a specific group of
people and are not set up to make a profit for their members. The main advantage
of this form of structure is that it allows the organisation to enjoy the benefits of being
a company, such as being able to buy property in the companys name, being able
to sue, making contracts in the corporations name and offering limited liability for
shareholders. Companies limited by guarantee raise their capital through subscription
fees, an annual levy or a joining fee. This ensures that the organisation has adequate
funds to enable it to operate. New forms of association have been developed for these
types of non-profit entities.
No-liability companies
A no-liability company (NL company) is a form of public company that was
introduced in order to attract shareholders to invest in high-risk ventures such as the
mining industry or oil exploration. A no-liability company will have the letters NL
placed after its name to indicate its status.
Shareholders of a no-liability company are under

no obligation to pay any unpaid portion of their
shares when the company calls on them to do so.
Therefore, if shareholders decide that the mining
company in which they invested is not going to
prosper, for example if the search for minerals has
been unsuccessful, they do not have to pay the rest
of the money owing. However, this also means
that the shareholders forfeit their initial payment(s)
towards their shares and their shares are resold.
Cooperatives
A cooperative is a legal structure that is owned and run by
Figure 1.2.08 Sporting and social clubs are
its members. The cooperatives main aim is to do business
companies likely to be limited by guarantees
through a jointly owned and democratically controlled enterprise.
The reasons for setting up a cooperative can range from economic gain to social
responsibility. The advantage of a cooperative is that it enables a group of people to
pool their resources and work towards a common purpose that would have been too
large a task for an individual to achieve.
In New South Wales there are many (approximately 800) cooperative-type
organisations administered by the Registry of Cooperatives under the Cooperative
Amendment Act 1997 (NSW). In general, cooperatives in New South Wales are
involved in a wide range of economic and social activities and contribute significantly
to the economy of the state. A number of agricultural industries in Australia, such as
dairying, rice growing and processing, and fishing are dominated by cooperatives.
Trusts
A trust is not a separate legal entity. It occurs where one or more trustees own or
manage assets for the benefit of other people called beneficiaries.
As a business structure, a trading trust usually involves the appointment of a limited
company, with a professional manager, to act as a trustee to manage the assets of a
business for the beneficiaries, so the trustee cannot be held personally liable for the debts
of the trust.Where the beneficiaries interest in the trust is divided into discrete portions,
the trust is called a unit trust. Unit holders in these trusts are similar to shareholders
in a company except that they have direct ownership of the assets held by the trust.
However, if they are listed on the stock exchange (such as property trusts, equity trusts
and cash management trusts), they may be bought and sold in the same way as shares.
The Trustee Act sets out the powers and duties of a trustee, but if the trustee is operating
as a company, then it also has to act according to the Corporations Act.
Advantages of the trust structure

By pooling funds a trust is able to undertake investments that the unit holders would
not be able to make on their own, such as buying commercial properties or a spread
of company shares. For example, cash management trusts invest in the money market in
bank bills that usually have a face value of $50 000 to $100 000. Small investors are able
to gain access to a diversified portfolio (a mix of investments and securities) through
the trust mechanism, which establishes multi-million dollar funds for reinvestment
on behalf of all unit holders.There are also tax advantages for some unit trusts, as no
income tax is paid if the income earned each year is distributed to the investors.
27
Business F cus
Reverse GarbageTurning
garbage into gold
Reverse Garbage: A not-for-profit cooperative
Have you ever wondered where those striking Mardi Gras float decorations go when the party
is over? Many float materials find their way to Reverse Garbage Cooperative Limited in Marrickville
Australias first centre to creatively reuse garbage.
General Manager (GM) of Reverse Garbage, Narelle Mantle, said that the organisation was
founded in 1976 by a group of teachers who wanted to reduce the amount of waste materials going
to landfill and to find a more efficient, centralised way of gaining access to arts and crafts materials
for school activities.
The cooperative now has hundreds and hundreds of suppliers who provide a range of materials
including paper, cardboard, plastic, leather, sheeting, fabric and wooden crates. Childcare centres,
schools and colleges throughout New South Wales use materials from Reverse Garbage for creative
activities. Artists, both professional and amateur, also flock to Reverse Garbage to buy materials. The
price of goods is from $20 per sack for bulk materials; fabrics and window-blind material is sold by
the metre; and one-off items, such as mannequins and 3-metre boomerangs and other special items
that the cooperative has in stock, vary in price. The cooperative has grown from a small organisation
with a staff of voluntary workers to a thriving and profitable waste reduction enterprise with 15
full-time and part-time workers. The cooperative conducts workshops and waste education programs
for schools, local councils and community groups.
Adapted from Cooperation, issue 15, 1998; Reverse Garbage website, 2009

1
2
3
Describe who set up Reverse Garbage and why.

Explain the benefits received by members in this cooperative receive.
Explain why the cooperative structure was chosen.
We
b Desti nation
Government business enterprises
28
State and federal governments in Australia have in the past established businesses to
carry out activities considered to be in the public interest. The Australian Broadcasting
Corporation (ABC) is an example of such an organisation set up by an Act (or
Statute) of state or federal Parliament to carry out a function specified in detail by
the government in that Act. These businesses are commonly referred to as GBEs.
Many GBEs operate in Australia, ranging from local authorities running theatres
and sportsgrounds to national GBEs such as Australia Post.
Many government business enterprises have been privatised.
Supporting privatisation
Some people believe that GBEs can be run more efficiently and productively
under private ownership, and that by examining the value chain within each GBE
considerable savings could be made which, in turn, could be passed on to consumers.
Privatisation has the additional benefit that proceeds from the sale can be used to
reduce government debt.
Opposing privatisation
Opponents of privatisation are quick to point out that the money gained from the
sale would be a once only windfall. There is still considerable debate about the pros
and cons of privatisation. Many people believe that the government should maintain
its public assets, while at the same time ensuring that GBEs provide a quality service
for their customers.
Statutory bodies
Statutory bodies are set up by an Act of state or federal Parliament to carry out a
function specified in detail by the Act, and are run by a board of directors appointed
by the government. The board of directors has to try to meet goals set by the
government and is required to publish an annual report which is tabled in parliament.
Statutory bodies are established to carry out activities to serve the interests of
the public. Because of the cost of providing such services to all users, it was thought
that the supply of this service/product would be most efficiently carried out by
one publicly owned producer. However, the growing trend towards privatisation
by governments now questions this assumption and statutory bodies are increasingly
expected to operate with minimum financial support from governments and, in
some cases, in competition with private enterprises. As statutory bodies become
profitable, political pressure to privatise these enterprises increases. The privatisation
of elements of Victorian electricity production and Telstra are just two examples of
this phenomenon.
Ownership of statutory bodies may be shared with non-government enterprises.
Profits from statutory bodies are paid to the government or set aside for planned
future expansion.
Unit 1.2 Review

cooperative
limited by guarantee
partnership
privatisation
quinary
statutory body
unlimited liability
GBE
limited liability
perpetual succession
prospectus
secondary
tertiary
Business literacy
1 Define the terms unlimited liability and limited liability.
2 Select the disadvantage that would discourage you the most from being a sole
trader. Explain the reason for your choice.
3 Explain why unlimited liability is a disadvantage.
capital
incorporated
NL company
primary
quaternary
sole trader
trust
29
4 If you were going into business would you prefer to be in a partnership or a sole
tradership? Explain.
5 Explain why a partnership agreement is important.
6 Explain why an investor might rather invest as a limited partner than as a normal
partner.
7 Describe three ways in which companies differ from sole traders and partnerships.
8 Identify three ways in which a public company differs from a private company.
9 Explain the meaning of the following terms:
perpetual succession
realise
company limited by guarantee
prospectus
limited liability
10 Describe why sporting clubs would prefer a company limited by guarantee legal
structure.
11 Identify two features that distinguish no-liability companies.
Business teamwork
12 A business wishes to take you on as a partner. In pairs prepare a partnership
agreement. Use the following headings in your agreement:
Partners
Capital supplied
Management decisions
Profit distribution
Responsibilities
30
Unit 1.2 review
Dispute procedure.
13 Discuss two disadvantages of partnerships that would stop you from using this
form of business entity. Outline why you selected these two rather than any others.

14 Construct a table with three columns and the headings Domestic, Multinational
and Transnational. Place these businesses into the correct column: Cadbury,
Ford, Coca-Cola, Adidas, Nestl, The Body Shop, BHP, Rip Curl, Woolworths,
Sportsgirl. Of the above businesses, which do you think could be best described
as global businesses, having no national identity? Explain your choice.
15 Construct a table to identify the characteristics of the different forms of business.

For example:
Entity
Legal
requirements
Main
advantages
Disadvantages
Legal
structure
Sole trader
One owner
Low set-up
costs
Unlimited
liability
May need
to register
business
name
Features
Partnership
16 Classify the following businesses as either profit or non-profit: Red Cross, National
Australia Bank, Bond University, Telstra, RSPCA, BHP, Salvation Army.

17 Visit the NSW Department of Fair Trading small business website and examine the
partnership agreement on the website. Outline the features of the agreement.
18 Visit the Australian Securities and Investments Commission website and examine
the rules that companies must follow.
We
b Desti nation
Unit 1.2 review
31
Unit 1.3
Internal and external
influences on business
The internal and external
business environment
Ethical responsibilities
Many managers recognise that in operating a business they have responsibilities
that go beyond both the prime function of the business (to produce particular
goods or services) and their major financial goal (operating the business profitably).
Such responsibilities, which may affect people in either the internal or external
business environment, are called corporate social responsibility (CSR). CSR
can improve profits if the public perceives the business to be good for society
and environment and expresses its approval through increased sales and higher
share prices. Ethical responsibilities of business refer to following ethical codes of
behaviour that help business identify right from wrong and follow what is right
for its stakeholders, including the society and the environment (see figure 1.5.01).
Figure 1.5.01 Stakeholders of business
Internal business environment
External business environment
Shareholders (owners)
Customers
Management
Suppliers
Employees
Government
Environment
Society
Note: The external business environment is the source of the resources needed
by business and the destination for its product.
The recognition of a businesss responsibility to its various stakeholders is often
referred to in its mission statement or philosophy. For example, OneSteel (a major steel
manufacturer and supplier) acknowledges both its internal and external customers in
its mission statement. The statement refers to the returns for the shareholders, the role
of the employees and the expectations of the market (customers).
We
b Desti nation
Delivering superior and sustainable returns through leading market positions in

construction, recycling, resources and industrial markets, with the leadership
of our high calibre people, and operating and distribution capabilities.
Source: OneSteel website, 2009
32
Others are more specific. The philosophy statement from Harvey Norman
is addressed to the customer.
Harvey Norman endeavours to provide the most current product innovations
and advancements from the leading brands. We strive to provide our
customers with quality products and professional services, every day.
We
b Desti nation
Source: Harvey Norman website, 2009
Internal environment
Responsibility to owners (shareholders)
Because shareholders invest and risk their funds, there is a legal obligation to protect
those funds and provide the shareholders with a reasonable return on their investment.
Thus, a companys board of directors is legally responsible for safeguarding the interests
of its shareholders and must present an annual report at the companys annual general
meeting. Managers are obliged to make sure the business survives, so they must
be aware of relevant laws and regulations affecting its operation. While fulfilling its
responsibilities to its shareholders, the business should also act fairly to all those groups
with which it has dealings.
It should also recognise the concerns of the majority of it shareholders. This
means that the directors and managers will usually act with general community
attitudes in mind.
Responsibility to other managers
In order to help match the firms performance with its targets, managers are expected
to supervise and report on the work of their staff. This gives them a great deal of
power over lower-level managers, especially those seeking promotion, and other
employees. Ethical responsibilities will therefore include:
acknowledging subordinates inputs and effort
not blocking a promotional path
not manipulating subordinates
eliminating acts of discrimination.
Responsibility to employees
Managers are responsible for motivating their staff. They do this by recognising
their efforts and involving them in decision making, correcting inefficient practices,
providing training and career paths, and providing a challenging work experience.
Businesses have ethical and legal responsibilities to their employees
Legally, a business is required (among other things) to provide a safe workplace, award
wages, holiday pay, workers compensation and long service leave, and to avoid acts
of discrimination. The self-interest of business, which wants to attract and retain the
most productive employees, and the forces of supply and demand generally ensure
that employees receive reasonable wages/salaries, working conditions and security.
33
Business F cus
Small business policies for

the Great Financial Crisis
34
It is a great pleasure to be able to speak to you

today, and I thank the Council of Small Business
of Australia for the opportunity to address
this forum again. I have said before that small
businesses are the engine of the Australian
economy.
And these facts are the reason that the
government has been consistently focused on
Figure 1.3.02 Former Prime Minister Kevin Rudd
the challenges facing small business. And why
we have renewed that focus in the context of the
global recessionto make small business a key
element of the governments Nation Building for Recovery Strategy.
The global economy is experiencing the worst global economic collapse in three-quarters of a
century. As the global economy deteriorated rapidly, the government recognised that we needed to
act quickly. Since infrastructure investment has long lead times, the government decided to introduce
fast-acting measures to directly stimulate consumer demand. To achieve this we invested $21 billion
to provide immediate support to the economythrough cash payments to families, pensioners,
veterans, and low income earners.
While in the major advanced economies, retail sales have fallen on average by 1.1 per cent
since November, in Australia retail sales have grown 4.8 per cent during this time. This is very
important for small business, given that small retail businesses account for almost 94 per cent of all
retail businesses across the nation. As an additional immediate stimulus measure, the Government
introduced a $2 billion First Home Owners Boost to support the housing and construction industry.
This has been a significant boost to construction activity. Compared to the same time last year, before
the onset of the global recession, building approvals have fallen by only 16 per cent in Australia and
the recent trend has been upward.
In addition to the governments nation-building strategy for the Australian economy, we have
recognised, and responded to, the specific challenges facing small businesses. Since the financial crisis
began, the government have stepped in with a range of specific measures targeted directly to small
business.
First, we have taken decisive action to strengthen incentives for small businesses to make capital
investments, by introducing the 50 per cent Small Business Tax Break for capital investment. This
means that when a small business buys an eligible asset costing more than $1000 before the end
of this year, small businesses will have access to a 50 per cent tax deduction. This is up from the
30 per cent deduction introduced earlier this year and extends the period of eligibility by six months.
This is a major new incentive for small businesses, and will encourage small businesses to invest for
the future and for economic recovery.
Second, the government has also announced tax measures that will deliver $720 million in
cash flow relief for approximately one million small businesses, by reducing the Pay-As-You-Go tax
instalments in 200910.
Third, the government also recognises that in the tough conditions many businesses are
confronting, small business owners need access to help and advice. This is why we have moved
to establish the Small Business Support Line to assist small businesses during the global recession.
Fourth, the government wants to ensure that small business benefits from the national
broadband network. That is why the budget also announced the governments Small Business Online
program to help small businesses seize the business opportunities created by the internet. Operating
online is essential for the economy of the 21st century and helps small business to seize the global
opportunities.
Fifth, we are lifting incentives for small businesses to engage in research and development. The
incentive to undertake R&D will be doubled for most small businesses from 201011, through the new
Research and Development Tax Credit. This will provide a refundable credit of 45 per cent that is not
dependent upon a business making a profit in one particular year. This measure has been explicitly
designed with the goal of focusing innovation incentives on smaller businesses.
Sixth, we are investing $196 million in a new Commonwealth Commercialisation Institute to help
small and medium companies turn great ideas into commercial reality.
Seventh, I know that many small businesses are concerned about interest ratesand the rate
at which official cuts are passed through to small business. But while interest rates for small
businesses have fallen substantially, we understand that they have not come down as rapidly as other
interest rates.
The government has also made available a small business banking complaints clearing house
for businesses that believe they have been unreasonably denied credit.
Over the past two-and-a-half years since I have become leader of the Federal Labor Party and
then Prime Minister, I have made a number of commitments to small business.
First, at this very forum two years ago I committed to establishing a Small Business Advisory
Council to give small business a greater say in government policy making.
The second commitment I made to you in 2007 was to improve on-time payments of government
contracts.
The third I made before the last election was to support 36 Business Enterprise Centres around
Australia as one-stop advisory services. The government has kept that election commitment and
the $42 million program is being delivered.
Fourth, I committed to help small business better access the government procurement market.
Fifth, we committed to strengthen the Trade Practices Act to ensure that small businesses were
protected against abuses of market power by large businesses.
Sixth, we committed to cutting red tape for small business. As a part of our election platform
we promised to introduce an optional and cost-free superannuation clearing house for small business
so that they could meet their superannuation obligations under the choice of fund arrangements with
a minimum of fuss.
And its by working through each of the challenges of this global crisis together that we can make
it through and build a stronger Australia for the future.
Source: Prime Minister of Australia website, 2009

1
4
5
We
b Desti nation
2
3
Identify the key small business policies developed by the Australian Government to support small
businesses during the Great Financial Crisis.
Identify the commitments given by the government to small business.
Explain why the Australian Government has developed its small business policies to support small
business during the recession.
Read the latest blog of the Minister for Small Business.
Access the website of the Council of Small Business of Australia and surf their
website to identify issues that concern small businesses.
35
Business F cus
Being part of the Coke machine
Our People
At CCA people are our business. We foster an open and inclusive environment in which our people
can strive to always look for a better way.
We actively promote diversity and equality in our workplace. We know our people work hard
and, as we move forward, we are putting measures in place to encourage a healthy worklife
balance for our employees. We are committed to providing and maintaining a safe and healthy
workplace for all employees, suppliers, contractors and visitors. We constructively deal with our
people in good faith, while respecting our relationships with our people and/or any representatives
they may choose.
These commitments not only meet all legal requirements and national standards in the countries
in which we do business, but also cultivate a highly motivated, productive and committed workforce
that drives our business success.
Becoming an Employer of Choice

CCA is working to establish strong relationships with our employees through open and honest
communication. It is important to us that our employees are treated with fairness, dignity and respect.
We aim to provide a supportive environment that allows our people to explore their potential and
perform their jobs to the best of their ability.
Work-life balance
CCA recognises that our employees are constantly juggling commitments from their home, work and
personal lives. At different times in an employees career they may need greater work flexibility and
we aim to assist them in achieving a healthy worklife balance.
We provide a number of employee benefits including flexible working arrangements through our
Flexible Work Options Policy, such as job sharing and part-time work, volunteer services leave, and
paid parental and adoption leave.
In 2006, in recognition of the fact that our employees may wish to take more than their usual
annual leave entitlement, we introduced our Annual Leave Salary Sacrifice Plan, whereby employees
are able to purchase additional annual leave.
Learning and development
36
CCA employs quality people and develops them for current and future roles within a climate
of continual learning.
We provide appropriate and meaningful learning opportunities so that our employees can perform
at their maximum potential and develop personally and professionally.
We believe that a productive learning and development environment can be achieved through
the consistent application of these basic steps:
Incorporating learning and development into functional business plans
- Ensuring access and equity in the provision for and conduct of training and assessment
opportunities via our individual development plans for employees
Educating employees about learning and development opportunities
Providing performance management materials on our intranet.
Remuneration
CCA believes in paying competitively within each market in which we operate. We hold each other
accountable for performance and reward employees commensurate with their performance. Our
remuneration and benefits are reviewed regularly to ensure they are fair and in line with the current
market.
Whistleblower Protection
The values and behaviours outlined in our company Code of Conduct encourage employees to
report any form of suspected fraud, corruption or other unacceptable behaviour. Our Whistleblower
Protection Policy offers a channel of communication, support and protection for employees who
report such incidents.
Equal Employment Opportunity and Diversity

At CCA, we value diversity. We believe in equal opportunity employment and foster a work
environment which is inclusive and allows all employees to develop both personally and professionally.
We are committed to providing a safe and harmonious work environment free from harassment and
discrimination and in line with legislative requirements. Our Working Together Policy outlines this
commitment. In addition, there are a number of procedures and initiatives in place that ensure we
fulfil our commitment to being an equal opportunity employer. Initiatives, such as increasing the
number of women in our workplace ensure that we continue to improve in this area.
Occupational Health and Safety (OH&S)

The occupational health, safety and welfare of all employees are of primary concern to CCA
management. We are dedicated to the provision of a healthy and safe workplace.
We acknowledge that OH&S is the responsibility of management and every employee, and we
recognise the importance of leading and promoting the highest principles and practices to ensure
health and safety across our operations.
This is evident through our health and safety philosophy:
All accidents, incidents and occupational illnesses are preventable
All managers are accountable for the management of health and safety, injury management
and workers compensation
Executive management have direct involvement in the OH&S Management System and Workers
Compensation System
Occupational health and safety is a condition of employment and all employees are responsible
for complying with legislative and company OH&S requirements
Training is a critical component of the OH&S, compensation and injury programs
Safety audits and inspections are carried out at all organisation levels
All hazards and deficiencies shall be corrected promptly
Off-the-job health and safety is an important part of the health and safety effort.
Source: Coca-Cola Amatil website, 2009
1
2
3
4
5
Define CSR.
Identify how Coca-Cola is proposing to meet its ethical responsibilities to its workforce.
Identify how Coca-Cola motivates its employees.
Explain the reasons why a company such as Coca-Cola would place a high priority on CSR.
If you were a Coca-Cola employee, explain the actions the company could take to
motivate you to increase your productivity.
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b Desti nation
37
External environment
Responsibility to customers
Under the Sale of Goods Act and the Trade Practices Act businesses are obliged to provide
saleable goods that perform as specified, match their description, and are saleable
according to the description. If a buyer lets the seller know the specific purpose
for which the goods are being bought, those goods must be fit for the purpose.
Responsible businesses have a customer service policy and frequently ask for feedback
on their products or services.
The Trade Practices Act prohibits businesses from engaging in misleading conduct
and ensures that products are safe and that customers receive sufficient information
about them. Responsible businesses immediately withdraw products from the market
when they are found to be faulty or when they have been tampered with (or thought
to have been tampered with). They also ensure that the customers are informed of the
reasons for the actions, even knowing that this might adversely affect the businesss
reputation and future sales.
If a business provides credit to its customers, under the Credit Act it must fully
inform the customer of the details of the credit it is providing.
Responsibility to suppliers
Businesses are interdependent. A firm depends on its suppliers for raw materials
and components, and those suppliers depend on the continued success of the firm.
A business acting ethically would reveal to its supplier ahead of time if there were
problems in fulfilling a contract. Acting ethically in such circumstances, however, is
likely to create a conflict of responsibility between suppliers and owners, and possibly
also employees if the business is subsequently forced to shed some of its workforce.
Businesses often delay the payment of their creditors (suppliers) for as long as
possible for their own financial reasons. This can cause cash flow problems, especially
for small businesses. Is this acting ethically?
38
Responsibility to government
A business has an obligation to comply with laws and regulations set up by the
government in such areas as taxation, environmental welfare, consumer protection,
contracts and work safety. Most businesses need to be registered, companies must be
incorporated, and some businesses, such as tobacconists and auctioneers, need to be
licensed.
Governments are generally responsible for providing roads, water, broadband
access, drainage and fire protection (the infrastructure) that businesses need in order to
produce and distribute their goods and services. In return for these services, businesses
are expected to act responsibly by, for example, carefully disposing of waste products,
employing and training youth, and accurately labelling products.
Responsibility to the environment
The maintenance of a quality environment is a major responsibility of business.
The by-products of many business activities are unsightly, smelly or noisy, and can
be harmful to people, plants and animal life, or other business activities. For example,
chemical industries can produce toxic wastes and mining can cause visual and air
pollution. Most businesses produce some solid wastes.
In the past, businesses saw environmental issues as adding unnecessary costs to
the running of the business but pressure from the community and governments
has brought about widespread change in attitude. Some businesses did accept
responsibility for the environment a long time ago. For example, Amway, an
international direct-sales company, began in 1959 with just one product, a
biodegradable liquid cleaner. It also eliminated chlorofluorocarbons (CFCs) from
its aerosols in 1978, as soon as research showed the link between CFCs and damage
to the ozone layer.
As part of its plan to cut greenhouse gases, the Australian Government has
developed an Emissions Trading Scheme that will force businesses to account for the
carbon they burn and the greenhouse gases they generate. The scheme is designed
to force businesses to gradually develop ways of reducing greenhouse gases and
help reduce global warming and climate change. Whether it is freely undertaken by
management, occurs as a response to pressure by the community, or happens because
of stricter government controls and regulations, preventing environmental damage has
costs associated with it that do eventually get passed on to the public in the form of
higher prices.
Business F cus
Disclosure, ethics and James Hardie
In 1987 James Hardie, the building company, stopped making asbestos products because it was
found that asbestos is a very dangerous substance. It causes a disease called mesothelioma, which
is usually fatal. Because asbestos was widely used, many people harmed by asbestos develop the
disease and die, even today. Many sufferers and their families sue James Hardie because they want
compensation for their injuries.
To meet the demands of these legal actions, in 2001 James Hardie Industries established its
Medical Research and Compensation Foundation. The foundation was funded by James Hardie to
meet the legal costs of the court actions for compensation and the payout and judgments awarded by
the courts. The foundation was announced to the public and community and to the Australian Stock
Exchange. In its announcement James Hardie informed the community that the foundation was fully
funded to meet future compensation actions and judgments and that the foundation would provide
for future victims.
However, in a case brought by the company regulator ASIC, the New South Wales Supreme Court
found that the announcement contained many errors. It was proved in the case that the James Hardie
board of directors knew that the asbestos foundation was not fully funded and that the board of
directors knew full well that the foundation would run out of funds in a short time. They were aware
of the number of compensation cases likely to be forthcoming and also the amount of compensation
that would be required.
The court found that the board of directors breached their duties by approving a statement
that claimed the foundation set up to compensate victims of asbestos-related diseases had adequate
funding.
The case is about disclosure. Disclosure is an ethical concept that refers to the fact that
information should be provided or disclosed if it is likely to affect the decisions that people make.
In this case the board of directors of James Hardie made an announcement that was false. The market
in 2001, on hearing that the foundation was fully funded for future compensation cases, reacted by
39
share price increases for James Hardie. The true situation was not disclosed to share buyers, the
market, governments, asbestos disease sufferers and the general community. As a result they were not
in a position to make the best decisions based in the correct information.
It is an offence under the Companies Code and for directors to provide misleading information
to the market and stakeholders.

1
2
3
Explain the concept of disclosure.

Explain why disclosure is ethical.
The directors of James Hardie were punished with fines and further penalised
by being refused permission to serve as directors and board members of other
companies. Identify the reason that this punishment was developed for directors
who fail to disclose sensitive information.
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b Desti nation
Responsibility to society
All businesses recognise the need to maintain a positive image as members of society,
even if individual members of the community differ in how they believe that positive
approach should be implemented to reflect community attitudes. Some community
members believe that these social activities are nothing more than public relations
exercises, but some businesses know that what is good for their stakeholders is good
for the business.
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b Desti nation
Source: Boost Juice website, 2009

Figure 1.3.03 An example of a company which is
conscious of its social responsibility is Boost Juice.
40
Unit 1.3 Review

ecological sustainability
ethical responsibilities
environmental impact
social responsibilities
Business literacy
1 Name two legal Acts that a business needs to be aware of in order to fulfil its
obligations to its customers.
2 Identify the responsibilities businesses have to governments. What do they expect
in return for fulfilling these responsibilities?
3 Explain the main difference between ethical responsibilities and social
responsibilities of business?
4 Make a mind map of the terms and concepts above.
5 Define the term ethical and social responsibility.
6 Write a paragraph on how businesses can pursue the goal of ecological
sustainability.
7 Explain how some businesses achieve their community service goals.
8 In one sentence explain why the maintenance of a quality environment could
be seen as a major social responsibility of business.
Business teamwork
9 In pairs, discuss why businesses act responsibly towards the environment
in their operations.
10 In pairs, find two examples of advertisements that reinforce the responsibility
of business to society.

11 Visit the websites of three companies and identify their ethical and social
responsibility statements and make a list of them.
41
Unit 1.4
Business growth
and business decline
The business life cycle
All businesses have a life cycle. Just as people have a life cycle, businesses also
experience similar transitions from one phase and age to another. Figure 1.4.01
represents the different phases businesses experience throughout their lifetime. As all
businesses are different, they will not all go through the same experiences or have the
same outcomes. It could take one business years to reach the maturity stage, whereas
another business could take a relatively short time to reach the decline phase of the
life cycle.
Establishment
Growth
Maturity
Post-maturity
Renewal
Steady state
Decline
Cessation
Sales
Time
Figure 1.4.01 The business life cycle
Businesses go through cycles
42
There are four main phases in the life cycle of a business. Each phase has its own
characteristics, challenges and opportunities that distinguish it from other phases and
which need to be managed by businesses before they can advance into the next phase
of the life cycle.
Establishment
The establishment phase is the first phase of the business cycle and is where the
business entrepreneurial idea is created. This phase is full of expectation, creativity and
enthusiasm. Many challenges confront the entrepreneur at this stage, and how he or
she reacts and the decisions that are made will either build a solid foundation for the
business to grow or set it up for failure.
The owner/manager must make many decisions about their new venture, such as:
the most appropriate legal structure for the business (such as sole trader,
partnership, private company, etc.)
who is going to provide the finance (most of the finance at this stage is usually
from the owner, and is known as owners equity)
choosing the right location for the business (whether or not location is considered
a critical success factor for the business)
ensuring that government regulations are adhered to (involving registering
a business name, etc.)
finding motivated, enthusiastic and appropriately
trained staff.
These are only a few of the decisions that must be made
during the establishment phase. If the business can conquer
these challenges it will experience growth, move into the
second phase of the business cycle and be confronted with
a whole new set of decisions to be made.
The establishment phase can be very stressful for the
owner/manager since sales are usually low and the costs of
establishing a business are high. There are many areas the
owner of the business needs to address, including promotion
of the particular product or service, paying for the site
from which to operate the business and planning for the
production of the product.
Growth
The essential feature of this stage is the continual
improvement in the businesss working capital and
the protection of its initial investment. During the
establishment phase businesses usually have cash-flow
problems. (Chapter 3 discusses managing cash flow.)
The growth stage brings new management problems for businesses

The growth stage of the business life cycle is a time when the number and difficulty
of the tasks managers need to complete are increasing rapidly. At this stage the
owners may need to seek support to undertake many of the non-core activities
Businesses experience increased sales

in the growth stage of the cycle
As the business experiences growth and sales increase, major
changes may be needed. The day-to-day operation varies greatly
from the way the business operated during the establishment
Figure 1.4.02 Establishment is the
first phase of the business cycle.
phase. The informal leadership/management style usually
adopted during the establishment phase needs to become more
formalised during the growth phase. This process may involve:
developing a human resource management policy outlining the roles
and responsibilities of staff
developing a financial management plan outlining procedures for collecting debts
when they fall due, looking after the cash within the business and implementing
a credit policy
controlling inventories to ensure that over- or under-buying does not occur.
43
of the business. The contracting out of important areas not directly linked to the
prime function is known as outsourcing. For example, the business may hire an
accountant to oversee the financial side of the business, to ensure that the business
does not experience cash flow problems and to offer expert financial advice to the
business. The business could seek out the assistance of a business adviser to ensure
that all decisions being made are well-informed. Other avenues include governmentfunded advisory services that offer free information that is accurate, impartial and
relevant. The Australian Bureau of Statistics (ABS) can provide businesses with a range
of statistical information that will help them make better decisions about future and
potential growth areas. By outsourcing many of the non-core activities, management
and workers can concentrate on the prime function of the business and improve its
quality and efficiency.
Managers also need to consider whether legal structures are needed at this stage.
For example, does the business need to take on more partners to help raise more
capital and also inject new ideas into the enterprise? Or does it need to become
incorporated in order to protect the owners (and potential shareholders) through
limited liability? During the growth phase, the business needs to reassess its longterm goals and look to other avenues of growth through either mergers or takeovers.
A merger is the combining of two or more businesses to create a single business. A
takeover occurs when one business buys a controlling interest in another but both
businesses still operate separately.
A takeover can have a positive impact by removing a potential competitor from
the marketplace. Alternatively, a business might feel that it would be more efficient if
it merged with another business, thus utilising resources more efficiently and reducing
duplication of many administrative tasks. Businesses can benefit greatly through
mergers or takeovers by gaining access to new markets, taking advantage of economies
of scale, and having more cash available.
Diversification
Diversification is another avenue for business growth, where a business moves from
its initial prime function into unrelated markets. Diversification can give the same
advantages as a merger or takeover, with the added advantage of breaking into new
markets. Rip Curl is a good example of a business moving away from its prime
function and reaping the benefits of diversifying into other areas.
CSR: a diverse business
44
CSR, founded in 1855, began its life as a sugar manufacturer. CSR controls
approximately 40% of Australias raw sugar and 75% of Australias refined sugar.
This makes CSR the market leader in sugar production. CSR also produces
other sugar-related products including ethanol. Ethanol is a fuel additive that is
renewable and reduces the production of greenhouse gases. CSR is currently the
leading Australian producer of ethanol.
Diversification into other fields has been another part of CSRs success.
Today, CSR has diversified to include a range a building product brands including
Gyprock, Monier roof tiles and Viridian glass. CSR operates in Australia, New
Zealand and Asia.
Maturity
At this stage of the business life cycle, the business experiences a plateau effect. The
businesss growth and market share start to slow down. This could be a result of more
competition in the marketplace or management running out of ideas and enthusiasm.
The management or owners may not be as keen to take the risks that once challenged
them, or they might react more slowly to changes in the marketplace, the same
changes they used to exploit.
Most firms are mature firms.They have survived the expansion phase and developed
a market share. Usually mature firms defend their market position and share by:
adapting the latest technology to improve the existing production value chain
improving the efficiency of business operations
taking advantage of new market opportunities
building customer loyalty
managing cash flow and finance successfully.
A common feature of maturity is that management becomes more routine.
Sometimes managers or owners who most enjoy the establishment stage of business
leave or sell the mature business and move on to new establishment opportunities.
Most businesses are over five years old (see figure 1.4.03). This is true even of very
small enterprises (employing up to four people). The process of growth and higher
failure rates of smaller firms ensures that larger firms tend to be older. Only about
0.8 per cent of firms employing 200 or more people are new businesses, whereas
3.6 per cent of firms employing fewer than 20 people are new.
Employing 1 to 4 people
Employing 500 or more people

60
20
% of businesses
15
10
5
40
30
20
ec
.
Years
sp
>2
20
10
10
2
1
No
t
Years
>2
0
No
ts
pe
c.
2
0
10
10
10
<1
50
<1
% of businesses
25
Figure 1.4.03 The age of small and large businesses
The proportion of firms in the youngest age category provides a rough indicator
of entry rates. Firms employing fewer than 10 people appear to have roughly twice
the entry rate of firms employing 10200 people, and these in turn appear to have
entry rates roughly twice that of the 200+ grouping.
There are similarly large differences in the various industries. The food, beverages
and tobacco industries, metal products, the retail trade and personal and other services
have markedly higher proportions of very young firms, suggesting higher entry rates
45
compared with other industrial groupings. Finance and insurance, mining, nonmetallic mineral products, and printing, publishing and recorded media had much
lower than average apparent entry rates.
Post-maturity
What happens in this phase of the business life cycle depends on how managers
reacted to the challenges they faced in the maturity phase. Businesses that made
informed decisions in the maturity phase will experience a continuous steady growth
or, depending on the risks taken, be able to renew (or kickstart) their business by
introducing a new product to meet consumer demands. At this stage businesses by might
also look at how they are doing things and find ways of doing things better, for example,
by hiring more motivated staff or by changing their suppliers.The outcome of this phase
of the business life cycle will depend heavily on the quality of management decisions.
During the post-maturity phase, the business could take one of four different
paths: steady state, renewal, decline or cessation. The steady state will see the business
continue on as usual and see a greater emphasis on service as it works to maintain its
customer base. The renewal phase will see the business expand by the introduction of
new products or the takeover of its competitors. The decline phase cycle occurs when
the business loses its competitive advantage and profits fall as a result. It is during this
phase that the owners may seek to close the business completely (cessation), before
it starts to make a loss.
Management role
Management plays a vital role in the success or failure of a business. It is the
responsibility of management to guide the business through the business life cycle
and ensure that it achieves its goals and objectives. Decisions made by management
at each phase will determine the outcomes and direction the business will take in the
next phase. Managers must wear many hats and be able to make decisions on many
different issues, including marketing, staffing, sales and finance. How well they wear
the hats determines the degree of success of the transition from establishment to
growth and maturity.
organiser
planner
leader
motivator
marketing
manager
human resource
manager
risk-taker
Figure 1.4.04 The role of management
46
The size of the business organisation determines the managers responsibility.

If the business is large enough, management can delegate responsibility to different
departments and use the experience of people within the departments. In smaller
businesses, the manager becomes the jack-of-all-trades, taking responsibility for all
decisions, planning, looking after staff, and at times even becoming the cleaner of the
premises. In smaller business enterprises, managers do not have the luxury of support
services within the business, but are able to access such services from the external
business environment. Unfortunately many managers of small enterprises are reluctant
to seek help until it is too late; the reason often given for this reluctance is that
external advice can be costly.
Business failure
Not all businesses achieve success. Many businesses become insolvent and cease to
trade. Businesses fail for many reasons. They can fail because of external or internal
factors or because the owner decides to voluntarily become insolvent. External factors
are factors beyond the control of the business. Internal factors are factors that the
business has some degree of control over.
Figure 1.4.05 External and internal factors for business failure
External factors
Internal factors
Government policies
Lack of management knowledge
Unexpected competition
Inadequate planning
Natural disasters
Lack of adequate cash flow and finance

Incorrect location
Figure 1.4.05 lists just a few of the reasons for business failure; you could probably
suggest other reasons. Even though external factors are considered to be beyond the
control of a business, careful planning can minimise their impact.
Key factors causing business failure

A business can voluntarily decide to cease to exist by settling its accounts receivable
and collecting accounts payable. Conversely, a business can cease to exist involuntarily,
usually by a court order after creditors have launched an action with the court.
Business failure affects not only the owners of the business but also the stakeholders in
the business. Stakeholders include staff, who lose jobs and wages; other businesses, that
rely on the failed business for competition, supplies or services; and investors in the
business. Figure 1.4.06 lists some of the key reasons for business cessation.
Age is a factor that can have an impact on the success or failure of a business.
In Australia:
500 000 business owners are over the age of 50
Small-medium enterprise (SME) owners worth $1.6 trillion have their houses
on the line
76% of SME owners indicated they would consider selling their business
if asked
55% of all exits are due to death, disability, receivership or cessation.
47
Figure 1.4.06 Voluntary and involuntary reasons for business cessation

Voluntary reasons
Involuntary reasons
Owners wish to retire.
Death of the owner.
Unable to trade profitably.
Bankruptcy (individuals only).
The business was intended to operate

only for a short period of time.
Insolvency.
Owners decide to reinvest capital elsewhere

or decide to go into another business venture.
The cessation process

The processes that businesses must follow in order to cease to exist, voluntarily
or involuntarily, depend on the legal structure of the business.
Sole trader
The steps a sole trader must follow are much simpler than those for a company.
A sole tradership ceases to exist when:
the owner dies, and hence the business dies with the owner
the sole trader voluntarily decides to cease operations in a solvent state by paying
all debts
a business is declared bankrupt by a court as it is unable to pay its debts.
A sole tradership is the easiest business to set up and dissolve, in comparison with
partnerships and companies.
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48
Partnerships
The dissolution of a partnership can also be voluntary or involuntary. Partners may
decide to end the partnership for a number of reasons; for example, they may have had
a disagreement, or they may have decided that the stress of business was too great. To
end the partnership they will follow the details of the partnership agreement. If the
partners do not have an agreement, they must follow the Partnership Act 1892 (NSW).
The Partnership Act also outlines the procedures to follow for areas that might not be
covered in the partnership agreement. A partnership can also be dissolved by an order
of the court if it is not paying its debts, if one of the partners dies, if one or more of
the partners have been involved in fraud, or if any of the partners becomes bankrupt.
Companies
The winding-up of a company is much more involved than winding-up a sole
tradership or partnership. If the members of a solvent company decide to wind up
the company voluntarily, the directors must make a written declaration (solvency
declaration) stating that the company is able to pay its debts. Once the solvency
declaration is written and the shareholders have approved the resolution for windingup the company, the company can then commence the process.
The advantage of voluntarily winding-up a company is that the company can
choose its liquidator and can supervise the winding-up process. It is the liquidators
role to convert all the companys assets into cash and pay the companys creditors
in order of priority. If the company does not have enough money to cover its debts,
the shareholders are liable to meet the shortfall. However, shareholders liability is
limited to the value of the shareholdings.
Involuntary liquidation usually occurs because creditors make complaints to the

court about the companys inability to pay its debts. The liquidation takes place once
the courts have appointed a liquidator to wind up the business.
Involuntary wind-up
The courts make an order
to wind up the company.
Liquidator is
appointed by
the court.
Voluntary wind-up
Directors write a solvency
declaration.
Shareholders pass a
resolution.
Liquidator is
appointed by
shareholders.
Liquidator converts all

of the companys assets
into cash. The liquidator
pays creditors in order of
priority.
After all creditors have

been paid, any excess
cash is divided between
the shareholders.
The company is dissolved

3 months after the forms
have been lodged with
the Australian Securities
and Investments
Commission (ASIC).
Figure 1.4.07 The process of winding up a business
Figure 1.4.08 The final business stage, the cessation process
49
Unit 1.4 Review

accountability
business adviser
decline
external factors
liquidation
merger
post-maturity
steady state
accounts payable
cash flow
diversification
growth
liquidator
outsourcing
renewal
takeover
accounts receivable
cessation
establishment
internal factors
maturity
owners equity
responsibility
working capital
Business literacy
1 Define the phases of the business life cycle.
2 Identify two challenges that you believe to be most important in the establishment
phase. Explain your choice to other students.
3 Define the terms owners equity and working capital.
4 Explain why working capital is an essential feature of the growth stage.
5 Identify the kinds of support available to managers. Can you suggest others not
mentioned in the text?
6 Explain what is meant by the term diversification. How can businesses benefit
from diversification?
7 Explain why the plateau effect happens in the maturity stage.
8 Discuss the link between quality of management decisions and the post-maturity
stage.
9 Explain how managers roles change depending on the size of the organisation.
10 Draw a diagram to show the five phases of the business life cycle.
11 As the owner/manager of a retail clothing store you have recognised that your
business is in the maturity stage. Describe strategies (products, expansion,
relocation) you could use to ensure that your business experiences new growth.
50
12 Figure 1.4.05 lists external and internal reasons for business failure. Give as many
examples as you can for each point. For example, government policies: increase
in interest rates, introduction of a new tax.
13 Construct a table that:
a lists business stakeholders
b outlines how business failure can affect each stakeholder.
14 Compare the processes of voluntary and involuntary liquidation of a business.
Business creativity and extension

15 New websites are being released every month as new businesses are established
on the internet. Between 2007 and 2008 many new internet business start-ups
were established. Figure 1.4.08 shows three new start-ups and their details.
By 2008 many of these new website start-ups were finding it difficult to raise
start-up capital.
Figure 1.4.08 Six new start-ups
Currently operating
Business
Revenue
Start-up
capital
Start-up
seeking
funding
Feedcorp
Scouring blogs
and selling
information
about local
social networks
to corporate
clients and
developing
new software
technology.
OctDec
2007
$100 000
JanMar
2008
$209 000
Doubling
each quarter.
Venture
capitalists
provided
an initial
$200 000.
Need to
raise
$800 000
in the
short
term to
establish
and
expand.
The podcast network
Podcasting
technology.
Hasnt grown
in 12 months,
plateau.
Owners
equity.
Needs
to seek
funding
to grow.
Remember the milk
Growing,
doubling
each quarter.
Owners
equity
self-funded.
Based on
review
growth.
Firms whose websites

have closed
Outback
findit.com.au
studentface.com.au
No growth,
decline.
Source
of funds
Unable
to secure
funding.
a Identify the current phase of the life cycle of each business.

b Identify the possible sources of funds for each business.
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16 Visit the Arnotts website and find information on their history and growth.
Write out the timeline for Arnotts. Note when establishment, growth
and maturity occurred.
51
Unit 1.5
Influences on the business
environment and their
impact on business
Areas of influence
All the different types of businesses discussed in the last two units operate within an
external business environment. The external business environment can be described
as factors outside the business that the business cannot control. The internal business
environment consists of those operations of the business that the business does control.
The business environment consists of four areas that influence how a business
operates. The four areas and eleven influences are listed below.
Economic and social factors
Economic cycles: Economies experience booms and busts, growth and

recession at different times. During 2008 and 2009 the Australian economy
experienced a recession termed the Great Financial Crisis (the GFC).
Consumer tastes: Consumers tastes change as they get older, enter into
new living arrangements, earn more money and respond to new technology.
Consumers increasingly care more about the environment, and increasingly are
more likely to purchase products that are produced with greater environmental
sustainability.
Cultural and product diversity: Different people want different products.
Cultural diversity and product diversity go together.
Competitive situation
Governments
52
Number of competitors: Businesses 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: Businesses face competition from overseas
firms as well as local ones.
Marketing strategies: Each business identifies a way to promote its product
to consumers.
Substitutes: Every business is faced with the situation where other products
could be consumed instead of theirs.
Laws and regulations: These provide a set of legal and ethical rules that the
business must follow.
Regulatory bodies: These organisations create and enforce rules that all
businesses must follow.
Other institutions
Other bodies: There are many non-government organisations (NGOs), such

as Greenpeace, that influence what businesses produce.
1
Economic conditions
Economic cycle
Consumer taste
3
New products
2
Changes in
consumers
Cultural and product diversity
Number of competitors
5
Ease of starting
in this industry
4
Other firms in
industry
Ease of entry
Local and foreign competitors
7
Advertising prices
Market strategies
Substitutes
9
Rules for
this business
8
Other products
Laws and regulations
Other institutions
10
Regulations
Regulation bodies
11
Economic cycle
6
Competitors
Figure 1.5.01 Influences on businesses
53
Business F cus
Coca-Cola Amatil
Economic cycles
Economies experience booms and bustsgrowth and recessionat different times.
2008 Asia Pacific Operations review

Australia delivered a record result with EBIT growth of 9.5% to $488.4 million. Despite a small decline
in volume of 1.1% for the full year, improved demand for single-serve products drove positive volume
growth in the second half.
New Zealand and Fiji also delivered a record result, with EBIT growth of 7.2% on volume growth
of 1.0%.
Indonesia and PNG recorded the highest earnings growth of the group, achieving a record EBIT
result of $50.6 million, an increase of 37.5% on 2007.
2009 Trading Outlook

CCA has had a strong start to the year with good growth in volume and revenue. There has been some
change in channel growth with a softening in demand in restaurants and cafes. However, this has
been more balanced by an increase in demand in quick-service restaurants and the grocery channel
for take-home products. Whilst the majority of CCAs products are considered consumer staples,
the Company cannot be totally immune as at-home consumption does provide a buffer for reduced
consumer activity in the on-premise channels.
CCAs beverage cost of goods sold (COGS) will increase in 2009 due to higher sugar costs, the
devaluation of relevant currencies against the United States dollar and the mix impact of higher cost
products. These increases will be partially offset by an expected decline in PET (plastic bottle) resin costs.
CCA expects to be a net beneficiary from the recent legislative changes to the punitive taxation
of alcoholic ready-to-drink beverages, with sales of Jim Beam & Cola expected to regain most of the
volume that was lost in 2008.
Consumer tastes
Consumer tastes change as consumers get older, change living arrangements, earn more money,
respond to technology, follow fashions and become more concerned about their health rules.
Coca-Cola adapts
54
The Coca-Cola Company strives to meet changing desires of consumers by introducing new products.
Fanta was introduced in Germany during World War II, and Sprite, the worlds best-selling lemonlime
soft drink, followed in 1961. Lemon-flavoured Lift was introduced in Australia in 1990. All of these
beverages are now available in regular and diet versions. Diet Coke, caffeine-free Coke and caffeinefree Diet Coke were introduced as line extensions to cater to the changing demands of consumers in
many parts of the world. In 2008, Coca-Cola Amatil has developed a new goal further expansion in
Australia and New Zealand of CCAs premium alcoholic beverages business.
In 2008, CCA introduced a number of innovative new non-alcoholic beverage brands to the market,
including Glaceau vitaminwater and the relaunched Mather energy drink in a 500 mL can. Glaceau,
launched in February, was the largest non-carbonated beverage launch in CCAs history and almost
25 million bottles were sold in 2008. Innovation in new product development remains a fundamental
part of CCAs business model and the success achieved in new products further extended CCAs market
leadership position in non-alcoholic beverages and strengthened its relationship with its customers.
Cultural and product diversity

Different people want different products.
CCAs record 2008 profit result came from the continued strong performance of the Australian
and New Zealand beverage businesses, an excellent result from Indonesia & PNG and an increasingly
important contribution from the premium alcoholic beverage business. Improved pricing and product
mix, successful new product launches, and cost savings from Project Zero (CCAs major infrastructure
investment program) all contributed to the strong performance.
Figure 1.5.02 Coca-Cola Amatil products
Ease of entry
Figure 1.5.03 Coca-Cola dispensing machines
55
Some industries are difficult to enter because the investment required is large or the product is owned
by a patent.
The Coca-Cola Company is the worlds largest beverage company, refreshing consumers with
nearly 500 sparkling and still brands. Along with Coca-Cola, recognised as the worlds most valuable
brand, the Companys portfolio includes 12 other billion dollar brands including Diet Coke, Fanta,
Sprite, Coca-Cola Zero, vitaminwater, POWERADE, Minute Maid and Georgia Coffee. Through the
worlds largest beverage distribution system, consumers in more than 200 countries enjoy the
Company beverages at a rate of nearly 1.6 billion servings a day. With enduring commitment to
building sustainable communities, the Company is focused on initiatives that protect the environment,
conserve resources and enhance the economic development of the communities where they operate.
Number of competitors
Businesses compete for market sharethe percentage of the total industry production that their
business is able to supply.
450
Per Capita Consumption of Company Beverage Products
400
350
300
1988
250
1998
2008
200
150
100
50
0
Worldwide
Australia
China
Indonesia
United States
Figure 1.5.04 Trends in per capita consumption of Coca-Cola Amatil beverage products (in fluid ounces)
56
Marketing strategies
The unique Coca-Cola business has successfully applied a single formula on a global scaleto provide
a moment of refreshment hundreds of millions of times a day. Independent worldwide surveys have
confirmed that Coca-Cola is the best-known, most admired trademark in the world. Coca-Cola Amatil,
the parent company, sells nearly half of all soft drinks consumed around the globe. No other company
sells even half as much.
The Coca-Cola system is committed to building on its market strength in order to achieve
profitable growth in this decade and beyond. Marketing efforts continue to be driven by the same
strategythat of quality and availabilityensuring that a Coke is purchased more readily than
any other product in the world, whether in a local corner store, a supermarket or an international
franchised restaurant chain. During 2008 Coca-Cola Amatil launched 200 mL mini cans with an
energy equivalent of 360 kilojoules and further expanded its range of sugar-free, low-kilojoule
beverage options.
South Korea
population
per capita
consumption
employees
plants
Philippines
population
per capita
consumption
employees
plants
71 million
143 x 225ml serves
per annum
16 600
21
46 million
70 x 225ml serves
per annum
4000
3
Indonesia
population
growth rate
per capita
consumption
employees
plants
194 million
1.5% per annum
11 x 225ml
serves per annum
8500
10
Australia
population
growth rate
per capita
consumption
employees
plants
Papua New Guinea

population
4.5 million
growth rate
2.2% per annum
per capita
52 x 225ml serves
consumption
per annum
employees
620
plants
2
Fiji
population
growth rate
per capita
consumption
employees
plants
0.8 million
1.6% per annum
70 x 225ml serves
per annum
200
1
New Zealand
population
growth rate
per capita
consumption
employees
plants
3.7 million
15% per annum
297 x 225ml serves
per annum
800
3
18.5 million
1.% per annum
325 x 225ml serves
per annum
3500
6
Figure 1.5.05 Asia Pacific Company details
Substitutes are products that can be used instead of those that the business makes. Coca-Cola has
many substitutes made by other firms competing in the soft drink market. These other businesses
may develop new products (Pepsi Max). They may develop marketing campaigns to compete with
Coca-Cola and try to take its business away. Coca-Cola must try to sustain a competitive edge
over its substitutes.
Substitutes
57
Other bodies
During 2008 Lion Nathan, a leading brewing and beverage company, made a takeover offer for
Coca-Cola Amatil.
On 7 November 2008, CCA received an incomplete and non-binding proposal from Lion Nathan
to merge with CCA. The proposal was supported by Lions major shareholder, the Japanese beverage
company Kirin holdings. CCA informed Kirin that the proposal was not attractive and decided not to
progress any further review of the proposal. As a consequence on 9 February Lion Nathan advised the
Australian Stock Exchange (ASX) and the market that it had withdrawn the proposal to merge with CCA.
Regulatory bodies
Regulatory bodies create and enforce rules that all businesses must follow. There are many regulatory
bodies that CCA must work with to develop, produce, distribute and report on its products.
In regard to its employees, The Australian Liquor, Hospitality and Miscellaneous Workers Union
(the LHMU) represents some of the production and warehouse employees working at Coca-Cola Amatil
plants and warehouses. The human resources and employee relations of the firm reflect industrial
relations laws, acts and bodies such as the new Fair Work Australia and industrial relations legislation.
In all countries, Coca-Cola Amatil (CCA) is subject to legislation covering the food industry.
In Australia the regulatory body enforcing this legislation is Food Standards Australia and New
Zealand. Foods Standards Australia sets strict standards as to what ingredients and processes may
be used in the manufacture of soft drinks, as well as on issues such as labelling and packaging. Like
all manufacturers of soft drinks, CCA is subject to state occupational health and environmental
legislation, and a range of local government regulations on building and land use. As a public
company, CCA must comply with the requirements of national companies legislation, as well as the
listing rules of the Australian Stock Exchange. The company is subject to national and state taxation
legislation. The Coca-Cola systems marketing and advertising activities are subject to provisions of
state Fair Trading legislation and the Commonwealths Trade Practices legislation.
Source: Coca-Cola Amatil Annual Report; Coca-Cola Amatils This Is How We Do It booklet
Business Focus activity
Refer to the sections Coca-Cola adapts and Cultural and product diversity. Discuss
how Coca-Cola has expanded in Australia. In your response describe the new products
that Coca-Cola has released in Australia and how their marketing strategies and
product diversity try to meet the needs and wants of Australian consumers.
58
We
b Desti nation
Unit 1.5 Review

Read the Business Focus on Coca-Cola Amatil carefully before you complete
this review.

business law
bust
consumer taste
ease of entry
growth
investment
market share
substitutes
boom
competitors
cultural diversity
economic cycle
global markets
local competitors
product diversity
technology
Australian Security and Investments Commission

Australian Stock Exchange
Department of Fair Trading
Environment Protection Authority
foreign competitors
local government
recession
trade union
Business literacy
1 Explain the difference between the internal and external business environments.

2 Match the changing influences in the business environment to the following
statements about Coca-Cola.
a Consumption of Coca-Colas carbonated drinks is increasing.
b CCA rejected a takeover and merger offer from Lion Nathan.
c In 1945 Coke was registered as a trademark.
d Consumption of Coca-Cola Amatil products are growing strongly in emerging
markets like China and Indonesia.
e People are more conscious about eating and drinking foods that reduce weight.
f Every year Coca-Cola develops a number of new marketing strategies.
g Powerade was developed and will be developed further to appeal to consumers
conscious of fitness and health.
h Pepsi Max was introduced to the market to compete with Diet Coke.
i Schools are increasingly banning Coca-Cola from tuckshops as a result
of healthier eating campaigns.
3 After looking at the example of Coca-Colas business environment, make a list
of all the laws and rules that Coca-Cola has to follow.
5 Explain why economic cycles, consumer tastes and cultural and product diversity
are under the heading economic and social factors.
4 Identify two components of Coca-Colas marketing strategy.
59
MAJOR Business F cus

AussieBum
One little Aussie battler that has made a big name for itself in a short period of time is AussieBum.
AussieBum is a small Sydney-based manufacturer that makesas its name suggestsuniquely
colourful swimwear as well as underwear for men. When the companys founder Sean Ashby tried to
get his label known in Australia he didnt get very far. It was very hard to break into the local market
with all the established swimwear brands, so we decided to go on-line. And weve never looked back!
Ashby used the Internet with a uniquely designed website to get AussieBum known. As a result,
he became an instant born global exporter. We only meant to sell in Australia initially, but once
we got our web presence going, the world became our oyster, with orders flooding in from Europe,
America and Asia. Now its just a matter of keeping up with demand! he said. Ashby is now looking
to China ahead of the Olympics in Beijing this year, but to date has found Europe a very lucrative
market. Weve done very well in the UK and Spain in particular, and are helped by Europeans strong
recognition Australian strong surf culture, he added.
Source: Adapted from Tim Harcourt, Down Undies, Austrade website, 2009
Smarty pants
60
Shunned by local retailers, AussieBum founder Sean Ashby took his wares overseas, which is why his
loud, cheeky swimmers and smalls now cover mens bottoms all over the world.
Driving down a suburban street in Sydneys inner west, its difficult to imagine that one of
Australias most successful export businesses lurks in the vicinity. Lived-in terraces line both sides and
dog walkers amble past a Mediterranean mamma on her veranda. Theres no hint of a global company
until you see the high-calibre cars (an Alfa Romeo, a top-of-the-line Range Rover and a Mercedes)
luxuriating in the sun.
Nearby, hidden behind a sophisticated yet discreet slate building, is the home of anything but
discretion. This is the headquarters of AussieBum, the loud, cheeky and cleverly designed mens
swimwear and underwear label that has catchy styles such as Lightning, Boosterjock and Flaunt.
Forget Calvin Kleins plain whites or Speedos black and navy, these smalls come in prints and even
glow-in-the-dark styles that brand brave male bottoms throughout the world as cool and hip.
The company started literally around the corner in my lounge room, says Sean Ashby, the superfit 42-year-old founder and creative force behind AussieBum. Then it moved into the bedroom, then
the kitchen, until finally we moved in next door about four years ago. We filled up that area and then
we moved in here 16 months ago.
Here is a cleverly designed warehouse that blends pleasure with serious business. Downstairs is the
photographic studio, where Ashby personally shoots all his products, and theres a room-sized printer
that rolls out his designs in life-size scale. His star products thousands of them lie in baskets ready
to be handled by multilingual pickers and packers (backpackers who double as translators). We can
shed 2000 orders, each with an average of three or four different items, within six hours, he says.
Upstairs is an airy, open-plan space, which looks more home than office. It comprises a fully
equipped kitchen, a lounge area with Foxtel, an in-office gym, a chill out room and a barbecue on the
balcony designed, no doubt, for the 18-hour days that often come with running an international
business. In one corner is Ashbys cocoon-like office.
Its my dogged determination not to get any bigger so we dont have to move, says the jeansand-T-shirt-clad Ashby, who, although a little delicate after a too-rich meal the previous night, still
manages to rustle up the enthusiasm of a man half his age. It really started as a business as leisure.
It didnt start with the idea of were going to make a million here.
But millionsand a cult worldwide brandhe has made. This year the internet-based company
is on target to turn over more than $20 million. Iconic label Bonds has courted the company and
AussieBum now has major real estate in some of the worlds leading fashion stores: Selfridges and
Harvey Nichols in London, Printemps and Galeries Lafayette in Paris, and KaDeWe in Berlin among
them. It trades in 12 languages and, thanks to aggressive marketing that sees difficult-to-miss
blokes wearing togs no larger than your average envelope on buses, taxis and billboards worldwide,
Australian cossies are no longer synonymous with Speedos. I dare say its probably one of the most
successful Australian brands of all time, says Sydney-based designer Alex Perry. And all because of
a great idea, spurred on by rejection.
Almost nine years ago, Ashby went to buy his annual pair of quick-drying Speedos at Sydney
department store Gowings. Like many guys, Id grown up with the nylon Speedos, he says. It was an
Australian tradition. But when the salesperson told Ashby Speedo no longer made his favourite nylon
design, he was forced to buy the rather uncomfortable (and clingy) new one that didnt feel the same.
I was sitting on the beach in Lycra going this is not a pretty look, he recalls. I was with a mate and
said: How hard could it be to make swimwear?
Ashby had just left a marketing job at Warner Music and, although he was working as a personal
trainer to affluent, successful people, his preferred position was sitting on the hot sand of north
Bondi Beach. The idea was that Id get the swimwear made, sell it to mates and at the markets, then
in the afternoon I could go to the beach, says Ashby, whose company is named more for his beach
bum status than the rears his cossies cover. The problem was that my mates kept telling other mates,
he laughs.
Dipping into $20 000 hed saved for a home loan, he had samples and a brochure made and
started doorknocking. I drove down to Torquay on the Great Ocean Road in Victoria, says Melbourneborn Ashby, cringing. That was the biggest mistake in my lifeits boardshorts territory. Ive never
been so ridiculed. If I hadnt paid for the hire car, I would have driven back.
Worse was to come when he tried the retail heavyweights. Myer refused to see him and David Jones
said he was wasting his time. Undeterred, Ashby grabbed his model-fit beach buddies, photographed
them in his quick-drying sluggos doing a Baywatch sort of thing and sent the shots with a pair of
AussieBums to newspapers and magazines overseas. Ashby taught himself to set up a website and a
global company was born. After I got rejected in Australia, the only option I had was international,
says Ashby, whose togs have even graced the bottoms of Kylie Minogues on-screen dancers.
A decade on, the rejection still stings. Nerida Howard, who has known Ashby for most of her life,
says failure is a great motivator for her friend. If anyone says Sean cant, hell prove he can twofold.
He wont be beaten.
Today Ashby has no desire for his product to sit in our leading menswear departments. Going to
them now and saying, You can stock my product, Im going to make money and youre going to make
moneydo I want that? No. If it was all about the money, why not? But youve got to stand up for
what you believe in and they did the wrong thing.
AussieBums Australian sales, which are solely internet, account for 15 per cent of business, so it
appears Ashby and co-owner Guyon Holland have been doing the right thing. Their freedom to take
risks has paid off. Ashby launched the internet business at the height of the dot-com bust. He refused
to pay for space in overseas department storesWe were like, Why would we pay for you to sell our
product? He designs each new line, creates all the brand imagery and advertising, and photographs
the new products (plus the oh-so-sexy images for the website). Ashby even buys the media space
very last-minute so we buy distress, he says.
The company has also rejected the accepted ragtrade temptation to manufacture in China. We
had the choice to make it in China, but its a long way away explains Ashby, who is loath to call
himself a designer. We also source the best fabrics from around the world, including local mills. Our
produce may cost five times more yet, internationally, people really appreciate the fact its made here.
61
Ashby believes the grassroots nature of his business has driven its success. People say, Oh youre
such an entrepreneur but I think the better word is naive. In 2005 he took out the Premiers NSW
Export Award but admits, If I had known all the rules and what I was supposed to do, wed never be
where we are.
His mate, Alex Perry, sees things differently: He pretends its all a bit of fluke, but Im on to him. The
designer says Ashby has nailed the market in both underwear and swimwear (including the AussieBum
boardshorts that make your arse look good). Swimwear is a really specific thing to do and hes blitzed it.
Ashby grew up a long way from the beach. He lived near the foothills of the Dandenong Ranges
with his older sister (a beautician), mum (a checkout operator) and dad (a plumber), spent his teens at
a local roller rink and ended up becoming Victorias figure-skating champion. I wouldnt say I fitted
into the norm, he says, so it was a tough time. Where youve got a child with unique ambitionsit
didnt roll too well.
He left school early and studied design at Box Hill TAFE before enrolling in Fine Art at Canberra
School of Art at 16. Realising he was too young, Ashby soon dropped out. His friend, Nerida Howard,
joined him in Canberra, where they started a short-lived clothing label. I could sew and he had the
passion, she says. They returned to Melbourne, where Ashby worked in advertising. After a stint in Perth,
he settled in Sydneys Leichhardt in 1991, aged 24, where he still lives two roundabouts from his office.
Ashbys life now is significantly different. He often finds himself on stunning locations for
photoshoots and always flies first classI dont like posh food so they give me meat pies, says the owner
of that black Range Rover. He has also bought Prada shirts on Rodeo Drive without looking at the price.
Im very spoilt, he admits. Still, he says, he tries not to get ahead of himself. At the end of the day, I
make swimwear. Yet some people I meet in similar trades, youd think theyd invented a cure for cancer.
Succumbing to pressure from customers, Ashby is soon to open a retail store in AussieBums
spiritual home of Bondi. There are also stores planned for New York, London, Madrid and Shanghai. Like
the label, they will be originals, fusing a small retail space with the brands internet base. Customers will
be able to try on samples in store and have orders delivered the next day. And Bonds, Bendon and others
bewareAshby is working on a Women Can Wear line. We have a large customer base of women who
buy for partners but like to wear some of our (flat-fronted) Classic Underwear range, he says.
These days, theres little time to loll about at Bondi but Ashby still gets the biggest buzz seeing
his cossies on real bums and plans to be at the helm of AussieBum for some time. For people who have
followed the story of our brand, Im not about to add a chapter on And we sold out for profit. Were
still having fun. And he adds with a smile, What am I going to do? Go back and sit on a beach?
Source: Katrina OBrien, The Australian, 6 March 2009
Major Business Focus activities
62
1
2
3
4
5
6
7
8
9
10
11
Write a mission statement for AussieBum.

Identify one financial goal and one social goal of the business.
Identify the legal structure of this business. Explain why you believe this is the best structure.
Identify five stakeholders in this business. Briefly explain how the business affects them.
There are many external influences. Identify the external factor that you believe has had the most
impact on this business. Explain its effect.
Which stage of the business life cycle is AussieBum in? Explain why you believe this.
Create a timeline for AussieBum listing the major decisions and challenges that this business faced.
AussieBum is an e-business. Explain how the e-business operates and why the e-business
approach was adopted.
Surf the AussieBum web page and explore their online strategies. What do you notice about these?
Identify two reasons for AussieBums plan to expand in the global market. Describe the
marketing strategy that AussieBum has used to promote this expansion.
What external events could make or break the global expansion strategy of AussieBum? Web Destination
Chapter 1 Review
Profit
Production
Employment
Role of
business
Legal structure
Types of
business
Choice
Industry
Innovation
Nature of
Business
External influences
Internal influences
Stakeholders
Size
Establishment
Business
environment
Business
life cycle
Growth
Maturity
Post-maturity
Figure 1.6.01 Concept map
63
Preparing for assessment

Multiple-choice questions
1 A social goal for a business would be:
A to increase market share by 10 per cent
B to improve the job opportunities for employees
C to provide a return on investment of 8 per cent
D to reduce the level of non-reusable packaging
2
A key challenge in the growth phase of the business life cycle is:
A declining sales
B capital requirements
C reducing costs
D government taxation
An internal reason for business success could be:

A legal changes
B improved management
C economic growth
D reduced interest rates
4 An external reason for business failure could be:
64
Chapter 1 Review
A incorrect location
B a change in government policy
C poor financing and undercapitalisation
D the owner becomes insolvent
5 A non-professional partnership:
A must have a legal partnership agreement
B has the advantage of limited liability
C can have up to 400 partners
D usually has between two and four partners
6 A proprietary company:
A is listed on the Stock Exchange
B has the advantage of limited liability
C has no limit on the number of shareholders
D can easily borrow funds from the public
7 Micro-businesses are important to the economy because:

A they employ 58 per cent of the workforce
B they make up 94 per cent of all businesses
C their average turnover is $800 000 p.a.
D they comprise 64 per cent of all business operations
8 Privatisation refers to the process of:
A the sale of assets of a partnership to the individual owners
B large transnational companies taking over private companies
C the sale of government business enterprises to the private sector
D public companies being reorganised into private companies
9 In the growth stage of a business:
A there is a continual improvement in the level of working capital
B most operations become private companies
C managers will need to consider methods of renewal
D mergers and takeovers will be extremely common
10 A business operating in Australia and exporting overseas would:
A benefit from increased sales tax through more sales
B benefit from a decrease in the value of $A
C welcome an increase in the level of overseas tariffs
Short-answer questions
11 Examine the business life cycle.
a Describe the main features of the establishment and growth stages.
b Describe the features of a company that would experience a long maturity
stage.
c Describe the strategies a business could use to achieve renewal.
12 Examine the external and internal factors for business failure.
a Discuss the difference between external and internal factors.
b Select one government policy and explain how it would affect business activity
in general.
c Inadequate funding is often suggested as the main reason for business failure.
Evaluate the impact of undercapitalisation on future business success.
Chapter 1 Review
D benefit from a high level of domestic inflation
65
13 Examine the process of winding up a business.

a Explain the difference between a voluntary and an involuntary winding-up.
b Describe the main difficulties involved in dissolving a partnership.
c In many cases when a company is wound up, employees do not receive all their
entitlements. Describe the order of priority involved in receiving payment and
analyse the argument that employees should be the highest priority.
14 Examine the advantages and disadvantages of sole traderships.
a Describe the main advantages of being a sole trader.
b Suggest why many sole traders take on at least one partner.
c A successful sole trader is considering becoming a private company. Assess
the merits of this action.
Extended-response question
15 Coca-Cola is a large global business operating in a changing environment.
Examine the information relating to Coca-Cola on pp. 3637 and 5458 and
answer these questions.
a Describe external factors that influence the operations of a large business such
as Coca-Cola.
b Describe the processes and steps by which the company adds value to the
inputs in the production process.
66
Chapter 1 Review
c Discuss Coca-Colas expansion into Australia and the reasons for its growth
in Australia.
d Analyse Coca-Colas responsibilities to stakeholders, such as employees,
shareholders, users and the environment.
Chapter 2
Business Management
Summary
Management is the process of getting things done through the activities of others.
The responsibility of management is to guide the business through its life cycle.
A good manager should have a range of business and interpersonal skills and be able to reconcile
the different, and often competing, interests of the businesss stakeholders.
Businesses have a range of business goals that usually reflect their stage in the business life cycle.
Three different approaches to management can be used: classical, behavioural and contingency.
The business should understand the market in which it operates.
The various business functions should be coordinated to contribute to the success of a small
or medium enterprise (SME).
The marketing mix consists of product, place, service promotion and price.
Accounting and finance support the operations of a business.
Cash-flow management and budget planning are crucial to the successful operations of an SME.
Human resource management involves all aspects of an employees relationship with the business.
Employers and employees have rights and responsibilities in the operation of a business.
A business also has ethical and social responsibilities to the community in which it operates
and to society in general.
Change processes must be managed effectively for change to take place in an SME.
Business literacy
1 Using the glossary in the text, find the meaning of the following terms:
balance sheet
business culture
business ethics
external environment
finance
human resources
internal environment
internal influences
key business functions
management
management approaches
marketing
operations
organising
planning
stakeholders
technological change
vision
Business teamwork
2 In pairs, think of a business leader or business manager who manages a business.
With your partner discuss the following questions:
a What does the business leader have to manage?
b How do they manage the business?
c Make a list of the things a small business owner has to think about and manage.
d Most importantly, how does change influence this business manager? What
do they do when things that affect the business change?
e How do they manage these changes?
Business numeracy
3 Conduct a class survey to find out how many parents/guardians/family members
work in a business. Construct a table of the results showing the role they play
in the business. Try to link their roles to the following categories in the table:
production; marketing; human resources; management; finance and accounting;
sales; research; quality management.
4 Think about how things get organised. Think about the answers to the following
questions.
a How is the school timetable developed and who develops it?
b How are the teachers assigned to classes? And how are the teachers assigned
to schools?
c Who decides the curriculum that you study?
d Are there spaces in the school that are used only for school organisation and
management? Who occupies these spaces?
We
b Desti nation
Unit 2.1
The nature of management
Figure 2.1.01 Good management encourages individuals

to achieve personal as well as corporate goals.
What is management?
Management is the process of getting things done through the activities of others. In
business, management involves creating an environment that encourages individuals
to carry out acts designed to achieve personal as well as corporate goals. Management
is largely a people-oriented activity involving discussion, decision making, directing
and advising. The tasks managers perform vary greatly, and depend on such factors
as the nature of the business and level of management. For example, lower levels of
management (such as production managers) spend a great deal of their time directly
involved in the supervision of workers engaged in the production process.
Management at the various levels plan and coordinate the inputs of business and
ensure that the production process operates efficiently so that the business continues
to satisfy the needs of customers.
Business Management
Importance of management
69
The steps involved from the production of a good or service to its delivery to
consumers require the coordinated input of many workers. Managers, by coordinating
the activities of other workers, play a vital role in this process. They are responsible
for creating an environment within the business enterprise that allows the objectives
of the business to be achieved. As a direct result, a business might have greater value
than the total worth of its combined resources. Because of their responsibilities to the
various groups with a stake in the success of the business enterprise, managers tend to
be financially well rewarded.
Figure 2.1.02 One role of a manager is to coordinate

the various pieces of the puzzle that is business.
The features of effective management
70
The manager or managers of a small or large business plan and organise the functions
of the business to ensure that the effort of employees is coordinated to produce value
for consumers. It is the effectiveness of this process that determines whether a business
will succeed or fail. Management has the responsibility to guide the business through
its life cycle as it moves from establishment to growth and maturity (and postmaturity), must make decisions that will determine the outcome of its operations and
the direction to be taken in the next phase.
In a large business, the businesss management is able to delegate overall
responsibility for its success to experienced people within the businesss departments,
while in a smaller business the manager is expected to be an expert in every aspect
of its operations. In either case, effective managers will perform roles that could be
classed as interpersonal, informational or decisional.
The interpersonal role

In their interpersonal role, effective managers are responsible for creating an
environment within the business enterprise that will help staff come together
and cooperate to achieve the goals of the business. Consequently, they need to
communicate their vision and the values they believe their staff should have. They
also need to recognise that businesses have both personal and business objectives, and
that managers and employees mutually depend on each other. The productivity of
employees reflects their relationship with the organisation and with other employees.
It is in the best interests of management to ensure that the business operates in a way
that satisfies the human needs of its staff.
The informational role

The informational role of effective managers is to communicate to staff the businesss
goals and where it is going. They also need to communicate directions and decisions,
probably on a daily basis. Managers may also be called on to pass on their knowledge
and expertise. They need to be good listeners so they can gather information
about longer-term strategies from the people with experience and expertise. Just as
importantly, managers need to find out from individuals what their personal objectives
are and what they think the businesss objectives should be.
The decisional role

In their decisional role, effective managers have to choose from a number of alternatives
before deciding on the best course of action.These decisions will often have widereaching implications for the future of the business.To make informed decisions that
best suit the business and its staff, effective managers need to have full knowledge of the
implications of all available courses of action, or at least be able to rely on sound advice.
Effective management requires business managers to:
provide clear, consistent and well-communicated delegation of roles, activities and
responsibilities for work
have good interpersonal, communication and decision-making skills
know the various skills of their staff and be aware of their needs
weigh up all business issues and business decisions that need to be made and think
in a long-term strategic way.
The skills of management

People skills and interpersonal communication
Business Management
As part of their leadership role, managers often have to get the commitment of all
their employees and influence them so they will act in a certain way. This involves:
being able to motivate and communicate a sense of purpose to the members of
the staff
encouraging staff to produce their best results
gaining the respect and loyalty of staff while being decisive but consistent
being in touch with staff so their support in achieving the businesss objectives
can be negotiated and enlisted.
Good managers must know their staff, not just their job-related abilities, and also
whether they have unrealised or underutilised abilities and skills. Managers must know
not only who needs to be spoken to, but also who should be listened to and when.
71
Strategic thinking
Business managers have to be able to take a longer-term view of what is the best way
ahead for their business. They require a thorough knowledge of their own business,
their competitors and the business environment. Business theory, research, and
practical experience are both needed in order to develop appropriate strategies for the
business, as is insight into human nature and the business world.
In the practical sense, strategic thinking means being able to determine the
businesss objectives, the courses of business action needed to reach these business
objectives, and how resources need to be allocated so these business courses of action
can be pursued and the business objectives achieved.
Vision
If a business is to grow and prosper, it must develop a vision that will stimulate
advances within the business. The most visionary ideas will include some inventions,
but they may also involve a large measure of innovation by taking existing ideas and
adapting, extending or combining them to develop something new for the business.
Visionary managers are those who can develop their own ideas, or use the
creativity of others in their business, to come up with a vision or long-term goal,
even though the vision may not yet be attainable given existing resources. The vision
should be broadly understood and agreed to by all staff.
Problem solving and decision making

The key to flexibility and adaptability is the ability of business managers to solve
business problems and make appropriate business decisions. This depends on
understanding the different business challenges at different parts of the business life
cycle and training and experience. Business advisors and consultants are also available
to assist business managers to solve key business problems and provide decisionmaking advice.
Flexibility and adaptability
72
Managers are constantly having to guide and direct staff and offer solutions to business
problems based on their own experience and the experience of others. Consequently,
as circumstances change, managers must be prepared to seek out and implement
theories and practices appropriate to their current needs. Business managers who
lack flexibility or adaptability to change cannot respond effectively to changes in the
external environment. If this is the case they are unable to meet new requirements or
redevelop the businesss vision and operations. This is one of the reasons why many
small businesses fail; the businesss managers are unable to change the way the business
operates to meet new challenges created by changes in the business environment.
Reconciling the conflicting interests of stakeholders

A key aspect of effective business management is to be able to resolve conflicts
between the businesss stakeholders. One of the aims of the owners of the business
is to increase their profits or return from the business. This may conflict with the
objectives of the staff and employees for increased remuneration and payment for their
contribution to making the business a success. Managers need to consider and resolve
these sorts of conflicts to be effective business managers.
Business Focus
Keeping good company with your staff
Business Management
With skill shortages already evident in the trades and professional services, its little wonder
companies are scrubbing up their employee retention plans.
And as employers are finding out, what drives someone to stay with you now may have changed
from what was important a year ago.
Right now, I think people want to be valued, but its still about pay and work appropriate for their
abilities, said Meaghan Callaghan, Human Resources Director of online recruiter SEEK.
It may be nice giving fruit or a free breakfast, but you have to value staff in personal ways.
Employee retention is simple if you (as a manager) focus on that all the time.
Ms Callaghan says its important to give any employee meaningful reward through verbal praise
for the work done or a positive review of that persons performance.
And as job recruitment gathers pace, people really want to know where they stand.
Last year, many people werent happy (in their jobs), but didnt necessarily act on that because
of their limited options, says John Asquith, retention adviser and founder of Talent Drain.
Mostly, organisations may not be growing, but for one new position, you may have ten different
people hopping organisations and that creates a lot of movement, Mr Asquith said.
Typically, a weak point for companies is holding onto new starters, who tend to have a 3040 per
cent attrition rate, and the level of happiness of these workers tends to drop after 12 months unless
theyre actively engaged.
Ensuring these new workers are part of a team, and being trained, is important. Good supervision
is good management.
Management practices cant always be separated from the culture so thats why good leadership
counts.
I think little notes of appreciation and chats with the boss are essential ... when those are missing
then the other factors become more important. These dont cost you, Mr Asquith said.
Often strategies for retaining talent can often come down to either altering the workplace
environment or changing something regarding your people.
Lawyers, for instance, spend a lot of time in their office so the work environment is a big part
of their lives, said Mr Asquith. Its not just a place to work.
On the other hand, accountants have a long way to go with HR strategies. They dont tend
to have such a focus on these HR-related engagement factors.
We hear about their problems in retaining staff, but these firms dont seem to be on top of that
problem.
One firm which has ramped up their retention efforts is SNP Security the third largest security
player in Australia, with almost 2000 employees and contracts for airports, the National Portrait
Gallery and a number of CBD buildings.
According to Darlene Winston, SNPs manager of people and culture, 90 per cent of the
company staff are security guards, hailing from 57 different countries so English is a second
language for most.
The industry faces a high turnover in manpower although not as high as in the US, where
its almost 50 per cent. In Australia last year, security firms generally lost more people than they
employed, while the average turnover for SNP fell from 22 per cent to 14 per cent.
73
Keeping security guards longer than a year is a challenge because they see it as a stepping stone,
says Ms Winston, and the company has moved to change things through more training, and clear
promotion and non-cash rewards such as English language courses.
The business is also seeking more women through a new mentoring campaign, active recruitment
through their staff and schools, and career succession planning.
When you engage people, and you have the right people in the right roles in a thriving
environment, you can retain them, Ms Winston said.
Tips to stop the drain:
1 Understand the commitment of staff and match candidates to the job for instance, if its about
boredom then job rotate or increase responsibilities.
2 Monitor staff on their needs through surveys and discussion.
3 Make quick win changes, such as the induction process, or a change in work environment.
4 Highlight your strengths.
5 Have a retention budget.
Source: Julienne Dowling, Talentdrain, viewed at Sydney Morning Herald website, 19 May 2010
Business focus questions

1
2
3
Discuss what Ms Callaghan identifies as the key issues for retention of staff.
Identify how Ms Winston demonstrates the key skills of managements.
Describe staff retention strategies you would recommend for a manager working in the security
industry. How do these strategies relate to the key skills of a manager?
Achieving business goals

Businesses have a range of business goals. In part these goals reflect their stage in
the business life cycle. Usually businesses have a mix of goals, for example, focusing
on profit and returns to business owners or focusing on sales and market shares.
Sometimes businesses pursue many business goals at the same time.
At the commencement of the business life cycle, in the establishment phase,
the main business goal is focused around entering the market, making sales and
commencing the business.
Figure 2.1.03 Common business goals
74
Goal
Description
Example
Profit
Providing a return on investment
To increase profits by 5% over five years
Market share
The percentage of the total market

using the goods or service
To establish business in the market
Growth
Positive increase in sales, distribution,

staff, etc.
To open a new outlet in a different

geographic area
Share price
Value of shareholder equity measured

on the ASX
To maintain share price in a fluctuating

market
Social
Business takes responsibility for the

impact it has on stakeholders
To promote a positive worklife

balance for employees
Environmental
Business takes responsibility for the

impact it has on the environment
To minimise carbon footprint through

ecologically sustainable practices
Balancing responsibilities to stakeholders

Business managers and owners try to ensure that their business continues to
operate profitably. However, there will be times when stakeholders will be adversely
affected by unfavourable business conditions and/or unfavourable business
decisions. Stakeholders are all those individuals and groups who have an interest
in the continuing success of the business. Whether they are employees (from the
internal business environment) or customers or clients (from the external business
environment), business managers must consider their needs as they determine the
goals of the business.
The management has a responsibility to ensure that its stakeholders are not
adversely affected by the pursuit of its goals. If the law is complied with or if industry
codes of practice are followed, stakeholders are unlikely to be adversely affected.
However, some business goals may benefit one group of stakeholders at the expense
of another. This is when the management has to reconcile conflicts of interest.
Figure 2.1.04 A manager has a responsibility to the

internal and external stakeholders of the business.
Specific
Measurable
Achievable
Realistic
Timed
Business Management
Businesses need to set goals. One way of doing this is to use the SMART
method.
75
Business Focus
Bobs Books
Bob, Ian and Mike have started a small publishing business called Biriwa Education. They wrote a
number of textbooks for large publishers and decided to start their own publishing business and make
cheap textbooks for school students. They all have a lot of teaching experience and have written a
lot of textbooks together. Bob and Ian work in schools but Mike works in a university department. At
first their business goal was to sell some of their textbooks and create a small market share and brand
name for their textbooks. So they chose an unusual name Biriwa, (which is a very small bird that lives
in Vanuatu) because they published some books about the Pacific Islands.
As their books grew in popularity the goals of the business changed, Ian became interested in
providing courses for teachers and students using the textbooks and Mike became interested in selling
the small textbook business to a large publisher. Australian publishing has about 220 publishers. The
10 largest publishing firms account for the majority of sales of textbooks. The industry is very dynamic
as larger publishers often purchase small publishers who have developed a good product. Mikes goal
is a post-maturity one, to sell the business and move into starting a new one with a new market.
The business managers also considered the environmental aspects of the business. Producing
textbooks can be environmentally wasteful as publishing uses lots of paper. The business experimented
with CD and online publications to reduce the environmental footprint of their small publishing
business.
Business focus activities

1
2
3
4
In pairs, draw up a table of the goals of this small business as it grew through the business life
cycle.
Identify how communication between the three business managers might have occurred.
Explain how even small business must be concerned about environmental issues.
In pairs, make a different plan for the post-maturity goals of Biriwa Education, the small
publishing business.
Staff involvementinnovation, motivation,

mentoring, training
76
Setting, implementing and achieving business goals should not only be the
responsibility of management. Staff involvement in the process carries a range of
benefits for the business. Employee involvement in decision making empowers
staff and increases motivation, productivity and support of broader organisational
objectives. As employees are directly involved in production and service delivery
processes, they often have ideas and innovative solutions to boost efficiency and
productivity. Through a program of mentoring and training, staff involvement can
be encouraged and promoted.
Unit 2.1 Review

business goals
conflicts of interest
decisional roles
delegation
effective management
informational roles
interpersonal roles
people skills
problem solving
strategic thinking
Business literacy
1 Analyse and contrast the interpersonal, informational and decisional roles
of management.
2 Define the terms vision and strategic thinking. In a brief statement, explain
the similarities and differences between them.
3 Effective managers should always
Complete this sentence with three actions that you would consider that effective
managers do.
Business teamwork
4 Working in pairs, describe how you keep in touch with your friends. How different
would this process be for managers who want to be in touch with their staff?
5 Working in pairs, decide if the following business situations reflect effective
people skills, strategic thinking, vision, flexibility and adaptability, or problem
solving and decision making.
a The business owner has come back from a product exhibition with details of
a new machine that lowers production costs and reduces waste and pollution.
The owner wants the staff to examine the way the new machine works to see
if it could be added to the production process.
b The small business owner has given a speech to all the employees about how
the business is going to improve its customer service.
c The small business manager has invited a business consultant from the
Government regional business organisation to advise on improving sales
and new market opportunities.
6 Discuss the challenges for management in balancing a mix of business goals. Give
examples.
7 Visit the Business Review Weekly website and browse the menu for articles on
businesses (firms). Read an article about a firm making a major decision for the
future. Describe the strategic thinking behind this idea. Do this in the form of a
diagram and then show the expected or likely outcomes of this strategic decision
by the firms management.
Business Management
We
b Desti nation
77
Unit 2.2
Approaches to management
The classical approach to management
The classical approach to management started in the 1890s. As businesses grew in size
and number, greater emphasis was placed on the more effective use of resources such
as equipment, location, layout, production techniques and incentive systems.
Classical management theory
(based on the notion of one best way to do a job)
Division of labour
(the most logical for that job)
Supervising work activities

(the most appropriate structure)
Correct span of control

(to direct activities)
Delegate responsibility
(to designated authority)
78
Figure 2.2.01 The classical management concepts
At the beginning of the twentieth century, Frederick W Taylor proposed a

more scientific approach to management, which depended on the belief that good
management led to high wages and low per-unit costs. As financial rewards were
believed to motivate staff, tasks needed to be strictly controlled and organised so that
workers could operate more efficiently and output could be maximised. His approach
to management was to separate planning, coordination and assessment (the mental,
indirect or administrative aspects of work) from task completion (the manual, direct or
factory production part). Workers were to be given specific tasks to complete.
Managers, on the other hand, were to:

define the problem
analyse the work situation
measure what could be measured
experiment by varying one part of the job at a time
develop a principle of management from observations
prove the principle through application.
Henry Fayol contributed to the development of classical management theory
through his own management experience. His principles included:
unity of commandeveryone should have just one supervisor, and supervision
should happen in a hierarchical structure
equityfair pay for efficient work
orderly division of work.
Fayol viewed management as a process that is almost the same whether it
occurs in government, industry or institutions. In analysing the separate functions
of managers, he divided the functions of management into the four major areas of
planning, organising, directing and controlling.
Max Weber, who coined the term bureaucracy, is also seen as a theorist of
classical management. Bureaucracy divided work up into duties, with the authority
and responsibility of each worker clearly defined. A chain of command with positions
and responsibilities formed a hierarchy, and directly above each person was a single
superior.
Classical management theory, which is not used in the modern business world, is
still strongly reflected in modern theory, with its emphasis on structure and the logical
arrangement of tasks and control.
Figure 2.2.02 Henry Fords original car assembly line was based on the principles
of mass production. Fords ideas were typical of the classical view of management.
Business Management
79
Management as planning, organising and controlling

According to the classical approach to management, the role of management is to
plan, organise and control the operations of the business.
Plans
Major revision of
plans and structures
needed to achieve
goals and objectives
Organise the activities

and actions of the
business
Continue with existing

plans and structures.
Slight improvements
and modifications may
be possible
Control systems:
compare plans with
what happened
Unfavourable results
Favourable results
Figure 2.2.03 The link between planning, organising and controlling
Planning
In classical approaches to management, business planning is the key to success. It
determines where the business is going and how it should get there. In order to plan
effectively, managers need to ask the right questions so they can choose the best
available alternatives. To achieve the businesss plans, management will need to organise
human and material resources effectively.
Figure 2.2.04 Planning steps to start a business enterprise
80
Steps
Description and examples
Decide on the general purpose of the

business.
Recorded as mission statement with no specific time

scale and no measurable outcomes. Example: To make
high-quality hand-finished dining-room furniture.
Set the goals and broad objectives of the

business.
Expressed as a number of expected business

outcomes, some with time. Example: To become
profitable in 12 months.
Decide on the strategic plans (approaches)

and tactical plans (methods) needed to
achieve the goals and broad objectives.
Long-term general plans of action and short-term

tactical plans. Example: Target recent retirees by
advertising in club journals.
Translate goals and broad objectives into

targets or specific objectives.
Actual numbers are stated. Example: To produce at

least twenty units of output per employee per month.
Figure 2.2.05 Strategic planning is

essential for long-term business success.
Organising
Organising connects planning ideas with the means to accomplish these ideas, using
human and material resources, so that the businesss goals can be reached.
Organising defines the part each member of the business is expected to play in
its operations, and the relationship and coordination between these members, so their
joint efforts will achieve the enterprises planned purpose. The process involves:
considering plans
determining work activities
classifying and grouping activities and dividing tasks into smaller parts with
a logical pattern or structure
assigning work, allocating activities to people and places, and delegating authority
establishing the chain of command by coordinating or linking people through
a structure with authority, reporting systems and delegated authority.
Business Management
Standing plans and procedures

Standing plans are ongoing operational plans designed to implement strategic plans and
are usually the responsibility of middle-order and lower-order managers or supervisors.
They are used by business managers to guide the courses of action of their people in
carrying out often-repeated tasks and responsibilities. As such, they are a part of the
organising process. For example, a business would create supporting policies for each
area of operations, such as human resources, to provide consistency in selecting and
training staff, and to cover working conditions and industrial relations.
81
Business Focus
Tony Hannaford
Pear producer
Tony Hannaford is South Australias largest producer of nashi pears. When he bought his 25 hectare
property for $2 million in the mid-1980s he had no fruit trees or storage sheds. His plan required the
planting of trees, the erection of storage sheds and Y-shaped wire frames to support the trees, annual
pruning of the trees until they started to bear fruit, picking and packing the fruit, and transporting
them to market. This plan and its timing determined the sequence of work activities that Tony
organised. The work activities fell into the following groups:
initial preparation
annual maintenance
seasonal picking, packing and transporting.
Tony was able to group these activities further according to the degree of skill required to execute
them, the amount of supervision required, the equipment needed, and the location of the different
activities. For example, the initial preparation involved the use of a tractor and skilled driver to prepare
the ground; unskilled workers to plant the trees and later erect the supporting frames and wires on
either side (these people needed to be supervised by Tony); and a separate group of tradespeople
contracted by a builder to erect the equipment, packing and storage sheds.
Annual maintenance involved some spraying to control pests, cultivation to control weeds (using
the tractor) and pruning. Because the number and size of fruit depended on painstaking handpruning, a team of workers were trained for this purpose and a supervisor was appointed.
Training of seasonal fruit pickers and separate groups of sorters and packers was also needed.
(Because the skin of the nashi pear blemishes easily, it has to be handpicked and prepared for the
market using padded packing.) Pallets of stored fruit were then loaded with a forklift (requiring
a trained driver) and trucked to market by contracted truck drivers. Because of Tonys training
programs and his use of experienced seasonal workers and contract labour, he was able to delegate
responsibility for many of the necessary work activities.

1
82
Construct a flow chart to show how Tony Hannafords organisation turned his goal of becoming
a major producer of nashi pears into reality.
Explain the difference between Tony Hannafords planning activities and his organising activities.
Controlling
Controlling marks the end of the management process as plans (desired performance)
are compared with what happened (actual performance). The differences are then
measured and corrected (moderated and regulated).
Controlling is the process of monitoring the performance of group members
against already determined standards, and regulating that performance so that
objectives can be achieved. Controlling compares plans that were hoped for with what
actually happens, and then corrects the differences if necessary.
The measurement of variables and deviations within the operation of a business
is only of value when compared with some standard. Standards may be established
internally or externally. External standards range from generalised statements, such
as those contained in industry-wide Codes of Practice, to quite specific standards set
by government or its agencies. For example, the Australian Standards Organisations

sets technical standards for the manufacture of such items as bike helmets, while the
Sydney Metropolitan Waste Disposal Authority sets acceptable levels for the disposal
of various types of liquid waste.
Of more significance within the controlling process are the internal standards that
businesses set their various aims and objectives. The standards may be:
generalised statements of purpose or mission statements
more specific statements of expected outcomes or goals
highly specific and quantified targets that a business hopes to achieve.
Controlling takes place at all levels of management. At lower levels it involves
examining detailed information about such things as sales levels, production schedules,
profitability measures, productivity targets and levels of inventory. Higher levels of
management examine aggregated information that provides a broad picture of what
is happening within the business. The controlling process involves measurement and
comparison as shown in figure 2.2.06.
Figure 2.2.06 The controlling process
Measure
Compare with
Actual sales
Forecast sales
Output
Scheduled production
Profits
Predicted profits and returns
Hierarchical organisational structures

Classical approaches to management suggested that there was one best way to do any
job, and it could be broken down into a series of simpler tasks. This led to the idea of
a division of labour that was the most logical for that job, an appropriate structure to
supervise the work activities, a correct span of control to direct those activities, and the
allocation of responsibility for the processes to a designated authority.
Business Management
Division of labour
In any working environment there is a range of jobs that must be performed. Division
of labour involves breaking down tasks to the simplest level and designing jobs
and employing people to do these jobs. In a small business, such as a sole trader, all
the tasks may be performed by the owner. As a business grows and employs more
people, the owner needs to delegate tasks to other people. There might people who
enjoy performing particular tasks that others would not like to do. This dividing up
of labour brings advantages to an organisation because as people become specialists
they become more efficient.
Taylors more scientific approach to management suggested that tasks needed to
be strictly controlled and organised so that workers could operate more efficiently to
maximise output. He emphasised planning the work that would need to be carried
out: what, how, by whom, when required and expected time of completion. Workers
were to be given specific tasks to complete, while managers established standards,
used control to maintain those standards, and planned systematically for improvement.
The specialisation of labour like this was seen as promoting efficiency.
83
Specialising promotes efficiency

The production line, seen most clearly in the manufacturing industry, is a good
example of the division of labour. Before the introduction of robots on assembly
lines, workers did their small jobs as part of the whole production process. The jobs
were cut down to small parcels of work that workers could do easily and quickly, thus
becoming specialists and able to complete each task more efficiently.
In job advertisements today we can identify the specialist skills and training
that employers are looking for. The whole workforce specialises in jobs in some
way, which has led to workers being interdependent. Workers rely on other people
working in their specialised jobs to supply the products and services they need. The
heart transplant surgeon, whose specialised role has developed after many years of
training, relies on hospital staff for provision of operating facilities, nursing staff for
assistance during surgery, farmers to provide food, clothing firms for wearing apparel,
tradespersons for housing repairs, mechanics for motor vehicle services and so on.
Figure 2.2.07 Production lines provide

a good example of division of labour.
84
Structure
The hierarchical organisation based on division of labour is often referred to as the
traditional or pyramidal structure. It has a clear indication of authority, power, status,
accountability and responsibility, relationships, channels of communication and jobs.
The chain of command starts with the chief executive officer (CEO). Authority and
power moves down through various levels (or links) of management, supervisors
and workers. Accountability (and information) moves back up through these links
to the CEO. The formal organisational structure indicates how work is allocated to
different functional areas within the organisation, how these functions are linked and
coordinated, levels of authority and patterns of communication.
Vice-presidents
Department managers
Supervising managers
inf
orm
ati
on
CEO
(Managing director)
Team leaders
Supervisors
Workers
er
ow
dp
an
ty
ori
uth
,a
ers
ord
an
da
cc
ou
nta
bil
ity
The pyramidal organisation structure, sometimes referred to as a bureaucratic

structure, is typical of the armed forces, large government departments and large
businesses, where there are many layers of management between the CEO
and staff.
Organisations structured along these lines will tend to have:
clearly specified jobs
clearly defined status and pay
well-organised but relatively inflexible business planning
most business decision making by upper-level management
a well-defined regular chain of command.
Team leaders
Supervisors
Workers
Workers
Figure 2.2.08 Pyramidal hierarchical business management structure
Businesses structured along these lines are already very complex. They tend to
be inflexible and take a long time, for example, to respond to changes in the business
environment. These very centralised business management structures were designed to
make a uniform approach and central management easier. However, the external and
internal business environment can change very quickly and much less central business
structures make the business more nimble and quick in identifying changes in the
business environment and responding to them.
Leadership style is the approach taken by managers when they are exercising and
delegating authority, encouraging participation in decision making, motivating staff,
communicating information and maintaining control. It is a consequence of their
beliefs and depends on the personality and personal preferences of individual managers,
but also on the culture of the organisation in which they operate.The culture of an
organisation, which is reflected in the way things happen in the organisation, arises in
part from the management theories that underpin it and its operations.
Business Management
Leadership style autocratic
85
Autocratic (or authoritarian) leadership, which is most often found in those

businesses with a traditional bureaucratic or pyramidal structure, can be recognised
in managers who:
insist on being responsible for all policy determination and decision making
rely on authority and obedience
insist on rigid adherence to defined lines of command
allow little flexibility or freedom of action by staff
dictate work tasks (and sometimes work companions).
Although managers tend to be either autocratic or democratic in their decision
making, they commonly adopt one or other of these styles as circumstances change.
For example, where there is a strict deadline for action, a manager might need to be
autocratic. To be effective, managers must be able to influence staff, not just coordinate
and direct their actions. However, they need not be excessively strong and dominant.
Behavioural approaches to management
86
Behavioural theory attempts to apply psychological research to the relationship

between employers and employees in businesses. Developed in the 1960s, it is based
on the idea that good managers understand how to get their employees to want to
act for the good of the business. The theory focuses on human behaviour within
the business work environment. Good management focuses on motivating, leading
and directing, as well as understanding how the operation of groups influences
communications, interpersonal relations and the concept of authority.
Some of the key features of effective management in this approach to
management are:
Managers need to involve employees in the development of a businesss policies
and procedures.
Managers need to lead by directing their employees and guiding the business.
An approachable manager with a clear purpose will motivate employees.
Behavioural theory, usually referred to as Theory X and Theory Y, assumes that
managers act according to the different assumptions they hold about their staff.
A business managed by a Theory X manager would be authoritarian and control
oriented. This is because Theory X assumes that staff are not likely to complete their
tasks and need to be strictly controlled and directed, otherwise they will not work
hard. On the other hand, a business run by a Theory Y manager would be one in
which managers treat their employees with respect and adopt an approach in which
employees participate. This would occur because, under the Theory Y style of
management, people are:
motivated and willing to work
willing to accept responsibility
ready to work for their businesss goals
capable of self-direction and creativity.
Behavioural theory suggests that management should assume responsibility for
arranging business management conditions so that employees will be encouraged
to fulfil their potential. The behavioural approach also promotes decentralisation and
delegation, self-management, empowerment and participation.
Elton Mayo, another researcher studying employee needs and productivity,
concluded that management could be more effective if employees were encouraged
to help develop the businesss policies and procedures.
Business Focus
Creep? Probably a manager
Men who are sympathetic, kind, cooperative and warm are unlikely to end up as bosses. To some
extent the same applies to women. That might not come as a surprise, but a study has provided firm
evidence of the link between personality and job choice.
People who arent very nice are more likely to become managers, said Michelle Tan, a researcher
in the economics program at the Research School of Social Science, at Australian National University,
and co-author of the study.
The research found a strong link between personality type and many, though not all, jobs.
The results differed for men and women. Males and females tended to enter different occupations
even though they had similar personality traits and skills. Even when they had the same occupations,
similar men and women took home widely different pay packets.
The study used a sample of 5397 men and women drawn from the Household Income and Labour
Dynamics in Australia survey. It sought to understand the extent to which personality determined
occupation and whether this could explain the gender pay gap.
It shows women report overall higher levels of extroversion, agreeableness, emotional stability
and conscientiousness than do men. Men report higher levels of openness to experience. There was
no difference in mens and womens sense of being able to control the events in their life.
The study found mens personality traits closely linked to some occupations. The more agreeable
men rated themselves on a personality test, the less likely they were to be managers or business
professionals. The more open to experience men were, the more likely they were to be in business
or education.
The extent to which women were open to experience was the main influence on the jobs they
held. Like men, the more agreeable women tended to be the less likely they were to be managers but,
unlike men, extroversion was associated with women entering managerial ranks.
While similar men and women often ended up in different occupations, this did not explain the
gender pay gap.
Source: Adele Horin, Sydney Morning Herald website, 15 July, 2009

1
2
3
Summarise the article in your own words.

Explain what the article implies about peoples perceptions of the qualities of a manager.
Describe the sort of leadership style the article suggests would be equated with success.
Leading
Business Management
From the point of view of stakeholders, leading a business means being responsible for
maintaining its financial health, internal and external relationships, and reputation so
that the business can continue in business. Leading also involves guiding and directing
being able to offer solutions to business problems based on the business managers
personal experience and the experiences of the staff. When managers have to direct
their staff, they may need to exert power over individual staff members. This they
can do through their expertise, position and personal characteristics, their ability to
provide incentives and rewards, or their use of coercion.
87
The most effective means of managing change occurs when business leaders and
managers:
do not have to resort to coercion
can choose the best way to influence how people in the workplace behave
adopt an appropriate style of leadership, ranging from task oriented (authoritative)
to people oriented (participative).
The major part of being a good business leader and manager is to get the job done,
but being an effective business manager also involves enabling other staff to reach their
potential.Therefore, a good business manager and business leader needs to identify,
develop and nurture future leaders, perhaps through training and development programs,
but certainly through a well-considered approach to delegating their authority.
Motivating
For work that is routine or repetitive, pay increases and promotion and other financial
and status incentives are often used as motivating forces. For work that is temporary or
has a risk of failure, motivation tends to be expressed in statements such as, You have
the chance to be involved in work that is challenging and highly visible. Staff may
also be motivated by being told they will be working in a supportive environment, are
needed, and have special qualities they can bring to the job.
For individual business staff members, motivation comes in part from having an
approachable manager and leader with a clear business purpose, a well-considered
strategic business plan designed to achieve that purpose, carefully formed and
communicated directions, and business plans that allow everyone to participate with
purpose and be publicly accountable in bringing those business plans to completion.
Delegating authority, which involves passing tasks and authority to subordinates,
can become a motivating force as subordinates see that trust has been placed in them.
This increases their commitment to the task, their manager and the business.
Communicating
88
Communication is the glue that holds businesses together. It allows the businesss
staff to form understandings and exchange information within their jobs, but it
also makes it possible for them to acquire the businesss values, explore alliances and
socialise. For management, communication is the tool by which they can exchange
and share information with staff, coordinate activities, exert influence and promote
understandings and the businesss values.
Types of communication in both small and large businesses will include:
One-to-oneA direct personal approach can generate commitment and
enthusiasm, but managers must be understanding listeners.
WrittenLetters, memos and reports are available for future reference.
MeetingsBriefings between management and key staff can be a two-way
exchange, and team meetings can be used to report progress and coordinate efforts.
CommitteesThese are effective means of communicating, but may not be
efficient due to cost and time considerations, and decisions may be compromises.
ConferencesThese are often highly structured but may bring people with
shared problems or interests together informally to exchange information.
NetworksThese can be formally organised but more usually are informal.
Members of networks share information that management can use as feedback.
Social networking technologiesNew social networking technologies allow
businesses to communicate with the staff and customers and stakeholders in new
and different ways.
Figure 2.2.09 A meeting, or briefing,

is a form of two-way communication.
Teams and teamwork

The use of behavioural approaches within the management of the business provides
effective business managers with the means of getting their employees to want to
work for the benefit of the business. Flat organisational structures (where one or
more levels of middle management have been removed) and teams are linked to
decentralised authority and the empowerment of staff. Flat organisational business
structures became more common when the development of information technology
meant that the role of middle management as information collectors and routine
decision makers could be filled by electronic systems.
Many manufacturing firms shifted to team-based systems of organising work,
where people are assigned to work teams who have a particular task to produce a unit
or component to a particular standard. The teams work without the close supervision
of a foreperson and do their own planning and ordering. Each worker is trained to
become multiskilled, which gives management flexibility in planning to meet the
needs of customers. A small, cohesive work team is likely to achieve better standards
of product or service quality because together they can see the problems, find the
answers and reap the rewards.
Advantages of teams
Business Management
Some advantages of teams are:

Learning and recall is better than for individuals.
Fewer mistakes are made and detection is quicker.
They are useful for problem solving, as interacting individuals stimulate ideas.
Ideas are tested and refined by group discussion.
Team judgments tend to be more accurate.
Members have more enthusiasm and commitment for decisions they help to make.
In all areas of business, cross-departmental task oriented work teams are often
formed to work on projects. Increasingly, businesses are being guided by decisions
made by teams and other groups.
89
Task-centred
Authoritative leadership
People-centred
Subordinate participative
Use of authority
Freedom for subordinates

A
B
A
B
C
D
E
F
G
Manager make a decision and announces it

Manager sells already-made decision
Manager presents ideas and invites questions
Manager presents tentative decision
Manager presents a problem, gets suggestions, makes decision
Manager defines limits, asks group to make decision
Manager permits subordinates to function within limits defined by superior
Figure 2.2.10 The authorativeparticipative continuum
Business Focus
Reforming the workplace at Penrith Panthers
90
In reforming the workplace, the Panthers Rugby League Club is using a team approach to increase
employee empowerment and reduce its levels and layers of management. Panthers Penrith Rugby
League Club Ltd is a large club with more than 900 employees. It provides a wide range of services,
including restaurants, gambling facilities, accommodation, sporting facilities and marketing services.
Panthers has undertaken a major reorganisation of the workplace, with the primary aims of
increasing employee empowerment and reducing the number of levels of management. The club
implemented a new strategic plan to clarify its mission and values, set goals for all employees, and
move to a team-based workplace structure. Under the new structure, 50 teams were formed. Each
team and its leader was responsible for its own work area, goals and tasks.
A team consisting of elected representatives from all areas of the club was set up to monitor
improvements.
Another team, working on improving industrial relations, included union and management
representatives.
Under the team approach a number of improvements were speedily achieved. The flatter
management structure enabled decisions to be made much more quickly, which in turn had a positive
effect on customer service. In addition, staff satisfaction and morale have improved, with most
employees enjoying the challenge associated with the increased responsibility.

1
2
3
Write a short definition of empowerment.

Name the three types of teams that have been established at Panthers.
Describe the advantages of the team approach as it applies to Panthers.
Participative and democratic leadership styles

Most managers do not rely on just one particular style of leadership. Rather, they
adopt a style that ranges from task centred to people centred, according to the needs
operating in the business at the time. Task-centred leadership tends to be authoritative,
where employees are told what to do and how to do it. People-centred leadership
tends to be more democratic, with employees having a say in solving problems,
making decisions and setting goals.
At one end of the continuum, where time pressures demand total focus on the
task, business leadership and management would almost certainly be autocratic. Part
of the way along the continuum, more discussion with staff would take place as
business leadership becomes more consultative. The leadership style at the other end
of the continuum would give staff the freedom for full participation in the working
of the business as they take on business decision-making roles. Here, employees are
encouraged to develop their abilities, rather than being treated merely as resources or
cogs in the machinery of the business.
Participative management is not necessarily democratic. Rather, it gives staff a say
in decision making about the business, and guarantees that decisions are not secret,
closed to questioning, or the outcome of one persons will or judgment.
If business managers seriously want a participative approach to business
management to become part of the businesss culture, they should do the following:
Develop a respect for staff and the variety of their differences, especially their
strengths and how they are displayed.
Establish personal and business value systems before developing their policies and
practices.
Participative business management styles recognise that employees and staff have
certain rights and responsibilities, only some of which are set out in formal contracts.
Unstated basic needs include the desire to be needed and involved, to influence their
future in the business and to understand where the business is headed. Employees also
need to recognise their employers expectations of them, such as being accountable
for the work they do, and being expected to make a commitment to the business. The
development of relationships, such as trust, is often more important to the successful
operation of a business than its structure.
Business Management
91
Business Focus
Henry Ford
Henry Ford is often regarded as a leader whose management
approach changed as he became older and his company
became more successful. At first in the period up to the late
1920s he was a generous and kind Theory Y manager. He was
very concerned with the health, remuneration and training of
his workers. He pioneered worker education, health plans and
employee welfare. He argued that paying workers more and
making them wealthier through higher salaries actually helped
them to purchase the Ford cars he produced. However, some
twenty years later, by the 1930s, his workforce had become
more unionised and he became very antagonistic towards his
workers. Much industrial conflict followed. It could be argued
that Henry Ford moved from a Theory Y to a Theory X approach.
Figure 2.2.11 Henry Ford

1
2
3
4
Describe the difference between a Theory X and a Theory Y business manager.

Outline what factors may have encouraged Henry Ford to change from being a Theory Y
to a Theory X manager.
Discuss whether Theory X and Theory Y assumptions are a personal feature of the business
manager or reflect the stages in the business life cycle.
From your knowledge of the production of cars on production lines, why are the staff organised
into work teams that assemble a particular part of a car?
Contingency management approaches

Another way of approaching management is to view the business as a system that
operates in an ever-changing business environment. Systems and contingency
approaches to business management concentrate on how business management and
the business adapts to changing business circumstances.
In this theory of management, a business is seen as a system that is made up of a
large number of interrelated parts; a significant event in one part will have an impact
on the whole business. Underlying this contingency theory are the following beliefs:
A business can adapt to changes in its business environment (primarily because
there are boundaries separating it from its environment).
Businesses are able to maintain their characteristics while adapting to change.
In the language of systems, this means that a business can be in balance but is able to
adjust to change as it receives feedback and information from the business environment.
According to this business management approach each business has a hierarchy
of systems. In a large complex business there are three levels:
a technical level concerned with task performance
an institutional level, which relates its business activities to its business environment
a management level, which integrates the two.
Accordingly, the role of the manager is to combine the activities and subsystems
of the business within its business environment in a balanced way.
92
Contingency management theoryadapting to change

Contingency management theory assumes that because a business and its human
resources are constantly being subjected to changing internal and external forces,
managers must be flexible and adapt as circumstances change. There is no one
best method of management. Managers assess the nature of the task, the business
environment, the people involved, and so on, in order to find the most appropriate
means of managing the business.
The structure or business management approach a business chooses will depend on:
the businesss culture, which refers to the values that provide standards for work
and which help to set the levels of communication, delegation and initiative
the nature of tasks central to the operation of the business, and the abilities of
those responsible for carrying them out. A pyramidal structure organised along
departmental or functional lines would suit highly specialised jobs.
Figure 2.2.12 The effectiveness of various approaches to the management of
businesses
Description
The product line approach
As a business increases the number of its

products, it will often reorganise, with an executive
officer managing a product line as a separate
division within the larger firm. If the business
expands its activities into other cities, territories
or countries, the organisation may adopt a
geographic organisational approach with separate
operational centres.
Some businesses organise themselves
according to the needs of the customer, which can
also change over time. For example, David Jones
used to have three separate stores in the centre of
Sydney, each with a focus on different groups of
customers.
This approach appears to be in decline due
to the growth of specialist stores, the greater
complexity of technology-based products, the
changing preferences of customers and the
elimination of middle managers.
The decentralised approach
The federal decentralisation organisational

structure, involving some delegation of duties,
power and authority to lower levels of the
organisation, is more suited to large enterprises.
In this system, autonomous (independently
managed) divisions within the organisation
are established to suit changes in the business
environment, and highly specialised jobs are able
to be grouped along geographic or divisional
lines. For example, in the more decentralised
structures, much decision making occurs at lower
levels of management.
Business Management
Approach
93
Figure 2.2.12 The effectiveness of various approaches to the management of

businesses (cont)
Approach
Description
The matrix approach
Many firms have adopted a matrix approach,

where the authority within functional departments
still flows vertically while authority that crosses
departmental lines flows horizontally. There may
also be a specially created team of members
with specialised skills taken from functional
departments led by a project manager who
coordinates the teams activities. In such cases
the line of command may be unclear at times, but
project managers are able to succeed through
their ability to exercise informal power within the
organisation in order to meet time, quality and
cost constraints.
The flattened approach
Less checking of the product and the process is

needed when work teams are used. With fewer
people needed to consult about decisions, a
much flatter form of organisational structure
is possible, as well as greater decentralisation of
authority.
Where businesses have simplified their
structure because of cost-cutting and flattened
management by thinning out the middle layers,
greater flexibility has been demanded of
remaining managers, who take on additional roles
and responsibilities.
Production
director
Product manager
(Product A)
Human resources
director
Marketing
manager
Finance
director
Human resources
manager
Product manager
(Product B)
The marketing manager, as part of a project team, could be responsible to both

the project leader (project manager) and the marketing director.
There would be a line authority relationship between the human resources manager
and the human resources director.
There would be a staff relationship (advice and information) between the human
resources and marketing manager.
Figure 2.2.13 Matrix organisation
94
Marketing
director
Business Focus
Partners in success: Levi Strauss & Company

1
Explain what the glass ceiling is and how this can be overcome.
Visit the website of Levi Strauss and identify the management structures and operations.
We
b Desti nation
Business Management
During the 1980s the management at Levi Strauss & Company realised that in order to maintain a
diverse and open workforce, it was necessary to find out what motivated its employees. A number of
surveys showed the same thing: Levi workers were not primarily motivated by pay or small production
goals. As Bill Eaton, a company executive, explained it, People are driven not by little business
achievements like how many jeans you got shipped through the door, but by things youve done to
help other people grow. By designing incentive plans that matched its employees expectations, Levi
produced a labour force that gave the company six record years of sales.
What Levis managers did was present a new pattern of values and a new set of ideals to the
company in the form of an aspiration statement and a mission statement. These statements became
the guidelines by which corporate departments and workers were measured. The goal of Levi Strauss
became that of making each employee a partner in success. Donna Goya, the companys Senior VicePresident of Human Resources, put it succinctly: People can give you the competitive edge.
The companys mission is to sustain profitable and responsible commercial success in a workplace
characterised by fair treatment, teamwork, open communications, personal accountability and
opportunities for growth and development. The aspiration statement covers even more ground,
emphasising ethical leadership, empowerment of workers and, perhaps most important of all,
commitment to a diverse workforce (age, sex, ethnic group, etc.) at all levels of the organisation,
diversity in experience, and a diversity in perspectives Differing points of view will be sought;
diversity will be valued and honesty rewarded
To back up its statements, Levi Strauss invested US$5 million annually in training and continuous
education through its valuing diversity programs. Added to this investment was a host of employee
financial benefits, including domestic partner benefits, a child-care voucher program and a flexible
work-hours program, among others. Moreover, a new compensation plan called Partners in
Performance would reward salaried employees whose behaviour supported the aspiration statement
and helped others support it. The aim was to open more lines of communication between supervisors
and workers by basing pay on how well goals were met.
Levi Strauss & Company is a privately held corporation, and these far-reaching programs evolved
from within the company and not as the result of shareholder pressure. By the early 1990s, 56 per cent
of Levis 23 000 US workers were members of minority groups. Newspaper advertisements for job
openings strongly encourage minorities to apply. Among top management, 14 per cent of Levis
executives were non-White and 30 per cent were womenand Levi Strauss worked hard to eliminate
a glass ceiling that prevents qualified women and minorities from reaching the companys top ranks.
Levis educational programs had given its employees the opportunity to study leadership, ethics and
diversity. All levels of the company came together in seminars to share ideas and create solutions.
Levi Strauss found that increasing minority involvement paid off. One of the best examples of
Levis use of ethnic diversity is its popular Dockers symbol lines of slacks. The line was created by an
Argentine employee who has helped it become worth more than US$1 billion in sales. With a system
that invests strongly in the leadership abilities of its workers, management at Levi Strauss has found
that its 31 000 employees worldwide are much more satisfied with their work.
95
Unit 2.2 Review

authority
autocratic leadership
behavioural management
classical management
consensus
contingency management
controlling
delegation
division of labour
empowerment
feedback
hierarchical organisation
leading
management theories
matrix organisation
organising
participative leadership
planning
strategic plan
systems management
Business literacy
1 Discuss the key planning decisions that the management of a business needs
to make.
2 Prepare separate concept diagrams that visually summarise the following
management theories: classical, behavioural and contingency management
approaches.
3 Explain the difference between Theory X and Theory Y.
4 Explain how these theories are important for management.
5 Discuss the ideas of Taylor, Weber and Mayo that are important for management.
6 Explain why Taylorism and the autocratic management style are associated.
7 Explain the characteristics of the three types of control.
Business team work

8 In pairs, explain the management approaches below and identify which
are traditional and which reflect systems and contingency management.
Approach A
The boss pays our salaries; keep the boss happy.
To keep your job, stay quiet and dont make waves.

When things go wrong, pass problems to others.
The more direct reports the better; a good manager builds an empire.
The future is predictable; past success means future success.
Approach B
Customers pay our salaries; help keep them happy.
All our jobs depend on the value we create.
Accept ownership of problems; help solve them.
We are all part of a team; a good manager builds teams.
The future is uncertain; constant learning is the key to future success.
96
9 Working in small groups, list examples of each of the three types of control found
in your school.
10 Recall one major activity or task you have undertaken in the past 12 months.
a Identify the planned and unplanned controls that were used to measure the
success of the activity.
b Will the information from these control activities affect the way you carry out
further similar tasks?
11 Interview the coach of a school sporting team to find out what controls are used.
How does the coach use this information?

12 Imagine you were going to open a sports store and had set yourself a goal
of becoming profitable in the first 12 months of operations. Create a diagram
showing how one specific objective and one strategy might help achieve this
broad objective.
13 The management committee of your school canteen has just heard that a fastfood chain is about to establish an outlet in the immediate neighbourhood and
will be offering discounts during the first month to attract customers. Working in
small groups, develop a set of appropriate plans that will help achieve the canteen
committees long-term objective of increasing its profits to provide more facilities
for the school.
Business ICT skills
15 Browse the websites about McGregors and Mayos theories and read about
them. Explain why these two theories have been important in studies of business
management. Do you agree with Theory X and Theory Y and Mayos idea of
a sense of belonging? Would they motivate you in business?
We
b Desti nation
Business Management
Unit 2.2 review
14 Browse the BRW website and open the article on executive pay rates in business.
One of the most contentious issues in CEO and executive remuneration is the
ratio between executive pay and award wages. Examine trends related to business
performance and leadership styles.
97
Unit 2.3
The management process
Identifying business functions
The prime function of a business is its core activitythe reason for its existence. It
may be possible to determine the prime function of a business from its name or the
name of its products. For example, Sanitarium Health Food Company, White Lady
Funerals, State Rail and Liquorland all reflect their prime function in their business
names. The name of Beaurepaires, on the other hand, does not indicate that it is a
specialist in tyres and associated car services.
98
Figure 2.3.01 Key business functions are

like the interlocking gears of the business.
There are other functions that a business performs. The most obvious is to provide
a profit for its owners or shareholders who invested in the business. For incorporated
businesses, shareholders receive returns in the form of dividends that are paid from the
profit of the business. If the business is successful, the percentage return for investors
is better than the financial market rate of interest.
Another important function is to supply a product or service to consumers. For
example, city dwellers who are not able to grow their own food, rely on farmers to
provide the food items needed for survival. Child-care facilities are needed by parents
who work, and some parents could not work without such a service.
Coordinating business functions

Management is responsible for the smooth operation of the process part of a businesss
activities. In a small business the sole trader may be responsible for everything. In a
large business specifically trained personnel have the role of coordinating the process
at each stage of the production of the product. In earlier times, specific managers
directed and coordinated various parts of the business. Today, in some companies,
teams of workers are involved not only in making the product but in all aspects of the
production process. This can include
ordering the products raw materials, considering design modifications and suggesting
improvements to the production process and equipment. Employee input has become
increasingly important and is usually financially rewarded by the business.
Coordination of any process involves planning. Plans made by upper levels of
management must be communicated effectively to the employees at the production
end of the process. In varying degrees, managers at different levels will be responsible
for materials, staff and achieving goals as directed from upper management within
prescribed time limits.
Planning operations
In planning the best way to organise a business, the specific jobs that must be done by
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.
Business today involves high levels of communication. Functional areas, such
as accounting and marketing, work closely together. With quicker communication
and processing of information, marketing responses can be made faster. Similarly,
production can be adjusted in line with the accounting information and marketing
initiatives.The use of computer-aided design (CAD) and computer-aided manufacture
(CAM) in production means that a product can be modified or created more quickly
and, when accompanied by effective market research, can be offered to consumers
faster or in an improved format. For example, a new model of car used to take three
years or more from concept to sale, whereas now the process takes approximately 18
months. Faster design and manufacture has been achieved because of more interaction
between departments and often fewer people in the decision process.
Markets for goods and services
Business Management
A market is a place where the consumer (buyer) meets the producer (seller). It is made
more complex by the addition of people such as wholesalers and retailers. Examples of
markets can be seen at Carriageworks markets (Redfern), Paddys Market (Flemington
and Haymarket), Parklea Markets (Blacktown), and the many local markets run in the
suburbs of Sydney and in country areas. At these venues the consumer mixes with
various producers and small retailers and the market price for items can often be set
through direct communicationor haggling. In todays business environment, the
market has now broadened to include electronic markets, such as the stock market,
and the processes of e-commerce.
99
Market segmentation
Market segmentation refers to a concept that the market for a particular product can
be broken up into various physical, clearly identified units.
Size
Size refers to the usage or sales quantity of a particular item. The size of usage of a
product can depend on age, sex, income, etc. For example, families with children tend
to be heavy users of milk, but families with no children use less.
Market share
If the total market is 100 per cent,
the market share of each firm selling
to that market will be indicated by a
percentage figure. For example, for
supermarkets, Coles has about
34% and Woolworths 44%, with
the remaining competitors
comprising the remaining 22%
(e.g. Aldi, IGA and Franklins).
Figure 2.3.02 The manufacturing industry is an example

of an industry type. This dairy manufacturer turns milk
into cheese, which will be purchased by a wholesaler, sold
onto a retailer and then made available to the consumer.
Location
This refers to the geographic
segmentation of a market, for
example, by suburb, by whether
the area is urban or rural, by
state, by region or by nation.
Transnational or global businesses
will refer to their market by country
or region, for example, the Asia
Pacific region.
100
Industry types
The three largest segments are retail, wholesale and manufacturing. The retail market
gives access to the ultimate consumers who buy goods or services for their own or
their familys use. Wholesalers buy in bulk from producers to resell to retailers. The
manufacturing market is made up of producers who have specialised knowledge
and skills and who use raw materials, processed component parts and manufacturing
equipment. Each of these three segments can be further subdivided and recombined
into industry groupings, such as the transport industry, the entertainment industry,
the communications industry, the steel industry and so on.
Demographic features
Markets can be segmented by age, sex, marital status, income, race, religion, occupation
and family status. Demographic segmentation of markets can involve combinations of
these features. For example, a new magazine may be targeted at single women in the
2535 years of age bracket.
Psychographic features
Markets can be segmented according to lifestyle, personality, motivation, personal
aspirations, and grouped on the basis of shared values. For example, status seekers
as a group are very concerned with the prestige value of the brands they buy.
The production process

Organising operations in a business involves managing the production process.
The production process includes identifying and procuring the inputs that will
be transformed by the business into the final goods and services. The inputs are
transformed during the processes of business into the final products and services
for consumers. In manufacturing, this transformation will take place in a factory. In
services, this transformation will take place in offices. The final part of the production
process is in storing and distributing these finished products and services. A key role in
operations is to organise the production process and the staff involved in production.
In organising this production, the business managers will be trying to reduce cost,
maximise efficiency and provide quality goods and services.
Division of labour
In any working environment there are many jobs that must be performed. Division
of labour involves breaking down tasks to the simplest level and designing jobs and
employing people to do these jobs. In a small business, such as a sole trader, all the
tasks may be performed by the owner. As a business grows and employs more people,
the owner needs to delegate tasks to other people. There might be people who would
enjoy performing particular tasks that others would not like to do. This dividing up of
labour brings advantages to an organisation because as people become specialists they
become more efficient.
Specialising promotes efficiency
The production line, seen most clearly in the manufacturing industry, is a good
example of the division of labour. Before the introduction of robots on assembly lines,
workers did their small jobs as part of the whole production process. The jobs were
cut down to small parcels of work that workers could do easily and quickly, thus
becoming specialists and able to complete each task more efficiently.
In job advertisements today we can identify the specialist skills and training
that employers are looking for. The whole workforce specialises in jobs in some
way, which has led to workers being interdependent. Workers rely on other people
working in their specialised jobs to supply the products and services they need. The
heart transplant surgeon, whose specialised role has developed after many years of
training, relies on hospital staff for provision of operating facilities, nursing staff for
assistance during surgery, farmers to provide food, clothing firms for wearing apparel,
tradespersons for housing and repairs, mechanics for motor vehicle services and so on.
The chain of command

Business Management
The chain of command refers to the way a business structures its channels of
authority, power, accountability and responsibility. In a traditional business the chain
of command starts with the chief executive officer (CEO). Authority and power will
move down through various levels (or links) of management, supervisors and workers.
Accountability (and information) moves back up through these links to the CEO.
The chain of command can be shown as an organisation chart and has some
linked terms that show the importance of each level.
Authority refers to the right a manager has to make certain decisions and
to require a subordinate to carry out certain tasks in a satisfactory way.
Power is the ability to cause subordinates to do what is required of them.
101
Responsibility is the duty an employee has to carry out certain organisational tasks
or functions.
Accountability means that each worker will have their performance judged by
someone who has authority over them.
All workers are responsible for something and accountable to someone. The chain
of command can be organised by function, product, geography or customers.
By function
Organising the chain of command in a business by function is a common and effective
method, especially if each functional area or department does not need to collaborate
closely with other departments. For example, an organisation could have general
managers, directors or vice-presidents in charge of finance, personnel, manufacturing
and marketing, each responsible for their own functional area and reporting directly
to the CEO. At the factory level, there may be separate managers in charge of
accounts, production and manufacturing, and maintenance, each specific department
being accountable to the general manager. The advantages of this approach are:
it is easy to understand
it forms a basis for specialisation
staff with similar interests and skills can be grouped together
upper levels of management are likely to be aware of the needs and contributions
of the functional areas.
CEO
Manager:
Accounting and
Finance
Manager:
Marketing and
Sales
Manager:
Research and
Development
Manager:
Human
Resources
Figure 2.3.03 Functional organisational structure
102
By product
As an organisation becomes larger and increases the number of products or services
it produces, it will often modify its functional approach so that each product
(or product line) is managed by an executive officer who is accountable for the
performance of their multi-functional division. Within their cost centres they will
have control of all the functions associated with the production and marketing of
their divisions product.
By geography
Multinational companies and other large businesses that operate over a widespread
area will generally establish separate operations in a city, state or country. Sales staff
are usually organised according to territories. For example, CSR has a construction
materials division in the United States and a New Zealand division in its sugar group.
Quality management
Every consumer wants the best possible product and every client wants the best
possible service. Businesses that can deliver high quality products and services will gain
a competitive advantage over other similar businesses. As a result, quality is a key focus
of operations management. Encouraging quality has now become known as quality
management. Quality management operations will be attained if all the employees in
operations are committed to achieving and maintaining a quality output.
Total Quality Management (TQM)

One way of achieving quality goals is to ensure that all aspects of the operations
process (inputs, processes and outputs) are subjected to constant quality analysis and
monitoring. This means that every aspects of the business operation is continually
assessed and then improved to promote total quality.
Role of marketing
In general language use, the word marketing is linked with advertising. In business,
marketing refers to a far greater range of activities that are undertaken by a business
in telling customers about their product and making that product attractive to customers.
Marketing can be described as an attempt to get the right goods or services in the right
quantity to the right place at the right timeand to make a profit while doing so.
Figure 2.3.04 We are confronted with thousands of marketing messages every day.
It is important for a businesss marketing to stand out so that their message is heard.
Marketing is an integral part of a business. In previous times, products were made (the
production process) and the marketing department then took over and worked to
sell the products that had been produced. As business has become more complicated
and consumers more demanding, the role of marketing the product has grown to
involve creating a demand for the product in the hope of encouraging purchases
by customers. Marketing is now also actively involved in all aspects of the making of
the productfrom the time the research and development department thinks of the
Business Management
Ensuring the selling success of a product
103
product, through to the production process and ultimately in areas such as packaging,
colour, etc. An example of this has been the marketing initiatives of the Twilight movie
series. Associated products and marketing linkages were set up long before the film
was released for showing in cinemas.
Marketing thus has an important role in supporting the prime function of
the business. Marketing increases sales and market share, so the business is helped
to operate profitably and financial goals can be achieved. Because it is involved
with all other departments, the marketing department has a special role in the
strategic planning and strategic functions of the business. From the time products or
modifications to products are formulated the marketing department will be actively
involved; its research in the marketplace will help the company decide how products
should be made or changed in order to be more attractive to consumers.
More than advertising
Figure 2.3.05 E-commerce and online

shopping reflect changing consumer needs.
The marketing department is integral to all

aspects of selling a product. Marketing helps
the business capitalise on opportunities for
profit by attracting potential customers and
keeping them long enough to ensure a
sale. Customers may be either individual
consumers or other businesses, and may be
local or international. The introduction of
the internet has given businesses a new way
to market and sell their products. E-business
(electronic business), or e-commerce, has
grown exponentially and the internet has
evolved into a system that enables a world
market to be accessed even by micro-businesses.
The traditional approach
104
The traditional approach to marketing is to take a product and promote the ways
in which it is different to other similar products. This would hopefully result in a
higher volume of sales, which would result in higher profits. In a sense, manufacturers
attempted to ensure that they sold what they could produce. However, some highly
competitive producers used techniques of high-volume manufacture, and profits were
dependent on high volumes of sales. Manufacturers now try to produce what they
can sell rather than trying to sell what they can produce. This approach to marketing
is more customer driven. By using good market research businesses find what
customers want and then create the product to satisfy those needs. Analysing the needs
of customers and supplying the product to help satisfy those needs is an important
part of the marketing process.
Identifying target markets

There are distinct groups of consumers for a businesss product. A large car
manufacturer such as Holden produces a range of cars that suit various groups.
For example, the small Holden Barina will be purchased by a different type of
consumer from the Holden Commodore or Holden Statesman. This breaking
up of the market is called market segmentation.
What are target markets?

A business can take this further and actually target a particular market that it knows
it can supply. A target market is one where the business clearly establishes who the
consumers of the product are and then aims its efforts to gain sales towards that
market. The small-car market clearly shows this trend, but other products are also
able to be characterised by their consumers. The largest consumers of potato chips are
around 14 years of age. Clothing and fashion stores have different target age ranges for
customers. Wearers of Levis 501 jeans are a target group. Riders of Harley-Davidson
motor bikes also have particular characteristics. Skim milks enriched with calcium are
statistically purchased by young females in the late 20s to early 30s category as they
want to cut down on fat but increase their calcium intake. Fast-food outlets target
different groups as they advertise individual or family-type meals.
Figure 2.3.06 HSV focuses on a specific target market.
Niche markets
Sometimes the product will appeal to such a small market that it is almost specific
to certain consumers only. This is called a niche market. People who purchase a
Lexus car become part of a special club that is offered particular services, such as
theatre tickets, etc. Buyers of HSV vehicles are also a very small group. Small specialist
shops, such as bakers and delicatessens in particular localities, also fit this category. We
sometimes refer to these sorts of manufacturers or suppliers as makers of a boutique
product. Small-output breweries and wineries and small hotels are often described in
this way. These marketing initiatives consider the individual needs of the consumer
and the way in which a business can address those needs, the end result being that
the consumer purchases from that business.
Marketing tries to increase market share

Business Management
Larger businesses fight for these sections of the market fiercely, chasing market
share and domination. Small businesses, because of their size, may find it difficult
to dominate in a particular location, product or service area.
Small businesses have difficulty competing against large-scale providers of goods and
services in terms of price, range and depth of products. Small businesses, however, do
have certain advantages due to their flexibility and lower fixed costs. A successful small
business is one that recognises a particular market in which it has an advantage and
then focuses heavily on that market. Modifying a product to make it look or perform
differentlyproduct differentiationcan help a business access a particular market.
105
Examples of small business target markets include:

small grocery storelocal consumers attracted by closeness, convenience and
personal service
commuter airlinepeople who live long distances from large airports
hot-bread shopcustomers who want fresh bread in a variety of forms
specialty ice-cream makercustomers who want a product that varies in flavour
and presentation.
Business F cus
Unhappy little Vegemites kill off the iSnack
106
Just four days after unveiling the name of its new Vegemite spin-off, iSnack2.0
is toastwith Kraft killing off the brand in the wake of a storm of protest over
its tampering with a national icon.
Hundreds of thousands of jars of the Vegemite and cream cheese mix
are now destined to become collectors items while the man who won the
national competition to name the new spread has flown to Bali. Yesterday Kraft
announced it was bowing to the court of public opinion over the Internet and
iPod-inspired name, saying it would announce a new competition on Friday in
which the public will be allowed to vote on a name to replace iSnack2.0.
The American-owned company again denied that the controversial name
was a stunt to grab attention, and has struggled to come to terms with the
volume of outrage directed against the brand over the past four days. Web
Figure 2.3.07
experts estimate that more than 90 per cent of the internet chatter on sites
Vegemites iSnack 2.0
such as Twitter, FaceBook, and MySpace was negative about the new brand
and Krafts handling of the fiasco.
At no point in time has the new Vegemite name been about initiating a
media publicity stunt, Kraft Foods Australia head of corporate affairs Simon Talbot said. `We are proud
custodians of Vegemite, and have always been aware that it is the peoples brand and a national icon.
We have turned it around quicklythe name has not worked.
Kraft chose the biggest broadcasting stage in the nation, the AFL grand final, to unveil the new
name, but was completely unprepared for the response that followed. And the companys inability to
respond to scale of the reaction was again on show yesterday when it said it needed more time to
work out what to do. `Please bear with us for the next 48 hours as we finalise how Australians and
New Zealanders can decide the new name through an independent popularity vote, Mr Talbot said.
Perth-based web designer Dean Robbins entry was selected by Kraft executives ahead of more
than 48, 000 other suggestions, but the company did not put the name into research before unveiling
it on Saturday. For his efforts, Mr Robbins and family won a trip to the AFL grand final.
Kraft sources said his trip to Bali this week was unrelated to the competition and the public
reaction his idea had provoked.
Kraft will distribute the current supply of iSnack2.0 spread to stores for sale before announcing
the new winner later in the year.
Source: Simon Canning, The Australian, 1 October 2009
Business focus activities

1
2
3
Distinguish between the target market for Vegemite and the target market for Cottees Diet
Strawberry Jam.
Explain why the Name Me marketing campaign designed by Kraft was considered a failure.
Explain how Kraft might have better managed the marketing of this new product.
The marketing mix

To achieve objectives, such as increased market share or geographical representation,
producers market their products to groups of consumers. This allows them to take one
product and emphasise different aspects of it in response to the different needs of each
group (or segment).
The marketing mix refers to the set of marketing decisions the business needs to
make for each specific combination of product and market. It will include the product
itself, the place (getting the product to the customer), service promotion and price.
Product
The product the business tries to sell is central to marketing activities. Consumers
assess whether the product fits their needs. Their decision will be based on its image,
what it is designed to do, how well it does, and maybe its name.
Brand
The brand name of a product allows it to be easily identified. Some brand names
immediately indicate quality. The name helps differentiate the product in the minds
of potential customers. Many businesses guard their brand name or associated symbols
or designs very carefully. They are usually registered so that competitors cant use or
attempt to imitate in any way the name or the symbol.
Figure 2.3.08 Mt Franklin targets a

range of consumers with differentiated
packaging.
Positioning
The positioning of a product refers to the niche that a business tries to create for that
product among competitors and consumers. Businesses attempt to make their product
seem distinctive in some waythey will attempt to create a market niche. A product
that portrays itself as healthier than its competitors is trying to position itself more
favourably with health-conscious customers.
Business Management
Packaging
Packaging design might reflect specific government regulations.
It protects the product during transport to the consumer.
To the retailer or customer, packaging also communicates
what is inside the box. Many businesses have plastic bags or
wrapping paper that immediately identify the store from
which the product was purchased. Barcodes are now integral
to packaging. They allow for quick sales at the cash register.
The wide range of products means that businesses are
constantly attempting to catch the customers eye. The local
supermarket has many examples of marketing and packaging
being closely linked.
107
Highly priced technical items, such as motor vehicles, electronic equipment and
sports gear, often carry a guarantee or a warranty to make the item more attractive to
customers. In essence they are an undertaking by the manufacturer to repair and/or
replace goods that have developed faults after they are sold.
Business F cus
Figure 2.3.09 The 100 best global brands
Rank
2009
108
Rank
2008
Employer
2009 Brand
value
($millions)
2008 Brand
value
($millions)
Percentage
change (%)
Country of
Ownership
Coca-Cola
68 734
66, 667
U.S.A.
IBM
60 211
59, 031
U.S.A.
Microsoft
56 647
59, 007
-4
U.S.A.
GE
47 777
53, 086
-10
U.S.A.
Nokia
34 864
35, 942
-3
Finland
McDonalds
32 275
31, 049
U.S.A.
10
Google
31 980
25, 590
25
U.S.A.
Toyota
31 330
34, 050
-8
Japan
Intel
30 636
31, 261
-2
U.S.A.
10
Disney
28 447
29, 251
-3
U.S.A.
11
12
HewlettPackard
24 096
23, 509
U.S.A.
12
11
MercedesBenz
23 867
25, 577
-7
13
14
Gillette
22 841
22, 069
U.S.A.
14
17
Cisco
22 030
21, 306
U.S.A.
15
13
BMW
21 671
23, 298
-7
Germany
16
16
Louis Vuitton
21 120
21, 602
-2
France
17
18
Marlboro
19 010
21, 300
-11
U.S.A.
18
20
Honda
17 803
19, 079
-7
Japan
19
21
Samsung
17 518
17, 689
-1
S. Korea
20
24
Apple
15 443
13,724
12
U.S.A.
Germany
Source: Interbrand and BusinessWeek websites 2009

1
2
Many of the best global brands are US-owned brands. Discuss reasons why this might
be the case.
If you were to compile a list of the top Australian brands, how similar do you think it might
be? Explain why.
Price
The price of a product should be thought of as a means of matching its cost of
production to the needs of its targeted customers. Will the price be set low and aimed
at the mass market or will it be set high and aimed at a specialised market segment?
If prices are set too low, production costs may not be covered. If prices are set too
high, fewer customers will be willing to purchase the product. Other factors such as
the price of competitors products, external factors such as demand and government
regulations, and internal factors such as the firms objectives or its long-term strategies,
also need to be considered when setting a products price.
Figure 2.3.10 Price plays
an important role in the
customer buying process.
Business Management
109
Pricing is one method of distinguishing a product or service from that of a rival

producer. However, charging a lower price may not guarantee increased sales. Buyers
of prestige cars believe that they are getting a better product.
If there are close competitors in the local market area, or if one particular
competitor has a large share of the market and is recognised as the market leader, price
levels will already be established. If the product or service being introduced is aimed
at a specialised segment of the market, or has some new, unique features, pricing is
normally set according to what consumers are prepared to pay. This pricing method
is known as the market approach to pricing, or variable pricing. Using this approach,
a business considering marketing a product or service would deduct their anticipated
costs from what they expect that the customer will be prepared to pay. As well, the
level of profit will have to be appropriate.
Promotion
Promotion helps match the needs of customers with those of the business.Various
promotional tools and techniques are used to promote products. The factors that
tend to pull customers towards the product at the point of sale and push the product
towards customers are:
sales promotion
personal selling
advertising
the medium used
customer service.
Sales promotion
These are short-term attempts to influence customers to buy more of a product or
to use it faster. They are usually incentives such as price reductions or cash refunds on
purchases, or free gifts such as holidays or two-for-one deals.
Personal selling
The representative of the marketing organisation, through a depth of knowledge and
positive personal characteristics, tries to persuade customers to buy. Many salespeople
work on commission-only and are paid on the basis of the orders they get, whereas
salaried sales staff are a cost to the business, whatever their level of sales. Where
commission is not easy to calculate, a bonus can be paid to all those involved in
achieving the desired result.
110
Advertising
Advertising often aims at building up a brand image and is more long-term than sales
promotions. The strategy chosen will depend on the following questions:
What is the message and why is it important?
Who is the message aimed at?
How, when and where is the message to be communicated?
The first question helps determine the positioning of the product and the
advertising theme. The other questions help decide the choice of media and placement
of the advertisement in the most appropriate medium at the most appropriate time.
For an advertisement to be remembered, it should present a clear message in a simple
and unique way. This may be by making a product instantly recognisable, or through
an unusual presentation, such as memorable visuals, humour, animation or music. If
the advertising isnt believable, customers wont buy the product. Product credibility
can be achieved by showing that the product does what it claimsusually through
user endorsements or by having experts act as spokespersons. Once launched, the
advertising should be allowed to run until research shows it is losing its effectiveness.
Constant monitoring of advertising is necessary to ensure its success.
Medium used
The most common outlets for advertising and promotion are the print media
(newspapers and magazines), radio and television. Large audiences can also be reached
through indoor signage and exhibitions, point-of-sale displays and direct mail. The
Internet allows electronic advertising to be e-mailed to many customers quickly and
cheaply. The choice of medium will depend on:
the products
the spread of the audience
the frequency of publication
the physical potential (colour, sound, movement)
an atmosphere (quality, fun, and so on) to match the image of the advertiser
and the positioning of the product
the coverage (the number of people exposed to or aware of the message)
the comparative cost of reaching a specified size audience (dollars per 1000
viewers or readers).
The chosen medium must be both cost effective and beneficial. Advertisements
will not reach the target audience if they are not properly placed. For example, an
advertisement for ski hire would not be placed in the November issue of a motorcycle
magazine.
Customer service
Customer service is provided at the point of sale and after purchase, and is seen as
an extension of the distribution of a product and a link to its promotion. This may
further help to achieve the objectives of the business plan.
Figure 2.3.11 Apple has used a distinctive and
innovative advertising campaign for its iPod range.
Business Management
111
Business F cus
AMEX campaign aims beyond old men in suits
Figure 2.3.12 My life, my card advertising campaign for AMEX
112
American Express is trying to finally slough off its image as the card of choice for older men in
suits who like fine dining and travel, with a new advertising campaign stressing the cards everyday
credentials. A multimillion dollar global push will introduce a new line, Realise your potential,
to replace the now four-year-old campaign starring the likes of Robert de Niro and Kate Winslet
proclaiming their attachment to their piece of plastic with the line My life, my card.
The campaign seeks to communicate that American Express was more than just a card and
stressed that spending on everyday items could deliver benefits such as using points for car hire or
travel, said American Expresss vice-president of brand, loyalty and rewards, Corrina Davison. We are
trying to move it away from celebrities and make it more personal by talking directly to individuals,
she said. The company drew on research that showed how consumers were less interested in buying
status purchases than they were in life-enriching experiences such as travel, hobbies or visiting
family and friends.
Ads by its agency Ogilvy feature lines like Be a traveller, not a tourist and highlight how rewards
points can be accrued with lines like What if last nights dinner could become an iPod? Traditionally
we have been associated with spending on things like entertainment and travel, Ms Davison said. This
is about broadening it to include that everyday spend.
Yet she admitted there remained a perception among consumers that American Express was not
for them because it was the charge card used mainly by men for corporate accounts, perpetuated in
part by the long running Thatll do nicely ads. The campaign begins on Monday in Australia, Britain,
Canada and Mexico and was backed by a significant spend, the company said.
Mike Ebstein, a credit card expert with MWB Consulting, said that the biggest challenge facing
American Express, which he calculates has about 13 per cent share of the Australian credit card
market, was that more people were using debit cards rather than credit cards because they did not
want to rack up debts.
Source: Julian Lee, The Sydney Morning Herald, 16 October 2009

1
2
3
American Express is reported to hold 13 per cent of the Australian credit card market. Suggest
who their main competitors might be.
Describe the new approach to marketing being taken by American Express. Explain why they have
chosen to change their approach.
Evaluate the effectiveness of this campaign with reference to the strategies used by their
competitors.
Place
Place involves the various methods of transporting and storing goods, and then getting
them to the customer at the right time. Approximately one-fifth of the cost of a
product is taken up in distribution. As distribution methods vary greatly, the features of
place to be emphasised in the marketing mix will also vary. For example, manufacturers
who prefer to sell to retailers through wholesalers would want to utilise the wholesalers
fast, efficient distribution system. If the manufacturer sells directly to the public, say
door-to-door, full product knowledge and a products lower price are emphasised.
The distribution systems used depend on the costs and benefits of alternative
forms of transport, the characteristics of the product, customers needs, the nature
of the competition, the nature of other links in the distribution chain, and the type
of market for the product. Generally, large markets are most likely to use wholesalers
and retailers in the distribution chain. In making a decision about which distribution
method to use, the location of markets and whether they are concentrated or dispersed
will be considered. Intermediaries are more likely to be used in dispersed markets.
In Australia the biggest markets are located in the south-east region. Because
of the high degree of urbanisation, most markets are found in the capital cities, with
the biggest being Sydney and Melbourne. In deciding how many intermediaries are
needed, the intensity of the distribution becomes a factor.
With intensive distribution, producers get their products into as many outlets
as possible (for example, Pepsi and Coca-Cola). Selective distribution involves a
smaller number of distributors, chosen from all those wanting to handle the products.
Exclusive distribution, as the title suggests, has a restricted number of intermediaries
handling the distribution of exclusive products (for example, Rolls Royce and
Lamborghini vehicles). Franchise systems use a similar approach, with only one
person in each district licensed to distribute the product.
Business Management
Warehousing/storage and transport

Depending on the product, producers can sell directly to the public, to a warehouse
that would redistribute the product, to various types and sizes of retail outlets or to
another producer. Each choice has advantages and disadvantages. For example, it
might pay a manufacturer to send high-value components directly to a customer
rather than through a wholesaler, since faster deliveries mean lower inventory-carrying
costs, improved cash flow (payment for the components will fall due earlier), and an
improved level of customer service.
Spending on food, which is steadily moving into the prepared away from home
market, has caused distribution problems for some companies. For example, Arnotts
was poorly placed in milk bars, fast-food chains, industrial canteens and some shops.
Consequently, they launched snack-pack versions of six product lines in the early
1990s, including the biscuits Tiny Teddy and Tim Tam.
113
Significant changes have occurred in the warehousing and storage system. There
has been a growth of specialists who replace a companys warehousing facilities or
transport services. Lindsay Foxs company Linfox is heavily involved in contract
trucking for such firms as Coca-Cola and Caltex and in contract warehousing for
Woolworths and Westfarmers.
Figure 2.3.13 Linfox is heavily involved in Australian

transport, warehousing and logistics.
114
Transportation involves the movement of goods to intermediaries and consumers.

Road, rail, sea and air are the major forms of transportation, and most goods within
Australia, both intrastate and interstate, are moved by road. The need for the efficient
and rapid movement of goods from producers to consumers has seen developments
such as refrigerated road transport, road trains and articulated semitrailers, and tankers
designed to carry liquid nitrogen and other bulk commodities. Shipping uses roll-on/
roll-off ships and container ships. There has also been a massive growth in courier
systems that provide a rapid delivery of products, usually on a same-day or next-day
guarantee.
Inventory
Inventory refers to the storage of stocks of goods on hand for consumers when
required. Because of the costs of holding quantities of stock, it is modern business
practice to hold low stocks of inventory in the form of finished goods, components
or raw materials. The just-in-time principle depends on efficient transport,
organisation and communication.
Role of accounting and finance
Figure 2.3.14 Accounting and finance underpin

the operations of a business.
Accounting and finance support the operations of a business. Accounting allows

business performance to be monitored. 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 (or expenses), and these flows of
money are recorded. Finance relates to the external sources of funding that allow the
business to perform its prime function and to make a profit using borrowed funds.
In large organisations these two functions may be carried out by separate sections
or departments. In a small business the owner is often responsible for keeping the basic
records for accounting purposes and will outsource the final accounting, auditing and
financial advice to an accountant. Banks are often involved with the financing aspects
of the business. A business owner will have a strong link to the bank as a provider of
funds, a cheque account and the processing of its money. Accurate information in both
accounting and finance is essential to maintain profits and ensure business growth into
the future.
A business can use its own revenues or other peoples funds. That is, businesses will
access finance from internal or external sources, or both.
Finance from outside sources is called debt or equity. Debt finance includes bank
loans and commercial bills provided by banks and financial markets. Equity finance is
money provided by the business owners either from their private assets or from funds
raised from shareholders.
Business Management
Sources of funds
115
External funds
Small business owners often hold profit back to reinvest in the business as retained
profits. As businesses grow and change their organisational type (i.e. from sole trader
to partnership to company), they will seek other methods of obtaining money to help
the business operate. A public company, for example, might issue new shares, which
will bring new money into the organisation.
Going public
The term going public indicates that a business is seeking shareholders to
contribute funds to the operation of the business. Many organisations have floated
their companies on the Australian Securities Exchange (ASX) and their shares are
now listed. These companies have access to large amounts of money, especially if
their company is successful. Companies involved in the resource market, such as
BHP Billiton and Rio Tinto, are examples of blue chip or stable high-performing
companies.
Private funds
Sole traders and partnerships traditionally obtain their start-up capital from their
personal savings. (The downsizing and retrenchments that occurred in the 1990s,
with the resultant payouts to employees, provided some people with the capital to start
their own businesses.) Small businesses do access the banks for finance, but they also
seek help from family and friends, and may take out personal loans.
Large businesses may seek extra funding from trading banks, merchant banks,
finance companies, building societies, insurance companies and financial markets.
Banking
Retail banking offers deposit taking, cheque accounts and credit card services and is
usually conducted in the branch network. Many businesses, especially the small ones,
depend on trading banks for overdrafts and bank loans. Overdrafts help businesses
overcome short-term money needs and help even out the ups and downs of a
businesss cash flow. For example, farmers have large cash-flow differences depending
on the season and the market need for their products.
Wholesale banking includes very large transaction services such as arranging
domestic and overseas borrowings for large companies.
116
Figure 2.3.15 Banks are an important source of business finance.
Merchant banks
Merchant banks perform the following functions:
investmentraising funds (through unit trusts), which are lent to businesses, and
management of investment funds (portfolios)
corporate financial adviceadvising companies on takeovers, mergers and raising
capital
money marketassisting companies in borrowing or lending on the short-term
money market and in dealings on the foreign-exchange market.
The money market is an important source of finance if a loan needs to be
obtained in a hurry and will be quickly repaid once goods are transferred.
Finance companies
These specialist financial institutions (many owned by trading banks) provide
medium-term financing to smaller businesses and companies. They are active in lease
financing and lending for equipment purchases.
Building societies
Building societies specialise in providing retail banking services to individuals,
especially deposits and housing loans. Many building societies have now become
banks, and can lend money for a wide range of purposes.
Insurance companies and superannuation funds
Insurance companies are growing in number and size because of the spread of private
superannuation. They are active in property financing and are major holders of shares
and government securities.
Financial markets
Larger organisations that need very large amounts of money and have the capacity to
repay the high interest rates and offer securities that are associated with such loans can
borrow for longer periods at fixed interest rates.
Once a business becomes large it can access money from the sale of shares and
also enter the money market through special borrowings from the general public
(called debentures and promissory notes). These are effectively term deposits that
large companies promise to pay back with interest after a certain time period.
Using funds
Having obtained funds through the different organisations available to a business,
there are a number of key uses for that borrowed money.
Buying capital equipment

Business Management
There is a need to constantly upgrade aspects of any business. In its simplest form
a range of equipment, plant, machinery, furniture and other such articles will need
to be purchased. As businesses grow, they usually require more labour, equipment
and machinery. Equipment that makes labour more productive becomes essential,
especially in a small business. Therefore, significant amounts of money are constantly
needed to keep a business productive, efficient and competitive.
117
Figure 2.3.16 Debt and equity funding is often used

to fund capital equipment purchases.
Funding operations
Funds are also needed for the smooth operation of the business. An overdraft, for
example, will help smooth out the cash-flow differences that occur over different
time periods. Small businesses suffer from not being able to easily access money to
fund activities, and new contracts for work often present difficulties in how to pay for
inventory and labour before the final payment is received. Other systems of monetary
control such as factoring, when a business sells its accounts receivable to a third party,
are also used.
Assisting growth
As a general rule, it is better to undertake new ventures using other peoples money
(especially if the lender views the business as a good risk). As a businesss sales increase
or it sees opportunities to expand (with, say, a new branch), it will seek funds to
undertake the expansion. The new funds will help the business to become larger
and to increase its influence in the market.
118
Debt versus equity

Debt financing comes from loans (borrowed funds). The business goes to an outside
source for the money that it needs for particular projects. The interest due from
large loans needs careful consideration. The accounting process assists a business to
determine exactly how much is an affordable amount to borrow. Equity financing
comes from the owners of the businessit is either retained profits or personal savings.
The business will draw on funds from within the organisation: either retained profits
in the case of small businesses or retained dividends in the case of larger companies.
Small businesses will often re-invest their profits in capital assets in an attempt to
minimise taxation, such as purchases that are tax deductible. So less tax will be paid
and the equipment will benefit the owner and the business.
Financial statements
The accounting department monitors money coming into
(revenue) and money leaving (expenses) the business.
To make a profit, revenue must exceed expenses.
Keeping good accounts and having a good accounting
system enables a business to keep track of the flow of
money (transactions). Transactions are supported with
documentation, called source documents.
Source documents show proof of the movement
of money and goods through a business (see figure
2.3.18). Every transaction can then be recorded in
journals and other books. Source documents begin
an information trail passing through the accounting
process of journals and ledgers which record and balance
transactions. Every business needs to know how it stands
financially. This information is gathered in a preliminary
report called the trial balance. However, two very important
documents, produced yearly, give far more detail about the
businessthe revenue statement and the balance sheet.
Figure 2.3.17 Accountants record and monitor

all financial transactions in a business.
Record-keeping
procedures
Making
payments to
suppliers
Receiving
money from
customers
Order form
Cheques
easier
safer
convenient
Give
receipts
Invoice/
statement
The cheque
butt
Delivery
docket
Bank
overdraft
Cash book
Receipts
from debtors
from sales
receipts
given
Payments
to creditors
receipts
received
cheque butts
Figure 2.3.18 Record-keeping

proceduressource documents
It is essential that transactions are recorded and processed so that an accurate

assessment of the businesss finances can be easily and quickly established. Knowing
a businesss current state of profit or loss is crucial to responding quickly to changes
and remaining financially viable.
Banking
Statement
reconciliation
Business Management
Ordering
supplies
119
The major journals are: Cash Receipts, Cash Payments, Sales, Sales Returns,
Purchases, Purchases Returns and the General Journal. They record the movements
of moneycash or creditand the accompanying movement of goods. Source
documents are kept on file and can be used during times of audit to verify the entries
that have been made in the journals.
Figure 2.3.19 shows the linkages between the original source documents and
the final processes of analysing a business using the major documents, the revenue
statement and the balance sheet. The revenue statement and balance sheet provide
a business with a summary of the movements of money through the business and
how money from sales has been spent.
Transaction
Source
documents
Entered
daily into
Cash
receipts
Cash
payments
Credit
sales
Sales
returns
Credit
purchases
Purchases
returns
Other
transactions
Receipts
issued
Cash sales
docket
Cash register roll
Cheque
butts
Receipts
received
Invoices
issued
Credit
notes
issued
Invoices
received
Purchases
returns
Other
documents
Cash
receipts
journal
Cash
payments
journal
Sales
journal
Sales
returns
journal
Purchases
journal
Purchases
returns
journal
General
journal
Ledger accounts
Posted daily
to ledger
Trial balance
120
Done as
frequently as
required by
management
but at least
once per year
Income statement
Balance sheet
Analysis of final accounts for decision making by management

Figure 2.3.19 The accounting process
The income statement

The income statement (also known as the revenue statement or profit and loss
account) links all the previous information that has been part of the accounting
process. It summarises the structure of the revenue that has come into the business
and the expenses that have been incurred in running and operating the business.
Computers have greatly increased the ease with which revenue statements can be
produced. As a minimum, the income statement should be done once a year, but large
organisations produce them monthly to evaluate their performance.
Through the bookkeeping and accounting process the business is able to look at
two main items that will show how the business is performingthe gross profit and
the net profit.
Gross profit
Gross profit is calculated by subtracting the costs associated with sales from the value
of sales (or revenue). In the income statement for Earle Baker Pty Ltd (see figure
2.3.20), this simple calculation is expanded by including some other variables:
the relationships between stock levels at the beginning and the end of the
accounting period
other purchases of stock during the year
the costs of freighting these purchases to the business
discounts received on some purchases.
Net profit
The net profit is calculated by deducting from the gross profit the other expenses that
were part of operating the business. These operating expenses can be:
selling and distributing expenses: All the costs associated with selling and
distribution, including advertising, salaries and commissions of sales staff, and
delivery expenses (including repairs to and depreciation of delivery vehicles)
general and administrative expenses: Overall organisation and administration
expenses, including wages and salaries of office staff, stationery, etc.
financial expenses: Expenses associated with financing the business or collecting
money owed to it, including interest on loans, bad debts, and discounts allowed.
The final net profit, determined by the income statement, indicates the businesss
performance. This profit figure is also used to determine regulatory and statutory
requirements such as taxation requirements.
Business Management
121
Sales include all cash and credit sales made to

customers. Also known as turnover or revenue.
Stock (inventory) at beginning of the trading
perioddetermined by stocktake
Income Statement for Earle Baker Pty Ltd

for year ended 30/06/10
$
Sales
Opening Stock
Plus:
Purchases
Freight Inwards
20 000
250 000
4 000
274 000
Less:
Closing Stock
3 000
Cost of Goods Sold
271 000
Gross Profit
Gross profit is the profit earned from sale of goods
minus cost of producing goods.
Expenses are the more detailed expenditures
a business incurs in trading.
$
400 000
Less:
Purchases include the inventory bought during the

period of trading.
Stock at the end of the trading period
Cost of Goods Sold represents the actual cost
of the goods that were sold.
Plus:
129 000
Other Income
Discount Receipts
400
400
129 400
Less:
Other Expenses
Selling and Distribution
Expenses
The selling and distribution costs associated

with operating the business
Advertising
15 000
Commission
3 600
Delivery Expenses
1 200
19 800
General and
Administrative Expenses
Rent
Wages
Stationery
Depreciation
Office Furniture
The office-type expenses associated with operating
the business
Depreciation
Equipment
Sundry Expenses
5 500
65 000
1 800
120
4 250
800
77 470
Financial Expenses
Discount Allowed
The financial cost associated with selling the items

during the trading period
Gross profit minus the total expenses
Income tax required by this level of net profit
Final amount of money earned by the business
over the trading period
122
500
Bad Debts
2 200
Interest Paid
8 000
10 700
Total Other Expenses
107 970
Net Profit Before Tax
21 430
Less: Income Tax Expense
20 000
Net Profit After Tax

Figure 2.3.20 An income statement
1 430
The balance sheet

The balance sheet is the final document that is
produced at the end of the full accounting process.
It is built on the accounting equation:
Assets = Liabilities + Owners equity
This simple equation shows the linkages
between what the business owns (the assets),
any current loans and borrowings (the
liabilities) and the original amount of money
put in by the owner(s).
A revenue statement shows the owners
where the money that the business earned
came from and the expenses incurred. Using its
money, the business buys things of value to help
it operate. The balance sheet shows the owners all
the things that have been done with its earnings.
The three parts of the balance sheet are assets,
liabilities and owners equity.
Figure 2.3.21 A balance sheet is a snapshot

of the financial position of a business at a
certain point in time.
Assets
Assets are items of value. There are three types of assets:
Current assets: these are cash or items that can very easily be converted to cash.
They also include stock, debtors, accounts receivable and pre-payments.
Non-current assets: these are more durable and usually more expensive. The
business does not expect to sell them or use them up in the accounting period.
They may be difficult to sell quickly. They include buildings, furniture, land,
machinery and office equipment.
Intangibles: these are difficult to measure and value. They include goodwill,
trademarks and patent rights and they can be of immense value when selling
a business.
Liabilities
Liabilities are items that the business owes to other people or organisations.
Current liabilities: these include short-term debts that need to be repaid
generally within 12 months or the financial year, bank overdrafts, creditors,
accounts payable and accruals.
Non-current liabilities: these include mortgages (land, buildings), and loans
for large machinery and equipment (usually large, long-term loans).
Business Management
Owners equity
A business owner starts the business with personal investment that could have been
invested in other ventures, so it is reasonable for the owner to expect a profit as
compensation for the risk involved in operating the business. In large companies,
owners equity is usually replaced by shareholders funds because the shareholders own
the business. Owners equity can be:
Paid-up capital: this is the amount of money originally put into the business; a
good basis for determining the success of the original investment.
Reserves/retained profits: this is the amount added to the original money put
into the business. Often owners have re-invested in the business or are preparing
to do so.
123
Net profit: this is the figure calculated in the revenue statement for a certain
trading period, presented as a net profit before tax or a net profit after tax.
The balance sheet is usually set out using the fully classified or statement form.
This format enables a person to quickly assess the important sections, and to add
more information. Information such as how much profit was made relative to
loans, and what assets were purchased, is important for planning. An annotated
balance sheet is shown in figure 2.3.22.
Balance sheet of Earle Baker Pty Ltd as at 30/06/XX
$
Assets are things of value owned by the business.
Assets
Current Assets
Current assets are valuable items that can

be turned into cash.
Cash at Bank
10 000
Accounts Receivable
17 800
Closing Stock
3 000
Rent Pre-paid
12 500
43 300
Non-Current Assets
Equipment
Less: Provision for Depreciation
Non-current assets are valuable items that are
usually highly priced and not easy to convert
to cash.
Office Furniture
Less: Provision for Depreciation
17 000
4 250
12 750
12 000
120
11 880
Total Assets
Liabilities are things that are owed by the business.
24 630
67 930
Liabilities
Current Liabilities
Current liabilities are borrowings of a small

or short-term nature.
Bank Overdraft
4 000
Accounts Payable
5 500
Advertising Accrued
5 000
Income Tax Payable
20 000
34 500
Non-Current Liabilities
124
Non-current liabilities are larger loans and are

usually taken out over a long time period.
LoanFurniture
3 500
LoanOffice Equipment
8 000
Total Liabilities
11 500
46 000
Owners Equity
Paid-up Capital
Owners equity is the amount of money the
owner(s) put into the business and may be
reinvesting in the business.
The final balances must be equal according
to the accounting equation:
Assets = Liabilities + Owners equity
2 500
18 000
Net Profit
1 430
Total Owners Equity
21 930
Total Liabilities plus

Total Owners Equity
67 930
Figure 2.3.22 A balance sheet
Business F cus
GMA Tax Pty Ltd
Business Management
Rhonda Leach is the Managing Accountant for GMA Tax Pty Ltd. With a long history of working in the
field of accounting and finance, Rhonda summarises her job as: to be a support and to get my clients
out of financial difficulty. She deals with about 1800 clients each year.
Rhondas work is concentrated in these areas:
1 Preparing taxation returns for individual salary and wage earners.
2 Preparing taxation returns for sole traders who are categorised similarly to individuals by the
Australian Taxation Office.
3 Preparing taxation returns and specialised documents for business clients, which are presented
as full financial statements and include:
revenue statements (profit and loss account)
profit and loss appropriation statements, with extension information involving dividends,
depreciation schedules and tax payments
balance sheets.
Rhondas clients are individuals and sole traders (80%), partnerships (11%), private companies
(5%), family trusts (1%) and audits (3%). Auditing entails looking at the accounting records to
ascertain that they have been kept accurately. It is basically an inspection by an independent person
outside the firm, verifying the accuracy and legality of an organisations books.
As an accountant, Rhondas chief areas of advice to clients include:
financial advice for the individual and the business owner(s) as appropriate
legal aspects of income and taxation laws relating to wages, prescribed payments
(superannuation) and WorkCover
taxation requirements of the individual or the business (for example, company tax)
land tax requirements for investment properties over a predetermined value of landcurrently
on land values over $160 000
company advice with regards to the requirements of the Australian Securities and Investments
Commission (ASIC).
Financial statements are used by businesses to modify their financial arrangements. Financial
institutions need to see the state of the business in order to make decisions about extra financial
assistance (loans). These documents indicate successes or problem areas. The ratios derived from these
documents help indicate the position of the business in its goal of making and maintaining a profit.
Cash flow can also be studied for past months, but financial institutions such as banks, before
approving a loan, will want to see a projection of the earnings, month by month, into the future.
Cash-flow projections are usually provided for a 12-month period.
We use the profit and loss and balance sheet methods without even knowing. An example could be:
Profit and loss statement (where did the money go?)
Income
$
$
Casual wages
85
Pocket money
25
Total income
110
Less expenses
Bus
10
Food and drinks
34
Movies
14
Video hire
5
Clothes
29
125
Total expenses
92
Total profit for week
18
Balance sheet (where is it now?)
Bank account
10
Wallet
8
Total assets
18
Clients basically want me to hold their hand in the making of financial decisions. They have two
main demands. First, this is what I want to dowhat do you think? Second, this is what Ive donewhat
do I have to do now? Sometimes the worst part is having to bring things together so that a process can
be financed properly, and conforms to what is legally allowable as regards taxation and other legislative
restrictions such as superannuation. Often, there is a need to repair damage done simply because the
business did not know its obligationsthats where we earn our money! Rhonda said.

1
2
3
4
5
List and explain the chief services and areas of advice an accountant offers clients.
Describe Rhondas clients. What are trusts?
Describe how businesses use their financial statements.
Explain how income statements and balance sheets are used by accountants.
Construct an income statement and a balance sheet for your own income and expenditures.
What is cash flow?
126
Businesses exist to make a profit. Profit is the simple

relationship of selling a product at a higher price
than it costs to make. However, to keep up with
payments and financial commitments and stay active,
the business needs a steady flow of funds. Liquidity
describes a businesss ability to meet its debts from
its cash inflows. Money must continually pass
through the business. Sales revenue pays for the many
expenses. It is important to watch these movements
of money and be aware of how promptly the business
is able to pay its creditors and collect money from
its debtors. This might be difficult if the
business is seasonal.
All aspects of a business depend on its
ability to pay bills as they become due. If it
cant pay its bills it will be declared insolvent
and cease to exist. Cash flow also affects the
ability of the business to plan for future events,
as these should ideally be funded without further
borrowing. A business will be able to obtain a loan
only if it can prove that the loan can be repaid.
Cash-flow budgets will help a business predict
if and when cash shortages are likely to occur. Such
shortages may need to be covered by short-term loans
such as bank overdrafts. Regular (usually monthly)
cash-flow budgets and statements allow such needs
for finance to be recognised and acted upon.
Figure 2.3.23 A cash-flow statement

provides information about a firms ability
to meet short-term financial obligations.
Figure 2.3.24 A cash-flow statement

Peters Music Shop cash-flow statement for the period ending 27 February 2010
$
Opening cash balance
$
31 600
Less Cash from operations

Cash payments from operations
5 000
Cash received from customers
1 000
4 000
27 600
Less Cash payments for non-current assets

Equipment
25 000
Closing cash balance
25 000
2 600
Business F cus
Advice from the Breadwinners
Business Management
For financial controller Kerrith Sowden, budgeting provides the information she needs to keep on top
of the business finances at Marrickville bakery Manna From Heaven.
We do a detailed annual budget which predicts turnover, what it will cost us to manufacture
the cakes and then what our profit will be. The part that you do have control over is the costs, such
as your salaries, property and general running costs, she says.
In good times we all get a little bit lax but at this stage everyones turnover is dropping, so were
all having to be much more careful about what we spend. So we need to go back to our ingredient
suppliers and ask if we can negotiate a better price if we buy in bulk or buy more over time.
Production costs are now under close scrutiny.
We are making sure we are using the most efficient processes and not wasting ingredients or
labour, Sowden says. We manufacture cakes and biscuits and its expensive to offer a lot of products.
Were now just offering our most bought products as the others are very expensive to make.
For Sowden, cost cutting can be achieved through creative solutions.
Out overheads are pretty fixed unless we cut staff, so were looking at subletting some of our
unused office space, she says. Our kitchen isnt used on the weekend, so were aiming to sublet that
to smaller bakers who only need a kitchen at night or on the weekends.
Weve had no salary increases; theres a freeze on. People understand it, as almost every news
article is about the global economic crisis; they are almost grateful as they know you are doing it
so you keep their job at the end of the day.
As well as reviewing her budgets monthly, Sowden is increasing Manna From Heavens
cash reserves.
127
Im keeping more cash in the bank in case bad times get worse, she says. but were also putting
a big focus on customer service; weve employed a sales rep to go out and visit all our customers its
the same way the owner started the business.
Source: Sue White, The Sydney Morning Herald, May 2009

Outline the various strategies that the financial controller at Manna From Heaven has implemented
in response to the challenge of the 200809 global financial crisis. Evaluate the effectiveness of these
strategies for this business.
Key uses of financial statements
Owners and managers need to be constantly aware of their financial position. Poor
financial management is the major cause of failure. Some business owners and
managers are skilled at working with this information; others desperately need good
financial support from accountants and financial controllers.
The revenue statement and the balance sheet provide information to owners and
management about how a business performed. In essence, financial reports provide an
opportunity to statistically analyse the successes and failures of business decisions and
actions. If action is taken early enough, corrections and adjustments can be made and
the business kept profitable. Comparisons can be made within and across businesses
and over time.
Businesses can be compared in the following ways:
Time comparisons: these show improving or declining trends. For example, if
operating expense ratios show a marked increase in the current year and a fall-off
in sales was not the cause, the firm needs to identify which costs have increased
so the problem can be corrected quickly.
Industry average comparisons: the average figures are prepared by industry
associations, the Australian Bureau of Statistics, the Financial Management
Research Centre and magazines such as Business Review Weekly and Retail
World. These sources provide average gross profit margins and enable a business
to ascertain how well it is performing within its industry.
General business standards: banks and other lending bodies analyse financial
information about business types to assess ability to repay. They often use accepted
benchmark standards that apply to all businesses. For example, the accepted
business standard is a debt to equity ratio of 60 per cent or less.
128
Business F cus
Average industry profit comparisons
The information below relates to the percentage returns of net profit to various industry groups.
Answer the questions that follow after studying the statistics.
Figure 2.3.25 Australian industry statistics, 200608
Industry
Net profit margin

(industry average)
200708 (%)
Net profit margin

(industry average)
200607 (%)
Agriculture, Forestry and Fishing
11.5
10.4
Mining
37.9
36.5
8.6
8.1
Electricity, Gas, Water & Waste
13.8
16.4
Construction
11.7
12.6
Wholesale Trade
4.8
4.6
Retail Trade
4.2
4.3
Accommodation & Food Services
6.8
9.6
Transport, Postal & Warehousing
13.0
12.8
Information, Media & Telecommunications
15.7
14.8
Rental, Hiring & Real Estate Services
44.1
49.4
Professional, Scientific & Technical Services
21.8
19.3
Administrative and Support Services
13.6
10.2
Public Administration & Safety
9.2
11.8
Education & Training (Private)
24.5
18.9
Health Care & Social Assistance (Private)
18.9
22.4
Arts & Recreation Services
14.9
15.1
Manufacturing
Source: Australian Bureau of Statistics, 28 May 2009

1
Business Management
Explain why profit margins are so high in the top five most profitable categories relative to the
bottom five least profitable.
List the specialised skills, education and training of owners/operators/employees in the top five
most profitable categories. Explain how these qualifications relate to the profit returns as shown
in the table.
Compare the returns for the top five most profitable businesses with the set-up costs for these
businesses. Construct short lists of the items that would be necessary to operate these businesses
and estimate the costs of these items.
129
Budgets as planning tools

Budgets guide and control the firms activities so its targets and objectives can be
achieved. They are generally expressed in monetary terms, and based on general trends
and conditions. Budgets prepared by businesses include sales budgets, capital budgets,
cash budgets, profit budgets and raw materials budgets.
Sales budgets
These budgets show expected sales for the next sales period, usually a year. They
need to be continuously modified to take into account changes in economic and
market conditions. Sales budgets help to estimate production targets at the operations
level and link expected cash flows and revenues, and provide the means to achieve
targets over the year. Salespeople operate under the pressure of achieving such
budgetary targets.
Capital budgets
Capital budgets list proposed spending on all capital items, including fixed assets
such as land, buildings and equipment, furniture, maintenance, permanent working
capital, and research and development. They include how much will be required, and
when. The relative merits of capital items will need to be considered, as will the risks
involved in making capital outlays.
Cash budgets
The cash budget is designed to ensure that the business will be able to meet its
financial obligations when and as they fall due, by forecasting expected monthly cash
receipts and payments. Cash shortages and surpluses can be predicted and planned
for by arranging overdrafts or investing surplus cash on a short-term basis. As most
businesses depend on the sale of goods and services for their cash, the accuracy
of a cash budget depends on the ability to reliably predict sales.
Profit budgets
The profit budget is based on projected (anticipated) sales, the selling prices that will
be achieved and the costs of operating the business. Price controls and cost cutting
will be major links to achieving this budget target.
130
Raw materials budgets

The raw materials budget aims to calculate the quantity and cost of these resources
for the next period of operation. The purchases of raw materials (and labour)
budgeted for will depend on the predicted physical level of production and forecast
sales, plus an allowance for spoilage and waste. The costing for raw materials will
be based on this total figure, calculated for each raw material type (and component
input). The budget for inventory purchases (stock) will be determined by the amount
of raw materials (components) needed to prevent any disruption to production.
This may be an arbitrary percentage of the firms raw materials needs, or it may be
determined by experience or the nature of the production process. It may also be
determined by the costs (for example, discounts for bulk purchases).
Inventory levels
For retail businesses, inventory levels will be based on the minimum amounts needed
to service predicted sales in each period. This will be adjusted according to the rate
of turnover of this stock, the amount of lead-time needed to ensure deliveries arrive
in time, and the level of reserve stock considered desirable to avoid disruption to sales.
A good indicator of this process can be seen in grocery stores, such as Franklins, Coles
or Woolworths, when they restock their shelves on Thursday evenings.
Labour
Labour hours for manufacturing firms will be budgeted for on the basis of the
predicted volume of production multiplied by the average number of hours needed
to produce one unit of output. The hours may be based on past rates, industry-wide
levels or time and motion studies. Expected wage rates for the period can then be
applied to this figure to give a costing for direct labour, and on-costs such as annual
leave, superannuation and sick leave, could then be factored in to give a final figure.
Why use budgets?
Business Management
Budgets as planning tools have many advantages.

They:
encourage forward planning and the setting
of realistic goals and policies
encourage a re-evaluation of existing areas
of a business in the light of present and likely
future business conditions
help coordinate the activities of various parts
of a business
provide a yardstick against which business
performance can be measured
provide information for further planning,
and indicate if changes to the plan are needed
encourage and motivate staff
guide the use of inputs,
especially scarce funds which
will be allocated according to the
priorities of management.
Management can consider the firms
objectives, decide which activities are
most important, and then direct resources
to the most appropriate areas. Budgets
also allow management to evaluate the likely
financial effects of different strategies and choose
the most appropriate in terms of the business
goals. Problems can be identified ahead of time
and appropriate action taken.
Figure 2.3.26 A budget is a financial plan that acts
Budgets translate management plans into
as a road map to achieve a businesss goals.
money terms and help forecast future events. The
firms activities can then be guided and controlled so that its targets can be reached.
For example, a cash-flow budget, which indicates a firms inflow and outflow of cash,
may have to be reviewed in the light of changes to sales or production levels.
131
Human resources
Employers and employees are at times in
situations where there is a difference of opinion.
A common complaint from employees is that
they are underpaid, while employers are often
concerned that they are not getting full value
from their employees. The term industrial relations
is generally applied when conflict occurs between
these parties.
Human resources involve all aspects of an
employees relationship with the businesspay
and conditions, and the legal obligations an
employer has to ensure a safe and supportive
working environment.
In large businesses the role of dealing with
the human resource needs of the organisation
is undertaken by the human resource (HR)
department, which is led by the HR manager.
This department is seen as crucial to the success
of a business and human resource management is
involved in all the departments of a business. Although
Figure 2.3.27 Human resources are
the recent trend has been to outsource jobs, these
the most valuable asset of a business.
contract employees are also recognised as making
a contribution to the operation of the business.
Organising and monitoring contract employees is an important function of the
HR department.
The human resource cycle

The human resource cycle refers to the processes involved in the employment of
people within an organisation. Employees are employed by a business, they work and
contribute to that business, and at some stage they will leave the business. This process
can be formalised, as shown in figure 2.3.28.
Recruitment
132
Selection
Acquisition
Human resource
management
processes
Development
Separation
Recruitment
Figure 2.3.28 Linkages between human resource management and employees
The acquisition of human resources

The labour requirements of the organisation need to be constantly evaluated. Staff
needs assessment is an integral part of the corporate plan of large businesses or the
business plan of small businesses. The process of acquisition of employees includes
recruiting, selecting and inducting. Structures to help new staff fit in are extremely
important. HR managers attempt to build workers into teams so that they can
cooperate and contribute to the operational efficiency of the business.
Identifying staffing needs

In small businesses the need for extra employees becomes apparent when the
workload becomes too great for the existing employees. In larger businesses the
HR department will work closely with the planning aspects of the business, across
all departments, to ensure appropriate levels of workers.
The HR department is involved at all stages of planning, including the forecasting
of sales budgets. Sales budgets have a direct link to the production process, as the goal
of making a profit depends on having the products to sell to consumers. Having the
right amount of labour is crucial to the success of any forecasts, so labour needs are
often considered at the same time as other planning is done. As well as employing
the correct number of people, allowance needs to be made for employees leaving the
business.
Recruitment
After a need for a job within the business is defined, a job description and person
specifications are drawn up. The search for a person to fill the position begins.
Recruitment is the process of attracting people to apply for vacancies. Selection is the
process that follows on from recruiting, where certain candidates are selected from
those who have applied for the job. Traditionally there are two major sources for
recruiting new peoplefrom within the firm (internal recruitment) or from outside
the firm (external recruitment).
Figure 2.3.29 Once staffing needs

are identified, jobs are advertised.
Business Management
133
Internal recruitment
Most businesses try to recruit people from their own organisation either through
promotion or transfer. The major advantage of this approach is that an investment of
time and training has already been made in these people and they will be familiar with
the operations and culture of the organisation. Internal recruitment is an incentive
to staff to try for promotion. Large businesses with internal newsletters, such as IBM,
BHP Billiton and government departments, actively advertise job opportunities.
External recruitment
External recruitment is often necessary because a particular job may require
specialised training and expertise, and it may be uneconomic for the business to
develop its own workers. A person from outside an organisation may bring new ideas
and processes to the firm and help increase morale and productivity.
Bringing new people into an organisation at lower levels causes little disruption.
At higher levels of management, disruption is sure to occur, as often new directions
for the whole operation may be put into place. Some advertisements for managers
at higher levels specify change management as a necessary part of the job.
Levels of recruitment
Any form of recruitment and selection costs time and money. In its simplest form, the sole
trader will quickly interview someone who has responded to a sign in the window of the
shop or office or an advertisement in the local paper. Larger organisations may undertake
extensive advertising campaigns that could include national and international advertising.
Finding high-level executive positions using private recruiting organisations is
referred to as head hunting. A business will approach such an agency, which will
search for potential applicants. In the search, potential recruits whose reputations are
widely known will be approached. In engineering, for example, as contracts for new
projects are won and new staff needed, a project manager of proven ability may be
required. A recruiting agency will search for candidates who may be looking for a
new project as their current one is nearing completion. The costs for this service will
usually be one months salary of that being offered to the successful candidate, but can
go as high as 40 per cent of the yearly salary.
134
Business F cus
Soft skills lead to success
People management focuses on hiring as well as driving performance
Lee Bakerman has interviewed many people throughout his career in HR but one stands out: the
candidate who asked to check his emails on a company computer while waiting to be seen. Bakerman,
then in his first year working in HR, thought the request strange, but agreed. Later it became obvious
the computer had caught a virus, and that candidate had spent his time on an online gambling site.
(He didnt get the job.)
Looking after an organisations human resources may, at times, be stressfulbut is seldom boring.
HR spans hiring and promotions, training and mentoring, but can also involve terminating employees
for performance or behavioural reasons. HR has changed greatly over the years, and come a long way
since starting to extend beyond payroll matters in the 1960s and 70sin a worldwide trend at the
time, the profession embraced employee relations and organisational and people development.
Today, HR executives have a business-partner role and link their initiatives to their organisations
key performance indicators focused on driving performance. On average, an organisation will have
one HR worker per 100 employees. Even the best HR efforts are only as effective as the head of an
organisation allows. With backing, ambitious planssuch as changing the culture of an organisation
can be implemented. But recruitment still remains an important task.
At French energy giant AREVA, Bakerman is often involved in recruitment for middle-to seniormanagement positions. And when the HR director for the Pacific region conducts interviews, one of
the things he looks for is cultural alignment: The hard skills are a prerequisite for the roles, but its the
soft skills that will make a manager successful in our organisation.
While candidates should prepare carefully for interviews, they should still be themselves, he
believes. I once heard of a silly practice where an employer was turning away good candidates
because they wore white sports socks, or rolled up their shirt sleeves, believing it showed a lack of
professionalism or commitment, Bakerman says. Theres no point in pretending to be someone youre
not. The truth always comes out and the candidate also needs to be sure that the company they are
joining will be the right `fit for them.
While some universities and recruitment consultants encourage people not to stay with the same
employer for more than five years, if a worker has a record of changing jobs to get a promotion it may
raise questions. If theyre being promoted internally it means they have proven themselves already.
Source: Vivienne Reiner, The Weekend Australian, 30 August 2008

1
2
3
Describe how human resources management has changed since the 1960s.
Explain what is meant by cultural alignment.
Discuss the advice give about the recruitment and selection process by the HR managers
in the article.
Selection
Business Management
The task of advertising and selecting the right person for a job has become a crucial
part of the function of the HR department. Selection of the person for the particular
position will start once replies to the recruitment effort are received. Replies can
take many forms. They can be anything from a simple filling in of an application
form through to the presentation of full resumes. Depending on the level of the job,
interviews can be relatively informal, with only one interviewer, or more formal, with
a panel of interviewers. The selection process is crucialhaving the best people is the
best way of achieving business goals.
Once the interviews have been conducted, the successful candidate is offered the
job. Other candidates may be put on an eligibility list in case the first person declines
the job. If the job is accepted, the candidate will then go through a process of being
introduced or inducted into the business.
135
Training
Training is a process that aims to improve specific skills and knowledge. It is usually
achieved in the short term and can provide almost immediate benefits to the person
being trained. An important type of training is the induction programthe program
that new recruits undertake to introduce them to an organisation. It is particularly
important if safety issues are involved.
Through training and development, the existing skills of employees can be
enhanced and new skills acquired. Increased performance should result from training,
which will benefit the whole business. New skills might mean that an employee can
offer customers another service.
When it is established that there is a need to have staff trained, there must be
programs provided to help staff reach their full potential. Most businesses see the
importance of continually training and reskilling employees so that they contribute to
the efficiency and competitiveness of the enterprise. Developments in technology, for
example, have made training imperative and the frequency of new computer software
packages means that there is a necessity for continuous training of employees.
Traditionally, younger workers were taken on by businesses, which then took part
of the responsibility for their training. This apprenticeship and cadetship/traineeship
system enabled the business to train the employee in the practical aspects of the job,
and external educational facilities such as TAFE and tertiary institutions provided the
more theoretical knowledge. The business hoped that the person would stay with the
business once their training was completed, and thus the firm gained a fully qualified
employee. With the trend in recent years to rationalise and downsize, many businesses
have stopped these traineeships and prefer to employ people who are already trained,
qualified and experienced in the work the business requires. This may be more costly,
but the employee is able to contribute to the business immediately.
The development of human

resources
Development can be defined as the process of
preparing employees for advancement to
jobs where their capabilities can be used
to the greatest extent. Development
includes enhancing an employees
career path so that the employee
not only grows personally but also
contributes more to the business.
Businesses have always seen the advantages
of developing their staff. They do this through
education programs within the business or
by sending staff to external conferences or
training programs. Newly developed skills
benefit the employee and the organisation.
The realisation that Australia must become
more internationally competitive and have
higher levels of education has also encouraged
workers to develop greater skills.
Figure 2.3.30 On-the-job training is offered
through apprenticeships and traineeships.
136
Business F cus
Allan Morton, mechanic
Allan had worked as a mechanic for five years with a small business operator, Bills Auto Repairs, and had
completed his apprenticeship. However, he became sick of working with cars that needed large amounts
of repair but whose owners could not afford the costs so repairs were always done to a minimum.
A position for a mechanic came up at the local Toyota dealership and he applied for the job.
Having been accepted he was looking forward to beginning work on a range of cars, but in particular
on the new cars that would come in for their regular services. He was also looking forward to working
on expensive new vehicles that made up the Toyota range.
After an initial induction program to familiarise him with the processes of the dealership, Allan
began working on a range of vehicles. He was most impressed with the diagnostic computers that
simply plugged into the cars to assist in servicing the enginethis was certainly different from his last
workplace! He was surprised to be placed with a small group of mechanics. There were three groups
in the workshop and each had a person from the service counter as their leader. His group was simply
called the Red Team. He gradually became aware of the processes followed by the team.
Each morning they had a briefing with the team leader. Pre-booked cars were divided among
the team. Initially Allan worked closely with one of the senior mechanics, and he was responsible for
picking up the paperwork before commencing a job. He was required to obtain parts for the job from
the dealerships spare parts store, next to the workshop. He had to check these with the team
leader and add the information to the computer file for the work in progress. He would also ring
customers to seek permission to undertake any special repairs that were found to be necessary. If
customers queried the repairs or asked questions when picking up the car Allan would explain why
certain things had been done. Most of these extra duties were new to Allan. In his previous job the
owner, Bill, had handled them. Although Allan felt uncomfortable at first, he realised that it was good
to be accountable for the work being done on a customers car. He knew that any problems would be
handed back to him to fix!
Allan also enjoyed being part of a team, and enjoyed the evening training sessions when they
looked at features of the new vehicles being released. As his computer skills increased, he felt more
comfortable with the paperwork involved. He was happy that he had made the change.

1
2
3
4
5
6
Identify the new skills Allan acquired in his new place of employment.
Outline the reasons computers have become so important in businesses as a general tool.
Identify the particular applications computers have in cars and in servicing cars.
Examine how this organisation emphasised the team-work aspect of servicing cars.
Explain how Allan was more accountable for his work with this organisation.
If possible, visit a local new-car dealership and research the linkages computers can provide
between the individual car, the sale of the car, the service area and the spare parts area.
Businesses have the responsibility of developing staff, usually through training, to

ensure their efficiency. There is also a social responsibility to ensure that staff are happy
in their work. In order to achieve this, businesses need to keep accurate information
about employees and their particular level of achievement and the directions that their
training and development needs to go to make them better assets to the business.
Business Management
Developing and maintaining databases
137
Figure 2.3.31 HR databases maintain a range

of information about employees.
Such information is best kept using

databases, usually the responsibility of the
HR department.
The demands placed upon employees
in the highly competitive global business
environment of the 21st century are
extensive. Workers need to be multiskilled,
widely experienced and able to pick up
new skills easily. A special responsibility
has been placed on employers to develop
career paths for their employees and
ensure training to assist in professional and
personal growth. To help bring this into effect,
businesses need accurate details of workers and
efficient databases.
The maintenance of human resources
138
Having worked to provide a rewarding environment for employees, an organisation

needs to strive to maintain a high level of commitment. By establishing a teambuilding approach, the HR department assists the staff to work together for the
advancement of the business and the employee. In small and large businesses it is
important to involve workers in exercises that are additional to the basic work regime.
This may be in the form of social functionsmeals, sporting events and theatre
bookingsand other activities, such as conferences or staff development programs.
Company reviews and quality assurance evaluations can be important team-building
exercises that motivate people to work together better.
Once staff have been recruited and trained, it is vital to provide working
conditions that encourage staff to stay with the business. Employers try to maintain
staff loyalty and commitment by striving to create a sense of belonging among their
employees and by showing a caring nature within their whole organisation. There are
also numerous legal requirements that must be fulfilled by employers to ensure the
safety and health of their staff.
The whole range of administration needed to arrange the various payments,
such as wages, salaries and commissions, is part of the overall operation of the HR
department. Employers, conscious of costs, will always attempt to offer a pay structure
that is as low as possible but still high enough to:
attract employees
motivate employees once on staff
encourage employees to stay with the organisation
be seen to be a fair return for the work done
be in line with the industry norm or average.
Finding a balance between what is offered by an employer and what is seen as
fair by the employee can be difficult. Initial recruiting advertisements may indicate
a financial package or a range of pay that will be up for negotiation depending on
qualifications and experience. This initial offer may also be revised at a certain time
period after the employee has settled into the organisation, for example, six months
after starting. Revision of remuneration will also occur if the employee gains extra
qualifications or training after joining the organisation.
Monetary benefits
Employees are expected to work at their maximum level of productivity. The HR
department plays an important role in motivating people to work at this level, the
most immediate motivator being the amount of money they are paid. Motivated
workers produce the best results because they essentially respond to the needs of the
business. If people enjoy what they are doing or enjoy the work environment or the
people they work with, their productivity will be high.
The most common form of income is through wages and salaries (see figure 2.3.32).
The rate of payment that people receive is determined by a range of factors, including:
job evaluation on the part of the business
related experience of the employee
age
qualifications of the employee.
An employer will pay an amount of money to an individual employee on the
assumption that the employee will return an amount of revenue to the business
greater than the income paid to the employee. A business needs to be able to cover
all the on-costs associated with the operation of the business.
Higher amounts of income are paid for jobs with greater responsibility. The
understanding by employees that promotion is associated with receiving more money
is a primary motivator for high levels of job performance. Employees who perform
well at a certain job will be viewed favourably for promotion. Employees who
work with a bonus system (being paid for producing over a certain amount) are also
motivated to have high productivity.
Figure 2.3.32 Types of income
Type of income
Return
Wage
Money (hourly)
Salary
Money (yearly)
Rent
Money for use by tenant
Commission
Percentage of sale
Fee
Per service performed
Dividend
Earnings from shares
Profits
Risk taking in business
Royalties
Proportion of sales
Interest
Return on investment of money
Employees may be offered non-monetary rewards. The company car is perhaps

the most well-known non-monetary reward. This practice is often associated with
providing extra inducements without increasing the taxation component of an
employees income. All such payments have been loosely termed fringe benefits.
To counter attempts by employers to offer employees extras to their pay, the
Commonwealth government, through the Australian Taxation Office, charges a
fringe benefits tax. These extra rewards for work are often tailored to the individual.
Figure 2.3.33 lists a range of possible non-monetary motivators.
Business Management
Non-monetary benefits
139
Non-monetary rewards might also include modifications to the job environment.

Moving an employee to a larger desk, a larger office or an office with a view can
also be a motivator to job performance. This sort of recognition will often improve a
persons self-esteem and performance. Rewards may also be promotion based. Higher
levels of management will gain certain extras (for example, an assistant, a company car
with petrol card, a mobile phone or company credit card). Non-monetary rewards
have the effect of increasing the employees income above what is actually received
as money and is a non-taxable item.
Figure 2.3.33 Additional remuneration components (non-monetary benefits)

Monetary rewards
Fringe benefits
Status symbol
Social rewards
Self-rewards
Base pay
Health insurance,
including family
cover
Office size and

location
Friendly
greetings
Interesting
work
Pay rise
Company vehicle,
possible car for
spouse
Office with
window
Informal
greetings
Sense of
achievement
Share options
Entertainment
allowance
Carpeting,
curtains, etc.
Praise
Given a more
important job
Profit sharing
Company credit
card
Paintings
Smile
Performance
feedback
Bonus plans
Product discount
plan
Watches, rings,
etc.
Appraisal
Selfrecognition
Pay and time off

for training and
seminars
Travel fares,
including for
spouse
Formal awards
and certificates
Compliments
Opportunities
to schedule
own work
Vehicle allowance
Tickets to
entertainment
venues
Make and model

of vehicle
Non-verbal
signals
Working hours
Superannuation,
including extra
superannuation
Recreation
facilities,
including gym
fees
Coffee/lunch
invitations
Inclusion in
new company
ventures
Company
parking space
After hours social

gatherings
Choice of
geographic
location
Work breaks,
including
sabbatical leave
Autonomy in
the job
Club and
professional
association
membership
Personal loans,
including housing
loans
Free legal advice
Free personal
financial planning
Insurance
cover
Moving
expenses
Maintenance of
home telephone,
fax, etc.
Home
maintenance
paid for
Home equipment
including
computer, fax, etc.
Childrens
education
allowance
Spouse
allowance
Mobile phone
Source: Adapted from Exhibit 7.2, Organisational Rewards, in R. Schuler, P. Dowling and
J. Smart, Personnel/Human Resources Management in Australia, Harper and Row, p. 228.
140
Business F cus
New perks to keep the workers loyal
With the economy running at full steam and a tight labour market, businesses are having to find
increasingly innovative and creative ways to find and keep staff. Reports in recent weeks have
highlighted some of the measures companies have been taking to lure and retain staff, including
offering extra annual leave, iPods, and job swaps.
But these initiatives are just the tip of the iceberg, according to Chandler Macleod Consulting
executive general manager David Reynolds. One company Im aware of allows its staff to take their
long service leave at seven years instead of 10 and still get the same benefits, Reynolds says.
As more women and older workers return to the workforce, companies are having to tailor their
benefits programs to suit their needs. This includes offering tax-effective superannuation top-ups or
providing subsidised childcare. Im aware of one company that has actually underwritten 80 per cent
of the places in a childcare centre in western Sydney because its the only way they can attract staff,
Reynolds says.
Companies are realising that offering more money is not the only way to attract quality staff, he
says. The perks that are being offered by organisations now are taking into account people who have
preferences other than just money, Reynolds says. There are many people who do not want to work
60 hours a week, who do have a family and want to be accommodated.
People often associate big money with increased working hours or having to put up with
unfavourable conditions, such as working in remote locations, he says. St George Bank is one company
that is thinking outside the square when it comes to employee benefits.
Last week it launched a program whereby employees can choose to receive 80 per cent of their
salary for four years and then take the fifth year as a paid holiday. St George Bank analyst David
Rickard recently took advantage of another initiative that allows him to sacrifice part of his salary
in exchange for two weeks extra annual leave so he can take an overseas holiday.
It was just a cost-effective way of taking a longer holiday without having to wait for my normal
annual leave to accrue, Rickard says. This way I could actually choose the length of holiday and how
I paid for it. One of the benefits is that you are paid while you are on holidays. It just gives you choice
and flexibility of when you want to take leave.
Chandler Macleods own Workplace Barometer survey found there was a discrepancy between
what employers thought employees wanted and reality. The things employees thought were more
important were flexibility of work hours, benefits and career development, Reynolds says. Whereas
I think the employers thought what was more important was money, prestige, the employment brand
and those types of things. There were also benefits for employers who offer staff perks.
I think if organisations are smart and are looking at those sorts of benefits that will allow them
to attract highly motivated and skilled people they will end up having a more stable workforce, which
in turn reduces turnover, increases productivity and hopefully profitability, he says.
Benefits on offer
Source: Henry Budd, The Daily Telegraph, 4 August 2007
Business Management
Can your employer pay for any relevant education courses or give you extra leave for study?
Parents might like the option to work from home one day a week or have flexible working hours
to pick up or drop the children off at school.
Can your employer offer a parking space or company car if you do a lot of driving in your role?
If you are required to travel for work you could ask for an allowance for your spouse to travel
with you.
Benefits can also be as simple as a friendly workplace environment.
141

1
2
3
Describe a range of benefits offered to staff in businesses today.

Outline how businesses are catering to the trend of more women returning to work after having
children.
Evaluate the importance of providing non-financial rewards to staff.
The separation process and human resources

Employees leave an organisation for many reasons. The HR department is responsible
for organising the separation process. Separation of staff occurs through retirement,
resignation, redundancy, retrenchment and dismissal. Attrition often refers to the
retirement of workers when they reach the legally accepted retirement age. The
term natural attrition describes the process of allowing retirements and resignations
to decrease the workforce of the business as the business chooses to downsize, or
decrease, its operations. Many organisations conduct exit interviews of all workers
who leave so that a profile of the reasons can be collated.
If the information gained from accounting, sales and marketing managers indicates
that a reduction in staff is necessary, the HR department will need to work out how
such a policy can be put into practice. Basically, the HR department has to decide
which employees will go. In recent years, as organisations have restructured, older
workers have been dismissed because company philosophies suggested that younger
workers can be retrained more easily and will be productive for longer. In other cases,
companies have shut down whole sections and rehired employees on a contract basis.
The HR department plays an important role in mergers and takeovers when much
fine-tuning of employee numbers is undertaken.
It is important to note that at all times the HR department is given the task of
implementing separation policies. Just as HR staff need to know the restrictions
that are involved in the recruitment and selection process, they will need accurate
knowledge of the various aspects of the process of dismissing employees.
Voluntary separation
Employees may choose to leave an organisation of their own free will. This is referred
to as voluntary separation from the business. The HR department in most cases will
provide a series of steps to assist the employee to leave and as well begin the process
of recruiting a new employee to fill the vacancy.
142
Retirement
The retirement age in Australia has generally been accepted as 65 years. In 2009 the
Federal Government changed the retirement age for superannuation purposes and the
age to qualification for the aged pension to 67 years. Current legislation concerned
with discrimination in New South Wales has meant that this age limit has been relaxed.
Should they want to, employees may work past the age of 67, so retirement is a voluntary
situation. Entitlement to and receipt of a pension occurs at the appropriate age.
As part of cost-cutting exercises, employers look to retirees as a means of
decreasing employee numbers. Often special payout arrangementscalled golden
handshakesare offered to employees to encourage them to retire earlier than they
would otherwise have done.
Resignation
Today it is unusual for an employee to stay in one job for their whole working life.
People leave for a multitude of reasons, such as to seek promotion with another
business, boredom in the present job, to start their own business or to change careers.
Resignations usually occur without warning. Employees are required to provide
an adequate amount of notice (based on their contractual obligations) to assist the
employers reorganisation. Resignations may be loosely linked to factors such as the
business cycle, but because they involve numerous personal and family reasons no true
pattern can be determined.
Resignation creates a problem for the business only if the person resigning has
skills that are hard to find. A large number of resignations from a particular department
might indicate interpersonal problems within that department or health and safety
issues that need to be addressed by the HR department. Given the unplanned nature
of resignations, the HR department needs to respond quickly to fill the positions
about to be vacated. Of course, the overall plan for the business might involve not
replacing workers who resign, as part of downsizing activities.
Involuntary separation
Involuntary separation occurs when a business wishes to shed workers and the
workers have no choice in the situation. There are a number of different ways in
which employees leave a business involuntarily.
Redundancy
Redundancy is a situation where employees lose their jobs because they are no longer
required by the organisation or because the employees do not possess the necessary
skills to complete the tasks as required. Often redundancy is caused by technological
change. Certain employees may not have the right skills to operate new equipment
or new equipment means that fewer employees are needed. Downsizing of the
organisation, cost cutting and the process of multi-skilling can all lead to a reduction
in staff.
Voluntary redundancy
When a business perceives the need to reduce the number of employees, an analysis
by the HR department will reveal how many employees should be let go. This
information is then relayed to the workers, who will be offered the opportunity to
leave voluntarily and will be offered a redundancy package. These packages are usually
written into the awards or agreements under which employees work. They may be
as simple as a few weeks pay, or involve complicated calculations involving years of
service and bonus entitlements (for example, extra lump-sum cash payments) because
of the voluntary nature of the redundancy.
Business Management
Involuntary redundancy
The term involuntary redundancy refers to the situation where the employer makes
the decision as to which workers will be dismissed. Most employers first ask for
employees who are prepared to leave the organisation voluntarily. If not enough
employees opt to leave through retirement, resignation or voluntary redundancy, the
decision for involuntary redundancy candidates will be made. Different criteria will
be used. The function of the HR department at this stage is to assess the situation and
keep the people best suited for the remaining jobs.
143
Often a strategy of ranking the order in which people have been employed means
those employed last will be the first to be dismissed. Age may be a consideration, as
well as years of service, qualifications, skills and personality.
Because many redundancies are cost-cutting exercises, some employees have found
re-employment with the business as contractors and consultants. These arrangements
benefit the business because of the savings in wages and salaries. The previous
employee may gain higher financial rewards but lose security of employment.
Retrenchment
Retrenchment occurs when an employer dismisses employees because there is
insufficient work to justify their continued employment. This is a common way to
shed workers from a business during times when product sales and orders are down.
The main reason is obviously to cut costs and keep the business functioning. With less
work available, fewer employees are needed. Retrenchment is a form of involuntary
separation as the employer decides who is to be dismissed.
Business F cus
30 jobs lost at Steggles
Retrenchments: The Beresfield food plant
144
At least 30 people have been made redundant at the Bartter Enterprises and Steggles Food plant at
Beresfield, with unions saying more jobs will go in the coming months.
Australian Workers Union organiser John Boyd said yesterday 19 middle managers and 13
maintenance workers had been retrenched without notice on Tuesday. The union had been told another
15 jobs would go when the hatchery shut before October. Mr Boyd said people were also retrenched
this week at a Bartter plant at Hanwood near Griffith and at the Steggles-Bartter office in North Ryde.
He said the Beresfield factory and shop employed an estimated 600 to 700 people. It had been run
by various owners over the years and processed chickens and turkeys from various farms in the Hunter
and on the Central Coast.
Mr Boyd said the job cuts came after Australias number three poultry company, the Baiada
familys Baiada Poultry, bought the number two company, Steggles-Bartter, from the Bartter family. This
meant Baiada was challenging the Ingham family as Australias chicken kings. The deal was cleared on
June 30 by the Australian Competition and Consumer Commission after Baiada agreed to sell Bartters
Victorian operations to another operator, La Ionica Poultry. A spokesman for Baiada managing director
John Camilleri said the company had no comment on the job cuts or the restructuring.
Mr Boyd said Baiada took control of the Beresfield business on Monday, and marched in the next
day telling people they had lost their jobs on the spot. There are agreements covering the way that
redundancies are to be handled at this site and yet the new owners simply rolled up and summonsed
people into a room, Mr Boyd said. We had no warning this was happening, then all of these
employees are called in and they tell them that in any merger there are redundancies and by the way,
youve been made redundant as of today. It was a disgrace.
Mr Boyd said it was no way to treat people who in many cases had 20 or 30 years of service
at Beresfield.
Source: Ian Kirkwood, Newcastle Herald, 30 July 2009

1
2
3
4
5
Name the key stakeholders in this situation and outline their concerns.
Explain why the Beresfield workers have been retrenched.
With a partner, discuss the way that Baiada Poultry managed the takeover and subsequent
redundancies. Consider the negative consequences of their actions. How do you think they might
have managed this situation differently?
Examine the role of the ACCC as mentioned in this scenario.
Investigate examples of retrenchments in various industries and workplaces.
Employment contract
The employment or labour contract is the formal, legally binding agreement between
the employer and the employee. In most cases some form of signing on occurs and
the employee is officially accepted as being part of the businesss workforce.This is
usually in the form of paperwork that officially acknowledges the employment of a
person and provides personal details such as where and how money is to be paid to the
employee.The law is involved as part of this relationship because many aspects of the
contract are covered by common law. It is generally understood in the community that
employment imposes certain responsibilities and bestows certain rights on both parties.
In the current climate of employment reform, more workers are employed as
contractors. The previous awards system often provided lengthy guidelines under
which employees were employed. All details were written down in large documents
and were the result of negotiations between unions and employers through the
court system. The growing use of independent contractors, called outsourcing, by
businesses means that the employer negotiates a price for the completion of a job or
the provision of a service. Payment is made at the completion of the job or service.
If the job is not completed fully the contract can be said to be void or broken.
Figure 2.3.34 An employment agreement is signed
when an employee is officially accepted into a business.
145
What are the rights and responsibilities of employers?

Employers employ workers to undertake certain tasks to the best of their ability. As a
general rule the relationship of employees adding value through labour ensures that a
profit will be made by the employer. The rights of an employer relate to the behaviour
and attitudes of employees. Employees must:
follow the rules, policies and instructions of the workplace, either written or
verbal, and those that are reasonable with regards to issues such as safety
maintain and safely use buildings, equipment and other items
be aware of and follow policies and laws relating to occupational health and safety,
and laws of the land, such as speeding when using company cars
be accountable to management for items of value that belong to the business
behave in an ethical manner in regards to punctuality, attitude and loyalty
act in a manner that ensures confidentiality of the businesss dealings (trade secrets
and production processes).
An employers responsibilities to an employee include:
providing a non-discriminatory environment (following state and federal
government guidelines)
paying an agreed amount of money through either an award or enterprise
agreement or a contract
reimbursing employees for expenses incurred during normal duties
providing work that is of a continuous nature (not standing down employees
when there is no work)
providing a safe working environment
ensuring that the business has a policy in place to protect employees against unfair
dismissal.
These rights and responsibilities have their basis in government legislation that sets
out the duty of care that the employer has towards employees.
What are the rights and responsibilities of employees?
146
The employee is often in a more vulnerable position than an employer. An employees

rights include:
receiving payment and conditions that are set out in an award or have been
negotiated through enterprise bargaining or a contract
having policies in place to ensure that unfair dismissal does not occur
being provided with a safe working environment
having a working environment that is free from all forms of discrimination
having access to equal opportunity in all areas of work within the business (which
includes the availability of affirmative action policies)
the ability and freedom to join or be part of a union or professional group
if desired by the employee.
These rights are balanced by the employees responsibility to:
act and behave in a correct and proper manner
use care and exercise skills that are appropriate in the performance of the job
follow and obey lawful and reasonable instructions to do with the job
behave in a manner that shows honesty, integrity and keeps confidentiality.
The historical attitude that employees want to get as much as they can and
employers want to give as little as they can is deeply rooted in our society. However,
it is essential that the two parties work together for mutual benefit. By being efficient,
employees guarantee their jobs. By being fair, employers guarantee efficient employees.
Ethical behaviour
In chapter 1 we learnt about the ethical and social responsibilities of businesses. One
of the key goals of businesses is to contribute to the wellbeing of the community.
The wellbeing of the community is promoted by businesses providing employment,
income and goods/services for their communities. A business must be socially and
ethically responsible to maximise the wellbeing it provides to the community.
Meeting social responsibilities

To meet their social responsibilities, businesses must act so as to promote behaviours
and actions that are important to the community. This may mean assisting charities;
reducing waste and pollution; making a positive contribution to greenhouse gas
reduction; training Indigenous workers; investing in the local community, and paying
fair prices for goods and services.
Meeting ethical responsibilities

To meet its ethical responsibilities, a business must make decisions that are based
on a number of principles.
Figure 2.3.35 Principles of ethical business
Legality
Decisions must be legal and conform to the societys and

communitys laws and legal framework.
Disclosure
Stakeholders must be informed fully about all aspects of business

decisions that affect them. This is because stakeholders can
only make informed decisions if they are based on the truth and
correct information from the business.
Fairness
Stakeholders must be treated fairly. Business managers must ask

themselves how would I like to be treated? They should ask
themselves this question when they are making disclosures that
affect other stakeholders.
Business Focus
Ethics in finance businesses: Designed to fail
Business Management
The Great Financial Crisis (GFC) of 2008 and 2009 raised many issues about ethical behaviour of
financial firms. Many financial firms did not follow ethical principles in their day-to-day trading
activities and operations in financial markets. As a result, bankers, especially in the United States,
are now being called banksters. One of the more prominent cases of failing to follow ethical business
practices concerns the investment bank Goldman Sachs.
147
Goldman Sachs devised a financial product that added home mortgages together and sold this
financial product, chiefly to two large investors in Europe. Unknown to these large investors, the
financial product was a hedge fund that had been partly designed by another financial firm. The
hedge fund was designed to make the product riskier if there was a difficult time in the mortgage
market. The hedge fund was betting that the mortgage market would fall and acted appropriately by
selling down the product they helped to design. The large investors lost a significant part of the value
of the financial product and the hedge fund gained. Goldman Sachs has been taken to court in the
United States because investors were not informed of the role the hedge fund had in the design of the
product.

1
2
3
4
Identify the main ethical principles this case raises.

Identify why Goldman Sachs have been taken to court.
Outline why investors and financial institutions could lose trust in Goldman Sachs.
Describe how Goldman Sachs should have acted.
Unit 2.3 Review
148
absenteeism
acquisition
advertising
affirmative action
anti-discrimination
autocratic
behavioural approach
board of directors
brand name
budgets
chain of command
chief executive officer
classical approach
commission
consumer
contingency approach
controlling
customer
customers
databases
democratic
demographic segregation
departments
development (of staff)
distribution
dividend
division of labour
downsized
e-business
employment contract
equal employment opportunity
ethics
fringe benefit
general manager
geographic segmentation
guarantee
human resource department
human resource management
induction
industrial relations
interdependence
Internet
inventory
involuntary separation
job analysis
job description
job performance
labour contract
leadership style
maintenance
managing director
market segmentation
market share
market structure
marketing mix
micro-business
monetary benefits
motivation
multiskilling
niche market
non-monetary benefits
occupational health and safety
operational plan
outsourcing
packaging
participatory
person specification
personnel department
place
planning
price
prime function
private sector
product
production line
productivity
profit
promotion
psychographic features
recruitment
redundancy
remuneration
resignation
retail market
retirement
retrenchment
salary
sales promotion
segmenting
selection
senior executive management
separation
sexual harassment
social responsibility
staff turnover
strategic plan
tactical plan
target markets
team building
training
transportation
vertical management structure
voluntary separation
warehouse
warranty
work teams
Business Management
human resource cycle
Unit 2.3 review
horizontal management structure
149
Business literacy
1 Identify the key functions of a business. Explain why they are important and
how they fit with the prime function of the business.
2 Describe the different forms of planning that are necessary for the successful
operation of a business.
3 Identify and describe the financial indicators of the performance of a business.
4 Define the terms accounting, finance, revenue and expenses.
5 Explain how banks are important to the operation of a business.
6 Define the terms marketing and advertising. Why is the word advertising often
used incorrectly?
7 Explain why businesses strive so hard to increase the market share for their
product.
8 Define the classical approach to business management.
9 Explain the behavioural approach to business management.
10 Assess participatory team building as key to management success.
11 Outline why you believe Theory X or Theory Y is the best way to think about
how employees are motivated.
12 Discuss reasons why the Internet has become an important tool for businesses.
Provide examples of good initiatives in the use of the Internet by businesses.
Unit 2.3 review
13 Define the term target market. Provide examples of target markets and describe
the products aimed specifically at those markets.
14 Construct a flow diagram of the processes that are involved in the human resource
department of a large business. Define each part of the process in a short
paragraph.
Business numeracy
15 Briefly explain the break-even point?
16 Which of the following are fixed costs and which are variable costs? Justify your
answer.
advertising
computer
delivery costs
delivery van
insurance
machinery
managerial salary
rent
wages
17 Discuss two ways in which management can use budgets.

18 Explain the difference between a cash budget and a capital budget.
19 Identify the factors that need to be considered when budgeting for inventory
purchases.
20 Explain why it is difficult for a business to determine the correct amounts of
inventory to maintain. Include an analysis of the just-in-time method and how
it impacts on inventory levels.
21 Create a formula that might be useful in budgeting for inventory purchases or raw
materials or labour hours.
150
22 Invite your school principal, deputy principal or leading teacher to talk to your
class about the use of planning budgets.
23 Find an annual report for a business or club. Write a summary describing the
financial state of the organisation as you see it.
24 Businesses use courier services rather than their own delivery systems. Research
the costs of sending an item of 5 kg, 10 kg and 20 kg through various ways
(Australia Post and private couriers) to each capital city of Australia. Analyse and
explain the various prices and the services offered by the different companies.

25 Identify the sequence of events that is necessary for the strategic organisation of
the Year 12 Formal. Using a diagram, indicate who is in charge, who is involved
and how the planning is being controlled.
26 Choose a product that is of interest to you and research the market share of the
major producers or suppliers of that product. Analyse why there are differences
between these competitors.
27 Select at least ten businesses from the phone book or a local newspaper and
prepare a table showing the prime function of each one.
28 Locate a copy of the Sydney Morning Herald and look up employment headings
for accountants, financial controllers, accounting officers, payroll clerks, accounts
payable staff and accounts receivable staff. Create a summary table and record
the income range of each category and also summarise the job criteria (what the
job involves).
30 Conduct a class survey on the expenses class members had during the previous
month and the payments they received. Would keeping a book of accounts
benefit some members of the class? Discuss this in small groups of three or four
and report back to the whole class.
31 Produce a mind map that shows how a business that has trained and developed
an employee ensures that the employee stays with the business.
32 Describe the impacts on society of women working longer, marrying and having
children at an older age and then returning to work faster. How have business
opportunities been created by this development?
33 Discuss the differences between the classical and the contingent approaches to
management.
Business teamwork
35 Using the company report from an earlier activity, identify the prime function of the
business. (It is usually stated in the first section of the report.) Discuss these prime
functions in a group. Identify what the company is planning for the following year.
Business Management
34 Outline the principles and practices that business managers with high ethical
standards may follow.
Unit 2.3 review
29 Find the current interest rates that various banks are offering for deposits and
those they are charging for different loans. What other considerations are there
when seeking to borrow money?
151

36 Browse the Australian Bureau of Statistics website to locate statistics showing
details of the size of businesses and how many employees they employ. Use the
statistics to gather evidence for the statement that small businesses are important
to the Australian economy.
We
b Desti nation
37 Nike and Adidas are in competition in the same market with a similar range of
products. Visit their websites and choose three products that both companies
make. List the features that appeal to different consumers who purchase the
products. Analyse why consumers prefer different brands.
We
b Desti nation
38 Browse the professional accountancy sites located on Pearson Places and answer
the following questions.
a Explain what an accountant does.
b Using a diagram or flow chart, show what qualifications and processes are
involved in becoming an accountant.
c Research and detail the additional qualifications that are needed to become
a chartered accountant.
Unit 2.3 review
d Explain the advantages and disadvantages of using an accountant from outside

the business for a businesss accountancy needs.
We
b Desti nation
39 Research the different merchant banks operating in Sydney. Find the conditions
under which these banks will lend to an individual or an organisation.
We
b Desti nation
40 Browse the Gatorade website and make a list of the key information points that
are provided for customers.
We
b Desti nation
41 Browse the TNT Australia website and take note of services offered by this large,
national transport company.
Research and discuss how the key functions of the business are structured.
Examine the businesss management structure and identify the key factors in
the business management structure. Provide real and hypothetical examples.
We
b Desti nation
152
Unit 2.4
Management and change
Responding to internal and external
influences
In business change is constant. The external and internal environment is always
undergoing change. Changes in the external and internal business environment may
threaten the future of the business and be dramatic; or they may be gradual and low
key, or they may be strategic and require the business to take new directions in the
market.
Business change is in response to:
external sources outside the business
internal sources within the business.
External influences on the business and the business

environment
The range of external factors includes:
changing nature of markets
economic influences
financial influences
geographic influences
social influences
legal influences
political influences
technological influences.
These external influences and their impact on business are described in figure 2.4.01.
Figure 2.4.01 The impact of external influences in the business environment on the business
Impact on business
The changing nature

of markets
As consumer demands change, businesses must monitor the market and

adjust production. Particular markets may become more competitive and
there can be increases in the level of overseas competition. New products
are developed and due to a range of social and economic factors there is
increased demand for some products and less demand for others.
Businesses must monitor these market changes and develop strategies
to deal with them.
Business Management
External factor
153
Figure 2.4.01 The impact of external influences in the business environment on the business (cont.)
154
External factor
Impact on business
Economic
The changes in the level of economic activity affect the general demand for
products in general and some products and services in particular. Economic
influences incorporate employment levels and investment and therefore the
level of spending by individuals, organisations and governments. The global
financial crisis meant that businesses found it difficult to borrow money,
house prices fell and consumers saved more. This changed the external
business environment.
Businesses must monitor the economy and develop plans to respond to
economic changes.
Financial
The cost and availability of finance is a key factor that will impact on the
operations of a business. Financial changes include interest rate changes,
changes to banking rules and regulations and changes to the availability
of equity funding.
Businesses must identify alternative sources of funds and different ways
of financing their business.
Geographic
Geographic factors can cause either changes to the nature of resources

for a business or the nature of the market for the products. Resources
such as water and power are affected by climate, for example. Population
movements to coastal areas are certainly going to impact on the location
of particular businesses such as retailing and sporting facilities.
The effect of climate change is going to be much more significant than just
its immediate impact upon agriculture. The tourism industry and transport
costs are just two areas of business activity that will be greatly affected by
this factor.
Businesses must develop contingency plans to meet potential climate
changes.
Social
Businesses need to monitor social changes as changes in society greatly

affect the purchasing patterns of consumers. Some major social influences
include:
an ageing population
greater participation of women in the workforce
greater cultural diversity
smaller family size
greater focus on health and environmental concerns.
Being aware of such changes makes it more likely that a business will
provide the goods and services that are in demand by the community.
Legal
Laws and regulations provide a set of rules that businesses must follow. It
is vital that businesses monitor these and are aware of their significance.
Changes in laws and regulations relating to advertising, consumer
protection, taxation, health and safety and in particular, employment laws
and aspects of environmental protection affect the way businesses operate.
Changes to laws and regulations will continue to bring changes to business
practices and operations, as businesses respond to the changing legal
situation.
Figure 2.4.01 The impact of external influences in the business environment on the business (cont.)
External factor
Impact on business
Political
Although businesses in Australia operate in a free-enterprise framework,

governments impact greatly on their operations.
Governments provide essential infrastructure and at all government levels
they monitor and regulate business activities. This ranges from local council
health inspectors to the activities of ICAC and ASIC.
Changes in government can change the emphasis and direction of
government spending and policies and this will alter the way businesses
operate.
Technological
developments
Technology changes rapidly and this affects businesses in several ways. New
technology creates new products as well as creating new ways of operating
business activities and new production methods.
Businesses need to keep their technology current to maintain their
competitiveness, but they also need to provide the new products and
services that consumers demand. Currently many businesses are looking
to improve their marketing using social networking technologies, such as
Facebook and Twitter.
Internal influences on the business and business change

Businesses certainly respond to a wide range of external influences; however, when
a business itself introduces changes, there often is a need for further changes to take
place. These internal sources of change include accelerating technology, e-commerce,
new systems and procedures, and new business cultures. The impact of these internal
changes in the business environment and their implications for managing the business
are described in figure 2.4.02.
Figure 2.4.02 The impact of internal influences in the business environment
on the business
Impact on business
Effects of
accelerating
technology
Businesses adopt new technology in order to achieve

efficiencies and to remain competitive. New technology
involves data storage, design, production and
communications. New technology only achieves its
maximum benefits when staff are trained in its use.
When businesses introduce new technology they have
to increasingly involve themselves in staff training,
aspects of multiskilling and also deal with issues such
as recruitment and redundancies.
Business Management
Internal factor
155
Figure 2.4.02 The impact of internal influences in the business environment

on the business (cont.)
156
Internal factor
Impact on business
e-commerce
E-commerce is a growing area of business operations.

An increasing number of businesses and consumers are
using the Internet for activities such as:
buying and selling products
transferring funds
advertising products
providing product delivery and product support.
This change to business operations has led to a need for
a range of new rules and regulations to provide security
and privacy. Many traditional business methods have
been replaced by new techniques and many businesses
have benefited from the adoption of e-commerce
practices.
Businesses have to compete technologically or lose their
market share.
New systems
and procedures
Businesses adopt new methods of organising and

operating their activities. These changes make it
necessary to implement a range of internal changes.
Some of these systems and procedures include:
using new technology in design and data processing
implementing new employment contract
arrangements
using teams and performance-based promotion
implementing more efficient supply systems, such
as just-in-time.
Internal changes such as these make it necessary
to improve training and communications within the
business.
New business
cultures
Business culture refers to the way in which managers

and employees in a business behave and operate. This
culture will be greatly affected by the attitudes, values
beliefs and experiences of key managers in the business.
Business culture can often change with new managers
and the adoption of new ideas. A change in business
culture can lead to changes in aspects such as
communications, employment arrangements, job
security motivation and training, downsizing, new
systems of promotion and rewards and, ultimately, job
loyalty.
Business responses to change

Aspects of the changing business environment, such as globalisation and accelerating
use of technology, have made it essential that business managers continually seek new
ways of remaining competitive. A range of structural responses is often implemented
to accommodate change (see figure 2.4.03). These include outsourcing, flat structures,
and strategic alliances and networks.
Figure 2.4.03 Business responses to managing change

Change
Response
Outsourcing
Businesses outsource to cut costs. The firm engages

outside organisations or individuals to undertake specific
activities that had traditionally been carried out within
the business. Such activities may include cleaning,
financial management, catering, security and transport.
Outsourcing enables economies of scale to be achieved
and removes the need for many on-costs such as training
and leave entitlements. Outsourcing, however, does
reduce employee job security and does reduce a firms
flexibility over its operations.
Flat management
structures
When a business adopts a flatter structure it eliminates

one or more levels of middle management. Wage costs
are reduced, communications improve and greater
responsibility is given to lower levels of staff.
Flatter management structures do require a better
educated and trained staff and usually require higher
levels of technology. Promotion opportunities, however,
are usually reduced.
Strategic alliances
and networks
Businesses that group together can benefit, particularly

in the global marketplace. These alliances are a form
of collaborative agreement that bring about mutual
benefits. These benefits include shared access to new
technology and equipment access to distant markets,
shared costs on research, marketing and the spreading
of risk.
Strategic alliances include the arrangements between
airlines such as the Star Alliance.
A network is a set of links or relationships between
different organisations or people within an organisation.
Networks are more informal and less permanent than
strategic alliances. Networks include arrangements
between contractors and particular teams within an
organisation. The aim is to work together to complete
a particular task.
Managing change effectively
Business Management
Prior to any change being effectively implemented in a business, the business

managers responsible must plan the process by which change will be introduced
and carried out. Poorly planned change programs will not be well received and will
result in much resistance from staff. Unless members of the organisation embrace
the changes, these changes will have limited chances of success. Essential aspects of
managing change effectively include:
identifying the need for change
setting achievable goals
creating a culture of change by using appropriate change models.
157
Identifying the need for change

Before initiating change, key business managers in the business must recognise the
need for change, be aware of the desired outcomes from the business changes and
effectively communicate this to the rest of the organisation.
Reasons for change include the need to remain competitive, to adapt to changes
in the business environment, to incorporate new technology and management
strategies to deal with serious problems in the organisation.
Setting achievable goals

Once having defined a need for business change, business managers need to plan what
actions are required to achieve the desired outcomes. Achievable goals must be set
otherwise disappointment and frustration will limit what is achieved.
Goals should be set within a SMART framework. They should be:
S pecific
M easurable
A chievable
R ealistic
T ime referenced.
Creating a culture of change by using appropriate change

models
Resistance to change in an organisation is maintained by the existing structures,
policies and practices. Overcoming this resistance requires first creating a culture
of change, a key feature being the use of change agents and a team approach.
Change agents are key personnel who by their actions and attitudes can lead
others in the organisation to see the need for change and what is required to achieve
the changes.
There is a need for these agents to identify resistance to change and explore ways
to overcome it. Management needs to anticipate the emotional and psychological
demands of the changes and provide support and encouragement.
Members of the organisation need to be involved and committed to the strategies
being used. Change imposed externally will have a limited chance of success.
Reasons for resistance to change
158
Business managers usually realise the need for change and may indeed have planned
the necessary changes. Change, however, may be difficult to implement as there are
often areas of resistance to these changes from within the business. The main reasons
for this resistance include:
financial costs
inertia of managers and owners
cultural incompatibility in mergers and takeovers
issues relating to staffing.
Financial costs
Organisational change may be a huge financial cost. These costs will impact upon
profits, dividends and share prices. Business managers may defer change even though
they consider it desirable, because of the impact of the involved costs.
Purchasing new equipment

Rapid changes in technology increase the equipment costs for a business. Existing
equipment is often still serviceable despite the fact that it is obsolete. Managers may
decide to continue with this equipment so that the initial huge outlays can be spread
over a longer time.
Redundancy payouts
Introducing new technology and management structures often creates a need for
redundancies. A business may defer these changes so as to avoid redundancy payouts
that involve costs such as superannuation, holiday pay and often large redundancy
packages.
Retraining
Restructuring, flatter management structures and the use of new technology create
a need for staff retraining. This is costly as output is interrupted as staff learn new skills.
Many staff often are reluctant to learn new skills and resistance can occur.
Reorganising plant layout
New technologies and structural change often make it necessary to reorganise the
plant layout. This may be a resistance factor due to the cost and the inconvenience
and loss of production time.
Inertia of management and owners
Business owners and managers may resist change as they may be cautious or slow in
their decision making. Sometimes they may be comfortable with the existing situation
and reluctant to take what they see as unnecessary risk.
Cultural incompatibility in mergers and takeovers
Some employees and managers will have difficulty adjusting after a merger or
takeover. Originally the individual business would have developed its own culture and
procedures.
Following the merger or takeover, the new entity may require some redundancies
and some managers may feel a loss of status. It may be necessary to establish new
teams and procedures to develop a new culture.
Business Management
Issues related to staffing

Employees often resist change. Some of the main reasons for this resistance include:
deskilling
need to acquire new skills
loss of career prospects and promotion opportunities.
deskilling
Changes in technology and the adoption of new techniques and practices may
mean that the existing skills of many employees are no longer needed or valued. This
can be quite a threatening experience as their status and importance is at risk. As a
result, many workers will not enthusiastically embrace the changes that bring about
this situation.
159
Acquiring new skills
Acquiring new skills is a requirement associated with many changes. These new
skills are necessary to deal with changing technology and the new operational and
management systems. Acquiring new skills is costly in financial terms and is also costly
in human terms as stress and effort may be experienced, particularly when mature staff
members are involved.
Loss of career prospects or promotional opportunities
When change takes place there is often a need for many employees to constantly
upgrade their skill levels. Change also affects the career prospects of many staff.
Mergers and takeovers, the flattening of management structures and new
technologies can reduce career paths and reduce the importance of the existing skills
of many employees As a result, many staff, particularly middle management, will resist
much change which they find threatening.
Business Focus
3M
160
Post-it Notes. Can anyone imagine life without them?

Yet these little sticky notes were created by Minnesota
Mining and Manufacturingbetter known as 3Mquite
accidentally. Frustrated by bookmarks falling out of his
hymnal during church services, 3M employee Art Fry
experimented with an adhesive developed years earlier
by colleague Spencer Silver. Until then, the adhesive
had been deemed unsuccessful because it wasnt sticky
enough. Frys experiment paid off: Post-it sales are now
estimated at more than US$300 million a year.
Post-it notepads are not the only accidental
innovative success story at 3M; in fact, 3M has a long
history of such innovation 3Ms main product by the
Figure 2.4.04 Many 3M products have
early 1920s was sandpaper. It was then that Francis Okie, become a part of daily office life.
an inventor working for 3M, decided to come up with a
product that would make razor blades obsolete. He created a sandpaper that men could use to sand
off their beards without the worry of getting nicked. Though Okie used his invention to sand off his
own facial hair, the product never quite caught on. But, despite the failure of his idea, he continued
to refine his product. The result: a waterproof sandpaper and 3Ms first huge success.
3M is proud of its innovative history and continues to promote such entrepreneurial behaviour
today. A company-wide policy, called bootlegging, allows employees to devote up to 15 per cent of
their time to projects on which they choose to work. Additionally, the company has formal goals that
require that 30 per cent of the sales in every division come from products developed within the past
four years.
To encourage interdivisional innovation and creativity, 3M holds a technical forum once a year,
at which all divisions display their latest products. One of 3Ms maxims is The product belongs to the
division, but the technology belongs to 3M. The company rewards those ideas that work. The Golden
Step award is given to those employees whose products go on to become a market success.
3Ms large research and development division backs up the companys commitment to new
products. 3M even has a separate career track for scientists who want to stay in the labs rather than
go into management.
Importantly, 3M has established a policy of being open to all ideas, even those that ultimately fail.
The philosophy is that it is better to try, and to make mistakes, than not to try at all. Thus, employees
are given ample room to explore ideas without the expectation that every one has to be a winner. The
only mistake a 3M employee could make is to not try at all. The late William McKnight, the spiritual
father of 3M, is credited with this underlying company principle: The mistakes people make are of
much less importance than the mistake that management makes if it tells them exactly how to do the
job. The result is a happy and self-motivated workforce.
3M is dedicated to the personal achievements of its employees, since it is through their successes
that the company excels. Former CEO Allen Jacobsen, a 3M employee for more than 44 years, noted
that there were only three obstacles to success at 3M: (1) having a big ego (because the company
is a team); (2) being protective of your turf (since the company depends on crossing over many
organisational lines); and (3) being political. He added that about the worst thing that could be said
about somebody at 3M is that he or she is political. Now thats an innovation!

1
2
Read the above text about 3M. In groups, discuss the meaning of the terms inertia and cultural
incompatibility.
In discussions about responding to change and effective change in businesses, experts emphasise
both the importance of developing a culture of change and the central role played by key
members of the organisation. Explain how this is accomplished at 3M.
Browse the 3M website and identify new and innovative products they have put
into the market.
We
b
tion
Destina
Management consultants
Business Management
Management consultants play an important role in business in the twenty-first century.

Management consultants are experts in business. They provide advice to business
leaders and managers on how to:
develop their business
respond to changes in the internal and external business environment
restructure and reorganise businesses
finance current business operations and business expansion.
Management consultants often are employed by businesses to overcome resistance
to change in the business. As outsiders to the business they can provide advice on
restructuring and new technology and outsourcing. They can design training and
education packages so that staff can be trained in new processes and procedures. They
can provide advice on changes in the structure of employment in the business and
remuneration for staff. Because they have experience in a number of businesses they
can often provide a range of options in the way that business can respond to changes
in the external business environment.
161
Business Focus
KPMG
KPMG is one of Australias leading business management consultancies and provides a wide range
of advice for businesses about many aspects of business.

Explore the What we do section on the KPMG website and identify the sort of advice
that KPMG provides to businesses.
We
b Desti nation
Unit 2.4 Review

business cycle
change agents
cultural diversity
cultural inertia
demographic changes
downsizing
e-commerce
management consultants
nature of markets
organisational change
outsourcing
restructuring
SMEs
strategic alliances
Business literacy
1 Make a mind map or concept map of the above terms and concepts.
2 Describe the process of managing change. In your response, refer to:
flattening structures
networks
systems and strategic planning.
3 Define geographical change and social change.

4 Prepare a list that assesses how demographic changes in your local area have
affected how businesses may operate in the future.
Business communication
5 Prepare a three-minute speech on How markets are changing. In your
presentation, refer to the following points and how these changes may influence
business management.
demographic changes
geographic changes
legal changes
technological changes
162
6 Prepare a report on why businesses resist change. In your report and analysis refer to:
barriers to management change
inertia
traditional management approaches.
Business teamwork
7 In small groups, prepare a chart showing how businesses can benefit from an
economic upturn and how they might have to alter their business operations.
8 In pairs, give each other examples of how businesses in your local area might
benefit from the trend towards earlier retirement.
9 In discussing effective change in organisations, experts emphasise both the
importance of developing a culture of change and the central role played by key
members of the organisation. In pairs, discuss how this was accomplished at 3M.
Business Management
Unit 2.4 review
163

PepsiCo International
PepsiCo is a world leader in convenience foods and beverages, with 2005 revenues of more than
US $32 billion and more than 157 000 employees.
The company consists of Frito-Lay North America, PepsiCo Beverages North America, PepsiCo
International and Quaker Foods North America. PepsiCo brands are available in nearly 200 countries
and territories and generate sales at the retail level of about US$85 billion.
Many of PepsiCos brand names are more than 100 years old, but the corporation is relatively
young. PepsiCo was founded in 1965 through the merger of Pepsi-Cola and Frito-Lay. Tropicana was
acquired in 1998 and PepsiCo merged with The Quaker Oats Company, including Gatorade, in 2001.
PepsiCo offers product choices to meet a broad variety of needs and preference from fun-foryou items to product choices that contribute to healthier lifestyles.
164
Through its divisions PepsiCo has achieved a leadership position in each of these
business segments: they are now world leaders in beverage bottling and are the
worlds largest producers of snack chips.
PepsiCos brand names are some of the best known and most respected in the
world and their restaurants are named as favourites by millions of people. PepsiCo
has achieved a continuing record of growth. This record is based on high standards
of performance, distinctive competitive strategies that are superbly executed, the
personal and professional integrity of the people, business practices and products.
In 2006, PepsiCo overtook The Coca-Cola Company in terms of market capitalisation,
a significant victory and milestone for Pepsi.
PepsiCos beverage business consists of Pepsi-Cola North America and PepsiCo
International.
PepsiCo International (PI) beverages are produced by a combination of
independent franchised bottlers, joint-venture bottling operations and companyowned bottling plants. PI is the soft drink market leader in more than 50 countries
and territories. PI also focuses on high potential, underdeveloped markets, such as
China and India. PI has also established operations in the key emerging markets of
Eastern Europe, including Budapest, Warsaw, Prague and Moscow, where Pepsi-Cola
was the first US consumer product to be marketed.
The divisions flagship product is Pepsi-Cola, with its brand extensions Pepsi Max,
Pepsi Light, Caffeine Free Pepsi, Caffeine Free Pepsi Light, Diet Pepsi and rotating
flavour extensions of Pepsi. The divisions other major brands include
Mountain Dew, Diet Mountain Dew, 7UP, Diet 7UP and Miranda. In all,
We
PI offers dozens of soft drink brands in a variety of packages and sizes.
n
bD
atio
estin
PepsiCo Australia
Pepsi Cola Bottlers Australia manufactures and distributes carbonated soft drinks for Pepsi Cola
Inc. in Australia and has their headquarters in Huntingwood, New South Wales. Pepsi Cola Bottlers
Australia is a subsidiary of Schweppes Cottees, which internationally is being incorporated into
Kraft Foods.
Working with the bottler

Pepsi assumes responsibility for supplying the essential ingredients of a product and it assures the
bottler of exclusive right of sale within their specified geographical franchise area. It works with
supplier firms to assure the availability of quality packaging, merchandising, and other related
equipment made to standard specifications. It provides advertising campaigns and media support.
It creates suitable promotional campaigns and marketing strategies. It offers aid in personnel training
for sales and production staff. It makes available quality control facilities and technicians. It develops
a national publicity effort and offers aid in formulating local level community relations projects. And,
in addition to performing these functions, Pepsi offers service through a large field force, including
specialists in a number of technical and marketing skills.
The bottler has reciprocal obligations in connection with their franchise right. They agree to
only use approved advertising and distribute a finished product of unvarying high quality, to use
merchandising materials, and to market the product vigorously.
Our Mission Our Vision PepsiCo International

Our Mission
Our mission is to be the worlds premier consumer products company focused on
convenient foods and beverages. We seek to produce financial rewards to investors
as we provide opportunities for growth and enrichment to our employees, our business
partners and the communities in which we operate. And in everything we do, we
strive for honesty, fairness and integrity.
Our Vision
PepsiCos responsibility is to continually improve all aspects of the world in which
we operate environment, social, economic creating a better tomorrow than today.
Our vision is put into action through programs and a focus on environmental
stewardship, activities to benefit society, and a commitment to build shareholder
value by making PepsiCo a truly sustainable company.
Performance with Purpose

At PepsiCo, were committed to achieving business and financial success while leaving
a positive imprint on society delivering what we call Performance with Purpose.
Our approach to superior financial performance is straightforward drive
shareholder value. By addressing social and environmental issues, we also deliver
on our purpose agenda, which consists of human, environmental, and talent
sustainability.
Our mission is to be Australia and New Zealands fastest growing and favourite
convenience food and beverage company
Our commitment to deliver sustained growth through empowered people acting
with responsibility and building trust
Business Management
Our Mission Our values PepsiCo Australia
165
PepsiCo Beverages Australasia

PepsiCo Australia Holdings (PAH) is the registered company name of the Australian franchise of PI.
With an office located in Sydney, PAH manages all marketing initiatives in Australia, New Zealand and
the Pacific Islands. PAH also has strong relationships with the many other regional units of both PI
(based in Hong Kong) and PepsiCo (based in the United States).
One of the chief advantages of the franchise system is that it permits the rapid development of
business ventures employing the joint capital, and shared talents, of both the creator of the product
and its local marketers. This mode of operation, typical of the soft drink industry, is gaining popularity
in other businesses as well: hotel/motel, food (restaurants, drive-ins and supermarkets), automobiles
and even golf courses.
In the case of Pepsi each unit operates as an independent business within their franchise territory
and makes local marketing judgments. The Pepsi franchise system creates a pool of business ideas,
from which a variety of methods and approaches are singled out for testing under different selling
conditions. Eventually, successful ones are made available to the entire group.
Yet another advantage of the system is that Pepsian internationally known and advertised
productis at the same time an item bottled and sold locally.
The bottler in Australia is Cadbury Schweppes Australia (CSA). They are a member of the
community, and their investment in plant and equipment, in services and in people, makes them
an integral part of the local community.
The Marketing Mix

Product: Pepsi Max, Pepsi Light, Pepsi, 7UP, Caffeine Free Pepsi Light, Mountain Dew.
Price: Pepsi is competitively priced to its major competitors, offering a better tasting product
at a competitive price.
Promotion: TV advertising, Online, radio, magazine, cinema and outdoor support. Other
promotional items include: point of sale material, consumer premiums (e.g. clothing, caps, etc.),
sporting and concert sponsorships.
Place: PAH/PI own the Pepsi brands. They sell the concentrate to CSA who manufacture and bottle
the Pepsi products and distribute it to consumers. CSA distribute Pepsi via various channels, such as
major supermarket chains, convenience stores, smaller milk bars, restaurants and fast food outlets (e.g.
KFC, Pizza Hut, Oporto).
Service the right pack size at the right price, in the right place at the right time.
Marketing
166
Successful marketing plans developed globally can be adopted in Australia provided it is consistent
with product positioning and is suitable for the Australian market. A great deal of campaigns are now
generated locally in Australia.
Indeed, the term think globally, act locally highlights Pepsis marketing mission. Pepsi is able
to identify market opportunities and implement effective programs to leverage these opportunities
both locally and globallytherein ensuring consumer needs are always satisfied.
Given that 50% of cola drinkers do not actually have a brand preference and are cola brand
switchers, there is an enormous opportunity out there for the Pepsi brands to continue to increase
our market share says Paul Hyde, International Brand Manager, PepsiCo Beverages Australasia.
Every manoeuvre we make will be a clearly and cleverly considered challenge

which respects the might of our major competitor and recognises that all our
activities need to be best of category efforts which communicate directly and
succinctly to our key target audiences.
Figure 2.5.01 PepsiCo products
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b Desti nation
Business Management
1 Summarise the mission and vision statements and analyse the differences between the two.
2 Summarise the aims of the Marketing Department.
3 Describe the three main roles of the Financial and Control Department.
Visit the PepsiCo website to answer questions 4 and 5.
4 Suggest why a human resources representative has such an important function
in the organisation.
5 Explain how the franchise system operates in this organisation; outline some advantages
of the system to the various parts of the system.
6 Outline the marketing mix for Pepsi-Cola Bottlers Australia and identify particular
target markets.
167
Chapter 2 Review
Operations
Coordination
functions
Marketing
Management
process
Finanace
Effective
management
Skills of
management
Nature of
management
Business goals
Management
approaches
Classical
approaches
Contingency
approach
Behavioural
approach
Human
resources
Business ethics
Business
Management
Effective change
management
168
Resistance to
change
Management
and change
Responding to internal
and external influences

1 Business managers:
a undertake the business process
b research the business goals
c engage in business functions
d interrelate business functions
2 A contingency approach to management focuses on:
a increased employee training
b leadership styles
c the business situation
d management structures
3 The business function most concerned with working capital is:
a marketing
b finance
c human resources
d operations
4 Mayos research showed that the productivity of employees is strongly
influenced by:
b financial incentives
c the businesss social obligations to society
d the businesss moral obligations to society
5 Ethics is concerned with:
a the businesss economic obligations to society
b the businesss legal obligations
c the physical environment
d the employees gender
6 The returns to the business owner are more evident in which financial statement?
a revenue statement
c cash flow statement

d asset statement
Business Management
b balance sheet
Chapter 2 Review
a obligations to the social environment
169
7 The marketing manager determines:

a the marketing budget
b the marketing plan
c they type of marketing
d the marketing SWOT
8 Human resources attrition:
a reduces training costs
b increases recruitment
c promotes attrition
d increases training costs
9 Effective change management includes:
a investing in business information systems
b employing management consultants
c investing in marketing
d employing human resources
10 Balance sheet statements show:
a profit and loss
170
Chapter 2 Review
b cash at hand
c assets and liabilities
d cash and owners equity
11 a Create a balance sheet from the following financial details and complete
the questions below:
Current liablilities
150
Non-current assets
350
Current assets
700
Non-current liabilities
200
b Identify the owners equity in the business.

c Indicate the change in the owners equity if accounts receivable increase
by 100%.
12 Examine figures in the chapter and answer the following questions:
a Explain why task-centred management is more people oriented.
b Briefly explain the difference between the management styles of autocratic
and participative managers.
c Discuss the advantages of participative management in preparing for
and overcoming resistance to change.
13 a List four changes occurring in the community.

b Explain how these changes may affect the business environment.
c Analyse the ways that business management responds to changes in the
14 a Examine strategies that business management takes to ensure that the business
responds to change.
b Discuss why Neurogen Laboratories needs to ensure that its technology
matches the current computer technology.
Use the following abstract to answer part c.
Apple Innovates Again
They developed the personal computer, the iPod, iPhone and now the iPad. The
iPad is seen as a reader that will replace paper books, and provide news and
entertainment. The device is portable, easy to read and provides consumers with a
major new way to access online resources as well. Like all of Apples new innovations,
the iPad has been designed to create a totally new market. Some are saying move
over laptop computers, here is the iPad!
c Prepare a short report on why technological change provides a major
competitive challenge for business.
Extended-response questions
15 Read the Business Focus about the Levi Strauss organisation. A group of
entrepreneurs is intending to establish a new jeans manufacturing company
to compete with Levi Strauss. Write a report to this group of entrepreneurs.
b Discuss the classical, behavioural and political aspects and systems of Levi
Strausss management.
c Discuss why Levi Strauss could respond quickly to change. In your report ensure
that you:
refer closely to the information in the Business Focus

use the terminology of business management
use a well-structured report format.
16 Business really means responding to change and business management really
means managing change. Using this statement and data from the appropriate
Business Focuses, answer the following questions.
a Explain management theories and strategies and their impact on business.
c Discuss the best ways for business management to plan changes in the internal
Business Management
b Evaluate how management is responding to the rise of internet technologies.
Chapter 2 Review
a Describe the management style at Levi Strauss.
171
Chapter 3
Business
planning:
Starting
aN SME
Summary
Entrepreneurs establish and commence small and large businesses.
Entrepreneurs are enterprising and see new market and business opportunities.
Business owners are hard-working and motivated, and balance risk against reward.
The business idea identifies new business opportunities.
New businesses need start-up finances and must manage their working capital.
New businesses must identify their potential and target markets.
There are three options for commencing business: purchase an existing one,
purchase a franchise or commence a new business.
Important factors in locating businesses are visibility, cost, proximity to suppliers

and support services.
Short-term capital should be used for short-term purposes, long-term capital

for long-term use.
New businesses must meet legal, name, zoning, health and intellectual property
regulations.
Businesses must be careful to hire staff with the appropriate skills and qualifications.
Business planning is important to identify potential problems before they occur.
Poor business management is the main cause of business failure.
Managing cash flow and working capital is critical to business success or failure.
Business literacy
business life cycle
entrepreneur
market
planning
sources of finance
Business teamwork
2 In teams drawn from your class, contact local small business owners and make
an appointment to visit them. In your interview, ask questions such as:
when they started their business
why they started their business
what problems they had in establishing the business
what they enjoy about being in business.
3 This Pearson Places link is to the federal governments main business site. It
has sections on all the key issues in establishing a business. Browse the sections
Intending to Start a Business and Establishing a Business. While browsing,
identify some of the key processes in establishing a business.
We
b Desti nation
Unit 3.1
Small business enterprises
Defining small and medium business
There has been a continuing and growing interest in the role of small business in the
Australian economy. In recent years the definition of small business has changed to
include a broader sector of the business environment. It now covers a wide group
known as smallmedium enterprises (SMEs).
Even though there is no universal definition of small business, the Australian
Bureau of Statistics (ABS) has adopted a definition for statistical purposes, using
employment as the main basis of classifying non-agricultural businesses by size.
micro-business: businesses employing fewer than 5 people
other small business: businesses employing 5 or more people but fewer than
20 people
small business: businesses employing fewer than 20 people
(small business = micro business + other small business)
medium business: businesses employing between 20 and 200 people
large business: businesses employing 200 or more people.
Manufacturing industries are defined by the ABS as being small if they have fewer
than 100 employees. In the area of agriculture, a small business enterprise is one that
has an estimated value of agricultural operations of less than $400 000.
Importance of small business to the economy
174
With almost 94 per cent of all businesses classified as small (including 64 per cent
micro-businesses), 6 per cent as medium-sized and less than 1 per cent as large, the
importance of SMEs should not be underestimated. It is, however, important to realise
that even though micro-businesses account for 64 per cent of small businesses in
Australia, they employ only 16 per cent of the workforce. Large businesses account for
less than 1 per cent of total businesses in the Australian economy, but employ more
than 30 per cent of the workforce.
SMEs employ a large percentage of the total workforce in Australia, and research
has revealed that they are very important in the total economy.
They are responsible for much of the employment growth that occurs
in an industrial economy.
They react to change in the business environment and produce new goods
and services.
They invest in new technologies and production processes.
Studies in the United States have shown that SMEs are the most important types
of business to encourage. New industries often have a large number of SMEs. The
information technology industry in Australia has many SMEs, which bring growth,
employment and change to the industry. Whereas larger firms reduce staff and
management, SMEs develop new industries.
Number of SMEs
In 2009 there were approximately 1.93 million active small businesses in Australia.
Small businesses make up 96 per cent of all businesses. Small businesses contribute
around 35 per cent of Australias total GDP. Small businesses employ 3.8 million
people, accounting for around 46 per cent of total private sector employment.
More than 17 000 small businesses are exporters that shipped goods to the value
of $1.2 billion in total in 2008.
Contribution of small businesses to the economy

Small businesses contribute to the economy in a number of ways. They provide
considerable employment opportunities within local communities, which generates
income that can be spent in the local area, thereby stimulating the level of economic
activity within the area.
Many small businesses act as distribution outlets for larger firms by providing
quick and reliable distribution of goods and services to the customer.
Many small businesses act as suppliers to larger organisations. The specialist skills
of small business allow larger firms to outsource some functions.
Small businesses enable consumers to obtain a greater variety of goods and
services. The diversity of goods and services helps create competition between
businesses, which in turn keeps prices down.
Small businesses are able to operate in areas that larger organisations would find
uneconomical.
Business F cus
Carman and Carolyn
Figure 3.1.01 Owner of Carmans

Fine Foods, Carolyn Cresswell
Business Planning: Starting an SME
Entrepreneur Online this week is Carolyn Creswell,

founder of Carmans Fine Foods, which she started
at the tender age of 18 by buying the business she
worked for at the time. Carolyn is happy to share
her experiences and advice.
Carolyn bought herself a job when she was just
18 years of age. She was working part-time making
muesli, heard she was going to be laid off and bought
the business herself for $1000.
Two years later she bought out her partner
and began putting her muesli and muesli bars
into supermarkets and delis. Now the company
has revenue of more than $10 million and exports
to 15 countries.
175
Q Entrepreneurs say the first year of business is the worst. Was that true for you?
A The first few years were very hard but it seems there is this extraordinary light at the end of the
tunnel when you hit five years and everything just seems to come together. I see this same timeline
in other small businesses time and time again.
Q What were the worst and best moments of those early years?
A The worst moments were being quite poor and having to work several jobs on top of the business
to make ends meet. And the best were moving into our own little premises.
Q What was the inspiration for the innovations that helped you survive the first few years?
A I think it was a gutsy determination not to fail and just thinking outside the square to do things
differently from the way that the big players were doing them.
Q How are you more flexible than your competitors?
A We are very quick to listen to what our customers are saying, and react. For example, we change
our packaging several times a year, even if it is just in small ways, to reflect what our customer
feedback is telling us.
Q I am sure you have heard of the saying, that there is only one thing worse than dealing with
Coles and Woolworths and that is not dealing with Coles and Woolworths. Is this true?
A Actually, the supermarkets are not that bad! They can be fantastic when you learn how they
operate and what their expectations are of you. We have been so lucky that they gave us a chance
and they have stuck by us.
Q Woolworths deleted your range several years ago. Were you furious and how did you get
the relationship back on track?
A I was very hurt, as the product had not been given very long to perform. However, we just started
presenting again and within two years the same buyer listed it all in again and it is selling really
well now.
Q House brands in supermarkets are growing very fast. Do you think the supermarket brand will
dominate, eventually forcing brands like yours to be highly niche and find different outlets?
A We are lucky that the supermarkets generally see house brands as one part of the overall strategy,
which includes a premium offer. We have become that premium offer in our categories, so this
strategy has actually helped our sales!
Q How else is your industry changing?

A We have recently been listed in the UK and they are a bit ahead of Australian supermarkets with
their demands, so that has been a steep learning curve as one mistake can be terribly expensive, but
we are learning quickly.
176
Q What are the new food trends emerging? Can you see opportunities for other entrepreneurs?
A The main trend is low GI food as the onset of adult diabetes increases and generally people are
getting more concerned about eating healthy food. Yes, there will be more opportunities for people
in this area.
Q As you have grown, what was the most difficult point in your trajectory? What strategy
did you employ?
A I think realising that the business is only as good as the leadership that I can bring, so I learnt to
make sure I am always learning and challenging myself.
Q What has been your stroke of brilliance?

A To take a recipe from a kitchen and be able to produce it in a mass way without losing any
of its integrity. This is actually a lot harder than you would imagine.
I have the same values in my personal life as I do in my work life, which sometimes is a bit rare
these days. Compassion, honesty and a sense of fun!
We buy all the industry data so we can compare how we are tracking over the last month, quarter
and annually, and we compared this to how the category is performing. In the UK, their data actually
comes through daily.
Q You have kept doubling revenue year after year and your revenue is now $10 million. What
was your perfect business size (revenue or employee size) and why?
A I love the size of our business now as we have enough people to be able to segregate the jobs
rather than a need to job-share. However, we are actively pursuing more growth so I look forward
to seeing how the next size feels.
Q How long have you witnessed the increasing consolidation of your industry and what is your
best tip for dealing with it?
A We have seen a lot of consolidation over the past five years as smaller companies have been
bought out by bigger players. Sometimes this has worked and at other times these brands have lost
their soul and have been deleted with the recent reduction of brands due to private label. I believe
if the strategic fit is good this can be positive, but perhaps bringing more products under one brand
works better than having a handful of smaller, less-known brands. We are not looking at any form
of consolidation, so it is not something we are having to deal with overselves at this stage.
Q What would staff say is your worst flaw as a leader? How do you manage it?
A I asked this question in our latest round of reviews and it was that I am sometimes very busy
and if people want to sit with me and go through their issues they need to keep trying to grab me.
I now try and make sure I can schedule a proper time with them and not let this happen, but it is
a challenge.
Q Cash flow in your industry must be complex. What figures cant you live without and how
often do you get them?
A We are lucky that we are a cash-positive business and dont have many problems with cash flow.
I used to in the early days and have learned that it is terrible to have to lose sleep about money, so
I generally try and make sure we live well within our means.
However, I look daily at the monthly sales figures and I like to watch the creditors and debtors
amounts to keep a track of them. The more we are owed and the less we owe, all the better!
Source: EntrepreneurOnline, 27 April 2007, smartcompany website, 2009
1
2
3
4
5
Identify the business life cycle in Carolyns business.

Identify the size of Carmans Fine Foods as a business.
Describe the business challenges Carmans Fine Foods now faces.
Describe factors you believe led to Carolyns success as a business person.
Check out Carolyns latest tweet on Twitter.
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177
Top five tips for success

1
2
3
4
5
Be noticed.
Use technology effectively to reach your target market.
Hook them in through incentive programs, samples, loyalty programs.
Remember customers value honesty and ethics, especially if building
an ongoing relationship.
Always provide value for money for your customer.
Unit 3.1 Review

business environment
large business
red tape
SMEs
credit
micro-business
retail spending
unfair dismissal
information technology
provisional tax
small business
Business literacy
1 Distinguish between a micro-business and a small business.
2 Make a mind map of the key terms and concepts listed above.
3 Describe the difference between micro-, medium and large businesses.
4 Explain why medium enterprises are important to the economy.
Business numeracy
5 Draw pie charts to show that:
a small businesses provide 46% of total private sector employment
b small businesses account for 35% of GDP
c small businesses make up 96% of all businesses.

6 Reread the Business Focus about Carolyn of Carmans Fine Foods and identify
four reasons why the business could be important to the Australian economy.
Obtain the video of Carolyn and other entrepreneurs named Think Like an
Entrepreneur from Business Education Australia and view Carolyn discussing
the commencement and establishment of her business.

7 This Pearson Places link lists business websites managed by governments. The
websites are regularly updated and include information on issues concerning small
business.
Visit one of these business websites. From the site you have chosen,
identify two issues of concern to small business in the next 12 months.
178
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Unit 3.2
Key personal qualities
in establishing a business
Entrepreneurship
Businesses need to be established or formed. A person who establishes a business is
called an entrepreneur. Entrepreneurs have to deal with many issues when they start
a business. For example, they need to determine a target market for the business.
This involves studying the potential customers of the business and the needs of those
customers. The potential customers may all be consumers or a specialised market for
small groups of people or products.
Key questions for an entrepreneur
Explaining and understanding entrepreneurship
The motive for entrepreneurial activity is to acquire profit.

Journal of Small Business Management, 1996
An entrepreneurial individual has a positive, flexible and adaptable disposition towards change, seeing it as normal, and as an opportunity rather than
as a problem security borne of self-confidence capacity to initiate
creative ideas take responsibility.
When establishing a business, an entrepreneur must answer key questions:

Where is the business to be situated or located?
Should a new business be started or should an existing business be purchased?
How will the capital (money) to start the business be obtained?
What government regulations, such as registration of a business name, Australian
Business Number (ABN) or health laws, are relevant to the business?
Who will be the businesss suppliers and distributors?
What taxes (and how much) will have to be paid?
How will the staff be hired?
Who will buy the products or services?
Once the questions are answered a business may be established. After that, five
issues are crucial in deciding whether the business succeeds or fails:
Can the business be competitive with other businesses and maintain its customers?
Can the business manage its cash flow and working capital and meet its day-today expenses?
Can the business plan for the future?
Can the business cope with changeespecially when technology changes?
Can the business manage its growth?
1989 OECD, Towards an Enterprising Culture
179
An entrepreneur is an organiser of resources, an innovator, an employer,

a decision maker, a visionary and, very often, a risk taker. It is an entrepreneur
who decides how best to use resources at their disposal.
The individual entrepreneur is the missing link which alone can make use
of natural, financial and human resources.
Schumpeter 1942, Theory of Economic Development
Entrepreneurs set themselves targets which are a challenge but not an

impossible gamble. They are not interested in achieving objectives set by
others. They set their own objectives at a level where there is a moderate risk
of failure, and some excitement and uncertainty but not too much.
Malcolm Harper 1982, Entrepreneurship for the Poor
There are four classifications of entrepreneurial activity: (i) the self-motivated

who starts a business from nothing; (ii) the take-over entrepreneur who starts
another business; (iii) the joint venture entrepreneur who combines with
others to establish a business; (iv) creative individualsexisting business and
enterprise entrepreneurs.
Journal of Small Business Management, 1996
Entrepreneurship can be defined as the process that takes place in different

environments and settings that causes changes in the economic system
through innovations brought about by individuals who generate a response
to economic opportunities that create value for all.
G. Hills 1994, Marketing and Entrepreneurship
Personal qualities of an entrepreneur

Entrepreneurs start up new businesses or buy existing ones. Entrepreneurs can be
considered as enterprising people. They are creative and flexible in the face of change.
Entrepreneurs see opportunities, take risks and are responsible for their actions.
They like to do better than they have

done before
They set targets that are a challenge

but not impossible
They do not need an audiencethey

are their own audience
They set their own

targets
They take calculated risks
They are flexible
They use experience to change their

targets and improve their performance
They take responsibility for what

they do
They gain satisfaction out of doing

something different, better or first
They do not blame luck, others or

circumstances when things go wrong
Figure 3.2.01 Key characteristics of entrepreneurs
180
Business F cus
Poppy King
Poppy King started her business straight from
high school when she was 18. Poppy was named
Young Australian of the Year in 1995, when she was
22. In eight years Poppy turned a $40 000 loan into
a 6 million dollar business. How did she do it? Poppy
had an idea to create a new, fresh type of lipstick that
would appeal to younger women. Before Poppy started
her lipstick business the market was dominated by
multinational firms like Revlon and Estee Lauder. Poppy
developed a new image for lipstick by naming them
after the seven deadly sins (pride, envy, lust, etc.). The
colours were vibrant and stood out. The lipsticks were
competitively priced. Her sales staff were young and
dynamic. She marketed herself and her product at the
same time. Many women bought the product because
Figure 3.2.02 Poppy King
they identified with her as a young entrepreneur. Buying
her lipstick also supported a new Australian productand her marketing allowed her consumers
to identify with Australian fashion. Poppys lipsticks were established in the market almost instantly
and developed a significant market share and fierce loyalty. Eventually Poppys business failed but
she has created many new businesses, and has used her entrepreneurial skills to establish another
lipstick business. In 2007 Poppy launched a new lipstick brand called Queen. This lipstick
brand has been very successful. Over a very long time Poppy King has shown many of the
features of an entrepreneur. In 2010 she wrote a book about her lipstick businesses titled
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Lessons from a Lipstick Queen.
Motivation
Motivation in small and micro-business
Owners of or small or micro- businesses need to be highly motivated individuals.

Starting a business will involve many hours of effort for little or no reward. The
ultimate aims of success and profit can occur only after consistent effort in the
establishment of customers and dealing with all the aspects of business start-up.
Often, a business owner will go for many months without any clear indication of
success. The large amount of borrowings that usually accompany the starting of
a business means that a break-even situation will not occur quickly. Therefore, a
business owner needs to be a self-motivated person who is able to take a long-term
view of success and constantly apply themselves to the task of making the business a
success. A common saying that success occurs when hard work and opportunity meet
reflects the motivation a business owner needs to have in order to reap a profit from
their entrepreneurial activities.
181
Motivation in larger organisations

Similarly, managers of larger organisations need to be highly motivated in order to
organise and drive the operation of the business for which they work. The idea that
employees are motivated by the financial returns they receive is only partly correct
motivation to do a good job and be part of a successful business are also an important
considerations.
Experience
Many small business owners have had a great deal of experience in the field in which
they start a business. In the simplest example, an employee may purchase a business
when the owner wishes to sell up. In other cases, a person who has been working
in a particular field may see an opportunity to go into business for themselves, for
example, a tradesperson who has been working for an employer decides to move on
and start up their own operation. The tradesperson has gained training, experience and
qualifications that then allow them to operate a business in that field and capitalise on
an opportunity when it arises.
Expectation
There are many possible reasons for going into business. These include:
having greater control over your own earningsthe idea that the harder you
work the more you will earn
being in control and being your own bossthe idea that you have the challenge
and satisfaction of making your own decisions
creating a job for yourself and/or members of your family
having the prestige and status of owning and operating your own business
having the opportunity to further your own interests, education and ideas
using the experience you already have for your direct benefit.
Energy and drive

Decisiveness
Self-confidence
Experienced
Responsibility
Initiative
Organisational skills
Communication skills
Goal oriented
Supportive family
People oriented
Motivated
Expectation of achievement
Self-starter
Commitment and involvement
Figure 3.2.03 Qualities of a small business owner and entrepreneur
182
Business F cus
Ralph and Rose
Ralph and Rose operate a caf in a busy
sports centre at a university. They are a
partnership and run the business together.
The caf is conducted in a single room with
approximately 75 chairs and 15 tables, and
from a single kitchen. The caf specialises
in sandwiches, coffee, soup, foccaccia, pies,
fruit, salads and drinks. It has a very large
clienteleover 1000 consumers purchase
from the caf every day.
Each day Ralph gets up at 4 am and
drives to the caf. He opens up, turns on
Figure 3.2.04 Ralphs caf, an institution
the coffee machine, brings in the milk and
at Sydney University
organises the kitchen. Rose and two kitchen
hands arrive at 6 am, put away food delivered during the previous day and commence making the
days salads, fruits, sandwiches, etc. Three of Ralph and Roses children also work in the caf. The caf
opens at 7 am to cater to the customers who work out in the gym nearby or who come for breakfast.
By 11 am the other four kitchen hands who help during the 122 lunch period have arrived. During
the day Ralph and Rose speak to over 1000 customers, negotiate with 20 or more suppliers who
deliver drinks and raw materials, the owners of the building and six or more employees, pay wages and
buy supplies and manage the business. By 5 pm either Rose or Ralph prepares to leave. Ralphs caf
was established in the late 1990s but is still going strongly today. Ralph and Rose continually change
the menu, develop new products and monitor prices to give customers the best value for money.
Ralph often says, I love competition. Ralph enjoys providing high-quality food and drink, fast service
and great value. His entrepreneurial skill means that Ralph never takes it easy. He is always trying to
improve his business.
Cultural background
Business takes place in a culturea system of beliefs and values. These values and
beliefs guide the way people act. Because of this, we can sometimes see patterns or
characteristic groupings when we discuss business ownership and the interactions
within and between businesses.
Many different cultures establish and manage businesses in different ways. Japanese,
Korean, American, Chinese and Australian business cultures all vary. For example, most
Chinese businesses are family businesses managed and established by a family. Many
Korean businesses are linked together. Business culture, however, can change over time.
When closely considering local trends in business ownership and the
characteristics of business owners, we might also find different associations.
183
Keys to good cultural awareness in business

1
Be alert to the other persons customs. Expect the other person to have
values, beliefs, expectations and mannerisms different from yours. For
instance, dont be surprised when business people from Pakistan excuse
themselves in the middle of a meeting to conduct prayers. Some Muslims
pray five times a day.
Deal with the individual. Dont stereotype the other person or react with
preconceived ideas. Regard the person as an individual first, not as a
representative of another culture.
Clarify your intent and meaning. The other persons body language may
not mean what you think and the person may read unintentional meanings
in your message. Clarify your true intent by repetition and examples. Ask
questions and listen carefully. Japanese people are generally appreciative
when foreigners ask what is proper behaviour as it shows respect for the
Japanese way of doing things.
Adapt your style to that of the other person. If the other person appears to
be direct and straightforward, follow suit. If not, adjust your behaviour to
match. In many African countries, people are suspicious of others who seem
to be in a hurry. Therefore, you should allow plenty of time to get to know
the people you are dealing with.
Show respect. Learn how respect is communicated in various cultures
through gesture, eye contact, and so on. For example, in Spain let a
handshake last five to seven strokes; pulling away too soon may be
interpreted as a rejection. In France, however, the preferred handshake
is a single stroke.
Generational culture
Generational culture also affects business attitudes. The experiences of the Baby
Boomers (born c. 194559), Generation X (born c. 196080) and Generation Y (born
c. 198195) influence how they operate in and react to the business environment.
184
Business F cus
Reality check for Gen Y and its managers
When the financial system was on the brink of collapse last year, Tim Murphy, managing director
of IP Global, a property development company based in Hong Kong, was stunned.
His shock was not solely due to the realisation that the global economy was teetering on a
precipice; the spectre of a downturn exposed the big difference in thinking between him and his
younger employees.
Source: Emma Jacobs, Financial Times, 14 May 2009
They had not seen a recession before, he says. They really thought it would last a few weeks
and return to normal. Comments like its going to be a poor month in September when banks were
collapsing made me [realise] I might have a problem.
So he embarked on an intensive education programme, or shock therapy, as he puts it, to explain
the impact of the recession on property markets. Mr Murphys experience in managing the
so-called Generation Y, those born after 1981 who have enjoyed prosperity, is far from unique.
Its the first time this generation has experienced bust, says Simon Callow, managing director
of Personnel Decisions International, a consultancy. They have never seen economic scarcitythey
have grown up with unprecedented excesses and unlimited expansion. For the first time they are
faced with limits. The air of entitlement so often associated with Generation Y is being replaced
by a real awakening that there are limits.
Bruce Tulgan, author of Not Everyone Gets a Trophy: How to Manage Generation Y , believes
this sense of entitlement is rooted in their parents over-supervision. Making children feel great
about themselves and building up their self-esteem became the dominant theme in parenting [and]
teaching Every step of the way, Generation Ys parents have guided, directed, supported, coached
and protected them.
He thinks the downturn might be the perfect time for business leaders, managers and other
grown-ups to give a much needed reality check to Generation Y. He says Generation Y needs strong
leadership, countering a school of thought that the key to retaining and managing this generation
is to make the workplace fun and that managers should soft-pedal in exercising their authority. Mr
Tulgan says such an approach is all wrong and totally out of touch with reality, especially right now
in these hard economic times. One of the most important things Ive learned is that most Generation
Y-ers dont want to be humoured at work. They want to be taken seriously. Moreover, they want work
to be engaging.
Mr Callow says this engagement might be a challenge for older managers, who believe their job
in a crisis is to turn up on a white horse and save their employees. In fact, for younger staff the key
is to engage them in order that they can come up with solutions too.
Don Tapscott, author of Wikinomics and Grown Up Digital and chairman of nGenera Insight,
a business-strategy think tank, says managers may need to re-think their role when it comes to
Generation Y. They may need to replace job descriptions with work goals and give them the tools,
latitude and guidance to get the job done. Be a good leadercoach, mentor, facilitator, enablerbut
understand that in some areas you will be the student and the employee will be the teacher.
Mr Tulgan says This is the time to get creative with non-financial rewards [that] dont cost
anything. Younger employees really value [having] more control over their own schedules. Use shortterm quid pro quos to drive performance.
A companys desire to cut costs may dovetail with young employees desire for more flexible
working. Mr Callow says: Baby Boomers expect to see you in the office whereas Gen Y might want
to work flexibly. Theyre used to technology. They dont see the same limits. The recession provides
a chance to work flexibly and reduce the number of days.
Technology, says Mr Tapscott, is the key to understanding this generations work style. They
use the Internet at work not only to do their job but also to recharge, or eliminate boredom The
widespread banning of Facebook at work is a classic example of misguided supervision.
Mr Callow says Generation Ys work style may on occasions be challenging to bosses.
Generation Y may seem like theyre slacking when they are sitting at their desks listening to their
iPods and IMing people. But [they] may be more productive than their older counterparts. So what, if
employees take time to check their Facebook page as long as they get their work done, whether its
11 in the morning or 11 at night and theyre probably checking their work email at 11 pm too.
185

1
2
Explain how life experience affects culture in a business setting.

Discuss what managers can learn from Murphys approach to managing Generation Y employees.
How can this be applied to other aspects of managing culture in business?
Gender
In the United States over half of all American businesses are owned by women. In
Australia the situation is similar. Women are establishing and commencing businesses
at a more rapid rate than men. Furthermore, businesses owned by women fail at a
far slower rate that those owned by men. Some business experts claim that women
are more cautious in business and are better able to compare the risks and rewards
in business, and as a result are less likely to experience business failure.
One of the most important measures taken to reduce poverty in many poor
countries has been to advance small loans to women to start very small businesses
called micro-businesses. This form of loan is called microcredit and may feature very
small loans, such as 20 dollars, to women who may then lease a sewing machine, or
purchase a large sack of rice and wheat and then repackage it into smaller amounts
to sell at a profit. One of the inventors of microcredit is Muhammad Yunus who
founded the Grameen Bank for microcredit, and received a Nobel prize for his work.
Almost all the women who receive these very small loans pay the loans back; and start
successful micro-businesses.
Women in business in Australia
186
The following statistics outline the participation of women in small business

in Australia.
In Australia 277 000 small businesses are owned and operated by women.
Women own 57 per cent of businesses with an annual turnover of less than
$250 000.
On average, female small business managers are five years younger than their male
counterparts.
Twenty-one per cent of women managers have university qualifications.
Of the total number of women in small business, 33 per cent are in retail
and 37 per cent in the recreation industry.
Seventeen per cent of Australian companies currently have women on their board
of directors.
Three per cent of all company directors are women.
Even more importantly, businesses operated by women are more successful and
less likely to fail than those established by males. Some researchers have suggested that
there are three reasons.
1 Women, it is said, have a home-based advantage as many businesses can be
commenced from home. Women can set up businesses more easily and, if they
operate from home, have lower start-up costs (require less funds to commence).
2 It is also suggested that women are better networkers; they are more likely to make
inquiries and open better communications between their suppliers and customers.
As a result, they know more about influences on their businesses.
3 Finally, it is argued that women have better organisational skills. They spend more
time planning ahead and organising their business. All business owners, regardless
of gender, must have these skills for the business to survive over of time. Many
business experts have suggested that the success of women in small business is
often achieved despite the burden of having responsibilities in the home as well
as in the workplace.
Figure 3.2.05 This woman was the recipient of a

microcredit which enabled her to start a restaurant
in the village of Come, Benin, Africa.
Figure 3.2.06 Telstra honours women in

business. In 2009, Georgina Rinehart, Chairman
of Hancock Prospecting Pty Ltd was awarded the
Commonwealth Bank Business Owner Award.
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Unit 3.2 Review

business culture
communication
customer
experience
government regulations
location
networking
specialised markets
taxes
capital
competitive
distributor
flexible
initiative
mass markets
personal qualities
staff
technology changes
cash flow
culture
entrepreneur
gender
innovative
motivation
self-motivated
suppliers
working capital
187
Business literacy
1 Using a dictionary, find a definition of the word entrepreneur. How does this
definition compare with that in this chapter?
2 Identify and explain three personal qualities of entrepreneurs.
3 Explain why women often make successful entrepreneurs.
4 Explain why some entrepreneurs fail in their first business venture.
5 Match each of the occupations listed below with an appropriate set of motives.
Occupation
Typical career motives
Nurse
Achievement; need to excel; set own goals and improve performance
Politician
Love; friendship; concern for others; need for friends
Police officer
Power, need to influence and control others; be respected, help society
Entrepreneur
Respect, need to organise people, follow rules, establish order
Teacher
Lead, train and help others achieve goals, communicate

6 Using figure 3.2.01 on page 180 and Poppy Kings business story, make a list
of Poppys entrepreneurial skills.
Enterprise skills
Poppys skills
Initiative
Innovation
Unit 3.2
2 review
Flexibility
Decision making
Problem solving
Planning and organising
Communication
Managing resources/people
188
7 Describe four reasons why people might commence a small business.

8 Using the Business Focus about Ralph and Rose:
a Construct a timeline of Ralphs day.
b List some of the disadvantages of commencing a small business.
9 Imagine that you have a great idea for establishing a small business. Make a
detailed list of the arguments you would use to convince your family to support
your idea.
Business numeracy and simulation

10 Game: Risk and Reward
Risk and Reward is a simple game that can be played to highlight some
entrepreneurial skills. Set up some chairs, a table and a wastepaper bin as shown
in the diagram.
increased distance
bin
1 metre
1 metre
1 metre
1 metre
1 metre
1 metre
table
station 1
station 2
station 3
station 4
station 5
station 6
station 7
Students pay 20 cents to enter the game. The money is collected in a pool.
Each player gets two throws of a pen, attempting to get it into the wastepaper
bin. The rewards are:
no reward
Station 2
10c
Station 3
20c
Station 4
30c
Station 5
40c
Station 6
50c
Station 7
$1
a Record the number of successful and unsuccessful throws from each station.
b Ask each student why they chose to throw from the station that they selected.
11 Select a successful small business operating in your area. Organise an interview

with the owner and analyse the personal characteristics that have contributed to
that persons success. Using this analysis, outline the main personal characteristics
of a successful self-employed person. In particular, concentrate on the training,
experience and motivation of the person.
Unit 3.2 review
Station 1
189
Unit 3.3
Identifying business
opportunities: Sources
of information and ideas
Sources of information
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190
When a business idea comes to mind, an entrepreneur will have to consider whether
their business concept will work. The chief consideration is: Will people buy the
product? To help answer this question, it will be necessary to gather a whole range
of information. Collecting this information about whether consumers will purchase
a good or service is generally summarised in the term market research. However, as
well as gathering information about the potential market, an entrepreneur will also
have to begin to work out the many aspects of the actual production of the product.
When considering a service, the entrepreneur will need to consider the many facets
involved in the delivery of that service.
Entrepreneurs who undertake a business in which they have little hands-on
experience will need to seek information from as many sources as possible. Quite
often courses through TAFE or Community Colleges can assist. Specialised industryrelated courses that are conducted by industry bodies (for example, the hospitality
industry and the tourist industry) also exist. The large number of business failures in
the first few years of operation has prompted the government, particularly the NSW
state government, to develop a small business support network through the NSW
Department of Industry and Investment. This department supports small business by
running courses and supplying information when required by entrepreneurs. Local
governments are also active in this area of support. The Australian Tax Office also takes
an active role in supplying entrepreneurs with information to ensure that taxation
requirements are fulfilled.
Banks are very active in supporting entrepreneursobviously with the selfinterest of wanting loans repaid, but also because they can offer entrepreneurs many
facets of financial assistance. Businesses will need funds for immediate start-up costs
but, as they continue, extra funds and assistance are needed in areas of leasing, investing
and in some cases the use of foreign exchange deals to pay for supplies and receive
payments for overseas sales.
Often local groups, such as the local Chamber of Commerce, will provide a social
network for business owners to meet and support each other. These organisations
provide important exchanges of information, as more experienced business owners
can mentor people who are just starting out.
Skill requirements
Products or services are demanded by consumers in the belief that those products have
been made or services have been performed by skilled, trained and accredited people.
Most businesses that are supplying a product will need to have specialised employees,
usually qualified with some certification. In the case of a sole trader, the owner has
the special skills that enable the product to be made or the service to be provided. An
electrician or plumber will be contracted to do a job because it is a legal requirement
that certain tasks be performed only by a qualified tradesperson. A consumer can
ask to see the persons qualifications. A qualification is also needed in the case of a
hairdresser, and a client can demand to see that the hairdresser has such qualifications.
The skills that are required to operate a business vary. As well as the basics, such as
the trade type of qualifications, the entrepreneur should have skills in:
planningnecessary to deal with the various steps involved in operating the
business
organisingnecessary to ensure the business runs smoothly and fits what has been
planned
leadingas the owner or manager of a business there is a need to actively lead the
business in the directions that have been plannedthis is especially important in
leading other employees who work in the business
controllingnecessary to evaluate what is happening in the business and assessing
what changes are needed to keep the business working well.
Business F cus
Planet Cake
Paris Cutler breaks all the rules
The business idea
Skills
Figure 3.3.01 Planet Cake owner,

Paris Cutler
Paris bought an existing cake business; it was a small operation, run by two people in a 3 m 3 m
shop. Here Paris learnt all of the traditional cake making skills and transitioned out of her life in the
corporate world.
Paris also learnt from the work of other entrepreneurs, in particular Richard Branson. Richard
Branson influenced my approach to the business. You build the brand and then you build the business.
Like most young entrepreneurs, Paris Cutler, the owner of the

internationally recognised Planet Cake, waited for the next big idea
to come her way, and like many entrepreneurs before her, nothing
came. That was, until one day, Paris hit upon the idea of acquiring
an existing business in a niche market and making it better. The
niche market idea occurred to Paris at her wedding. I had a cake
from the top cake shop and it was awful. I thought to myself, here
is my opportunity, says Paris.
191
The theatre and puppetry of business is important, Paris says.

Ability to identify the target demographic is important. Paris uses herself as the target
demographic believing you are the perfect person to sell to. It is this philosophy that helped her
launch the highly successful courses run by Planet Cake.
No one can teach you how to be an entrepreneur. My advice to people who want
to be an entrepreneur is not to talk to people who are not entrepreneurs. Being an
entrepreneur is high risk and most people are adverse to high risk. Entrepreneurs break
all the rules. They have the mind set blue sky, that is, you have to think blue sky.
You need the vision to be solid in your gut, you have to know it, you have to breathe it.
Paris Cutler, Planet Cake
External influences
There have been many external influences on Planet Cake and
the cake industry. Paris identifies Martha Stewart as being the
first major influence. Matha put specialised cakes on the front
of her magazines, which created a market for specialised cake
decorators.
Another, more recent influence has been the TV series
Masterchef. With the school already in place, Planet Cake was
ready for the challenge of teaching the aspiring chefs, however,
even Paris was surprised by just how big an influence the show
would have on the business. Planet Cake was featured in the
wedding challenge in season one. The next day there were over
1 million hits on the website and core sales doubled.
The cupcake phenomenon has also been an external
influence on the business. Planet cCake was able to respond to
the boom when it first began to hit the market. If you are not already in a place when an influence
starts, it is too late, Paris says.
Paris recommends that a business be ready for the next external influence, she suggests a
business should be flexible enough to change with the trends.
Taking it further
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Paris is always looking to evolve and expand her business. Recent innovations have included:
1 Using the Internet to maintain workshop numbers and communicate with customers (Facebook)
2 Using the Internet to maintain customers overseas and in locations that Planet Cake can
not initially reach until a solution can be found (for example, the planetcaketeaparty social
networking site).
3 Tapping into the teen market by providing teenage workshops.
I thought Id be a millionaire in three years its not that way. Its ten years. I was at
Celine Dionnes birthday, Id made her cake and she was singing to me. That is when
I knew Id made it. Paris Cutler, Planet Cake.

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3
Describe the qualities that make Paris Cutler an entrepreneur?

Discuss the sources of ideas for Paris.
Evaluate how the external influences help Paris business develop.
The business idea

Entrepreneurs must be experts at identifying business opportunities. Business
opportunities are ideas that can be commercialised, ideas that can be turned into
a profit, or ideas that lead to buying, selling and trading. Business planning turns
ideas into a plan for generating revenue and turns ideas into opportunities.
What are the sources of business opportunities?

When we look around at successful businesses we are often amazed at the idea
that created wealth for the original owner. The original developer of Hotmail, an
entrepreneur from India, was bought out by Microsoft for $US400 million. Hotmail
is a simple software idea that gave unbelievable returns. Similarly, the original idea for
all of the products around us sprang from an entrepreneurs observation of the need
for a product and the potential sales to customers.
How do entrepreneurs gather business ideas?

Entrepreneurs derive or source business ideas and opportunities in a variety of ways.
1 An entrepreneurs personal hobbies and interests are often the source of
opportunities.
Grey Lowells hobby was toy trains. He ordered toy train parts from England by
mail order but had to wait a long time for the parts to arrive. He became aware
that many of his friends also ordered parts from England and were frustrated by
the delays. Lowell finally decided to investigate the opportunity of importing the
parts and becoming an agent for the English production company. He started a
small business importing the parts and selling them to other toy train enthusiasts.
2 Entrepreneurs use their skills, expertise and experience to identify opportunities.

As a young boy growing up in Hungary, Stefan Lay picked grapes for farms in
his village. Many years later when he had moved to Australia after a successful
career in business, he noticed that many areas in the New South Wales Southern
Highlands reminded him of the area where he picked grapes as a boy. He
investigated growing Hungarian grapes, was successful and, using his business
skills, started a winery in the Southern Highlands.
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3 Entrepreneurs use experience and skills from their previous employment.

Kevin worked for a company that built large buildings, such as factories and highrise offices. He was responsible for the purchase and installation of ceilings and
ceiling tiles. When the business experienced financial difficulty it downsized and
closed some of its parts. Kevin made an offer to buy the ceiling and ceiling tile
part of the business, arranged a bank loan and was successful in starting a new
business in ceiling tiles.
4 Entrepreneurs develop business opportunities from visiting exhibitions, trade

shows and displays.
Junee Wing Tan worked in a travel agency. She went to a tourism fair where
she saw a display for travel agents to sell tourism packages to tourists going to
South-east Asia. After the fair she developed the idea of starting a new travel
agency specialising in tourist packages to Taiwan.
5 Entrepreneurs research and read to develop business opportunities.

Leona Collins was a chemical engineer. One day she read in a medical magazine
that many workers who worked in the open air, such as green-keepers and
gardeners, had a higher chance of developing skin cancer than others in the
community. Leona had a business idea based on what she read. She thought that
employers of workers in the open might purchase large drums and containers
of sunblock (30+) so that employees had easy access to plenty of sunblock. She
then developed a business plan to purchase sunblock in bulk, package it in
10-litre containers and sell it to councils and other outdoor employers.
6 Entrepreneurs have networks of other entrepreneurs and people with ideas and
expertise.
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Often these are the source of ideas for business opportunities. Bronwyn Elizabeth
met with other mothers at a play group for young children every Tuesday and
Wednesday morning. From these groups she became aware that there was very
little child care in her area. She developed the business idea of opening a childcare centre. She discussed this with other mothers at the play group and sought
their advice and support.
7 Entrepreneurs often derive business ideas from dissatisfaction with current

products and services.
Bette Nesmith, who invented liquid paper, was frustrated by the poor quality
of existing correction systems and developed a business opportunity around a
new product. She made up the first batch in her kitchen blender.
8 Entrepreneurs can derive opportunities from government and university research.

St Johns wort is a noxious weed that infests many farms and is very difficult
to eradicate. It grows over large tracts of land and makes it impossible to grow
grass to feed stock. Recently, government scientists have found that the weed
contains chemicals that can be extracted and used to manufacture certain types
of vitamins. Some farmers have developed this business opportunity and are
harvesting and selling St Johns wort for a profit.
Entrepreneurs and enterprising individuals can learn to be more entrepreneurial.

Many organisations offer courses on enterprise and entrepreneurship, which often
encourage people to think of business ideas and how to turn them into business
opportunities.
Testing the business idea

Once a business idea and opportunity has been derived, it must be examined and
tested to see whether it has the possibility of business success. This testing requires
two major steps:
Step 1: Sharing ideas with friends, family and advisers who will give feedback
and information on the idea.
Step 2: Study and research.
Study and research can be conducted through examination and analysis of:
the industry association of the business you wish to enter
other businesses in the same industrycompetitors in the industry
business magazines, books and reports
small business centres, advisers, enterprise centres
other businesses outside the industry
marketing information from books, references, reports and surveys.
Ultimately, the examination of the business opportunity leads to the development
of a feasibility study and a business plan. Business planning is the focus of the next
chapter in this textbook.
Mikes clips
Mike wanted to start a new business. He wanted to make and sell clips that are attached to plates.
The clip holds a glass of wine so that it can be carried and held by the plate. The clips are useful where
people stand to eat and drinkat parties, barbecues and buffets. Mike saw the idea when he went to
an inventors conference in Sweden. Being entrepreneurial, he thought that if he made some of the
clips (or had them made) he could sell them at markets and to firms that specialise in home-catering
functions. In this way he could start a part-time business. Once Mike started to work out the money
and time he would need to establish the business, he became worried about starting it. He would have
to approach a plastics manufacturer and outlay approximately $3000 to make 3000 clips.
Business F cus
195
This was the minimum that could be made

by the manufacturer. If this were done, Mike
would have to contact the patent holder of the
clips and pay some royalties as well. All this
would take time and organisation.
Mike could import the clips from Sweden,
but he would have to pay cash on delivery and
arrange for import. These clips would attract a
tariff duty. Once the clips had been delivered
Mike would have to store them in a secure
location. He lived in a shared rented house with
two other people and would have to store them
at his parents house. This meant that he would
have to pay the cost of travel to his parents
house whenever he wanted access to his stock.
Figure 3.3.02 Mikes plate clip
Mike started to think about preparing the
clips for sale. He made packets of 2, 4, 6 and 8 clips and wrapped them in plastic bags with giftwrap string. He thought that consumers may purchase the clips as inexpensive gifts for friends and
relatives. He bought the plastic and string, and it took a while to package. Finally Mike organised
a stall at local markets and offered the clips to customers. To obtain a good stall, he had to pay a
premium for a location near the gate. Mike commenced business and for almost two years imported
the clips from Sweden and sold them at markets, local shops and parties. The business was very
small but Mike only wanted to sell the clips and manage the business part-time. After a few years,
Mike noticed that some of the larger supermarkets, homeware and hardware stores were starting to
import the clips themselves and had added them to their stock, so that they became easily available.
Mike also observed that the clips were now manufactured for a very low price in China. These events
caused his sales to fall and he abandoned his small part-time business and started looking for a new
entrepreneurial small business opportunity.

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3
4
196
Identify occupations that are suited to operation from home.

Explain the advantages of establishing a business from home.
Identify the costs Mike incurred before he sold any clips.
Identify three problems that Mike will have to solve before he commences his business.
To start this process, make a list of all the decisions that Mike had to make before he commenced
his business.
Identify two risks in starting a new business.
Another problem that normally has to be considered by people starting new

businesses is dividing the market. For example, a business person wishing to open a
new internet cafe would be taking business away from the internet cafes that were in
business already. The new business would divide the existing market for internet cafes.
This is an important disadvantage in starting a new business. To survive, a new business
has to attract customers from the other businesses selling the same product or service.
The business person has to be confident that this could be achieved. Often, it is the
newest business that has the greatest difficulty surviving in a market.
Home-based businesses
In a characteristics and performance of small and medium business in Australia survey
conducted by the ABS, home business accounted for 35.6% of small to medium
businesses in Australia. 40% of these businesses were non-employing, 47% had 1 to 4
employees whilst 13% had more than 4 employees.
The typical home-based business person is highly educated, computer literate and
a high consumer of electronic equipment. They have post-school qualifications, are
usually female, aged 30 to 50 years, married and have been working mothers.
In terms of establishing a business, working from home has many advantages.
There is freedom and flexibility. There is a reduced cost of business premises and
lessoutlay on some assets such as phones and faxes. Decisions about geography, ease
of access, parking and convenience are easy.
Working from home has some disadvantages, though. Clients often have
expectations that the business person is available at all times, and some home-based
workers find it difficult to divide their business, and domestic and social time. Some
of the occupations that are increasingly run from home include secretarial services,
internet and computer services, and different types of consulting and advisory services.
Business F cus
A berry idea
Take heart in seduberries
Figure 3.3.04 The final product
The first Australian commercial crop of heartshaped strawberries will be harvested in Tasmania
next month.
Called Seduberries, they are the brainchild of
entrepreneur, Josh Engwerda, 22.
Mr Engwerda, who studied horticulture
and commerce at Melbourne University, won a
competition allowing him to transform a disused
newspaper sales pillar in Melbournes central
Figure 3.3.03 A seduberry
business district into a mini-shop for a year.
A keen gardener, Mr Engwerda said he came up with the idea about 18 months ago after recalling
an article about Japans famous cube-shaped watermelons, which had sold for 10 000-20 000 yen
(A$115233).
I thought I could do something with my strawberries and decided to try to make them into
hearts for my girlfriend, he said.
Other creative types have used glass or plastic moulds to produce heart-shaped
melons and buddha-shaped pears, while vegetables have been grown in the shape
of Mickey Mouse.
As well as creating the novel shape as the berries grow and ripen,
Mr Engwerda said the plastic cases provided protection from pest damage.
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And with six ventilation points around the fruit, there had been no problems with fungal disease.
The moulds will be applied this month to either albion or seascape strawberries growing at
Hillwood Strawberry Farm, north of Launceston
Source: Sandra Godwin, Weekly Times Now, 18 January 2010

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3
4
Seduberries is an example of a home-based business that has expanded. Does this fit your idea
of a typical home-based business? Why or why not?
Why do you think Mr Engwerda is being referred to as an entrepreneur? Explain your answer
referring to the qualities and skills of an entrepreneur.
What sales and marketing opportunities do you believe are available to seduberries?
Think of an activity that you enjoy (like gardening is for Mr Engwerda). Brainstorm the
different business opportunities that relate to your area of interest. In small groups
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discuss the ideas and present one idea to the whole group that you think has potential.
Commencing your business assignment

You may complete a business assignment during the Preliminary course. The business
assignment will provide you with the opportunity to research and develop a plan for
a business. The steps below will help you get started on this process.
Planning the investigation process
Stage 1: Preliminary investigation into a business, a business idea, a business plan

Check relevant sites on the internet.
Examine the Yellow and White Pages for existing businesses, products and ideas.
Have discussions with business people.
Make observations of businesses and business operations.
Read business books, references and magazines.
Reflect and think.
Stage 2: Plan and gather the data
Define the topic, idea or business.
Plan strategies for action.
Gather, collect and organise all the information necessary.
Make preliminary notes; develop feasibility and action plans to guide
the full investigation.
Stage 3: Analyse the data
Analyse the information.
Do financial and accounting analyses.
Make conclusions.
Complete a report.
Summarise the results.
Prepare communications for the appropriate audiences.
Business ICT skills

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198
The NSW Department of Fair Trading website is an excellent place to start your
analysis of business opportunities. The site has information, ideas and activities for
all aspects of establishing a business.
Unit 3.3 Review

business idea
controlling
entrepreneurship
experience
leading
market research
multiskilled
opportunity
organising
planning
sources
telecommuting
Business literacy
1 Choose six of the key terms above and make a concept map for them.
2 Explain the three stages in planning the investigation of a business.
3 Identify some of the disadvantages of commencing a new business.
4 Describe two steps in examining a new business opportunity.
5 Define the words enterprise and entrepreneurship.
6 List five ways that business opportunities can be derived.

7 Look through Business Focuses presented so far and identify the source of the
business opportunity for the following entrepreneurs:
a Poppy King
b Ralph and Rose
c Mike

8 Choose a product that you have in the home or at school, and draw a timeline
of the different models that have been made of that product at the various stages
of its development. Explain how the original inventor or entrepreneur might have
gone about planning the sequential development of that product.
9 Examining your business idea and opportunity: using a page of A4 paper, list the
considerations you need to think about in developing an idea you may have for
starting a business. The ideas will include the name of the business, location of the
business, prime function, special features, etc. Reflect back on the steps suggested
for the development of a business idea. Share your ideas in a small group.
11 This Pearson Places link takes you to the NSW Governments website for business
advicean excellent site for those wishing to analyse business opportunities. The
site has information, ideas and activities for all aspects of establishing a business.
Click the Businesses link to explore the small business information.
10 The link on page 198 takes you to the Commonwealth Governments homepage
for small business advice. The site has sections on all the key issues in establishing
a business. Browse the parts of the site on Thinking of starting a business and the
sections on developing business ideas. Identify information relevant to starting
a business.
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Unit 3.4
Identifying the
target market
Potential customers and their needs
Entrepreneurs know that business opportunities consist of selling goods and services
in certain markets to customers. Business ideas are normally concerned with satisfying
customer needs. Almost all business opportunities will focus on the following
marketing possibilities:
creating a new market with a new producta market that has not existed because
there was no product quite like this before (for example, Mikes clip)
developing a new product or service for an existing marketthe new product
improves existing products (for example, Poppy Kings lipsticks)
selling an existing product or service to an existing market by approaching
the sales and selling in a new way (for example, Planet Cake)
attracting existing customers in an existing market away from competitors
to the new business by doing it better.
Intermediate and/or final customer markets
Identifying the consumers who are interested in purchasing a product is of major

importance to a business. A business will pass the finished product on to a consumer
(the final market) or to another business (an intermediate market, for example, a
retailer), which will pass the product on to the consumer. Determining these markets
will be achieved through careful study.
Primary research deals with gathering information directly from the source. Direct
observation and surveys, for example, are extensively used to obtain information. It is
important to realise that primary research collects qualitative rather than quantitative
information. Secondary research is more concerned with numbers and numerical and
quantitative data.
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Primary research
Suppose you were investigating the viability of setting up an internet caf as a business.
You might develop a survey to find out about the market for the caf.You hope to
choose a location with many tourists and backpackers as well as people who live a
long way from where they work. The survey should reveal information that gives an
insight into potential customers for the caf, especially tourists and people who must
commute to their homes. As a result, you conduct the market research by placing
yourself near the location where you wish to open the internet caf and ask passers-by
some questions. A possible survey and results are shown in figure 3.4.01.
Survey: respondent characteristics

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4
5
6
7
8
Figure 3.4.01 Results of a survey on the market for an internet caf
Secondary research
Secondary research deals with obtaining information from existing organisations,
institutions and publications. This information is usually statistical in nature. For
instance, the Australian Bureau of Statistics (ABS) can provide statistical information
on the demographics of an area, the number of competitors and suppliers in a chosen
area and key economic indicators such as the Consumer Price Index (CPI) average
weekly earnings and household expenditure.
What is your sex?

Sex: Male 48%
Female 52%
How old are you?
Age: 1521 37%
2235 43%
3650 16%
over 50 4%
Are you an international visitor or do you live locally?
Visitor 18%
Local 82%
If you are a local, how far do you live from here?
Closer than 10 km 34%
more than 10 km away 66%
Do you have access to a computer during the day for email or searching?
Yes 44%
No 56%
How often do you need to check your email or surf and browse?
Never 3%
Rarely 10%
Often 48%
Very often 39%
How much would you pay to use an internet facility for an hour?
$1 34%
$2 38%
$3 16%
$4 9%
$5 3%
What would you expect to find in an internet caf?
Up-to-date, easy-to-use technology 67%
Helpful, stable, knowledgeable staff 13%
Staff who do not make you feel incompetent 15%
A clean, friendly and relaxed environment 5%
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Other organisations that can provide information include: industry associations

(such as the Chamber of Commerce), government departments, banks, libraries and
business publications (such as Business Review Weekly, Dynamic Small Business and the
Yellow Pages).
Preliminary analysis
A preliminary analysis is designed to help in the evaluation of the business
opportunity. It attempts to provide accurate information to the potential business
owner on the viability of the business idea, and to identify opportunities or challenges
that exist within the market. It also provides a means of assessing trends that may be
developing in a market.
The following Business Focus illustrates the usefulness of preliminary
market analysis.
Business F cus
Stormy Seas Australia
202
Helen Moore started Stormy Seas

Australia in her quest for a life jacket that
people would actually wear. Stormy Seas
manufactures comfortable, warm vests,
jackets and coats that incorporate highperformance PFD type emergency flotation.
Helen began her business by importing
products from overseas and researching
the manufacturers of inflatable clothing
in Australia. Her preliminary analysis
indicated that there was a preconceived
notion within the professional and
recreational user market that life jackets
Figure 3.4.02 Stormy Seas life jackets
were too restrictive and uncomfortable to
wear in the water.
Thus a preliminary analysis was able to show her that there existed a niche in the market for
clothing that would not only save lives but was comfortable to wear. Helen Moore began the process
of marketing the concept of inflatable clothing by contacting professional fishermen in Tasmania.

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2
Using the information above, and the information contained on the Stormy Seas Australia
website, identify the primary and secondary research undertaken by Helen Moore.
What business opportunity did Moore identify? How did she turn the opportunity
into a business?
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Market segments
Most people have heard of the mass market. An item that sells to the mass market is
something that a large number of people (no matter how old, how rich or how well
educated) want to buy. But very few mass markets exist in business. Markets for goods
and services usually come in segments. These segments consist of customers who are
similar to each other, but different from other customers. The division of customers
into groups is called market segmentation. For example, a business might try to sell
its products or services to young mothers, teenage boys or pensioners over 65 years.
Each group is a market segment.
Market segments may be categorised according to:
geographyfor example, city, country, suburb, coastal, inner city
demographyfor example, age, sex, marital status, religion, income.
Each market segment can be further divided up into micro-segments or market
niches. Businesses try to market their goods or services to the marketing segment,
so that they can match their products to these target customers.
In establishing a business, an entrepreneur will have to investigate and respond
to a market segment. This investigation will have to be based on research and analysis
of the business environment.
Niche markets
A niche market is a small but profitable segment of a market that is unlikely to attract
competitors. Hence, a niche idea attempts to attract a small proportion of the total
market by meeting a unique or specialised need. For example, Bettina Hall realised
that unusual body shapes were not being catered for, so she established Kahootz
Clothing Concept. Kahootz Clothing Concept offers one-to-one consultations
to design a wardrobe to suit the clients lifestyle, clothing and body shape.
Potential markets
Identifying a potential market is one of the major skills of the entrepreneur. An ability
to think ahead, consider the future and consider what customers might need in the
future can make entrepreneurs extremely wealthy. The common view that products
required by consumers are constantly changing and developing, and the philosophy
that the consumer is king, creates the opportunity for producers to constantly develop
new products and, therefore, new markets.
Business F cus
Yahoo! and Google
Anyone who has used the World Wide Web would have discovered the search engine Yahoo! The
creators, Jerry Yang and David Filo, did not set out to establish a business, but they did perceive the
impact that the Internet would have on society. Likewise they predicted that as more people came
203
online and explored the Web, they would require a navigational tool (similar to that of the Yellow
Pages) to obtain information quickly and effectively. So successful were they that, in 1994, they were
able to offer a public share offering of 2 600 000 shares at $13 per share. Within days they were
millionaires. Shares in the Internet search engines market have continued, with great growth in values
being achievedin some cases 1000 per cent increase in value and high levels of share transactions.
Yahoos success led many other entrepreneurs to also think about developing search engines
to harness the power of the Internet. In 1997 two Ph D. students at Stanford University, Larry
Page and Sergey Brin, also developed an Internet search engine called Google, based on a different
mathematical tool. Google was quicker and more efficient than other search engines and by the early
2000s came to dominate the Internet. By 2004, 84% of all searching on the Internet was handled
by Google. Google by 2010, had become one of the largest corporations in the world with annual
revenues, mostly from advertising, of billions of dollars.

Using the information in this book and on the Internet, identify how the success of Yahoo! and Google
demonstrate the skills of a successful entrepreneur.
Entrepreneurial markets
An entrepreneurial market is one where something new or unique is offered. This

type of market could also include taking a pre-existing good or service and marketing
it in a new geographical area, or importing a specific or new product into the country.
For example, Tom Potter, founder of Eagle Boys, decided to open pizza delivery
outlets in small country towns that multinational US competitors had not considered
significant enough to bother with. The pizza franchise network now boasts over 100
stores throughout Australia.
Another potential market that entrepreneurs may identify is the mainstream
market. This market is one that reflects a conventional business idea, such as
hairdressing, where there is a high level of competition. Christina Fitzgerald and
Jennifer Smyth set up a business with a hairdresser and a manicurist in the same
business. This is an example of a business with a mainstream idea. The idea was simple:
combine the services of a hairdresser (Smyth) with those of a manicurist (Fitzgerald).
Established four years ago, the hair and beauty salon now occupies three shops and has
a staff of 24. Fitzgerald and Smyth had long careers before setting up their business.
This meant that they had a pre-existing client base, which allowed their business
to develop quickly.
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Figure 3.4.03 Pizza franchising is an example of

exporting an existing product to a new geographic area.
Business F cus
Ralph and Rose revisited
Remember Ralph and Rose from the earlier Business Focus on page 183 Ralph and Rose had lots
of experience in managing caf businesses. They had successfully run a caf for three years but their
rented premises were to be torn down to make way for a new block of flats. They lived in the inner
city; their eldest child was attending university, and claimed the food outlets and cafs on campus
had cheap food but it wasnt good or varied.
Ralph and Rose looked at buying some existing cafs and they drove around the city and studied
three of them, but they would have had to pay a considerable amount to purchase an existing
business. They visited the university and discovered a caf space could be leased at the university
Sports Centre. They identified the number of students attending the centre and the type of food they
ate. They also looked at the food the other university cafs sold and how far away the other cafs and
lecture rooms were. Using this research, they decided the location and type of food (and price) they
would offer that would give them a competitive advantage. They then leased the space for the caf.
Having selected their idea/vision and market, Ralph and Rose undertook an environmental
analysis to identify specific challenges and opportunities that helped them determine the viability
of the business.
John Fowler, from the Small Business Association, believes that when starting a business venture
it is important that the person has some experience in that particular field. According to Fowler,
there is a need to know the market, the product being sold, the needs of the customer, and how to
sell. In simple terms, Fowler suggests that establishers of business have a solid business plan, a sound
knowledge of the target market, an understanding of the business environment that they are entering
and, finally, the ability to seek advice before commencing the business. Hence it is imperative that
the potential business operator obtain factual evidence about the current environmental conditions
within the industry. This evidence can be obtained through two major sources: primary research and
secondary research.

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2
Outline the primary and secondary research conducted by Ralph and Rose.
Describe how Ralph and Rose apply market segmentation to their business.
Determining competitive advantage

A business usually has to compete with other businesses that provide similar products
or services. A business that is lucky enough to exist as a monopoly or located so that
it is the only such business in that area has a distinct advantage. In order to survive the
competition, businesses attempt to build in some sort of competitive advantage. This
is an attempt to provide the business with something the other businesses do not have.
A business that is the first to produce a product will have a competitive advantage
over future businesses because it may be known for that product. The Walkman was
released to the market in 1979. Following the evolution of compact discs, the first
portable CD player was released in 1984. Both of these were first developed by Sony
and provided Sony with an advantage in the fact that they were first in their field.
Having developed the concept, Sony work to maintain their advantage by continuing
research and development.
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On the other hand, some companies may have an advantage in following on

in the footsteps of a development. They may see a new area that was missed by the
original business. However, in most cases the business that develops a product strives
to maintain that advantage.
A business will always try to create, and maintain, a competitive advantage over its
rivals. This usually involves constant research and development into the product and
marketing strategies that help the product to be seen as the best product within that
market.
Value
The market for any product consists of consumers who wish to purchase a product
that they feel is good value for money. Most products have a number of producers.
The consumer will be aware of the different products and will make a purchase
decision that includes value for the dollars spent on the product. Small-cost items may
not receive a lot of consideration by customers, but the more expensive an item, the
more consideration a customer will give before purchasing it. Getting full value for
money will be of prime importance.
Many businesses feature the term value for money in their marketing. Many
mission statements also feature the idea that the business will produce a high-quality
product which represents value to the customer. McDonalds is well known for
its mission statement of value, cleanliness, service and quality. Volvo vehicles have
developed a reputation for safety and, even though marginally more expensive than
other makes of car,Volvos have always enjoyed sales related to the perception that they
are good value for money because of added safety inclusions. Being able to represent
good value for money helps a business maintain a competitive edge over competitors.
Benefits
The purchase of a product may also provide some benefits to the purchaser.
Sometimes these benefits may be perceived in the sense of statussuch as the
purchase of a brand-name article of clothing, car or electronic equipment. Often
purchases may provide the customer with a sense of belonging to a group, or being
part of the marketing hype associated with the product. There are other instances
where the purchase of a product provides the customer with real advantages. The
purchasers of Lexus motor vehicles become part of the Lexus Club, which entitles
them to extra associated services such as theatre tickets and other products at discount
prices. This type of association can be found with many other products, and attempts
to provide a benefit to consumers in addition to having and using the actual product.
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Price
Price is, of course, a very important part of the reason why customers purchase a
product. There has to be a balance between the producers need to make a profit and
the customers desire to have the product at the lowest possible price. When looking at
any product, it is usually possible to find a range of prices. The price ranges are usually
related to the quality of the productperceived or actual. Producers will manipulate
the various parts of the production process to make a product at the lowest cost. They
will undertake market research to determine an appropriate price to charge for the
product.
Cost cutting by businesses during the 2000s, due to competition from Chinas
manufacturing, placed pressure on Australian manufacturers to make a product to
fit a definite price range that consumers are willing to pay. Price has become the
most important consideration and producers are conscious of the price of their
product within the market. It is quite common for a product to enter the market at
a high price but, within a short time, the price drops until consumers are willing to
purchase it. The business that entered the market first may gain more loyaltybut it
is still important to monitor the price carefully. Developing a method of making the
product more cheaply and therefore having a cheaper selling price provides a definite
advantage. Product research, use of newer materials and efficient management and
production processes are necessary to keep costs downand thus to be able to offer
a more competitive price.
Consumers may choose to use the Internet to help compare the

quality of products quickly. Some comparison services are offered
for a fee, such as Choice, whilst others are a free service, such as
insurance comparison website iSelect.
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Unit 3.4 Review

business opportunities
competitive advantage
competitors
customers
entrepreneurial market
final market
intermediate market
mainstream market
market
marketing strategies
mass market
niche market
potential customers
potential markets
preliminary analysis
price
primary research
product benefits
quality
research and development
secondary research
segmentation
target market
value for money
1 Define the terms primary research and secondary research.

2 Explain the difference between a mass market and a niche market.
3 Explain how a target market is identified.
4 Make a list of products that may be classed as mainstream or niche. Explain
why they represent a mainstream or niche idea.
5 Explain how an entrepreneurial idea differs from a niche idea.
6 Make a list of the different services that could be offered by a hairdresser in
addition to cutting hair.
Business literacy
207
7 Define the terms value, benefits and price.

8 Describe two ways in which markets can be segmented.
9 Using the Business Focus about Ralph and Rose on page 183, describe the types
of market research that they undertook in analysing their business opportunity.
10 Make a one-paragraph report on why it is important to undertake market research
before establishing a business.
Business teamwork
11 In groups of three, discuss examples of products in a wide range of price
categories that you are able to show have fallen in price since the time they were
first introduced. Summarise any marketing campaigns that were associated with
the products when launched or have been undertaken since they were launched,
especially if the producer was trying to rekindle sales in the product.

12 Think of three entrepreneurial ideas. Explain why you consider these ideas
to be entrepreneurial.
13 Research a range of credit cards provided by banks and other organisations.
Construct a table showing the associated advantages of being a holder of
particular credit cards. Explain the advantages for all parties involved in such
packages.
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Unit 3.4 review
14 Decide on a holiday destination.

a Browse the website in this Pearson Places link and design a plan and itinerary
for a holiday to your destination.
b Explain how this site appeals to consumers of holiday products.
c List the different services and information offered at this site.
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15 Browse the website in this Pearson Places link for budget tourist travel facilities.
a Explain how it provides for a niche market.
b Plan a holiday around Australia and see how much of the trip can be organised
from this site.
c Explain why most airport, train and bus interchanges have Internet access
or an internet caf nearby.
Unit 3.5
Key considerations
in setting up a business
What are the options when
starting a business?
There are three ways of establishing a new business. One option is to establish a
new business in a new location. A second option is to purchase a franchise for a new
business from a franchiser. A third option is to purchase an existing business. Often
entrepreneurs and business managers must weigh up the costs and benefits of each
way of establishing a business. Each option has special features that need thought and
planning (see figure 3.5.01).
Option 1: Establishing a new business
When establishing a new business, there are many key questions to consider.
Where will the business be locatedwhere will its premises be situated?
Should the premises be leased or purchased?
What assets will be required for the business to start?
How will the business be promoted and marketed?
How will the commencement of the business be financed?
Each one of these very important questions and decisions involves other questions.
In considering the location of the business and the business premises, the size,
layout, location and council zoning requirement will all need to be considered. In
considering the layout of the premises, the target market, ease of access, convenience
for customers and economic conditions in the area will have to be thought of.
Starting a business requires the purchase of assets, including premises, stock,
computers and employees. These assets earn the revenue or the sales of the business.
The establishers of a business have to decide how much of their own funds, called
equity, are available for buying assets, and how much to borrow, called debt. The
decision about debt and equity is very important for the future operation of the
business. Often, when new businesses are commenced, the entrepreneurs have little
equity. One of the main problems for new businesses is the amount of debt they
have. This debtmoney borrowed from financiers such as banks and other financial
institutionshas to be paid back. The more debt the business incurs, the higher are
the repayments. High debt repayments reduce the ability of the business to succeed.
There are some important rules when obtaining funds for the establishment of a new
business:
Short-term loans (of less than one years duration or term) should be used only to
finance stock purchases and to meet operating expenses incurred in running the
business.
209
Long-term loans (of more than one year) should be used to finance the main
assets of the business such as the premises or major plant and equipment.
Fixed interest rates should be used in a period of low interest rates that are
starting to move upwards. Fixed interest rates offer greater flexibility in relation
to budgeting for loan repayments.
Figure 3.5.01 Advantages of a new business and an existing business
Advantages of a new business
Advantages of an existing business
Generally cheaper as there is no

goodwill to pay for
Easier to raise finance as the business

has a track record
Not taking over the problems of an

existing business
Immediate cash flow as there are

already established customers
Freedom to introduce new equipment,

techniques and staff
Distribution and supply links and

staffing are already established
Able to have a greater impact on the

character of the business
The market is not being divided by

an extra business
Option 2: Purchasing a franchise
210
A franchise enables an operator to purchase a business with an established name

and reputation. The purchaser of a franchise will also obtain training, and technical
and managerial assistance, which will enable him or her to join a network of similar
businesses. The owner of a franchise also has access to procedures and processes
that have been successful in many other similar businesses. Many new employment
positions are created by the franchise system. Franchises turn over more than
$120 billion every year and are growing at 10% per cent per annum.
A franchise is a system of distribution or production where one organisation
grants the rights to an operator to use the brand name and system of production
or process.
There are three different types of franchises.
Product franchises act as wholesalers or retailers of a product. Examples of product
franchises include Autobarn, a car parts supplier, or Athletes Foot, which sells
footwear.
System franchises allow the franchisee to use a unique way or method of
producing, such as Jims Lawnmowing, Kip McGraths Education Centres
or Abacus Business Systems.
Manufacturing franchises allow the franchisee to produce in a certain way or use
an essential ingredient, like the Cookie Man.
There are many franchise businesses in Australia; often they require a considerable
capital outlay but have a good chance of success.
Business F cus
Dominos Pizza
Dominos expansion moves afoot
Take-away business Dominos Pizza has committed to
ramping up its franchise footprint across Australia and
New Zealand over the next 12 months.
Dominos franchise development manager Pat
McMichael said the shop growth would include metro
Figure 3.5.02 A Dominos franchise
and regional store strategies.
We launched our three-year strategic plan recently and we are very keen to grow our store
presence in metro areas such as Melbourne and Sydney where we havent had a lot of store count
growth in recent years, Mr McMichael said.
Dominos, Australias largest pizza-maker, recently posted an annual net profit of $15.4 million,
up 29.7 per cent on the previous year. The profit was generated from total network sales
of $676.4 million, an increase of 14.4 per cent.
It was one of the few listed companies this reporting season to issue a profit upgrade.
Shares in Dominos were unchanged at $4.05 this morning.
Mr McMichael said regional areas were another aspect of the business that were yet to be
fully exploited.
Currently we have approximately 55 new store territories across Australia and New Zealand,
where we are actively looking for franchisees. These territories include both metro and regional
locations that Dominos has selected as areas of significant growth potential.
He said over the past 12 months, Dominos had seen franchise applications increase twofold.
Pat McMichael said the timing couldnt be better for both the prospective franchisee and
Dominos.
Dominos Pizza Enterprises franchisees have 516 stores across Australia and New Zealand. There
are also 166 shops in France and Belgium, and 94 in the Netherlands.
Source: Eli Greenblat, The Sydney Morning Herald, 1 October 2009
What does it cost to set up a Dominos franchise?

Initial cost of $50 000
Set up costs of $250000 to $350 000 (landlord site contribution, size
of premises, level and type of equipment purchased, etc.)
A royalty of 7% of gross sales each month
A maximum contribution of 6% of sales towards national advertising

Identify three advantages of franchising as a way of establishing a business.
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Source: Dominos Pizza website, 2010
211
Business F cus
Jims Mowing
Jims franchisees want to cut and run
The owner of Australias second-largest franchise system is facing a revolt by franchisees.
Jim Penman, the founder of Jims Groupwhich spans 28 different franchises including mowing,
plumbing and electrical with 2700 franchisees in Australia alonefaces being forced out of the
company, and a class action, after a referendum held at the weekend.
The ballot has so far found 89 per cent of master franchisors who voted wanted Mr Penman out,
while 81 per cent supported a class action for alleged breach of contract.
Those behind the ballot have extended it to Friday, saying their efforts to hold the referendum
were hampered by Mr Penman shutting down a website promoting the vote.
Mr Penmanwhose franchise is second only to Australia Post in size has dismissed the
referendum as a made-up vote orchestrated by a disaffected British master franchisor.
It comes as he is being pursued for $1 million in damages by Paul Carr, who claims Mr Penman
and others in Jims Group conspired in his removal from the British business. Mr Penman has denied
the claim and is pondering legal action of his own against Mr Carr and the website hosting the vote,
which he says has libelled him.
But Mr Penman admitted many in his Australian operation wanted him out of the company he
built from a single mowing business in Melbourne in 1982 into one of the worlds largest franchises,
with an annual turnover in this country of about $250 million.
Im not sure the majority would be in favour of me right now, but give it a couple of years and
they might be, Mr Penman said.
While those behind the vote would not make public the numbers who cast ballots, Jims Group
has about 215 divisional and regional franchisors in effect, master franchiseesin its system who
were eligible to vote.
These franchisors buy areas from Jims Groupoften large parts of a stateand split up the areas
and on-sell those to franchisees.
Jims Group allows franchisors to be voted out by franchiseesor Mr Penman to be voted out by
franchisorsif three people call for a referendum. A similar vote in 2005 found in Mr Penmans favour.
But there has been growing resentment from franchisors around Australia largely based around
what they say are unfair increases in the monthly fees they pay Jims Group for each franchisee and
changes to the companys operational manual.
Monthly fees were initially set to more than double, leaving franchisors claiming they could not
on-sell their businesses. Most franchisors have spent several hundred thousand dollars to get into
the business.
Source: Chalpat Sonti, Sydney Morning Herald website, 20 October 2009
212
Jim backs down on fees
Source: James Adonis, Sydney Morning Herald website, 21 October 2009

1
2
3
Describe the advantages of purchasing a Jims mowing franchise.

Describe the disadvantages of purchasing a Jims mowing franchise.
After reading both of the articles, if you were going to open a lawn mowing business, would
you purchase a Jims franchise or start from scratch? Explain your answer.
Jims Group entrepreneur Jim Penman says he will fight attempts to remove him from the company
he founded, signalling he intends to scrap a controversial new minimum fee that has angered many
of his franchisors.
Mr Penman says he is considering holding his own referendum of franchisors to ascertain how
many support him, hitting back at reports that a ballot had so far found 89 per cent of franchisors
wanted him out, while 81 per cent supported a class action for alleged breach of contract. He also
questioned the size of the vote.
MySmallBusiness reported resentment has been growing from franchisors around Australia,
largely due to what they claim are unfair increases in the monthly fees they pay Jims Group for
each franchisee and changes to the companys operational manual, which some franchisors claim
constitute a breach of contract.
Monthly fees were initially set to more than double, leaving franchisors claiming they could not
sell their businesses.
The structure of Jims Group allows franchisors to be voted out by franchiseesor Mr Penman
to be voted out by franchisors.
In an interview with MySmallBusiness, Mr Penman said the minimum fee, which had the potential
to double the amount franchisors paid to head office, would be rolled back.
It only ever applied to new regional franchises, not existing ones, but were going to roll it back
anyway. We havent raised our franchise fees in well over a decade, Mr Penman said.
Mr Penman said other fees had been scrapped as a result of the backlash.
The referendum has been extended until Friday.
But Mr Penman claims only nine out of about 240 franchisors voted in the referendum.
In fact, were discussing the potential of running our own referendum and I predict that 70 per
cent of the franchisors would vote for me to stay, while only 30 per cent will say that I should go,
he said.
Mr Penman cast doubt on the legality of the referendum, saying he believed both the small
sample size and the system used to collect the votes were unfair.
Mr Penman said he would address an advisory committee elected by the franchisors, due to
meet in six weeks, which he empowers to authorise any franchising changes, in a bid to appease
franchisors.
But he said his priority was franchisees.
If we have franchisors that cant or wont provide support to the franchisees, then they cant stay
in that role. Were the only franchising system in the world that allows franchisors to be voted out
by their franchisees.
Mr Penman said if he was forcibly removed he would sell his stake in the company. But he said
he would fight.
That wont take anything away from the fact that our franchisees still need to be looked after.
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Option 3: Purchasing an existing business

There are many reasons to purchase an existing business as opposed to establishing
a new one. Systems and procedures have already been set up. There is an existing
customer base. Premises that have been successful, and are known by consumers, are
already in existence. There are records of past business performance that can be used
to plan the future. As well, the business has goodwill; customers know the business and
are prepared to purchase from it. When a business is purchased the new owners know
that they will have sales immediately and that their new business will generate revenue
from day one. There will also be a trained workforce with experience in managing
and running the business. Many elements should be considered in the purchase of a
business (see figure 3.5.03).
Despite these advantages, there are some problems that have to considered in
purchasing an existing business. The business may be overvalued and very expensive
to purchase. The goodwill may be overvalued compared with the sales and revenue
generated by the business. Finally, the existing owners may not have told the truth
about the business; for example, it may not generate as many sales as the owners
suggest or the business records may not be accurate.
A special problem in purchasing existing businesses is the valuing of goodwill.
Goodwill is an intangible asset. It is the value placed on the reputation of the business.
The goodwill flows from the value of the existing customers of the business. A shop
may have assets and stock worth $200 000. However, the owner may wish to charge
and value the business at $260 000, suggesting that the goodwill in the business is
worth $60 000. In buying a business the purchaser must be very careful to value
the goodwill accurately.
Continuation of lease
The period of time that the

seller will assist
Collection of existing debt

and payment of creditors
214
Transfer of utilities
Fairness of purchase price
Liability of accrued leave

of existing staff
Reasonable restriction of the

sellers future competition. The
general rule of thumb is imposing
a 5 year, 8 km restriction
Transfer of business name
A fair value for stock at hand
Keeping existing staff
Figure 3.5.03 The elements of negotiation for the purchase of a business
Location
Location is a very important factor in establishing some businesses. For example,
fast-food outlets, gift shops, newsagents, toy shops, cake shops, butchers and internet
cafes are all businesses where location is vital. All these types of retailers need to attract
customers and have passing trade (consumers moving past who are attracted by the
business) to maximise sales. These types of businesses need strong locations if they are
to be successful, so establishing them will require consideration of location factors.
The following aspects need to be taken into account:
lease conditions for premises
rents and availability
parking and demographic factors
zoning regulations
geographic factors.
For some businesses, location is a less important factor. Businesses such as
accountants, legal firms, medical services and TV repairs do not depend on passing
trade. Although the geographic and demographic characteristics may be important, the
actual location is less important.
Some businesses buy their premises (freehold) and have great control over the
location of their business. Most businesses, however, lease their premises (leasehold)
from an owner and thus have less security over location.
Some of the factors involved in choosing a location are set out in figure 3.5.04.
Figure 3.5.04 Considerations in choosing a location
In selecting
Things to look for
Things to avoid
The trading area
Growing population
Extent of the market
Competition
Declining population
Personal preference for particular
climate
The town
Potential growth
Availability of labour
Desire to succeed in ones own

home town
The site
Closeness to supplies
In the retail/service industry:
accessibility
exposure to customers
occupancy
costs
Personal preference for social

environment
The costthere may be a good
reason why the rent is cheaper
in one location than another
Impulsive actions
Capital
Some important financial questions to be asked when establishing a business are:
How much money and funds will be needed to commence and establish a
business?
What will the funds be needed for?
How can the finance be obtained?
What is the best way to finance a new business?
In the wholesale/manufacturing industry:

transportation costs
availability of services (gas, oil, water)
potential for expansion
215
Fixed assets
Working capital
Promotional expenses and repayments
Personal expenses of owner for initial period

Figure 3.5.05 The funds needed to establish a business
The establishment of a business generates demands for capital.

Fixed assets will generate sales and revenue.
Working capital is required to meet the cash needs of the business.
Promotional expenses and prepayments are incurred for advertising, professional
services and establishment costs before the business commences.
The owner will incur personal expenses for the initial period after the business
is established.
Start-up costs
Establishment costs are incurred before the business starts trading. Lawyers and
business advisers may have to be paid fees. There will be commissions on loans raised
to start the business, prepayments for tax or fees to other government departments,
rent to be paid in advance, certain types of signs and advertising that will have to
be paid for. The following schedule of start-up costs shows that these expenses will
have to be very carefully thought out.
Schedule of start-up costs
216
Telephone/mobile (payable in advance)

Registration of business names
Registration of premises
Advertising
Signs and vehicle advertising
Accounting and legal fees
Government registration
Three months household expenses
Insurance
Rent to be paid in advance
Loan fees
Reserve for emergencies
Fixed assets expenses

Once the start-up costs have been determined, consideration needs to be given to the
fixed assets that the business needs. Fixed assets are needed by the business to produce
the sales and revenues that will make the business profitable. Each business will be
different but there are some common fixed assets that many businesses purchase.
These are shown in the schedule below. Once the schedule has been completed, total
fixed assets can be determined. This will assist the entrepreneur to identify the amount
of money that needs to be borrowed or supplied from his or her equity.
Schedule of start-up fixed assets expenses

Motor vehicle
Cash register
Printing calculator
EFTPOS computer
Office furniture
Display stands and shelving
Other items
Working capital requirements

Working capital is made up of the current assets minus the current liabilities or owings
of the business. The amount of cash needed day-to-day in the business is its cash and
working capital requirement. To be efficient, a business should try to operate on the
minimum amount of working capital.
To work out the working capital needs of the business, the amount of stock and
the amount needed to finance credit sales need to be worked out. For example, if a
business is to purchase $10 000 worth of stock and the stock sells in two months, two
months worth of stock will be needed to start the business ($20 000). Some of the
stock will be sold on credit, so if, on average, half of the sales were on credit and the
consumers paid in two months, these credit sales would have to be financed for two
months ($10 000). Thus, when the business starts, the working capital requirement
would be $30 000, in addition to the pre-start-up costs and fixed assets.
Millennium Y2 Software
Figure 3.5.06 outlines the establishment costs for the prize-winning business plan for New Millennium
Y2 Softwarea business with two partners in a rented premises in Martin Place in the Sydney CBD.
Some of New Millennium Softwares establishment costs are fixed assets. The costs have been kept
to a certain standard so that the business will be able to run as professionally and efficiently as possible.
Business F cus
217
Figure 3.5.06 Start-up costs for a business renting in the central business district
Expenses
Legal fees
3 000
Accountancy
1 500
Travel
2 000
Opening function
3 000
Advertising and promotion
60 000
Telephone, electricity connection
500
Business registration
100
Stationery
1 000
Rent (4 weeks in advance)
10 000
Insurance
5 000
Advisory fees
2 000
Subtotal
88 100
Assets
Fit-out
Provided by landlord
Furniture
10 000
Office equipment
30 000
Signage
5 000
Stock (display only)
Subtotal
45 000
Total establishment costs
133 100
How are the start-up costs to be funded?
218
The sources of funds available to establish a business are internal and external. Internal
or equity funding comes from the owners. Owners may put their own savings or
resources into the business. They may sell shares in the business or go into partnerships
with others who become owners and invest their capital. Once a business has
commenced trading, profits may be retained to finance further business, or assets may
be sold to fund the business and its expansion.
External funds and capital are borrowed from other investors or from financial
institutions such as banks or investment companies. Figure 3.5.07 sets out the types
of funding that can be used for the establishment of businesses.
The rate of internal (equity) to external (borrowed) funds is called the businesss
gearing ratio. If 50 per cent of the establishment funds were borrowed and 50 per cent
were provided by the owner as equity (their own money) then the ratio would be
50:50 or 1:1. The greater the amount of gearing (the more money that is borrowed),
the more difficult it will be for the new business to pay its debts. In approving loans,
financial institutions like to see equity investment by the owners of the business as
a sign of their commitment. The most important principle in organising business
establishment finance is that the appropriate finance should be applied to the
appropriate establishment costlong-term loans for fixed assets and short-term
loans for working capital.
Figure 3.5.07 Possible financial inputs into a business
Initial purchase and establishment
Operating finance
Finance and growth
Equity funding; owners funds
Short-term loans
Retained profits
Long-term (10 years plus) loans

(mortgages) for land, buildings
and fixed assets
Working capital loans;

for example, any overdraft
for stock
Further equity funding,

including partners and
shares
Medium-term loans (310 years)

for plant and equipment
Suppliers credit on stock

purchases
Major expansioncould use

long-term mortgage funding
Short-term loans (less than 3 years)

for less permanent assets
Debt factoring
Medium-term loans
Retained profits
Leasing arrangements
Where can finance be obtained?

Finance can be borrowed from financial institutions. There are many financial
institutions, from banks to venture capital firms, that fund the establishment of new
businesses. Usually, borrowing funds from a bank or other financial institution requires
the borrower to prepare a business plan with the start-up costs and financial details
worked out carefully. Such plans are closely examined by banks. It is important for
the potential small business owner to include owners equity in the business plan
to indicate their commitment to the business.
Government
Governments and communities set out rules and laws that all businesses must follow.
When a new business is to be established, all the rules, laws and regulations must be
identified and followed. Many government regulations establish the social and ethical
responsibilities of business in the Australian, New South Wales and local communities.
There are laws regarding:
the use of business names (state government)
use of Australian Business Number (ABN)
the zoning of the business premises and their location (local and state
governments)
licences and permits for trading (state government)
protection of intellectual property, trademarks, designs and copyright (state and
Commonwealth governments)
fair trading (state and Commonwealth governments)
consumer protection (state and Commonwealth governments)
equal opportunity and anti-discrimination (state and Commonwealth
governments)
219
occupational health and safety (state and Commonwealth governments)

insurance and superannuation (Commonwealth government)
business and trading contracts (state and Commonwealth governments)
taxation (state and federal governments).
As can be seen, there are many legal and government regulations that have to
be considered in business establishment. Most new businesses must seek legal advice
so that they can operate lawfully.
Selecting a business name
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220
One of the first tasks in the establishment of a business is the choice and registration
of a business name. A business name can create an image, differentiate the business
from others and give the business protection. A registered business name cannot be
used by other businesses. In New South Wales at the moment every person has the
right to conduct business in their own name. The authors of this text could trade
as M. Horsley or I. Biddle. However, if we wished to trade under any other names,
such as Mikes Textbooks, this name would have to be registered as a business name.
If another person had already registered the name, it would only be available for use
by that person. No two businesses can use the same namethis avoids confusion
among the public.
If a business name is essential to a business then the owners should register the
name as a trademark. This has to be completed through the Patents, Trade Marks and
Designs Office. Trademarks can be very important as they convey to the public the
image and good name of the business.
The process for registering a business name involves the following steps:
Contact your relevant state government office for business registration and check
that your proposed name has not already been registered, and that it is considered
acceptable. There are restrictions to the names that you can legally use. Anything
that implies a connection with the government or a local authority, or that may
be offensive, will require special approval. The check must be done in person or in
writing, as such information will not be given over the telephone.
Complete an Application for registration of a business name form, and lodge it
together with the required fee. This fee registers your business name for a period
of three years. The form requires you to state:
- the requested business name
- the nature of the business
- the place where the business is to be conducted
- the date of commencement
- the name and address of each person carrying on the business.
It is advisable to have at least two alternative names in mind, in the event that
your preferred name is not accepted.
You will be issued with a Certificate of Registration. This can generally be done
on the spot.
A business name can also be registered online through the Department
of Fair Tradings website. A certificate will be mailed to the business owner.
Occupational health and safety

A safe workplace is the right of every worker. Each year thousands of employees are
injured in workplace accidents or by unsafe conditions at work. As a result, policies,
procedures and laws have been developed to improve workplace safety. These policies
and procedures have been developed by Safe Work Australia and provide guidance
for employers on how to establish facilities and amenities in the workplace and how
to meet standards and maintain safe and healthy conditions. It is the responsibility of
business owners, as they establish and manage the business, to fulfil a duty of care to
employees. Duty of care means looking into the future, anticipating any problems that
could occur, and overcoming them. Thus, businesses where dangerous chemicals are
stored must be able to identify any dangers in using chemicals and prevent problems
from occurring. A shop must place signs that the floor is wet when the floor is being
mopped. Consumers and employees can then see that there is the possibility they
could fall and hurt themselves. Failure to do this means that the owners are not
fulfilling their duty of care. There are specific rules about:
dining facilities
change rooms, toilets and washrooms
storage facilities
drinking water
the workplace environment
cooling and warming the workplace
aisles and passageways
lighting
cleanliness
space and seating.
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WorkCover NSW is the state body responsible for workplace safety.

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Zoning
Trade practices
There are many laws that businesses need to obey. Many of the laws that apply
particularly to business have been passed by governments to protect consumers from
unfair business practices. The Trade Practices Act 1974 is one example of an Act of
Parliament designed to ensure that customers are provided with saleable goods that
perform as specified. The Trade Practices Act 1974 also requires that businesses do not
mislead the customer, and that they ensure that products are safe, that the customer is
supplied with sufficient information (including labelling), and that all customers are
charged the same prices (price discrimination).
Business premises are usually under the control of local councils. This is because local
councils develop land-use zones to regulate the use of land, and urban and rural space.
Zoning influences businesses because they can only locate in zones that are approved
for business. For example, many businesses cannot be conducted at home because
residential areas are zoned by the council for residential, not business use.
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Other important trade practices that businesses need to consider include the
following:
A business must not refuse to supply a retailer who will not resell goods at a price
set by the supplier (resale price maintenance).
A business may not refuse to deal with another business that does not meet certain
conditions (exclusive dealing).
Businesses must not infringe copyright, trademarks or patents.
Patents
Australian businesses have been responsible for numerous innovations and inventions
used by people all around the world. Some of the better-known Australian inventions
include the wine cask, the aircraft flight recorder, plastic banknotes, heart pacemakers
and ultrasound technology. All of these inventions, and many more, have been the
intellectual property of the inventor. To protect the inventors intellectual property
a patent is usually placed on the idea, giving the inventor the exclusive rights to
the invention. When a patent originates in Australia, its rights may be restricted to
Australia or be international, depending on the type of patent granted. A standard
patent usually lasts up to 20 years. The patent can be exploited by the patent holder
or may be used under a licence agreement.
Staff
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To be successful, a business must have a workforce of employees who are competent,

qualified and reliable. The decision to recruit someone into the business should not be
taken lightly. Employees are often the firms biggest assets and the investment required
is considerable. When planning the number of staff likely to be needed, it is necessary
to calculate both the amount each person is likely to contribute to the business and
how much each position will cost.
The first of these calculations will probably end up being a guesstimate because
it will largely depend on the effectiveness of staff. In an operating business, this would
become a management factor.
The second calculation, the cost of each position, will depend on such things as
bonuses, whether staff members are full-time or part-time, minimum and negotiated
pay rates and perhaps even the effectiveness of the management team in negotiating
industrial relations agreements.
Some of the cost factors of employees that need be considered when planning
(or reviewing) staff numbers are:
long service leave
holiday pay
leave loading
sick leave
bonuses, if relevant
payroll tax, if applicable
maternity leave, if applicable
space and equipment for, say, a typist or telephonist
facilities (for example, a lunch room)
lost time (for example, attendance of an employee at a funeral).
As a rough guide, it is acceptable to calculate these additional costs to the business
(on-costs) at 25 per cent of what each employee is paid.
It is important for a business to develop a set of general principles designed to

encourage excellence of performance by staff. These principles may form part of a
staff policy and be included in the business plan. Areas that need to be addressed in the
staff policy include employee motivation and the work environment, bonuses, training,
measurement of employee performance, termination and employment records. An
effective staff policy will provide security and certainty for the staff of the business
by establishing a consistent approach.
Outsourcing
Outsourcing is the contracting out of non-core activities to other businesses. This
enables the business to focus on the core activity, while a specialist performs essential
but non-core activities. About 63 per cent of what many large businesses did at the
beginning of the twentieth century is now outsourced to specialist industries.
Businesses that exist to supply other businesses with outsourced services are
known as business service industries. The business service industry is one of the top
four fastest-growing industry sectors in the Australian economy. Since some Australian
businesses still operate their own in-house services, growth potential still exists for
business service industries that can provide services cost-effectively. The expansion
of outsourcing is a result of corporations and small to medium businesses (SMEs)
concentrating on their core activities in order to meet the needs of customers in an
increasingly competitive business environment. Areas commonly outsourced include
aspects of operations, staffing, accounting and marketing.
Taxation
The Australian Tax Office (ATO) has an extensive website with

information and accurate advice about the taxation system and
how it works for business. The site is updated regularly to reflect
changes in legislation and processes.
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Taxation is a key business concept. Every business is required by law to pay the taxes
that its sales, operation and profits incur, and the Goods and Services Tax (GST 10%).
Businesses need to pay tax:
for their employees (pay as you earnPAYEtax)
if their capital is sold at a profit (capital gains tax)
if they employ more than a certain number of employees (payroll tax)
before making a profit or, in some cases, before business commences
(provisional taxes)
on legal documents and contracts (stamp duty)
on sales (GST).
There are many other taxes that businesses pay. Business taxation laws are
continually changing. To keep up to date with the impact of tax on small business,
browse the website of the Australian Taxation Office (ATO).
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Unit 3.5 Review

assets
capital
debt
equity
equity finance
fixed assets
fixed interest rates
franchise
freehold
goodwill
intangible assets
leasehold
long-term loans
occupational health and safety
outsourcing
patents
retained profits
revenue
short-term loan
working capital
zoning
Business literacy
1 Prepare a report on the advantages and disadvantages of commencing
a new business compared with purchasing an existing one.
2 Explain to two other students what buyers should check for before buying
an existing business or investing in a franchise. Explain why many people want
to purchase an existing business rather than establish one.
3 Explain why a shoe repair shop does not require the same premium location that
a cake shop needs.
4 Define the terms leasehold and freehold.
5 Explain the difference between start-up capital and working capital.
6 Explain the difference between equity and borrowed funds in establishing
a business.
7 Define the term gearing ratio.
8 Describe four different types of costs in starting up a business.
9 Make a list of trademarks from reading the paper or from advertisements in your
local shopping centre. Explain why trademarks are so important in business.
224
10 Interview a small business owner to find out whether he or she decided to start
the business from scratch or to purchase the existing business.
11 What problems did Ralph and Rose solve in making their second business
successful? How did Ralph and Rose improve their knowledge about purchasing
an existing business?
12 Using a newspaper advertisement page with businesses for sale, group

the businesses into the following price categories:
less than $50 000
$50 000$100 000
$100 000$200 000
$200 000 plus
Select one of the businesses listed and outline the types of costs that would
be involved for the first six months after purchase. Identify the reasons why
newsagents, hotels and taxis are so expensive.
13 Contact your local council for a list of zones and a map of the zones in your local
area. From the map, consider in what parts of your local area you could open
a retail business.
14 From the council also find out whether you can operate a business from your
home. Find out which types of business the local council will allow you to operate
from home.
15 Imagine that you wish to establish a hairdressing business. Make a list of ten
possible start-up costs that would be incurred in establishing the new business.
16 Describe three possible sources of finance in establishing this business.
17 The following businesses wish to change their business names to improve
their image, marketing and appeal to consumers. Try to improve the names.
An example is given to help you.
Bens Plumbing Service
Dr Ben, Tap Surgeon
Bronwyns Furnishing
Richards Secretarial Service

Jennifer Hair Care

18 Make a list of at least five of your own possible business names. Obtain the
business registration form from the relevant NSW department. Check on the
departments website that your names have not been used.
19 Go to the WorkCover NSW website and access the Young workers information
from the Health and safety link. Another useful site to visit is the Youth NSW
website. Obtain facts on safe workplaces and safe conditions for young people
like yourself, and study safe workplace requirements. Prepare a summary of this
advice for discussion in your class.
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Unit 3.5 review
Jeremy Pet Care
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225

Flipsters
Figure 3.6.01 Flipsters is an inventive product that blends the target

markets of womens footwear and womens fashion accessories into a
stylish new product.
Introducing Flipsters and L & M Designs Pty Ltd

Flipsters are a new product by L & M Designs Pty Ltd established in 2009. The partners are Ben
Lipschitz and Rick Munitz. Flipsters is an Australian designed product that is manufactured overseas.
Flipsters is an innovative flip flop that bridges the markets of womens footwear and womens
fashion accessories.
Ben Lipschitz, Managing Director L & M Designs Pty Ltd
Ben has a Bachelor of Arts (Psychology and Philosophy) as well as a Bachelor of Law. Ben has always
had a keen interest in business, reading business journals and staying abreast of trends in the business
world whilst completing his studies.
Whilst Ben had no official business training, the discipline and skills he learnt at university
helped him as he developed L & M Designs.
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Bens key skills
Well organised
Good networker
Developing strategy
Understanding risks
Patents
Good researcher
Clear thinking
Looks at an idea objectively
Developing and working with legal documents
Agreements (Web, branding, service providers, etc.)
Rick Munitz, Creative Director, L & M Designs Pty Ltd

Rick studied Industrial Design at the University of New South Wales as well as attending the
Politecnico Di Milano in Italy. Rick has also studied at the National Arts School in Sydney and worked
as a professional photographer.
Flipsters was Ricks first project outside university. He created Flipsters by the book but with no
guidelines. Rick experimented with as many materials and processes as he could to see how he could
make Flipsters work and to develop the project. Experimenting with materials was not new to Rick, he
had been doing it since school. There were over 100 prototypes for Flipsters as Ricks never give up
attitude drove him as he created the product.
I just looked at my hand and knew a pair of shoes could fit. Rick Munitz, Creative
Director L & M Designs Pty Ltd.
Figure 3.6.02 Flipsters flip, flop, fold into a case that can fit inside your hand.
Mission statement
Planning for success

The business plan was a critical turning point for Ben and Rick. Until they developed their business
plan, Flipsters was an idea. After developing a business plan, Flipsters moved from an idea to a firm
idea, something that they could create.
To combine (i) innovative design, (ii) creative branding and (iii) exceptional commercial management
to successfully bring to market profitable consumer products.
In order to achieve their mission statement, L & M Designs have short-, medium- and long-term goals.
Short term: to successfully bring Flipsters to the Australian market.
Medium term: to take Flipsters to the overseas market, in particular America.
Long term: to design new products, particularly relating to new and innovative footwear including
accessories for the Flipsters.
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In order to have a commercially successful product, Ben and Rick identified five keys
to their success:
1 Design: Strike the balance between size and comfort
2 Price: Be priced at a level that is acceptable to the target market
3 Brand: Have an engaging and successful branding strategy
4 Distribution: Be advertised and distributed through the correct channels
5 Fashion: Be considered cool and fashionable
Advice to future entrepreneurs

If you have one friend with a good idea and one friend who can make stuff put your
forces together. Not everyone can do everything. Rick Munitz, Creative Director,
L & M Designs Pty Ltd.
It is always really hard to do something for the first time. It is important to
remember that none of it is insurmountable. Its just that every little part has to be
done and it has to be done for the first time. Ben Lipschitz, Managing Director,
L & M Designs Pty Ltd.
Identifying the opportunity

Women enjoy wearing high heels for a variety of reasons, including fashion and aesthetic appeal.
However, wearing high heels for an extended period can cause pain, blisters and other discomfort
for the wearer. In the CBD, and other areas with dense office populations, women can be seen
wearing sneakers and thongs to work and changing into their high heels. The case is not the same on
weekends and at night when women are wearing high heel shoes to pubs, clubs, dinner, etc. where
they do not carry large handbags with a spare pair of comfortable shoes.
Flipsters are comfortable, relatively small shoes that can be carried in a small purse. They are
designed with the same thought as other essential hand bag items: lip gloss, phone, sunglasses, etc.
There are also opportunities to use Flipsters when on holiday, after a pedicure, at the office, in the
car, any place where a woman could use a spare pair of shoes.
Market research
228
Whilst planning and developing their product, Ben and Rick engaged in three phases of market
research:
1 Focus groups with target market (depth of information)
2 Surveys in pubs and clubs from the target market (breadth of information)
3 Anecdotal feedback from the target market (honest feedback)
This market research allowed Ben and Rick to develop an in-depth picture of their target
marketing. The research covered included: what the product would need to look like, their markets
response to the product, the spending habits of the market, the price the market would be willing to
pay and other important information.
In the media
Flipsters have been promoted in a variety of publications. For example, in the magazines Queensland
Brides and Bride to Be they were reviewed as great wear for a bride at the reception party. In Health
Smart magazine they were promoted as a great alternative to high heel shoes for women who are
rushing around the city whilst the blog Daily Addict mentioned Flipsters as the perfect antidote to
nine hours of partying at the Sydney Opera House on New Years Eve.
Ethical business practices and social responsibility

Flipsters promotes the ethical and social
conscience of its business through its
environmental and charity policies.
A key component of the product is
durability, i.e. Flipsters can be worn
more than once and should not be
seen as a disposable product. The
company donates five dollars from the
sale of each pair to the Ovarian Cancer
Research Foundation and the National
Breast Cancer Foundation.
Flipsters also supports Clean
Up Australia and encourages their
customers to do the same.
Figure 3.6.03 Flipsters have been

promoted in a variety of publications.
Ethical responsibility
When you make something you are responsible for what you make. You learn about
the principles of responsible design at university. Efficient processes, durability of the
product, materials used.
Ethical responsibility has to be in the plan. You have to be happy and confident
with the ethics of your business. Rick Munitz, Creative Director, L & M Designs Pty Ltd.
Ethical practices often lead to better commercial outcomes. You often operate
better. Its not just a good idea, it also makes business sense. Ben Lipschitz, Managing
Director, L & M Designs Pty Ltd.
The specs
Cost: $29.95
Shipping: $6.50
Size: three sizes available: XSmall (56), Small (78), Medium (910)
Colour: Black initially with more to come
Company structure: Pty Ltd
Flipsters are constantly developing their product to meet the changing needs of their
market. Future developments include new colours.
1
2
3
4
5
Explain why Ben and Rick started Flipsters.

Describe the market research conducted before starting the business.
Looking at the information in this Major Business Focus and the Flipsters website, what market
do you think the product is aimed at? Support your answer with evidence.
Analyse why Ben and Rick are examples of entrepreneurs. Explain your answer with
reference to the qualities of an entrepreneur.
Evaluate how Flipsters meet the criteria of competitive advantage (value, benefits
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and price).
Major Business Focus activities
229
Chapter 3 Review
Human resources
Qualification
Taxation
Motivation
Legal
considerations
Key
considerations
Personal
qualities
Costs
Cultural
background
Gender
Establishing
a Business
Research
Competitive
advantage
skill requirement
Business
opportunities
Marketing
Segmentation
230
sources of
information
niche markets
SME
Failure
Success
Contribution
Role
Definition

1 An entrepreneur is a person who:
A manages a business for a large corporation
B creates a business to exploit a potential opportunity
C regulates the operation of government laws
D trains business managers
2 A niche market:
A exists for expensive goods only
B requires extensive promotion to attract sufficient business
C usually can only sustain a small number of suppliers
D attracts large overseas suppliers
3 Franchise businesses are more likely to succeed because they:
A require a smaller financial outlay
B require owners to have formal management qualifications
C are less likely to be under-capitalised
D operate in all states of the country
4 The fixed assets of a business:
B are used to produce sales and revenues for the business

C consist of stock and equipment
D are depreciated at an average rate of 10% per annum
5 The two main sources of start-up funds for a business are:
A loans from banks and superannuation companies
B loans and retained profits
C personal savings and retained profits
D internal equity funding and external borrowings
A the use of the business name

B the use of a trademark
C zoning and location of the business premises
D superannuation requirements
6 A major local government regulation affecting the establishment of small

businesses would be:
Chapter 3 Review
A need to be greater than the total value of the loans
231
7 A major expansion of a partnership could be financed by:

A the use of a bank overdraft
B long-term mortgage funding
C the sale of shares
D leasing arrangements
8 Most small business failure:
A results in bankruptcy for the owner
B is due to unexpected changes in the external environment
C can be related to aspects involving management
D is due to loans being very large
9 Net working capital is usually:
A expressed as current assets minus current liabilities
B expressed as total assets minus total liabilities
C essential for the long-term solvency of a business
D essential to sustaining the competitive advantage
10 The business plan is important to business success because:
A banks will not grant loans if there is no plan
232
Chapter 3 Review
B it enables the business to be proactive

C a mission statement is a legal requirement
D it enables management to avoid legal pitfalls
11 Examine figure 3.5.01, which outlines the advantages of establishing a new
business or buying an existing business.
a Describe the main advantages of buying an existing business.
b Describe two major disadvantages of buying an existing business.
c Evaluate the idea that goodwill is usually overpriced.
12 Examine figure 3.5.04, which investigates factors involved in selecting a site
for a business.
a Explain the difference between the concept of site and that of location.
b Discuss the key factors to be considered in selecting a general location
for a business.
c A toy shop has the opportunity to move from its current main-street location
to new premises in a shopping complex. Discuss the advantages and
disadvantages of such a move.
13 Examine figure 3.5.05, which shows the funds needed to establish a business.
a Describe the broad areas that require funds.
b Explain the difference between fixed assets and working capital.
c Select a business you are familiar with and describe the main sources and types
of funds that would be used to establish the business.
14 Examine the Major Business Focus, Flipsters, at the end of this chapter.
a What factors influenced the owners to establish their business?
b Discuss the key marketing factors that affect the success of a business.
c Explain how a business owner, such as the owners of Flipsters, can continue
to sustain a competitive advantage for their particular business.
Chapter 3 Review
233
Chapter 4
The Business
planning Process
Summary
There are several types of business plans that vary according to their function
(for example, investigating the feasibility of a business idea, planning an established
business or planning for expansion).
Plans are vital for success as they focus efforts on goals, outline what has to be done,
outline potential problems, develop strategies for future growth and provide an
indication of business success and corrective action if necessary.
Ideas essential for the planning process come from many internal and external
sources.
Clarification of a mission statement and more specific goals is essential to planning.
Forecasting, incorporating tools, such as break-even analysis, decision trees and

budgets, is a difficult but core component of the planning process.
Monitoring of the business operation enables owners or managers to compare

actual performance with planned performance. Controls, such as sales reports,
market reports and budgets, are used to monitor business performance.
Corrective action is often required to overcome deficiencies in the plan or to take

into account changed conditions.
The elements of a business plan vary greatly, but they usually include an executive
summary, operational plans, marketing plans and financial plans.
Planning, setting goals and organising are part of everyones life. Business planning was
introduced in chapters 2 and 3. Business planning is a very important business skill
and assists business to achieve their goals.
Business literacy
budget
forecasting
mission
monitoring planning
vision
Business teamwork
2 Obtain a copy of the CD Think Like an Entrepreneur, from Business Education
Australia and discuss the way that each entrepreneur planned to enter each of their
different businesses.
3 Imagine that your class is organising a friends seventeenth birthday party. Identify
the planning necessary, using the following ideas: venue, transport, food, drink,
guest list, music, entertainment and clean up.
4 This Pearson Places link will take you to the NSW Governments small business
website. Browse the main page and write down the benefits of having a business
plan and the types of information on the website.
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Unit 4.1
The role of the
business plan
Purpose of a business plan
On deciding whether to establish a new business or to take over an existing business,
entrepreneurs are usually full of enthusiasm. Their ideas are often based on past
experiences and they may believe that consumers exist in adequate numbers for
their goods and services. However, many questions need to be answered before
an entrepreneurial idea can be successfully converted into a viable business.
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 to get there
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 anything from notes on the back of an envelope to
a detailed 100-page professionally produced business plan.
Figure 4.1.01 Business success requires successful planning.
236
The start-up plan (feasibility study)

The start-up plan or feasibility study is drawn up from the conception of an idea
for a business venture and outlines the original goals and objectives of the owners.
This type of plan is an analysis of the chances of putting the business concept
into operation.
The main areas covered in the start-up plan or feasibility study include:
the original concept
the people involved in the concept
the market that exists for the goods or services
the proposed structure and location
the available finance and the projected financial viability of the venture.
The plan for establishing the business

The plan for establishing the business is different from the feasibility study as it
provides a more detailed analysis. If the feasibility study indicates potential success,
a full and detailed business plan is developed. The plan for establishing the business
provides a basis from which the strategic plans of the business can be developed. These
strategic plans and the more detailed operational plans will specify the day-to-day
operations that allow the business to attain its goals and objectives.
Business maturity, growth and change

The owners and managers of a business may prepare a new plan at any time during
the life cycle of the business. Often conditions change; for example, new laws or
taxes may arise, new markets need to be developed, new technology changes the
production process. In these situations a business may develop plans to extend
existing practices and create new ways of producing, marketing and distributing
goods and services.
The Business Planning Process
Figure 4.1.02 Plans change as the business environment changes.
237
Why have a business plan?

There are many reasons for having a business plan. It is important for success
and should cover many areas.
A business plan focuses efforts on the main business goals and aims.
It clearly outlines what has to be done and why.
It forewarns of any future potential problems such as reduced cash flow,
and outlines possible solutions.
A plan develops strategies for marketing and for the further growth of the business.
A business plan may be altered at any time, but does form a basis for actions
and activities. It is a valuable management tool. A properly prepared business plan
can greatly improve a companys ability to establish and consistently meet its goals
and objectives.
The Acme Trading Company business plan is shown in figure 4.1.03 and describes
what a business plan does.
Tests the feasibility of an idea

The business plan is often used
to help determine whether or
not a business venture is likely
to be successful.
A business plan can test (on
paper) the financial feasibility
of a concept.
Establishes and evaluates performance benchmarks

The business plan can develop and document
the evolution of the company.
It allows an objective look at the performance
of the business.
It enables management to have an objective
basis on which to determine if the business is
on track to meet its goals and objectives.
Acme Trading Company Business Plan
238
Communicates messages to internal and external parties

The business story must be told, and retold, often to
prospective investors, lenders, employees, outside
advisers, clients and customers.
The most significant aspect is the futurethe part
featured in the business plan.
The business plan outlines how all the pieces of the
company fit together to produce a vibrant organisation
capable of meeting its goals and objectives.
Figure 4.1.03 An example of a business plan
Unit 4.1 Review

business plan
establishment plan
feasibility study
finance
operational plan
original concept
Business literacy
1 Make a mind map of the key terms and concepts above.
2 Examine and assess three different types of business plan.
3 Explain why business plans are important.
4 You are seeking a loan to establish a business. Compile a list of the information
you would pass on to a prospective lender through your business plan.
Business creativity and teamwork

5 In small groups, consider the following scenario. The business you manage
has been in operation for several years. Outline an argument you would use
to convince other executives of the business to continually revisit the business
plan of the company. In what circumstances might the plan be modified?
239
Unit 4.2
The business
planning process
The planning process
The planning process will vary depending on such variables as:
size of business
type of activity
goals and characteristics of owners and managers.
For example, a large multinational corporation planning to move into a new
country would engage in a different planning process from a sole trader planning to
set up a small suburban retail business. Figure 4.2.01 shows the range of activities that
may take place in the planning process.
Figure 4.2.01 The planning process
240
Process
Activities involved
Situation analysis
Obtain information about the internal and external business environment.

Carry out processes such as SWOT analysis and market analysis, and identify
the target market.
Clarify mission
Outline the broad goals and purpose and direction for the business.
Set objectives
Establish targets and goals that the business wishes to achieve.

Allocate goals and targets to particular areas of the business. Set volumes,
market share, etc. Consider pricing and forecast revenue and expenses. Use
tools such as break-even analysis, decision trees and budgets.
Devise strategies
Design strategies to outline how the available resources are going to be used
to achieve objectives and satisfy customer needs. Arrange finances in order
to satisfy objectives.
Outline tactics
Set specific activities (who, what, when) into detailed action plans.
Put plans into action.
Monitor and
evaluate
Devise control systems (sales figures, budgets, market reports, production

reports) to compare what has happened to what was supposed to happen.
Corrective action
Favourable results would lead to a continuation of existing plans and

structures; some improvements and modifications may be made.
Unfavourable results (due to poor initial planning, unrealistic goals and
objectives, ineffective management and changes to the environment) would
lead to major revision of plans and structures so that goals and objectives
can be achieved.
Sources of planning ideas

In order to determine business aspects such as a mission statement, goals and
objectives, and targets, and then to develop plans and initiate action, business owners
need ideas. These ideas are based on information. This information can come from
a variety of sources, for example informally by talking to a customer, or by engaging
a team of consultants.
The more information managers and owners have, the better able they are to
develop practical ideas and successful plans and actions. The information can come
from either internal or external sources.
In the planning process owners and managers need to have certain information,
and this can be divided into three categories:
1 Aspects of the external business environment, for example, population trends,
government policy, legal changes, technological trends, economic conditions and
international influences
2 Specialised aspects of the particular industry, for example, marketing trends,
management methods, new products and new production methods
3 Aspects of the particular business, for example, staff levels and training, potential
capacity, production time schedules, management methods, training systems, and
particular laws and regulations.
Figure 4.2.02 Information for planning comes

from a variety of sources, including customers.
241
Figure 4.2.03 Internal and external sources of information for a business plan
Internal sources
External sources
Employees
Activities of the competition
Managers
Trade journals and industry organisations
Paid consultants
Government agencies (for example, Australian Bureau

of Statistics, Reserve Bank)
Sales representatives
Newspapers and news services
Customers
Suppliers
Internet
Research organisations
Banks/accountants/solicitors
Much of the above information is obtained in an ad hoc way. Many businesses,

particularly large businesses, will obtain specialised information about their business
from tools, such as SWOT analysis, market analysis and target market identification.
SWOT analysis
242
One of the most widely used decision-making techniques is the SWOT analysis
(strengths, weaknesses, opportunities and threats).
This planning tool is usually employed at the strategic level of planning to help
set the overall goals and direction for the business. The SWOT analysis consists of
two activities:
1 Researching and gaining information about broad areas and trends that will affect
the business. These broad areas include:
a external:
social/cultural trends
political/legal trends
technological trends
competitors
economic trends
b internal:
product or service
production process
marketing plan
distribution network
2 Analysing this information in terms of:
external threats and opportunities
internal strengths and weaknesses
A business carries out a SWOT analysis to work out what area the business
should focus on, what its principal target market will be, and how this market can
best be developed.
The SWOT analysis would address the following areas:

Strengths
What strengths exist?
What does the business do better than its competitors?
Weaknesses
What areas need to be addressed?
What do the competitors do better?
What can be done about this?
Opportunities
What opportunities are available?
What important areas can be improved on?
What untapped areas can be developed to produce a stronger market position?
Threats
What threats could adversely affect the future of the business?
What things need to be checked? This might include such things as
government action, economic conditions, new taxes, loss of key employees,
and the action of competitors.
Strengths
well-established business name
highly skilled staff
excellent customer service
quality service provided to
customers
Weaknesses
unable to recruit the right staff
lack of technology/systems
outdated
Opportunities
to increase number of outlets
increased market share
Threats
expanding too quickly
competition in local area
increased interest rate
Figure 4.2.04 SWOT analysis for a small business
Richard Higgins Bus Service

One of the factors critical to the success of service
industries is the balance achieved between covering
costs with high enough price levels while attracting
customers through low prices. Richard Higgins thought
he had the problem solved.
Business F cus
243
He had purchased a small bus service in a semi-rural community near the capital city.
Although Richard had funds from selling a truck, he still needed to borrow 55 per cent of the bus
companys price.
Richard was keen to expand his business and purchase one new vehicle, so he set out to raise the
capital needed by actively seeking charter work for school excursions, tours and the like. Most of his
opposition was from five well-established bus companies with similar, fairly standard prices. To attract
business, Richard undercut the established opposition by always quoting at least 10 per cent less.
Business soon flowed in Richards direction, his buses were in constant use and his aggressive
pricing policy saw an increase in revenue. However, although there was sufficient revenue for variable
costs, such as fuel, tyres, wages and even minor repairs, his prices did not adequately cover fixed costs,
such as insurance, registration and loan repayments. More seriously, Richard had not allowed for
depreciation and major repairs, and the more he used his buses, the more quickly they deteriorated.
Eventually the business could no longer afford to maintain the buses adequately and frequent breakdowns occurred. Richard Higgins Bus Service developed a reputation for being cheap but unreliable,
and so potential customers decided it was better to use the more expensive but more reliable services
of his competitors. Richard soon had problems covering his loan repayments, and was forced to sell.

Explain the meaning of the following phrases:
undercutting the competition
covering costs
variable costs
fixed costs.
Business F cus
Paul Mason, furniture manufacturer
244
Paul Mason was a qualified carpenter who worked for a large home-building company on the Central
Coast of New South Wales. His hobby was making furniture, particularly dining-room settings, most of
which he sold to his friends and relatives.
Eventually Paul decided to establish his own business as a furniture maker, concentrating on
expensive hand-crafted tables and chairs made from quality imported hardwoods and expensive
fabrics. The expected price was about $4000 to $5500 for each dining-room setting. As this activity
involved personal craftsmanship, there would be a low volume of output and he needed to employ
only two furniture makers.
Paul lived on a large block of land, and he was able to gain approval from the Central Coast
Council to establish the factory adjacent to his home. Because he was aiming to concentrate on a
local market of retired professional people who had recently moved to the area after selling their
Sydney houses, the location was ideal. They would need dining room settings for their new houses,
and could afford Pauls prices.
Although he had access to some capital, Paul asked his father to become a partner in the
business. Pauls father had funds to invest and was willing to become an active partner.
The planning steps followed by Paul Mason and his father and the various levels of aims and
objectives were similar to those of all businesses whatever their size or structure.
To be successful, all businesses need to have clear objectives and goals around which their plans
can be developed. Some of the most common are: survival, growth, service provision, profitability,
satisfying owners and investors, efficiency and productivity, and satisfying staff. The goals may be long
term and take years to achieve, or may be relatively short term.
Findings
Strengths (internal focus)
Land available with council approval
Paul is a qualified carpenter
Father has funds available and
is managerial
Weaknesses (internal focus)
Limited experience in marketing
Limited pool of skilled staff
No existing plant and equipment
No existing linkages with suppliers and
distributors
Supplies of quality timbers and materials
will need to be imported
Opportunities (external focus)
Many new houses being built in the area
Relatively high level of disposable
income
Threats (external focus)
Cheaper imports coming in from Asia
Low value of Australian dollar
New specialty furniture stores being
established
Implications
Business has a core of skills
Funds are available for expansion
and growth
Knowledge of local demands experience
Low travel costs
Will need to undertake training in
marketing
Will need to train staff or recruit from
outside area
Heavy initial investment in plant and
equipment will be needed
Linkages with suppliers will have
to be established
High level of potential demand
Good prospects for future growth
Raw materials could become more

expensive
More local and foreign competition
May need to expand geographic range
of marketing in area
May need to re-examine range
of products that will be produced
Market analysis
In determining whether there is a market large enough to make it financially
worthwhile to go ahead with a new business venture, the owner/operator needs
to collect as much relevant information as possible about the industry and markets,
together with their potential for growth.
Paul has prepared a SWOT analysis on his proposed venture. Working in pairs, allocate the role of Paul
to one student and the role of his father to the other. Using the SWOT analysis, the student in Pauls
role should make a presentation to convince his father to invest in the business. In response, the
student in Pauls fathers role should seek to expose the weaknesses in the SWOT analysis and identify
any further information that could be essential to the success of the business.
245
The market study, which is the first step in putting together a business plan,
focuses on market research and evaluation of the competition. Market research
involves finding out what consumers will exchange their money for. An entrepreneur
interested in owning and managing a new business enterprise will analyse consumer
needs and attitudes by asking such questions as:
What consumer desires will my product/service satisfy?
What characteristics do consumers want my product/service to have?
When and where should this product/service be available?
How many consumers want it and how much will they be prepared to pay?
Is this product/service aimed at a small number of consumers in a narrow,
specialised segment of the market, or is it aimed at a large number of consumers
in a mass market?
Sampling of representative or random groups of consumers through personal
interviews or postal or telephone surveys can provide many of the answers to these
questions.
An assessment of the competition is an essential element of the market study. To
check out other products or services that consumers may prefer to spend their money
on, the following questions would need to be considered:
What other businesses produce similar products/services?
Can our business do it better or cheaper?
How much do people want this product/service compared with other things they
want?
If the answers to these questions indicate a need for the proposed business, the
entrepreneur can then consider where the business should be located.
246
Figure 4.2.05 Researching the market potential is important and requires a number of steps.
Business F cus
Opening a liquor store?
How would you compete with Dan Murphys?
Many small shopping centres have small liquor retail stores.
However, the industry is increasingly being dominated by Dan Murphys and other very large
liquor retail chains that are owned by the major retailers such as Woolworths and Coles. It is very well
known that a small local retailer will pay a higher wholesale price for their wine and beer stock than
the same wine and beer price that can be purchased by consumers themselves from Dan Murphys.
Dan Murphys prices are so low because of the discounts they can negotiate with producers because
of their very large size and buying power.
The only way to compete in this business environment is to be a very long way from the major
retail liquor stores or to offer very high service, such as wine tasting and specialising in certain types
of high priced wine.
Figure 4.2.06 Dan Murphys is a large retail liquor store.

Explain why small independent suburban liquor stores have to devise different marketing strategies.
Suggest two reasons why a small local liquor outlet business has survived.
Prepare a SWOT analysis for this business using the headings Strengths, Weaknesses,
Opportunities and Threats.
Target market identification

In conducting research for a business it is important to identify who the product
or service is aimed at.Very few products or services are purchased by the broad range
of consumers. A potential business operator needs to identify the sector of the market
from which potential customers will come, whether there are sufficient numbers,
and whether they represent a real basis for the output of the business. It is especially
1
2
3
247
important to identify whether the target market is already adequately served by

existing businesses.
As described in chapters 2 and 3, market segmentation is based on aspects such as:
geographic factors
demographic factors
psychographic factors
Vision, mission statement and goals

Before commencing planning, potential business operators have a vision of what they
would like to achieve. This vision is generally very broad and lacks detail and focus
and involves much more than just financial outcomes. The vision would involve
aspects of security and personal satisfaction. When related to a particular business idea,
this vision can be translated into a mission statement.
The mission statement sets out the purpose or reasons for the existence of the
business. Its main function is to provide a focus for the business, and it is a starting
point from which the goals and objectives of the business can be developed.
The goals and objectives that are developed from the mission statement contain
details of actual strategies and they also contain particular targets and time schedules.
The actual operations of the business are designed to achieve the goals and objectives.
Goals and objectives

A business plan will incorporate a great variety of goals and objectives. These will vary
according to the type of business and the demands of the owners/operators. They will
range in a hierarchical fashion from the very broad and non-specific (for example, the
mission statement) to the very detailed, with actual numbers and time frames.
Businesses have different types of objectives. Some can be short term (such as
being profitable in the next three months). Some can be long term (as in slowly
building a bigger share of the market). Objectives can be categorised according to the
priorities of the owners of the business (see figure 4.2.07).
Figure 4.2.07 Different types of business objectives
248
Types of objectives
Examples
Financial
High returns on investment, sales maximisation, increased

market share, and ideal levels of growth, expansion and
diversification
Social
Community welfare and services, care for the environment
Personal
Security, prestige, job satisfaction, power
The relative importance of these groups of objectives will vary according to the
business size and structure and the personality of the owner or manager. The owner
of a small suburban corner store may want, above all, a secure income after many years
of working for someone else. A freelance photographer may want the opportunity
to work and receive an income from carrying out a hobby. The board of a large
multinational company may want an increased market share, higher returns on the
shareholders investment and increased diversification. A credit union may want to
provide cheap and reliable services to its members.
Within a large business the various functional areas of the business will have
their own goals and objectives.
Setting objectives
When setting objectives at the functional level it is important to make them as specific
as possible, and to put them in a form that can be measured. For example, a retail
business might have as its objectives:
to increase sales from 5000 units to 6000 units per month by 28 July
to make all staff aware of assertiveness techniques for handling difficult customers
before 28 August.
Thus, the performance of the business can be monitored as it moves towards its
target date.
It is essential to set objectives for those areas of business that are vital to its survival,
including customer relations, profitability of the business, staff development, position
of the business in the market, and innovations that may be required to keep or increase
its market share.
The setting of objectives has a great deal of value for the people who work in the
business. Not only do they know where the business is going but they know what
is required to help the business get there.
One way that managers achieve the goals and objectives that they set is to use a
strategic hierarchy. A strategic hierarchy allows the managers and the employees
to break down the steps needed to achieve success.
Mission statement
A mission statement sets out the broad aims and purposes of a business and is usually
presented as a single sentence. Depending on the nature of the business, a mission
statement usually reflects the vision of the businesss owners or directors, or of the
government. Thus the mission statement outlines the broad goals of the business
and indicates the general direction of future activities.
Virgin Atlantic
Safety, security and consistent delivery

of the basics are the foundation of
everything we do.
The success of our three-year strategy requires us to build on these
foundations by focusing on the business and leisure markets and driving
efficiency and effectiveness.
249
BHP Billiton
We are BHP Billiton, a leading global resource company.
Our purpose is to create long-term value through the discovery, development
and conversion of natural resources, and the provision of innovative customer
and market-focused solutions.
To prosper and achieve real growth, we must:
actively manage and build our portfolio of high quality assets and
services
continue the drive towards a high performance organisation in which
every individual accepts responsibility and is rewarded for results
earn the trust of employees, customers, suppliers, communities and
shareholders by being forthright in our communications and consistently
delivering on commitments.
Organising resources
In figure 4.2.08 goals have been allocated to business functions. When all these goals
have been achieved, the business will improve its performance.
Production objectives (goals)

To reduce material costs
from 38% to 36%.
To reduce wages costs
from 28% to 25%.
To reduce direct costs
from 23% to 20.5%.
To reduce reject rate
from 10% to 7%.
Marketing objectives (goals)

To achieve 10% market share
of product A in market Y.
To achieve 15% market share
of product B in market X.
To decrease the number of lost
customers from 10% to 5%.
To increase enquiries about
orders from 15% to 25%.
GOAL ALLOCATION
Financial objectives (goals)

To reduce sales on credit
from 65% to 43%.
To reduce the overdraft
from $100 000 to $50 000.
To reduce amount of lease
payments by 50%.
Long term
To achieve sales of $3m in 20XX.
To achieve sales of $5m in 20XX.
Corporate objectives
(goals)
Human resource objectives

(goals)
To promote proactive
management.
To employ two new staff.
To conduct four
training courses
on customer service.
Short term
To increase sales turnover from $1.8m
to $2.6m in the next financial year.
To delegate more responsibility
to product managers.
To increase profitability to 6%.
Figure 4.2.08 Functional areas of the business, goals and plans
250
Forecasting
Part of every business plan will be a section with forecasts of future sales and revenue,
future costs, future cash position, future profit and loss, future market potential, and
future needs for decision inputs and outputs. In other words, a business plan is an
attempt to predict the future. Important forecasting includes budgeting (comparing
planned revenue and planned expenses), break-even analysis and timing of decisions
(decision trees).
Revenues and sales

For a new business, sales estimates will need to reflect general conditions in the
economy, such as levels of employment, as well as the extent of competition and
trends in the size of the market. Estimates of sales revenue need to be realistic and
based on what the business can achieve given its size and the external factors referred
to above. Forecasts from industry sources, trade associations and government sources
can be invaluable.
Expenses
Expenses fall into two groups.Variable costs are those that vary with the volume of
goods and services that are made or sold, and fixed costs are those that remain constant
whatever the level of production or sales.
Variable costs include the cost of materials and labour directly used in producing
the goods or services being sold, together with packaging, delivery costs, sales
commission and warranty costs. Obviously, if nothing is produced or sold then
variable costs will be zero.
Fixed costs, sometimes referred to as overheads, include rent, rates, research and
development costs, advertising and promotion, insurance, and management expenses
such as permanent staff salaries and telephone costs.
Business F cus
Vision HDT Television and CD Repairs
Simon Green retired from the RAAF at the age of 38 after 20 years of service in the electronics
section. With his lump-sum retirement allowance and a small part-pension he established a television
and DVD repair workshop in his extended garage.
Simon was a hardworking and reliable repairer and soon had all the business he could handle. His
accountant advised him that if he established himself in premises in the main part of town, employed
extra workers and advertised the business, the business would expand and would generate a very
high income.
Simon has rejected his advice and continues to operate at a lower level of activity rather than
increase profits by expanding, because he enjoys working on and repairing electrical equipment. He
does not like managing and directing others, and he is able to work at his own pace since there is
a low level of investment involved and there are no loan repayments to worry about. His present
business provides him with an adequate profit.
251
Profit is only one of the goals and objectives of business. Mission statements usually stress
a variety of goals, and profit and return on investment are not always the most significant of these.
The personal goals of the owners and operators will be a key factor in influencing what the
objectives of a business will be. However, the size and structure of a business also has a bearing
on the goals and objectives of the business activity, as can be seen in figure 4.2.09.
Figure 4.2.09 Goals and objectives of business
Business group
Main goals/objectives
Small business (usually sole

traders and partnerships)
Make a profit, but also satisfy a range of personal goals

and lifestyle objectives
Medium-sized business
(usually private companies)
Maximise profits to owners, security and future expansion
Large business (often

public companies)
Careful management of shareholders funds, good

return on investment, but also a wide range of social
and economic goals and objectives

1
2
3
Identify the main goals of people who own and operate businesses.
Explain why Simon Green decided not to expand his business operations.
Formulate a set of business goals for Simon Green and Vision HDT Television and DVD Repairs.
Profit and loss

When a business plan is developed, the budget will indicate the future sales and costs
of the planned business. Once the costs and revenues are identified, the net profit (or
loss) can be worked out (see figure 4.2.10).
Figure 4.2.10 Condensed profit and loss statement
Murphys Manufacturing Co.
Sales
Less variable costs
Less fixed costs
Net profit
252
$
530 000
360 400
76 800
92 800
A condensed profit and loss statement (as shown above) provides us with
an important financial equation:
Sales (variable costs + fixed costs) = Net profit (or loss)
Lets look at Murphys Manufacturing Co. Variable costs are 68 cents per unit
produced. Fixed costs will remain constant at $76 800 per year. With this information
and using the equation above, we can determine the profit or loss at different sales
levels.
Sales
0
$150 000
$240 000
$300 000
$530 000
$600 000
(variable costs + fixed costs)

(0 0.68 + $76 800)
($150 000 0.68 + $76 800)
($240 000 0.68 + $76 800)
($300 000 0.68 + $76 800)
($530 000 0.68 + $76 800)
($600 000 0.68 + $76 800)
=
=
=
=
=
=
=
Net profit (or loss)

Loss $76 800
Loss $28 800
Nil profit or loss
Profit $19 200
Profit $92 800
Profit $115 200
This information can also be presented in graphic form. Figure 4.2.11 clearly
illustrates the relationship between cost, sales and volume. The break-even point (nil
profit or loss) is shown, above which sales are greater than costs, thus generating a
profit. A graph can be a convenient and simple way of determining the profit or loss
of your business over a range of activity levels.
Break-even analysis
When the income from sales of a product exactly matches all the expenses involved
in producing the product, the business is said to have reached a break-even point.
The break-even point depends on the difference between the fixed expenses of the
business and its variable expenses.
For example, in a hairdressing salon the major variable expense would be the cost
or purchase price to the salon owner of the products used on the clients. The more
clients who are given shampoos, or have their hair treated in other ways, the more
products will be used, and the higher will be the variable costs.
Costs and sales ($000)
600
Sales revenue
500
400
Total costs
300
200
Break-even point
100
Fixed costs
0
200 300 400 500

Sales volume ($000)
Vertical axis:
Horizontal axis:
Fixed cost line:
Total cost line:
600
Represents dollars of costs and sales.

Represents sales volume in dollars or units.
Represented by a horizontal line, remains constant over the entire range of activity.
Represents both fixed and variable costs and increases at a constant
rate equal to the rate of increase of variable costs. Thus total costs are
represented by a diagonal line commencing from the fixed cost line.
Variable cost:
Represented by the gap between the total cost line and the fixed cost line.
This gap will increase at a constant rate equal to the rate of increase of sales.
Sales revenue line: Represented by a diagonal line commencing from the graphs point of origin.
100
Figure 4.2.11 Costs and sales: break-even analysis
253
Figure 4.2.12 Total costs add fixed and variable costs together.
Can you identify the fixed and variable costs for a hairdresser?
The fixed expenses for the hairdressing salon would include all the costs of
running the business, whether it attracts any clients or not. It would include such
things as rent, lighting, telephone, advertising and, where staff are permanent, salaries.
The business plan should include forward projections of both fixed and variable
costs, as well as expected sales, so that sufficient finance can be arranged to take the
business beyond the break-even point. Once the business is operating, knowledge of
the break-even point becomes an important tool for its survival. If problems arise, the
owner of the business could attempt to reduce the fixed costs, perhaps by employing
casual or part-time staff, or could save on variable costs, perhaps by buying bulk
quantities of products, or could try to increase takings, perhaps by increasing charges
or spending less time on each client.
Budgets
254
Budgets are numerical forecasts used to guide and control the firms activities so its
targets and objectives can be achieved. Budgets are generally expressed in monetary
terms, and based on general trends and conditions. Following are two different types of
budgets, the capital budget and the cash budget, and how they are used in forecasting.
Capital budget
A business will need to list its proposed spending in the period ahead on all items of
a capital nature. This will include amounts for fixed assets such as land, buildings and
equipment, advertising, permanent working capital, and research and development.
It will need to include what the capital budget is to be spent on, how much will be
required, and when it is required. In preparing such a budget, the relative merit of
one capital item as opposed to another will need to be considered, as will the risks
involved in making capital outlays.
Cash budget
This budget is designed to ensure that the business will be able to meet its
financial obligations when and as they fall due, by forecasting its expected
cash receipts and payments over a future period. By breaking this forecast into
monthly periods, for example, the timing of cash shortages and surpluses can be
predicted and planned for by arranging overdrafts or investing surplus cash on
a short-term basis. As most businesses depend on the sale of goods and services
as their source of cash, the accuracy of a cash budget depends very much on the
ability to reliably predict sales.
Decision trees
A flow chart, sometimes called a logical or decision tree, is a visual
aid that summarises the various alternatives or options available to
management during a complex decision-making process.
Lines or arrows representing possible choices are used to link a series
of decision points or alternative courses of action.
The impact of choices in one time period on later time periods can
also be gauged through the use of this
planning technique.
Figure 4.2.13 Budget forecasts consist of capital and cash budgets.
pilot production
ces
trodu
in
r
o
it
et
t
comp ilar produc
sim
decision points
full-scale production
jec
t sh
elv
ed
(fo
r6
mo
nth
s)
pro
alternatives
(or chance moves)
rks
o
tw
n
me
lo
eve
ba
op
me
nt
com
on
eti
es
no si
m
duce ilar prod
u
d by
comp ct
etit
intro
ors
ed
comp
itor
c
trodu
titor in duct
e
p
m
co
r pro
simila
fail
sa
tor
nd
etitor
comp
etito
rs no
t act
ive
ta
itor
mpet
vel
ctiv
jec
mpet
no co
de
pro
no co
Figure 4.2.14 Decision tree for a new product development
255
Monitoring and evaluation

As a tool the business plan is very useful in:
establishing a business
monitoring the ongoing operations of an established business
organising business expansion.
One of the functions of a plan is to outline what is expected to happen in the
business. A valuable activity is to compare actual business performance with what was
planned to happen.
All activities of the business should be monitored and evaluated regularly to
ensure that the business plan is carried out. It is important to keep in mind the overall
direction of the business and to continually assess whether the goals and objectives of
the business can be achieved or if modifications need to be made.
There are a variety of signs that indicate the success or otherwise of a business.
Some of the signs are simple observations, whereas others are quite sophisticated
control systems. Signs that a business is not doing well would be found in decreased
customer levels and repeat business, or increased levels of complaints, returns and staff
turnover.
Some of the main sources of information for monitoring performance would
come from revenue statements, cash-flow statements, budgets and the balance sheet.
Information from these sources would indicate if there were problems in areas such as
falling sales, credit payment problems and bad payers, areas of slow moving stock, staff
problems, potential cash-flow problems, and low levels of return on investment.
Monitoring requirement
The business plan allows the owner/manager to set targets and to regularly monitor
the degree to which these are achieved. During the first and subsequent years of
operation of a new business venture, objectives will usually target sales, cost of
materials/goods, wages, cost of repairs/maintenance and cash flows, as well as net
income, total expenses and net profit. The scheduled period over which these areas
are monitored is generally one month during the first operational year, although some
businesses schedule a period of one week for at least some part of that first year.
Evaluation and modification of business plan
256
A well-designed business plan will integrate changing trends in the business

environment. It will include some allowances for unforeseen short-term changes.
The business environment is dynamic, and no business plan can predict all the possible
changes that might occur. Industry-wide strikes, changes in interest rates, taxation
changes, break-throughs in technology and developments in marketing methods
cannot be accurately predicted.
In particular, financial needs fluctuate and arrangements with lenders may need
to be changed. Businesses tend to raise their finance in a patchwork fashion to fill
gaps as and when they become apparent during the operation of the business. Over
time, circumstances change and existing financing arrangements may no longer
be appropriate. It is therefore important for businesses to review their financing
arrangements periodically to make sure that they are not costing the business more
than is necessary.
Figure 4.2.15 shows the monitoring sequence for a business plan.
Plans
translated into
Major revision of plans and

structures will be necessary so goals
and objectives can be achieved.
Unfavourable results
Unfavourable results may be due to:
poor initial planning
inefficient and ineffectual management
of actions and activities
Activities and actions

of the business
Control systems
compare plans with what
actually happened
Positive reinforcement; continue

with existing plans and structures.
Some improvements and
modifications may be made.
Favourable results
unrealistic goals and objectives

changes to the external environment that
were not or could not be allowed for.
Figure 4.2.15 Monitoring sequence for a business plan
Corrective action
The monitoring and evaluation of actual business performance can indicate that
corrective action is requiredthe plan may need considerable modifications if the
goals and objectives are to be achieved. In some cases it may be apparent that the goals
and objectives are unrealistic or that conditions have seriously altered. In such cases
modification to the goals and objectives may be required (see figure 4.2.16).
Figure 4.2.16 Corrective action if goals are not being met
Possible corrective action
Situation 1:
Lower levels of
sales and slowmoving stock
Change pricing levels

Re-examine the target market, modify the product/service offered
Investigate various promotional and marketing strategies
Improve quality of after-sales service and examine customer relations
and staff training activities
Situation 2:
Lower profit
Investigate levels of mark-up margins

Investigate alternative sources of supply
Investigate methods of reducing costs and ways of making other efficiencies
Situation 3:
Poor returns
Examine amounts of fixed assets on investment

Examine pricing and promotion strategies
Investigate methods of reducing costs and making other efficiencies
Situation 4:
Cash-flow and
liquidity difficulties
Investigate credit policy liquidity difficulties

Examine alternative methods of payments
Put in place controls and close supervision to prevent staff dishonesty
Investigate leasing, outsourcing, factoring and part-time staff
Examine levels of fixed assets
Situation
257
Unit 4.2 Review

break-even analysis
budgets
corrective action
decision trees
evaluation
mission statement
monitoring
objectives
SWOT analysis
target market
vision
Business literacy
2 Explain why business planners need to work out the break-even point of sales.
3 Define the term forecasting. List three types of forecast.
4 Explain why monitoring is such an important process. When should it be carried out?
5 Re-examine the case of Richard Higgins Bus Service. Explain how careful
monitoring could have saved the business.
6 Examine figure 4.2.09 and distinguish between long-term and immediate
objectives.
7 Select two areas of business and describe the business functions that would
change if immediate objectives were pursued.
8 Devise a decision tree to achieve the immediate objective of the wholesale firm.
9 Analyse the links between the long-term and immediate objectives of the
retail shop.
Business numeracy
10 Look at the following figures from the profit and loss statement of Bakers Retail
Shop.
Sales
$450 000
Variable costs
$351 000
Fixed costs
$79 200
Net profit
$19 800
11 For Bakers Retail Shop, calculate the variable costs for every one dollar of sales.
12 Calculate the net profit or loss for five different levels of sales.
13 Construct a graph of costs and sales for Bakers Retail Shop and determine the
break-even point.
14 Look at the following simplified budget for the first years trading of Richmond
Graphics, a retailer of photo frames.
a How was the sales revenue calculated?
b What are costs of goods sold?
c If a competitor opened up a new frame store close to Richmond Graphics,
258
what would be the impact on projected sales?

Units to be produced
450
Raw materials per unit (m2)
Predicted needs (m2)
2250
Desired inventory (m2)
550
Total materials to be purchased

Cost per unit ($)
2800
2
Cost of raw materials to be purchased ($)
5600
Figure 4.2.17 Differing business objectives

Long-term
objectives
Immediate objectives
Sugar cane farm

Produces sugar cane.
Owner-operated
40 ha, located on
north coast of NSW.
Continued family
ownership.
Maintain productivity
of land.
Adequate family
income.
Meet loan repayments.
Replace farm tractor.
Cooperative raw
sugar mill
Produces raw sugar.
Owned by farmers
who elect a board of
directors. Managers
appointed.
Continued
profitability.
Research into farm
diversification.
Efficient management.
Return of 12% on
farmers investment.
Replace handling
facilities.
Sugar refinery
Produces refined
sugar products.
Large public
company.
Many shareholders.
Diversified activities.
Diversification into
mining. Increased
market share. Export
development.
Increase sugar output

by 12%. Sale of 10%
of output to overseas.
Investors receive a
return of 10%.
Wholesale firm
Obtains sugar
products from
manufacturer and
distributes to shops
and retail outlets.
Public company. Buys

from manufacturers
and importers. Sells
to small and large
retailers.
Expansion of outlets
in state. Increased
market share.
Diversification of
products sold.
Establish one more

suburban warehouse.
Increase market share
by 5% Introduce
household items
into product.
Retail shop
Sells sugar products
to consumers.
Small shop in
expanding outer
suburbsole trader.
Financial security.
Establish market
niche. Secure
permanent income.
Build up goodwill.
Secure income
and cover loan
repayments. Increase
stock and product
range. Obtain 20%
market share in
local area.
Accountant
Aids the business
operations of the
retailer.
Four-member
partnership in
expanding outer
suburb.
Build up goodwill.
Establish secure
business. Expand
range of services.
Secure income. Repay

loan on premises.
Expand to 30% market
share in local area.
Description
Unit 4.2 review
Area of business
259
Business teamwork
15 Prepare an outline of the argument for and against the following topic and then
have a class debate: The only objective of any business is to make as much profit
as possible.
16 In groups of three, discuss the meanings of the terms business goals, mission
statement, objectives and prime function.
17 Write down meanings for the following terms: budget, decision tree and breakeven analysis. In groups discuss the meanings of these terms.

18 Select a company annual report and identify and write out its mission statement
and prime function.
19 Using the company report, identify and note a strategic goal, a short-term
objective and a new market opportunity.
20 Look at figure 4.2.08.
a Note four different business functions.
b Distinguish between short-term and long-term goals.
c Examine the production goals. Outline how achieving these goals would
improve the success of the business.

21 Identify the target markets of Woolworths and Amazon from their web pages.
260
Unit 4.2 review
22 Conduct a brief SWOT analysis of the two companies.

23 Identify the prime function of each enterprise.
We
b Desti nation
Unit 4.3
Elements of
the business plan
Characteristics of an effective plan
Business plans vary greatly in terms of size, detail and organisation. These variations
are due to:
the purpose of the plan (for example, a feasibility study, business establishment,
expansion, ongoing operations)
the size of the business (for example, a small sole trader, multinational mining
organisation)
the function of the business (for example, mining, retailing, manufacturing, service
industries).
A plan suitable for the establishment of a hairdressing business would be very
different from a business plan developed by a public company that is involved
in mining resources.
Despite a great variety of differences, effective business plans have certain common
features, including:
achievable and logical goals and strategies that provide the business with a clear
sense of direction
adequate information and material that suits the purpose of the plan (for example,
obtaining funds, or strategies for expansion)
all the variables and factors that will affect the success of the business throughout
a particular time frame
flexibility to allow variations and additions if conditions change
being written in such a way that it can be added to and continually updated when
and if required
clear identification of potential risks and how these may be eliminated or have
their impacts reduced.
Organisational details
Market strategies
The Business Plan

Future directions
Information on management
Risk management strategies
Financial projections
Figure 4.3.01 Aspects of a business plan
261
In summary, a successful business plan needs to clearly state the goals and future
direction of the business. These must be realistic and achievable. The plan also needs
to clearly outline the steps and strategies by which these goals and objectives can be
achieved. The successful business plan also identifies the risks that exist that could
limit the success of the business, and indicates how these risks could be managed
and minimised.
Figure 4.3.02 Elements of the business plan
262
Element
Discussion
Executive
summary
This is a brief overview and emphasises the key issues of the plan. Many plans do not
have an executive summary. Aspects covered in the summary could include purpose,
business description, goals and objectives, and situational analysis. Many of these
aspects are expanded upon in more detail later in the plan. The summary would
probably be less than two pages.
Business
description
This provides an overview of the business and doesnt contain excessive detail.
Aspects covered could include business name, location of activities, ownership
structure, main products and services.
Purpose
of the plan
The reasons for the plan are outlined, for example, initial establishment, expansion,
feasibility study, or application for additional external funding.
Situational
analysis
The nature of the industry in general is outlined and then the competitive advantage
of the business is detailed.
Objectives
and
strategies
The long-term and short-term goals of the business are outlined. Broad goals are
given to indicate the focus and direction of the business. Measurable targets and
how these will be achieved may also be included at this stage.
Marketing
analysis
This is perhaps the key feature of the plan. Outlined would be information on the
nature of the industry, the products and services that will be provided, the target
market, an analysis of the potential customers, and an analysis of the competition.
Trends and future developments in the industry would also be included.
Sales
forecasts
This is a difficult part of the plan, and professional assistance may be required.
Over-optimistic forecasts are a potential danger. Projections are given for the short,
medium and long term.
Marketing
strategies
In this section the plan outlines how the sales projections are going to be achieved.
Included may be aspects such as pricing, geographic penetration, promotion, how the
market will be penetrated and strategies for long-term growth, training for sales staff,
product range and after-sales service. This section will receive the greatest scrutiny.
Operations
This section is particularly important as it indicates how the activities of the business
will be implemented. Included would be information on resources and equipment
needed, methods of operations, levels of outsourcing, the number of staff required,
levels of skills and training and duty statements.
Finance
This section is very important for a new business. A realistic assessment of funds
required and the source of these funds is essential. The plan would outline revenue
statements in varying degrees of detail (monthly for the initial period and then
projected six-monthly and yearly statements). Projected balance sheets, capital
budgets for equipment and cash budgets could be included. Established businesses
would include historical as well as projected statements. Many business plans include
financial statements in an appendix. The forecasts enable the business to compare
actual information with what was projected. This is important as a control and is vital
in providing future modifications to the plan.
Notes
1 Many businesses may include details about the owners of the business,
their experience, goals and assets.
2 As a separate section, a business may include an analysis of the risks involved in
the operation and how these risks may be overcome or minimised. Included could
be information about current legislation and rules that would impact upon the
business.
3 A small summary or overview may also be added. This would be less than one
page and would stress the competitive advantage of the business and its potential
for success.
Unit 4.3 Review

cash flow forecast
executive summary
finance
financial projection
market analysis
operations
revenue statement
risk analysis
sales forecast
Business literacy
2 Describe the steps involved in making a business plan.
3 Read the sample business plan carefully. Imagine that you are responsible
for lending finance to this business. Write a three-paragraph report on whether
you would lend money to the venture.
Figure 4.3.03 A business plan is important to the
success of a business. Its development could be in the
hands of one or two people or a committee of people.
263
Unit 4.4
Critical issues in business
success and failure
Importance of the business plan
Many businesses, both large and small, fail. Many others cease trading as their owners
close the business and move on to other businesses or careers.
Business failures have very obvious consequences for their owners, their employees
and their communities. The costs of business failure can include loss of income,
opportunities, work and self-esteem. In small communities, a business failure can
threaten the entire community. A specific problem in small business is that many
small businesses fail very soon after establishment. This is because the planning and
preparation for their establishment have been inadequate.
Business failure refers to the situation where the business ceases to operate under
its existing owner. Death, injury or personal changes may all cause the owner to cease
trading. Mostly, businesses cease trading because their owners realise that the business
has run into difficulties. These difficulties may include falling or non-existent profit,
or a change in the market or other business conditions. Many businesses fail because
banks and other lenders will not advance more moneybelieving that the business
cannot pay its debts or trade profitably. Most business failure is not the fault of the
external environment (natural disasters, changes in government policy or changes
in the community). Most businesses fail because their owners and managers have
not planned correctly or anticipated changes.
100
264
Percentage failure (%)
90
80
70
60
50
40
30
20
10
0
Years
Figure 4.4.01 Thirty per cent of businesses fail in their first year of operation,
and 60 per cent fail in the first five years. Do older firms fail for different reasons?
Experience and research have shown that there are a number of critical issues
influencing the success and failure of small businesses:
managing working capital
capitalisation
managing and planning
exploiting technology.
Critical issues in business success

Managing working capital
Working capital is the money that is used to pay for the day-to-day running of the
business. This includes the funds to pay for stock, wages, other running expenses,
giving credit, etc. Unless working capital is managed carefully, both small and large
businesses will not be able to pay their bills. They may become insolvent and cease
trading. This is the main reason for business failure.
Capitalisation
Under-capitalisation refers to a lack of funds to either establish a small business or
to expand a business that is growing. Failure to provide enough funds at the start
could doom a business to failure. As well, when businesses succeed and expand they
need capital (money/funds) to finance this expansion. Sometimes businesses wish to
expand, and over-extend by borrowing more funds than they can pay back. Managing
finance is a crucial aspect of all business.
Managing and planning

It is often said that those who fail to plan, plan to fail. This is especially true in
business. Business managers and owners need to plan carefully for the future and
anticipate it. It is important that managers seek advice from experts, especially those
who provide business advice and help. Planning is important in business to manage
cash flow and working capital.
Exploiting technology and maintaining

Technology changes frequently

and influences business strongly.
Business owners and managers
need to be proactive in using
technology to maintain their
competitive advantages.
Figure 4.4.02 Technology can

help a business grow and develop.
Businesses can set up pages on social
networking sites, such as Twitter and
Facebook, to update and maintain
relationships with customers.
265
Managing cash flow

The period between the purchase of trading stock and supplies and the payment
of wages and the receipt of funds from sales and creditors determines the amount
of working capital required by the business. This period also determines the cash
cycle of the businessthe length of time between when cash is paid out for stock
or supplies and when payments for sales are received.
The best way to understand cash flow and working capital is to consider the
following statement: If you as a small business owner sell $10 000 worth of goods and
services in a month, it does not mean that you will receive $10 000 in that month!
Why? The reasons are clear. Some customers will have used a credit card for payment.
Meanwhile you, as a small business owner, may have incurred all the costs of selling
that $10 000 worth of goods and services.You may have had to pay for stock, wages,
rent and equipmentall in that original month. This is the problem of working
capital and cash flow.
During the period between the purchase of trading stock and receipt of payment
from debtors, the business must pay its running expenses as well as meeting the
cost of goods it bought.
The cash cycles of two different types of business are set out in figures 4.4.03 and
4.4.04. In figure 4.4.04, a service business, there is no stock, because a labour service
is provided. Sales occur when the service is performed and debtors are created. When
the debts are collected, cash is generated to begin the cycle again.
Cash
Cash
Purchases
Collections
Collections
Debtors
266
Sales
Stock
Sales
Figure 4.4.03 Cash cycle of a trading business
Debtors
Figure 4.4.04 Cash cycle of a service business
Working capital
Lack of working capital is a major reason for small business failure. What is a
satisfactory level of working capital for any particular business can only be based on
experience in that business. So long as a business can purchase all the trading stock
or raw material it requires, give its customers the credit they request, and pay its
liabilities as they fall due, it probably cannot be said to be short of working capital.
When it cannot do the above things most of the time, there is cause for concern.
Most businesses experience a temporary shortage of working capital from time to

time. However, a business that experiences a chronic lack of working capital is probably
under-capitalised. The most common cause of under-capitalisation is insufficient funds
contributed by the owners(s)insufficient equity capital. This leaves the business too
heavily dependent on funds made available by third parties.
Since current liabilities are usually made up of trade creditors and/or a bank
overdraft, an under-capitalised business is at grave risk should there be a credit squeeze.
At these times, creditors are likely to insist on more prompt payment of their accounts,
or even to reduce the amount of credit allowed. In addition, banks may, at short notice,
request that overdraft amounts be reduced or even paid off completely. Unless funds can
be obtained from other sources, the business will need to insist on prompt payment from
its debtors. However, in a credit squeeze, everyone is chasing money and debtors may be
unable to pay promptly.
Apart from the dangers mentioned above, insufficient working capital is a constant
source of worry and can also cause:
reduced profits through inability to take advantage of quantity purchases, or having
to forgo cash discounts
disposal of stock at unprofitable prices in order to raise cash to pay a pressing creditor.
Capitalisation
The rates of business failure are high. However, many small businesses are very successful
and operate for many years.
A small business will have a good chance of success if the owner:
provides a product or service for which there is adequate demand or develops
a market niche
invests sufficient capital in the business to make it competitive
manages the business in an efficient manner
has the right personal qualities to be a self-employed business owner
recognises and services the needs of customers.
Business F cus
Jims Cards and Things
Jim How opened up a card store in a major suburban shopping centre in July of one year. His shop did
well, he had lots of great cards, and soon his sales and cash receipts were $700 per day. These receipts
would grow higher as Christmas drew nearer. His cheque account soon had lots of money in it.
Jim used the first Friday of every month as the day he paid all his bills. This assured him of paying
his rent and card suppliers by the middle of the month when all his bills were due. (He had 30-day
invoices for rent and from his card suppliers.) He seemed to be doing well, and paid himself $1000
a week as a salary. Things were still going well for Jim into his second year. He purchased a new house
and car and increased his salary.
Until after his second Christmas, Jim still paid his bills on time; but after that he found he
could not pay all his bills at once. By the second July he could not pay half his invoices from card
suppliers because he had to make payments on his original business establishment loan from the
267
bank. Creditors started sending him reminder notices. Problems now surfaced on Friday every month
as some bills could not be paid. Jim did not reduce his salary. By September, notices were arriving
more frequently about unpaid bills and he was receiving telephone calls requesting payments. Jim fell
30 days, 80 days and then 90 days behind with his payments. Eventually card suppliers would only
supply him on cash on delivery terms. Although sales remained high they were now not high enough
to finance the purchase of goods in advance. Jim cut out two card types (he reduced inventory) so
that he could reduce payments to their suppliers. But this meant that sales started to fall because
there were fewer cards for shoppers to choose from.
Jim made many common business errors. Lets identify them.
Cash management
Jims business was taking in $300 000 a year in sales but Jim was paying $150 000 for the cards
from his suppliers. Jim assumed that the $300 000 coming in from sales was profit, but it wasnt. The
profit was only $150 000, and he had other expenses as well. The cards alone were costing $12 500
a month (his monthly card invoices). Very soon, by taking money from the till for his salary, car, home
and other expenses, he did not keep $12 500 per month cash balance to pay for next months stock.
This can easily be seen from Jims cash-flow statement.
Jims monthly cash flow
Item
Expenses ($)
Sales ($)
Cards
12 500
16 800
Rent
1 000
Jims salary
1 000
Other wages
1 000
Telephone/fax
100
Insurance
100
Loan interest
300
Advertising
200
Total
268
16 200
16 800
Jim used revenues (cash) to live on. He soon did not plan working capital or cash flow in his
business. Eventually Jim went to a bank for a loan to pay the businesss debts. The bank refused to
lend Jim money because he had shown little self-discipline. He had not planned his cash flow, even
though he sold nothing on credit, nor made products where he had to wait a long time for payment.
A tempting mistake in business is to use the sales for spending and not plan working capital or cash
flow. After two years Jim went out of business, with large debts to the bank for the loan to start
the business, and to the suppliers who had supplied cards.

1
2
Define the term working capital.

Jims business was successful initially. If he had sought advice from a business adviser he might
have received some ideas about how to manage his business more successfully and prevent failure.
Assume that you have been appointed as Jims business adviser. Prepare a short talk outlining his
main problems and the advice you would give him to help him manage his business successfully.
Business F cus
Simiones record shop
Simione Tiufea sets up a record shop. He imports some popular CDs from Samoa and New Zealand
that are played by the Samoan and Tongan communities. He has very limited capital, and has to
borrow 70 per cent of the amount needed. The finance company will only lend him a certain amount;
the rest he borrows from a private lender at 10 per cent interest. Total repayments are $2000 per
month.
To save funds Simione sets up in a small out-of-the-way arcade where rents are cheap. As funds
are limited, he stocks only a small number of tapes and discs. He cannot afford to advertise and does
not hire extra staff for extended trading.
After several months Simione realises that his returns are very low. He barely covers loan
repayments and rent, and there is no longer money left over for advertising or for building up stock
that customers want to buy. The future is not bright.

1
2
3
4
5
6
Identify Simiones basic problem.

How did his business get into this situation?
List some businesses that do or dont need a busy location.
Identify Simiones options.
What does it mean to be under-capitalised?
Outline the pre-planning that is necessary to avoid such a situation.
Business planning and management

A number of surveys and investigations over the years have identified the main reasons
that businesses fail (see figure 4.4.05).
Figure 4.4.05 Reasons for business failure
Reasons for business failure
Percentage of failed firms
Lack of management experience, skill, ability
60
Inadequate, inaccurate, non-existent books/records
55
Inability to operate with fluctuating costs/prices of wages,

interest rates, services (telephone), pricing difficulties
39
Excessive private drawings
22
Under-capitalisation (especially at start-up)
21
Overuse of credit (bad debts + slow collections)
20
Inventory problems (slow stock turnover, dead stock, records,

ordering)
20
Inability to use/understand financial reports and statements
18
Inadequate sales
17
269
Figure 4.4.05 Reasons for business failure (cont.)

Reasons for business failure
Percentage of failed firms
10
Rapid rate of technological change (affecting product

knowledge, skill requirements, staff training, work quality)
17
11
Lack of financial planning (no budgets, inadequate cash

reserves, tax payment problems)
17
12
Recession
14
Source: Department of Science, Industry and Tourism, 1995
Critical issues in business success and failure

The success or failure of a business is, in many cases, a direct result of factors relating
to the initial establishment of the business. These factors include:
insufficient demand for product or service
poor location
under-capitalisation
high level of fixed costs
inappropriate personal characteristics of the owner/operator
high debt levels
inadequate planning.
Figure 4.4.01 shown on page 264, indicates very high levels of business failure in
the initial years. However, such a graph indicates that established businesses can also
run into severe difficulties. Such problems often arise after 5 to 7 years of apparent
successful operations, when the business owner/operator is undertaking an expansion
program. Expansion programs present potential dangers in areas such as:
over-extension of financing
heavy investment in fixed and non-current assets
expansion of sales through indiscriminate awarding of credit.
These and other issues can lead to serious and sometimes critical problems
in the ability of a business to maintain a healthy cash-flow position.
The importance of a business plan
270
The continued success of a business once it has been established requires careful
planning and ongoing monitoring. The business plan has to be implemented,
monitored and adjusted to deal with immediate and ongoing concerns and to
prepare for short- and long-term external and internal changes that would affect
the operations of the business.
The following figures link together some of the issues that face businesses.
Figure 4.4.06 shows the problems and consequences of critical management issues
and figure 4.4.07 shows how management can respond to each crucial issue.
Figure 4.4.06 Critical management issues: Problems and consequences

Potential problem
Possible consequence
Marketing and
distribution
Not being aware of current trends,

population changes and new
products
Not taking note of activities
of competitors
Low levels of advertising and
promotion
Inappropriate pricing policies
Tardy deliveries
Inadequate stock levels for some

items
Overstocking of slow-moving items
Limited range and depth of fastmoving items
Low sales levels, poor cash flow,
cash crisis
Customer relations
Little attempt to satisfy customer

needs
Being unaware of customer needs
Poor staff morale and management
Inappropriate products and
services
Declining customer satisfaction

Low level of repeat business
High levels of complaints and
returns
Low sales levels
Cash crisis
Staffing
Poor staff relations

Low wage levels, lack of incentives
Inadequate staff training
Low morale, high staff turnover,

high levels of absenteeism, theft
Low productivity, poor service
to customers
Low sales generated
Credit policy
Indiscriminate awarding of credit

Not controlling and monitoring
outstanding debts
Undertaking too much business
debt
Large number of slower payers

Increasing bad debts
Business debt problems
Poor cash flow and financial loss
Business records
Inadequate records, poor controls

Records not kept current
Not aware of problems and

difficulties until it is too late
Trend analysis
Lack of analysis of key financial

indicators
Not being able to plan adequately

due to lack of information
Risk management
and legal
requirements
Failure to be aware of risks

Being unaware of basic legal
requirements
Not meeting legal requirements
Carrying inadequate insurance
to cover possible risks
Legal crisis; for example, being

sued
Problems with government
departments
Unexpected financial losses
Deregistration, loss of licences
Utilising available
technology
Unaware of what technology

is available and what it can do
Low investment in available
technology
Limited levels of staff training
on new technology
Low levels of productivity and

high costs of production
Poor levels of customer service
Staff frustration and low morale
Declining profit levels
Ongoing planning,
monitoring and
future expansion
Limited analysis and evaluation

of feedback controls
Over-expansion, over-investment
in fixed assets
Inadequate planning for the future
Minor problems become major

disasters
Lack of funds to meet immediate
obligations
No focus for future development,
therefore the business lacks
direction and a secure future
Critical issue
271
Figure 4.4.07 Appropriate management strategies for various business problems
272
Critical issue
Appropriate management strategies
Marketing and
distribution
Use the customer-orientated approach by researching customer needs.

Plan an annual marketing program; set sales targets in line with this; review
annually.
Monitor competitors prices and policies; set competitive prices to ensure
cost recovery and adequate profit mark-up.
Reduce prices for short periods to move slow-moving stock.
Have credit terms that are accepted in the industry; offer discounts for
prompt credit payment.
Stock quality products and provide a total service.
Train staff in selling techniques and customer service.
Maintain extended and flexible hours; consider home deliveries.
Maintain advertising expenditure in the range of 35% of annual sales.
Have an effective policy for returned goods.
Aim for a convenient, visible and accessible location.
Maintain an active profile in the local community.
Customer
relations
Practise good customer relations at all times.

Maintain clean, fresh and appealing premises.
Train and monitor staff in terms of customer service.
Ensure service quality and emphasise expertise and reliability.
Promptly investigate customer service complaints.
Offer discounts for prompt payment.
Staffing
Pay particular attention to staff selection; match staff skills and characteristics
to job specifications.
Pay a fair wage with no fringe benefits; provide profit incentives.
Hold weekly staff meetings; listen to staff, but make the final decisions.
Train and develop staff in job skills, new technology, selling, communications
and customer relations on a regular basis.
Review and evaluate staff performance every six months.
Design internal controls to reduce staff dishonesty.
Credit policy
Do credit checks before offering credit.

Monitor debts and adopt standardised collection methods.
Offer discounts for prompt payment.
Make use of credit card facilities.
Use discounts if offered; if not, delay payments as long as possible.
Business records
Keep records of all transactions and maintain daily records.

Provide internal controls for records.
Prepare an annual operating budget for income and expenses at monthly
intervals.
Prepare projected cash-flow statements at regular intervals and perform a
monthly variance analysis to control expenses.
Use a qualified accountant to prepare a profit statement and balance sheet
for each financial year. Analyse and interpret financial reports using calculated
financial reports.
Conduct three-monthly stocktakes.
Review tax position in May or early June.
Join a relevant industry association to obtain regular business information.
Figure 4.4.07 Appropriate management strategies for various business problems (cont.)
Critical issue
Appropriate management strategies
Risk management
and legal
requirements
Conduct an annual risk check to identify business risks, and implement

appropriate preventive measures.
Maintain adequate business insurances at all times; use a broker for insurance
advice.
Use a qualified accountant for financial advice; use a solicitor for legal advice.
Maintain close supervision of staff and implement internal controls to prevent
staff dishonesty.
Maintain records required by law for specific periods.
Ensure that vested interests in patents and copyrights are protected by
completing the required legal procedures; monitor competitors for breaches
of patents or copyright.
Utilising available
technology
Where practical, use the level of technology that suits the capital resources
and skills of the staff.
Carry out staff training so that staff are familiar and competent with the latest
available technology.
Avoid high-level technology of an over-specialised nature.
Ongoing
planning,
monitoring and
future expansion
Prepare a detailed three-year business plan that deals with all aspects of the
business.
Take fixed weekly drawings to cover personal commitments.
Use trading-bank finance; use overdrafts for stock and operating expenses;
use term loans or leasing for asset purchases.
Ensure that total borrowings do not exceed 60% of total business assets.
Analyse and interpret financial reports using calculated financial ratios.
Be open to changing the business plans; review feedback and make
necessary modifications.
Maintain raw materials at a minimum level to control stock costs.
Use purchase orders for buying and checking deliveries.
Maintain a program of regular maintenance.
Keep a detailed record of every item of equipment; dispose of uneconomic
equipment.
Maintain direct supervision of the production process.
Maintain a level of production above uneconomic idle capacity and below full
production capacity.
Conduct random checks for quality control at various stages of the
production process.
273
Unit 4.4 Review

business planning
capitalisation
cash-flow cycle
payments
revenue
sales working capital
Business literacy
1 Distinguish between internal and external business problems. Give examples
of each.
2 Discuss what you consider to be the main factors contributing to the success
of a business.
3 Explain how a business can avoid becoming bankrupt.
4 Explain why managing cash flow is so important in managing a business.
5 What are some of the major problems in managing working capital?

6 Compile a list of businesses that have ceased to operate in your area in the last
six months. As a group activity, attempt to discover the reason for these closures.
7 Select one business that has been operating successfully in your area for at least
five years. Try to assess what things this business is doing right.
8 Look carefully at figures 4.4.06 and 4.4.07. What are the possible actions business
managers can take in the following situations?
a Customers are unhappy with services and are returning goods.
b There is high staff turnover and low levels of staff morale.
c Every month there is a cash crisis in paying bills.
d There are lots of creditors who will not pay their accounts on time.
e The technology of the business is beginning to fall behind its competitors.
f No-one in the business seems to know what is going on.
274

Example of a business plan
The Black Sheep is an award-winning business plan produced by a Year 11 student. It
illustrates the principles, processes and ideas that have been discussed in this text for
the Preliminary course in Business Studies. It may also assist you in the planning and
development of your business research task if you are allocated one.
THE BLACK SHEEP

BUSINESS PLAN
Prepared by: Jane Chester
22 Midlands Highway
Campbell Town
Tasmania 7210
275
Table of Contents
1 Executive summary
1.1 Business overview
1.2 Long-term and short-term key objectives
1.3 Management and ownership
1.4 Market analysis
1.5 Market strategy
1.6 Competitors
1.7 Business features
1.8 SWOT analysis
1.9 Financial plan
2 Detailed plan
2.1 Short-term and long-term key objectives
2.3 Market analysis
2.4 Market strategy
2.5 Competitors
2.7 SWOT analysis
3 Financial plan
3.1 Financial allocation
3.2 Financial review
(including Financial review, Establishment cost, Profit and Loss, Cash flow, Balance Sheet,
Break-even analysis)
4 Supporting documentation
276
1 Executive summary
1.1 Business overview
The Black Sheep is a quality restaurant situated centrally along the Midlands Highway, Tasmanias
major travel route. Approximately two kilometres out of Campbell Town, The Black Sheep is a
peaceful farm and caters for a large range of customers, such as families, business people, local
travellers, tourists and townspeople, through the help of the dine-in restaurant and a drive-through
food outlet.
The dine-in restaurant caters for those wishing for quality service and food in a comfortable setting
and sound environment. The drive-through outlet caters for travellers wanting fast errorless service,
quality food and a short stop time.
1.2 Long-term and short-term key objectives
The business has a number of key objectives intended for the first year, such as service and quality.
Once the business becomes financially stable, there are many possible future prospects, such as a
display shearing shed, meeting room and gift shop.
The business will be owned in a financially stable partnership and will be strategically managed.
1.4 Market analysis
The Black Sheep has undertaken extensive surveys through the help of various food and cuisine
specialists and street surveys. The results showed that the majority of people are looking for fast,
quality meals and good service. Statistics also show that there is a prominent yearly increase in the
number of people travelling the Midlands route.
1.5 Market strategy
The Black Sheeps marketing strategy will be to focus on the unique aspects of the business, the
quick quality service, location and comfortable seating and outlay. The enterprise has put in place
a strategic marketing plan for the business once it has commenced operations and also prior to
construction.
1.6 Competitors
Through Campbell Town there are three major food complexes that will act as competition to
The Black Sheep. These food complexes are Zeps, Banjos and Subway. Each business comprises
negative points, which have been scrutinised in the business plan of The Black Sheep.
The Black Sheep comprises a number of features that separate it from other businesses, such as
location, outdoor setting, appearance, outlay, menu, drive-through food outlet and the customer
benefits.
1.9 Financial plan

The financial profits of the business prove to be in the positive throughout the first year and
increasing yearly. Graph 1 is a representation of five years projected profit. Through the creation of
five-yearly predicted profit and loss statements it can be observed that over time the business makes
a great deal of profit, which increases yearly. By year five, the business is making a predicted profit
of $183 532. Refer to Appendix 2.
1.8 SWOT analysis

A SWOT analysis has taken place describing the strengths, weaknesses, opportunities and threats
facing the business.
277
Graph 1:
5 Year Profit & Loss Projection
200000
150000
$ 100000
50000
0
Year 1
Year 2
Year 3
Year 4
Year 5
Graph 2:
Monthly Predictions of Cash at Bank Year 2010
120000
100000
80000
$ 60000
40000
20000
0
278
6
7
Month
10
11
12
Bank Balance (Beginning of Month)

Receipts Over Payments
Payments Over Receipts
Bank Balance (End of Month)
The cash budget is profitable and bank balance increases monthly. At the beginning of January
the bank balance is $25 000; by December, the end of the year figure is $79 496.48. Graph 2 is a
clear demonstration of how much the bank balance increases monthly within the first year. Refer
to Appendix 1.
2 Detailed plan
2.1 Short-term and long-term key objectives
Short-term key objectives
The business aim is to provide a quality, accurate, prompt service that is too often not provided by
other restaurants similar (refer to 2.5 Competitors). The business aim is also to embrace the rural
side of Tasmania, in particular its woollen products. This will be achieved through the business
appearance, fittings and surround settings.
Long-term key objectives
Display shearing shed
There is an existing shearing shed that is located close to the
proposed site of the restaurant. The plans are that this shearing
shed will be transformed into a display shearing shed, hosting
relevant information about the development of farming and
wool. As the display shed is educational, government funds will
be accessible and would almost cover all the cost implications
of repairing the shed for both safety and visual reasons. The
shed will generate revenue through both donations and shearing
demonstrations.
Meeting rooms
Meeting rooms will help bring more business and profit to the
business along with helping The Black Sheep to compete with
other business rivals.
Gift shop
The gift shop will be an extension to the existing restaurant
building and will cater for all customers, though especially
foreign tourists. It will stock quality woollen clothing of 100%
Tasmanian Merino wool and carry the brand The Black Sheep.
Partnership:
Frank Chester
Josie Chester
Jane Chester
Director:
Jane Chester
Suppliers
It has been decided that the local business, Tasmanian Northern Food Distributors, will act as
the primary food and drink supplier. Northern Food Distributors offers quality food product at an
affordable price, with the inclusion of delivery. The prominent bread product supplier will be Campbell
Town business, Banjos. Banjos specialises in the production of quality bread. Using Banjos as a
supplier would have numerous benefits for The Black Sheep, such as daily access to fresh bread.
Jane Chester, Josie Chester and Frank Chester will own The Black Sheep in a partnership agreement.
Josie and Frank Chester have experience in the running of a business and are financially stable. They
will take no part in the day-to-day operation of the business but will be key aides in the financial
side of the business. Jane Chester will act as the director of the business and will manage the
business and its operations.
279
Staffing arrangements
The staff play a vital role in the running of the business. Strategic selection of staff will take place
and chosen staff will be skilfully trained before construction of The Black Sheep. Staff will have
access to a number of staff benefits in order to improve staff service. To run the business to the
standard it wishes to achieve, The Black Sheep will require approximately 30 staff members, both
full-time and part-time. The projected level of remuneration to all staff is $658, 880 per year. This
figure is the maximum remuneration and takes into account commissions, bonuses and overtime pay.
2.3 Market analysis
As a result of tests conducted it was
found that on a regular weekday at
least 35% of cars stopped for food
products. As there are more than two
million cars travelling the Midlands
route, this figure indicates that 1925
cars are stopping per day. The Black
Sheep expects to capture 12% of this
market. A profile of these stoppers
spending habits can be observed in
Appendix 6. A survey was carried
out to find what types of people are
most likely to use The Black Sheep,
and the results are shown in Graph 3.
Graph 3:
Customers
Businesspeople
Townspeople
Families
Tourists
Local Travellers
Elderly
Another study was undertaken for The Black Sheeps drive-through food outlet. It was found that
people are most likely to use the drive-through outlet in the season of winter. A street survey was
conducted and it was found that 40% are most likely to use the drive-through food outlet in the winter
whilst 60% are most likely to use the dine-in restaurant. When people were surveyed on what they
would most likely use in the summer season, results suggested that only 25% would use the drivethrough food outlet and 75% would use the dine-in restaurant. Results can be observed in Graph 4.
Graph 4: Seasonal Usage of Drive-through Food Outlet

Compared To The Dine-in Restaurant
Drive-through Food Outlet
Dine-in Restaurant
Summer
280
Drive-through Food Outlet

Dine-in Restaurant
Winter
0
10
20
30
40
50
Per cent
60
70
80
2.4 Market strategy

The following is a list of pre-construction marketing strategies that will be carried out before the
business is erected:
A website will be prepared in order to promote the restaurant and give customers an insight
into the advantages of The Black Sheep. Contact and direction details as well as images will be
incorporated into all pages of the website.
The Black Sheep will take advantage of free advertising through the use of MySpace and
Facebook. The web pages will include basic information, images and links onto the official
Black Sheep website.
Print media, such as local newspapers, magazines and other publications, will be vital to the
promotion of The Black Sheep.
Posters advertising the launch of the restaurant will also be released throughout stores and in
highly populated areas. The cost of advertising posters will be cheap and affordable at $100
through the help of an acquaintance.
Once established, The Black Sheep will seek to optimise its prime advantage of location
through the help of large quality signage, which can be viewed easily by passing travellers.
The signage will cost approximately $10 000 (including delivery) through the construction
by The Tasmanian Sign Company, a renowned, reliable signage company.
Fifteen hundred brochures will be printed through the services of Colour Printing Company
CMYK at the cost of $419. The brochures will then be distributed across Tasmania into
stores, such as family and recreational, hotels, hospitality and travel ventures and in heavily
populated areas.
Another marketing tool will be The Black Sheeps listing in the Yellow Pages. This will cost $200
and will include one 4 4 advertisement clearly stating contact, website and location details.
2.5 Competitors
Zeps is a pizzeria caf supplying dine-in and takeaway meals, along with drinks and coffee. Zeps is
based in the centre of Campbell Town and does not have a private car park. Other than the footpath,
Zeps has no outdoor dining area and no drive-through food outlet. The service is often poor and the
menu is rarely altered. Zeps also has only two toilets for guests, both of which are often unclean.
These weaknesses shown by main rival restaurant Zeps present as opportunities for The Black Sheep
in the business plan. The Black Sheep boasts an ever-changing menu with competitive prices and
six customer toilets, which are cleaned at regular intervals. Unlike Zeps, prices for all food and
drink will be clearly labelled to avoid embarrassment. The Black Sheep has longer opening hours,
opening considerably earlier and staying open later on weekdays and weekends. The Black Sheep
also accommodates a larger number of customers, comprising 110 seats compared to Zeps maximum
60 seats.
Banjos is a well-known bakery that specialises in bread food products. Banjos caters for a small
number of people and does not have an extensive range of food. Unlike Banjos, The Black Sheep
features a broad menu offering nutritious meals.
Subway and Banjos primarily specialise in bread products that target only a small majority of
customers. The unattractive, commercialised setting out of Subway is taken advantage of in The
Black Sheep, which provides a comfortable colour-coordinated, customer-benefitting set out.
Proximity to the park could be seen as an advantage for these businesses, however, it is not secured
and may be considered unsafe, especially for young children, as its pathway leads straight onto the
busy Midlands Highway. It is also on the opposite side of the road from the business.
These weaknesses shown by the three main rival businesses act as opportunities for The Black
Sheepall of which have been used to the Black Sheeps advantage.
281
282

Location
The Black Sheep is in prime location for the target
market of people travelling the Midlands route.
Being in this location helps the business to stand
out and act as a landmark, disconnecting it from the
existing mundane blur of businesses. Land is not an
issue for the business and offers much opportunity
for extension and development. The location is also
convenient as it means The Black Sheep is the first
stop for those travelling the Midlands from the south.
At 200 metres above sea level the land on which The Black Sheep is located is flood resistant.
Outdoor setting: The Black Sheep will comprise a large outdoor area enclosed by secure fencing and
will consist of an outdoor setting for the consumption of food and drink.
Appearance: The Black Sheep will comprise a homely, laid back, warm atmosphere, with
complementary music and visual stimulations, such as art work decorating the walls and plasma
screen televisions. Large quality pine tables and leather seats, couches, benches and stools will be
provided to ensure maximum comfort.
Outlay: Fast and errorless service will be achieved by the industrious layout of the enterprise.
Functionality has chiefly been achieved through order and design. (Refer to Appendices 3 and 4).
Menu: The menu will offer a diverse range of foods, catering for customers of all ages. The food is
suitable for children and those with special dietary needs (glucose free, low cholesterol, low fat). High
sanitation standards of food preparation will be exercised by those involved in the handling of food.
Drive-through food outlet: The drive-through food outlet will cater for travellers who are reluctant to
leave the comfort of their car and are wishing to minimise stop time. Quality food will be produced
and sold in this section of the restaurant and to keep the restaurant environmentally friendly,
recyclable packaging will be utilised.
Customer benefits: Customers will be able to embrace the privacy and comfort of the inside fittings with
available wireless internet access and power outlets for the use of laptops and other technological devices.
The name: The enterprise will be entitled The Black Sheep. This name is not only a complement
to the uniqueness and individuality of the enterprise but also establishes the connection between the
business and its rural component. As a compliment to this name, the restaurant quite conveniently
will be surrounded by paddocks filled with black sheep. This will add to a memorable, unique
experience for customers.
Security: The restaurant will be fitted with an appropriate alarm and locking system; the costs for this
can be found in the financial section. Unauthorised access to the premises during closed hours will be
prevented through the use of a night gate and secure surrounding fencing.
Opening hours: The Black Sheep will be open for seven days a week and comprise long business
hours, on weekdays opening at 7 am and closing at approximately 10 pm onwards (depending on
business). On weekends the business will open at
8 am and close at approximately 11 pm onwards.
The enterprise will remain closed on Christmas Eve,
Christmas Day, New Years Day and Easter Sunday.
Automatic cash register:An automatic cash register
system will add to the functionality of the running
of the restaurant. The automatic cash register will
allow staff to view waiting time on orders and will
then allow them to prioritise.
2.7 SWOT analysis

Strengths
Weaknesses
Staff well trained

Location close, central, well signed
Outdoor setting unique, peaceful
Service quick, accurate, quality
Appearance comfortable, attractive,
colour-coordinated, classical, modern
Menu nutritious, diverse, changing
Price competitive, marked
Opening hours longer than all competitors
Staff professional, trained, not understaffed
Catering for a large number of people
Large start-up cost will require a loan

Competitors
No meeting rooms unlike some competitors
Out of the town
Opportunities
Threats
Future prospects
Competitors
New businesses
3 Financial plan
3.1 Financial allocation
Anstie Constructions, a local experienced Tasmanian building team, have been chosen for the
construction of The Black Sheep. Anstie Constructions will ensure that the restaurant will be
underway at its proposed date of 2 January 2011.
3.2 Financial review
To start up The Black Sheep will require a total of $714 450 (view Graph 5, Appendix 5); $300 000
of capital will be contributed by the owners in partnership. Three other sources have been looked to
and a loan sum of $300 000 from these three sources has been determined. These financial sources
are reliable and will offer flexible repayments and minimum interest expenses.
A strategy that has been set in place to reduce the cost of starting up the business is to hire expensive
equipment such as televisions, ovens and heat pumps. This leasing strategy allows for the cost figure
of setting up the business to be
decreased by $74 000 (refer to
Graph 5:
Appendix 5). An extra $134 450
Start-up
Costs:
Financial Allocation
will be required and obtained
via a bank loan. The Black
Sheep will repay the loan over
Construction
a five-year period. The loan will
Inside Fittings
comprise a 9% effective interest
Outside Fittings
rate and monthly repayments
will be $2 790.96. Other loans
Legal
of $300 000 obtained via
Equipment
acquaintance investors will be
Miscellaneous
paid back gradually over a
20-year period.
283
Figures for monthly estimated sales have been obtained by estimating the number of people stopping
on the Midlands Highway per day. The Black Sheep expect to obtain 12% of this market of stoppers.
It was then estimated how much the stopping customers would purchase; they were categorised into
three spending brackets, which helped determine the daily predicted profit. Through the observation of
the 2011 calendar the number of weekdays, holidays and weekends were determined. Percentages of
stoppers and customers and their spending habits varied depending on these dates in the 2011 calendar
(Appendix 6). Graph 6 shows the estimated cash sales in each month of the first year of business.
Graph 6:
2011 Monthly Estimated Cash Sales
98000
96000
94000
92000
$ 90000
88000
86000
84000
82000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Graph 7 shows the expected percentage of monthly revenues obtained from particular dates.
Graph 7:
Monthly Comparison of Revenue Earned From Weekends
& Public Holidays/School Holidays/Regular Weekdayss
100
80
60
%
40
20
284
0
Jan
Feb
Mar
Apr
May
Jun
Jul
Month
Aug
Sep
Oct
Nov
Dec
Weekends & Public Holidays

School Holidays
Regular weedays
No credit will be offered in order to avoid slow cash flow and extra debt collection work; however,
once the business is in operation and making a considerable profit the option will be considered.
Phone/fax Expense
9645
-2276.96
46 849.04
89 936.96
8766
21 915
52 000
184
89
125
650
750
617
2790.96
200
350
1500
87 660
87 660
February
2646.54
44 572.08
88 928.46
9157.5
18 315
54 000
184
89
125
650
750
617
2790.96
400
350
1500
91 575
91 575
March
2550.04
47 218.62
87 029.96
8958
17 916
53 000
184
89
125
650
750
617
2790.96
100
350
1500
89 580
89 580
April
$46 849.04 $44 572.08 $47 218.62 $49 768.66
21 849.04
25 000
74 600.96
Bank Balance
(End of Month)
Payments Over Receipts
Receipts Over Payments
Bank Balance
(Beginning of Month)
Total Expected Payments
GST
Stock (20% of Cash Sales)
57 500
89
184
Broadband Expense
Wages Expense
650
125
Petrol Expense
750
Electricity Expense
Water Expense
617
Flexirent Expense
(Based on 10%)
400
2790.96
Advertising Expense
Loan Repayments
350
Maintenance Expense
Drawings
1500
96 450
Expected Payments
96 450
Total Expected Receipts
January
Cash Sales
Expected Receipts
Cash Budget Year 1 2011: The Black Sheep
3250.04
53 232.7
91 159.96
9468
18 936
55 500
184
89
125
650
750
617
2790.96
200
350
1500
94 680
94 680
June
3085.54
56 752.74
90 259.46
9334.5
18 669
55 000
184
89
125
650
750
617
2790.96
200
350
1500
93 345
93 345
July
3339.04
59 838.28
89 510.96
9285
18 570
54 500
184
89
125
650
750
617
2790.96
100
350
1500
92 850
92 850
August
$53 232.7 $56 752.74 $59 838.28 $63 177.32
3464.04
49 768.66
93 135.96
9660
19 320
56 800
184
89
125
650
750
617
2790.96
300
350
1500
96 600
96 600
May
$67 097.86
3820.54
63 177.32
90 474.46
9439.5
18 879
55 000
187
89
125
650
750
617
2790.96
100
350
1500
94 395
94 395
September
$70 229.4
3131.54
67 097.86
90 993.46
9412.5
18 825
55 500
184
89
125
650
750
617
2790.96
200
350
1500
94 125
94 125
October
$72 915.94
2686.54
70 229.4
90 088.46
9277.5
18 555
55 000
184
89
125
650
750
617
2790.96
200
350
1500
92 775
92 775
November
$75 496.48
2580.54
72 915.94
89 894.46
9247.5
18 495
55 000
187
89
125
650
750
613
2790.96
100
350
1500
92 475
92 475
December
Appendix 1: Cash Budget

*Resultant cash at bank figures can be seen at bottom of page
285
Appendix 2: Projected Profit and Loss Statements

Predicted Profit and Loss Statement for period ended 30 December 2011
Sales
Less COGS
1 116 510
223 302
893 208
Less Expenses
Maintenance Expense
4 200
Advertising Expense
2 500
Loan
33 492
Flexirent Expense
7 400
Electricity Expense
9 000
Water Expense
7 800
Petrol Expense
1 500
Broadband Expense
1 068
Phone/Fax Expense
2 208
Wages Expense
658 800
GST
111 651
Depreciation on Building
15 000
Total Profit/Loss
854 619
$38 589
Predicted Profit and Loss Statement for period ended 30 December 2012
Sales
Less COGS
1 200 000
240 000
960 000
Less Expenses
Maintenance Expense
Advertising Expense
Loan
Flexirent Expense
Electricity Expense
286
5 000
4 000
33 492
8 000
100 000
Water Expense
8 000
Petrol Expense
2 000
Broadband Expense
1 068
Phone/Fax Expense
2 208
Wages Expense
670 000
GST
120 000
Depreciation on Building
Total Profit/Loss
15 000
878 768
$81 232
Drive Through Food Outlet Road
Appendi
Appendix 3: Map of layout of The Black Sheep
287
288
A ppendix 4
Appendix 4: Location of The Black Sheep
Appendix 5: Expected Start-up Business Costs

Qty
Construction
Construction Materials
Walls
Roof
Windows
Doors
Insulation
Wood
Paint
Floor
$
70 000
300 000
Lighting & Electrical Connections

Water Connections
15 000
20 000
INSIDE FITTINGS
Takeaway Food Outlet Section
Bench/Cupboards
Shelves
15 000
2 000
Serving Area
Bench
Shelves
Signage
30 000
1 500
300
Dine-in Kitchen Fittings

Bench/Cupboards
Sink
Shelves
15 000
1 000
1 500
Bathroom Fittings
Mirror
Soap Dispenser
Sink
Toilets
Dryer
Bench
OUTSIDE FITTINGS
Pathway
Road and Parking
Plants & Grass
Fencing
Signage
3 000
400
4 000
4 000
800
4 000
3 000
2 000
200
200
80 000
1 000
1 000
10 000
Security Fittings
Locks
Alarm System
Fire Alarm
2
2
6
6
2
2
289
Appendix 5: Expected Start-up Business Costs (cont.)

LEGAL
Permits
20 000
Licences
20 000
Insurance
15 000
EQUIPMENT
Indoor Tables
25
15 000
Indoor Chairs
110
15 000
Outdoor Setting
4 000
Cutlery
1 800
Plates
5 000
Glasses
Microwave
2 000
4
1 600
Utensils
800
Phone
500
Kettle/urn
800
Coffee Grinder
400
Washing-up Equipment
100
Food Containers
500
MISCELLANEOUS
Mirrors
2 000
Paintings/Photographs
100
Staff Training/Employment
2 000
Start Up Price For Stock
12 150
Sound System
7 000
Menu Printing
1 600
Stationery
200
Cash
20 000
Advertising
2 000
START-UP COST
734 450
Flexirent Items and Costings

Expected 10% interest payments per year (refer to Cost Budgets)
Computer
5 000
Televisions
3 000
Cash Register
290
14 000
Oven
Coffee Machine
Dish Washer
Flexirent Interest Per Year
9 000
5 000
Fridge/Freezer
Heat Pump
20 000
9 000
2
9 000
7 400
74 000
Appendix 6: Calculations of Monthly Incomes From Sales

* According to statistics, more than two million cars travel the Midlands Highway per year. The
following calculation relates to this figure.
Weekday Calculations
Approx. Travellers (per day)
5 500
Stop travellers (per day)
35%
1 925
Black Sheep stoppers
12%
231
Estimated purchases of
Coffee $3
90
270
Snack and coffee $12
90
1 080
Meals $25
51
1 275
Predicted takings per day
$2 625
Month
Number of Weekdays
Projected Takings ($)
Jan 31 days
10 weekdays
Feb 28 days
12 weekdays
31 500
Mar 31 days
23 weekdays
60 375
Apr 30 days
16 weekdays
42 000
May 31 days
16 weekdays
42 000
Jun 30 days
12 weekdays
31 500
Jul 31 days
21 weekdays
55 125
Aug 31 days
22 weekdays
57 750
Sep 30 days
11 weekdays
28 875
Oct 31 days
21 weekdays
55 125
Nov 30 days
19 weekdays
49 875
Dec 31 days
7 weekdays
18 375
26 250
School Holiday Calculations

Approx. travellers (per day)
5 750
40%
2 300
12%
276
Coffee $3
108
108
1 296
60
1 500
Meals $25
3 120
Month
Number of Holidays
Projected Takings
Jan 31 days
10 school holidays
31 200
Feb 28 days
8 school holidays
24 960
Apr 30 days
4 school holidays
12 480
May 31 days
5 school holidays
15 600
Jun 30 days
9 school holidays
28 080
Jul 31 days
1 school holidays
3 120
Mar 31 days
Aug 31 days
324
291
Sep 30 days
11 school holidays
34 320
15 school holidays
46 800
Oct 31 days
Nov 30 days
Dec 31 days
Weekend & Public Holiday Calculations

Approx. travellers (per day)
6000
45%
2 700
12%
324
Coffee $3
120
360
120
1 440
84
2 100
Meals $25
3 900
Month
Number of Weekends/Public Holidays
Projected Takings
Jan 31 days
10 weekend/public holidays
39 000
Feb 28 days
31 200
Mar 31 days
31 200
Apr 30 days
35 100
May 31 days
39 000
Jun 30 days
35 100
Jul 31 days
35 100
Aug 31 days
35 100
Sep 30 days
31 200
Oct 31 days
39 000
Nov 30 days
42 900
Dec 31 days
27 300
* Calculations do not include New Years Day (January), Easter Sunday (April), Christmas Eve and
Christmas Day (December) as The Black Sheep will be closed. In total the figures account for 361
days of year 2011.
292
Month
Total Monthly Takings ($)
Jan 31 days
96 450
Feb 28 days
87 660
Mar 31 days
91 575
Apr 30 days
89 580
May 31 days
96 600
Jun 30 days
94 680
Jul 31 days
93 345
Aug 31 days
92 850
Sep 30 days
94 395
Oct 31 days
94 125
Nov 30 days
92 775
Dec 31 days
92 475
Chapter 4 Review
Vison
Mission
Goals
Objectives
SWOT
Operations
Market analysis
Organising
resources
Planning ideas
Target market
Marketing
Finance
Developing a
Business Plan
Human rsources
Expenses
Break-even
analysis
Forecasting
Monitoring
Projections
Budgets
Revenue
Success
and failure
Management
Competitive
advantage
Technology
Trend analysis
Planning
Taking corrective
action
293

1 A business plan:
A is the responsibility of the chairman of the board of directors
B requires the coordination of all sections of the business
C is only required when a business is originally established
D is a complex operation for most small businesses
2 Strategic planning:
A is involved in taking corrective action following monitoring
B involves translating the mission statement into measurable targets
C is long-range planning concerned with the desired outcome for the business
D is primarily influenced by the internal business environment
3 The business with the broadest target market is:
A a manufacturer of heavy transport vehicles
B a small suburban supermarket
C an international brewing company
D a state-wide bread manufacturer
294
Chapter 4 Review
4 A visual aid that summarises alternative courses of action available

to management is:
A SWOT analysis
B a schedule
C a decision tree
D PERT
5 Net profit is calculated by:
A total cost less cost of goods sold
B gross profit less cost of goods sold
C gross profit less operating expenses
D operating expenses plus cost of goods sold
6 If a business is experiencing a poor rate of return on investment they might
best examine:
A the level of sales
B operating expenses
C the cost of goods sold
D all of the above
A social goal or objective for a business is:

A high returns on investment
B job satisfaction for the owner
C community welfare and service
D ideal levels of growth
8 A cash-flow crisis occurs when:

A actual revenue is not covering operating and committed expenses
B planned revenue is inadequate for expansion
C business partners have removed excess funds
D revenue and expenditure are not equal
9 The break-even point is reached when:
A the business is no longer making a profit
B total costs are equal to total revenue
C fixed costs are covered by total revenue
D fixed costs are equal to variable costs
10 Short-term goals of a business are largely:
A devised by the board of directors
B devised by senior management and examined by the directors
D set by lower management

11 Examine figure 4.1.03, a business plan, then:
a Briefly outline the main functions of a business plan.
b Outline the ways the plan can establish and evaluate performance benchmarks.
c Select one internal and one external stakeholder in a business and elaborate
on the importance of a realistic business plan to each.
12 Study figure 4.2.01, the planning process, then:
b Evaluate the role of the planning tool, break-even analysis.

c The evaluation process has revealed unfavourable results. Suggest what could
have caused such a situation and devise broad strategies to deal with such
a situation.
a Explain what you understand by the term situation analysis.
Chapter 4 Review
C determined by senior management but are the responsibility of middle/lower

management
295
13 Study figure 4.2.03, internal and external sources of information for a business
plan, then:
a Explain the difference between internal and external sources of information.
b Select two external sources of information and evaluate their respective roles
in the planning process.
c Many medium and large businesses use consultants to help them plan. Prepare
a brief task outline that a business may give to a consultant who has been
engaged to gain information before the planning process.
14 Examine figure 4.2.17, which outlines differing business objectives for a range
of businesses, then:
a Explain the difference between long-term and immediate objectives.
b Describe the relationship of the immediate objectives for the retail firm
and its long-term objectives.
c Describe the long-term objectives for the accountancy business and then
construct a SWOT analysis that could be used to help produce a plan for
the business.
15 Examine figure 4.3.02, which outlines the elements of a business plan, then:
a Describe the main functions of the executive summary.
296
Chapter 4 Review
b Explain the ways in which a plan for an established business differs from that
of a new business.
c Assess the statement that the marketing strategies are the key to the overall
success of the business plan.
16 Study figure 4.4.01, which details the failure rate for small businesses.
a Calculate the percentage of businesses that survive after five years and eight
years.
b Failure rates are stable in years 5 and 6 and then begin to increase again.
Suggest possible reasons for this increase.
c Evaluate the idea that business success is related to providing an essential
product or service in an efficient way.
17 Examine figure 4.4.03 Cash cycle for a trading business.
a List the sources of cash inputs into a business.
b Describe the factors that could lead to a cash-flow problem for such a business.
c Describe the concept of liquidity and then explain the importance of liquidity
to the survival of a business.
18 Study the financial details of the sample business plan and then attempt the
following questions:
a Describe the range of establishment costs involved for such a business.
b The owner of this particular business has decided to rely solely upon equity
funding. Distinguish between equity and debt funding and evaluate the
advantages and disadvantages of relying solely upon equity funding.
c Select a business that has recently been established in your area. Imagine that
you are a business consultant specialising in marketing. Prepare an overview
of a range of marketing strategies that would be suitable for such a business.
Chapter 4 Review
297
Appendices
Appendix A:
Business research task: Research and plan a business

A1 Organising the business research task
A2 The business investigation
A3 The business plan
Appendix B:
Assessment requirements in the Preliminary course
Appendix C:
Assessment terms used in Business Studies
Appendix D:
Glossary of terms
Appendix A
Business research task:
Research and plan a business
A.1 Organising the business research task
Steps in the business research task

The business research task may be completed during the course. It consists of five steps
that must be completed in sequence. The sequence and steps must be organised
carefully, allocated a certain amount of time and completed on schedule. A business
investigation or a business plan should follow the same steps although they may be
completed at different times during the Preliminary course.
Figure A1.01 The five steps in the business research task
Step
Description
Step 1
Identify the research focus
Step 2
Devise a plan of approach
Step 3
Gather and process relevant data
Step 4
Critically review the plan and the process
Step 5
Clearly communicate the results
To complete the business research task, it is best to divide the task into steps,
which are explained in a little more detail below.
Figure A1.02 Completing the five steps in the business research plan
Action
Step 1
Complete a small business plan for a hypothetical business

or prepare an investigation of an existing small business.
Step 2
Select a type of business to investigate or a small business

opportunity to plan.
Step 3
Gather primary and secondary source data on the business

to be investigated or on the initial or feasibility plan.
Step 4
Review and assess the initial process, either by a draft

investigation report or a preliminary plan report.
Step 5
Produce a final presentation of the investigation or of the

business plan.
Assessment Requirements
Step
299
Possible business research task schedule

Figure A1.03 sets out the possible timing for completing research tasks for the business
investigation or the business plan.
Figure A1.03 Schedule for completing research tasks
Time schedule
Possible marks
Business research task prospectus

task focus
business selected
reasons for selection
overview of methodology
Week 1
10
Business research task action plan

Detailed outline of steps and stages included in task and
proposed time allocation
Week 3
10
Business research task progress report (written or oral)

Outline of what has been achieved so far, difficulties faced,
what had to be done
Week 6
10
Business research task draft report

Log of tasks completed
Methods of research
Preliminary findings
Week 12
30
Final presentation (written and oral)

Completed task
Week 15
40
The business investigation provides an opportunity to translate the course content

into a practical assignment involving the study of a particular business.
Figure A1.04 Planning is the key in completing the business

research task. It is also a key component in starting a business.
300
A.2 The business investigation

As a student studying the Preliminary course in Business Studies, you may select
to undertake a practical research investigation involving the study of a small business
of your choice. The investigation has a suggested value of 30 per cent of the total
assessment mark for the Preliminary course.
The investigation will give you the opportunity to integrate the content of the
Preliminary course and relate it to a practical business task, which will show how you
can apply the knowledge gained in studying the course topics. Although the length
of the investigation will vary according to the method of presentation, as a guide
it is likely to be 2000 to 3000 words.
Purpose of the investigation

The investigation will be used for assessment, using processes that differ from those
of the final examination. However, other investigation objectives are to:
develop your business research skills
develop your skills in analysing business data and in reaching logical conclusions
foster your communication and interpersonal skills
develop your self-confidence and self-esteem in business
develop your understanding of theoretical concepts from the core areas of the
Preliminary course, through practical research
develop your skills in presenting the product of individual research.
Figure A2.01 The business research task is designed to improve your business research skills.
301
How to approach the investigation

More than one person may choose to study the same small business, so careful
planning is required to avoid placing too much pressure on only a few business
owners or operators, especially local ones. As it is difficult to assess the relative input
of individual students in a joint investigation, students studying the same business
should design the wording of their investigation to ensure they each take an individual
approach to the task. This may require considerable negotiation between the students
concerned and their supervising teacher.
Sources of information
The sources of information could be based on
primary research, secondary research, or a
combination of both. Primary research
involves investigating a business directly,
using such methods as:
visits and observations
interviews
questionnaires
examination of data and reports prepared
by the business.
Secondary research, on the other hand, involves
examining material that has been researched and
prepared by other people, for example:
company reports and prospectuses
annual reports
company histories
newspaper and magazine articles
books.
Most investigations will be based on a combination
of these two sources of information. However,
investigations based on a large business will probably rely
more on secondary sources of information, while studies
of a small business will rely more on primary research.
Figure A2.02 Primary research

can involve visiting and meeting
business people.
Selecting a business
302
As the investigation is practical in nature, it is strongly suggested that a local small

business is chosen. The term business has a wide range of meanings, and could
include any of the following:
cooperatives and local clubs, such as credit unions, building societies
or Leagues clubs
local sole traders, partnerships or small companies, such as a small shop,
a farm, accountants, builders or a service station
franchises, such as a franchisee of a national organisation.
Of course, this is only a guide. It is possible to select from a wide range of
businesses that vary in size, ownership, area of business and type of operation. If
possible, select a business where there is an established personal link. This might be
a business owned by a relative or friend or where you have worked.
The choice of business to study will be influenced by such factors as:

personal relationships with the owner/operator
work experience or part-time work
location and availability
personal preference, possibly reflecting a future career choice.
Figure A2.03 Choose a small business

that is accessible for research.
Presentation of the investigation
The method of presentation of the investigation will vary depending on your

skills, imagination, energy, determination and available resources.You may include
photographs, diagrams, slides, tapes and videos. The investigation could also
incorporate material such as a business plan, a marketing package, a proposed budget
and a financial report.
The investigation should be in your own words, be legible and logically organised.
It should attract the readers attention, contain appropriate methods of presenting
information (such as graphs, diagrams, timelines, flowcharts and maps) and contain
findings supported by the evidence you have collected. It is not necessary to include
copies of interviews, questionnaires and other research material. However, the findings
of your research should be included with a brief description of the processes that you
followed to arrive at those findings.
In some instances teachers may allow group investigations. This approach
gives the opportunity to develop skills associated with negotiation, cooperation
and responsibility to others. There are, however, problems connected with group
assignments. Before commencing the investigation, it is important to negotiate what
each members input will be, and it is vital to monitor the continued input of each
member of the group.
303
Getting started
The final date for the presentation of your assignment will probably be dictated by
the schools reporting deadlines, and you will need to work consistently towards the
due date. As the processes of research are as beneficial to you as the final product,
you will be given a series of interim dates by which various stages of the assignment
should be completed, together with the marks to be awarded for each stage. A possible
schedule of 15 weeks has been outlined in figure A1.03. This schedule has a number
of advantages:
You can get feedback about your choice of business, methods of approach and
presentation, so you can make any necessary alterations or adjustments.
There is much less stress for you and your fellow students, as intermediate
deadlines remove the dread of one final deadline.
The processes you use are assessed and rewarded, not just the final product.
Keeping a log
You are strongly advised to keep a log
or diary of all the work you do on
your assignment. This should be
based on the action plan, and
include brief notes on the
results of each action you take
towards completing the investigation.
It must include any follow-up steps
that need to be taken, so that nothing
is left to chance.
Some suggestions
304
1 Make sure the findings you present

are related to the research you
carried out.
2 Present your work logically, with
an introduction, findings and how
you arrived at those findings, the
significance of your findings, and
a conclusion.
Figure A2.04 Follow up incomplete research.
3 Make sure you have used appropriate
methods and techniques to present your
findings, including graphs, diagrams, tables, charts, etc.
4 Dont forget to acknowledge any secondary findings you have used, and include
a bibliography of books and articles you have found useful, even if you did not
quote them.
Remember, the final presentation will be assessed with these things in mind,
together with a consideration of the amount of care you have taken, and the effort
you have put into the assignment.
Finding the right material

To determine if any book will be useful to you in preparing your assignment, it
is not necessary to read it all. As a first step, you should note down its title, author,
publisher and when and where it was published.You can then preview the book
by asking these questions:
1 From the title only, what do you think the book is about?
2 From the publication date, how up to date is the information contained in the
book? For the subject matter of the book, does it need to be up to date?
3 From the contents page, what do the chapter headings suggest the book is about?
4 From the publishers blurb on the cover or inside the dust jacket of the book,
what are you told the book is about?
5 What does the preface or introduction tell you about the book?
6 Examine the books index. Does the book appear to have the information that
you are looking for?
7 Flick through the book, then go through the book again, pausing every so often.
Are there headings and subheadings that will help you find the information you
need? Does the pictorial information have captions or labels that will make them
useful to you?
You should now be able to evaluate the usefulness of the book, and decide
whether to use it for background reading, or as a source for notes and diagrams. If you
cannot borrow the book, your record of the title, author, publisher, place and date of
publication will help you find the book again.
Preparing questionnaires
If possible, prepare the questionnaires in class, as a whole class or group activity.

1 Although the target group will probably be owners and operators of a range
of businesses, the target of the interview needs to be identified. For example,
will your questions be directed to the personnel manager, public relations officer,
divisional manager, marketing manager or another person?
2 Brainstorm and record all possible questions you could ask that person.
3 Refine the list of questions, remembering to consider such facts as:
relevance to the wording of the assignment (the wording of questions that
require a factual response)
the need to include open-ended questions to encourage the interviewee
to express an opinion
the problem of dealing with personal and sensitive information.
4 Compose the questions and arrange them in a logical sequence.
5 Try your questions on other class members or members of your family, noting
questions that do not appear to work. These should be rewritten, or eliminated
and replaced by more appropriate questions.
6 You should now be ready to conduct your interview, recording the answers on
tape or in writing. Remember to make sure you have the interviewees permission
before using a tape or video recorder in their presence.
If your questionnaire is to be mailed to an interviewee, it should be accompanied
by a business letter that is sincere and friendly. The letter should also be clear and
concise. Finally, it should be neat and easy to read.
305
Figure A2.05 Always ask clear simple questions.
Guidelines for the investigation
306
The following checklist could form the basis for investigating your chosen business:
business name and address
business activities/products
legal structure: sole trader, partnership, proprietary limited company, public company
name of parent company
name of principal, associated company, type of industry/business (primary industry,
manufacturing, service, wholesaling, retailing)
business history, especially any major economic, social, political or legal influences
on change
business customers/markets
mission statement/corporate goal
inputs/materials used, and sources of supplies
manufacturing process used
automated machines or labour intensity
stock control procedures (just-in-time or warehouse)
are components contracted out?
computer usage/robotics usage
laboratory/research and development facilities
quality control procedures
testing procedures
number of employees on the sitemale, female, total
skills or classification of employees
career opportunities
specific recommended training/qualifications
specific employment practices.
Specific questions to follow up

Ownership
1
2
3
4
5
6
Where and how did the business begin?

Who owns the business? Has the ownership changed over time?
Has the change in ownership affected the businesss growth?
What factors influenced the location of the business?
What are the businesss annual profits?
How are profits distributed?
Production
1 What does the business produce?
2 What production methods are used?
3 What has been the impact of technological change on production methods
and output?
4 What is the annual average volume of production?
5 What factors cause this volume to change?
Sales and marketing

1
2
3
4
5
6
Where are the businesss major markets?

How are the businesss products sold?
Does the business advertise? If so, how?
Who are the businesss major competitors?
Does the business undertake any market research?
Are there plans to increase the businesss market share? If so, what are they?
Personnel
1 What proportion of employees are in management, production, sales and
marketing, or administration?
2 How has technological change affected administration practices?
3 Has technological change affected employment levels in any section of the
business or the female/male ratio?
4 What employment opportunities does the business provide school leavers?
5 What salaries do young people earn?
6 What opportunities are there for promotion in the business?
7 What opportunities exist for training and employment participation and
ownership?
1 What are the major social, institutional, legal and political factors that have
influenced the business in the last 12 to 24 months?
2 How has the business responded to these changing influences?
3 How has the business developed over time?
4 What impact does the business have on the community?
5 What impact does the business have on the environment?
6 How do local, national and international economies influence the business?
7 What role does it play in local, national and international economies?
Business environment
307
Finance and accounting

1
2
3
4
5
What are the major sources of funds (for example, sales) to the business?
What are the major types of finance used? Why?
What are the major flows of funds within the business?
How does the business try to make the most efficient use of funds?
What are the major records used in the accounting in the business? Why are
these needed?
Management process
1 What is the function of the management in this business?
2 What are the management structure and management responsibilities?
Source: Adapted from material prepared by officers of Schools Visits to Industry Program,
New South Wales.
Conclusion
As you plan, organise and complete your business investigation, you will have an
opportunity to display and further consolidate your understanding of the core of
knowledge associated with the whole Preliminary course. As well, the business assignment
will allow you to explore a range of attitudes and values related to the business world, and
to demonstrate your grasp of numerous personal and business-related skills that will be
of considerable benefit to you as you continue your studies in this and other subjects.
A.3 The business plan
The small business plan
308
The small business plan is a culmination of the Preliminary course. It draws together
aspects of the business and planning process studied throughout the course. The nature
of the task provides students with a practical opportunity to combine their knowledge
with the skills developed throughout the course.
In addition to the outcomes achieved in the business research task, the small
business plan requires that you:
assess the business planning processes
explain the business life cycle and analyse the challenges that each stage presents
for management.
You may select to prepare a small business plan for a hypothetical business. This
plan would be presented in report format and, although business plans vary greatly,
at least some of the following elements should be included:
description of the business and ownership
purpose of the plan and a situational analysis
objectives and strategies
a description of the product/service
staffing requirements
market analysis and strategies
financial forecasts.
Students are advised to carefully study chapter 4 to gain ideas on how to prepare
a business plan. The 15-week schedule outlined in figure A1.03 could be followed.
Included is an outline of the assessment guide for the final product.
Assessing the business plan

(the final product)
The value of the business plan is 30 per cent of the total assessment mark. The format
of the plan may vary depending on the business being planned, and the size of the
plan may also vary, but at least five A4 typed pages would be required. A plan of over
10 pages would be considered excessive for a Preliminary course assessment task.
Figure A3.01 gives an outline of the content of the business research task and the
value of marks for each section.
Figure A3.01 Content and value of marks for assessment
Description
Value (%)
Description of the
business
This aspect includes such things as the executive summary and

business description. Included would be information on prime
function, mission and goals, structure and ownership, location
and staffing requirements.
15
Marketing analysis
and strategies
Aspects included here would be the target market aspects of

the marketing mixthe product, price, place and promotion.
Nature of the competition and what gives the product or
service a marketing advantage would be important. Strategies
for marketing the product or service are important in this
section. A SWOT analysis of the product or service or the total
business could also be included here.
20
Financial analysis
and cash flow
Included in this component would be aspects such as

financial needs, establishing costs, sources of finance, outline
of ongoing costs and projected income for the first year. A
simplified break-even analysis may be included here.
20
Future prospects
A realistic assessment of the potential of the business and

reasons for this assessment. Some outline of long-term growth
and strategies for this growth could be included.
15
Skills and
competencies
This is an overall assessment of the degree to which

information is collected and organised and displayed, the
level of communication shown, the level of problem solving,
the degree to which mathematics is used and the ability to use
technology in presentation.
30
Content of the plan
309
Appendix B
Assessment requirements
in the Preliminary course
The purpose of assessment
The HSC course is assessed internally and externally. Before commencing the
HSC course, students must satisfy the school that they have satisfactorily completed
the Preliminary course. There are no formal Board of Studies (BOS) requirements
for assessing the Preliminary course. However, suggestions made by the BOS give
guidance to schools in this area.
The suggested components, weightings and tasks for the Preliminary course
are set out in figure B.01.
Figure B.01 Suggested components, weightings and tasks for the Preliminary course
Component
Tasks
Test type
40
Class tests and exams, multiple-choice items, short answers,

analysis of case studies, extended responses.
Oral
10
Oral presentation.
Business
research task
30
This task may be either a business investigation of a small

business or a small business plan research task.
Stimulus-based
skills
20
Tasks may include: interpretation and analysis of stimulus

material, case study analysis, excursion reports, and group tasks.
Marks
310
Weighting
100
A good assessment program should:

assess the level of understanding of the knowledge outcomes of the syllabus,
covering the range of topics
allow students to demonstrate their ability in the areas of the skills outcomes
introduce students to the range of assessment instruments that will be used
in the HSC
introduce students to the internal and external assessment processes used in the
HSC, for example time management, misadventure, meeting deadlines
develop communication and interpersonal skills, self-confidence and self-esteem.
Types of assessment
In your Preliminary course you will probably sit for two exams plus classroom topic
tests. Formal exams contain three broad types of instruments.
There are two types of multiple-choice questions. Those without stimulus material
focus on recall of knowledge and understanding; those based on stimulus material
require you to use your knowledge to solve a mathematical problem and analyse
information from graphs, tables and other data.
Maximising marks in multiple-choice questions
Allocate time appropriately. For example for a 2-hour paper with 20 multiplechoice questions worth 20 marks, spend 1.25 minutes per question (total of
25 minutes). Avoid spending too long on any question. Come back to difficult
questions, and under no circumstances leave answers blank.
Eliminate obviously incorrect alternatives.You are often then left with only one
realistic alternative.
Read all alternatives carefully, as they may be designed to be superficially correct.
Dont change your answer just because several of the previous answers were of
the same letter. There may well be three Ds in a row.
It may be best to do the multiple-choice section first, as this is less stressful and
allows you to complete the exam in a more relaxed state. Allow yourself time to
come back and correct your answers. Information in the rest of the exam may
give you guidance, and the process of answering other questions will allow your
subconscious brain to work on the difficult questions.
If at the end of the exam you are still in doubt as to the correct answer, go with
your gut feeling.
Short-answer questions are based on stimulus material and have multiple parts with
marks indicated.
Maximising marks in short-answer questions
Extended-response questions
In the HSC course the external assessment will include two forms of extended
response answers. In the Preliminary course it is most likely that you will be required
to write structured responses that may be based on stimulus material.
Allocate time wisely. In a 2-hour exam, with four short-answer questions

worth 5 marks each, you would allocate about 25 minutes for the section,
or approximately 6 minutes per question.
Note carefully the directive words for each part of each question, for example,
identify, state, calculate, give reasons.
Ensure that your answer is consistent with the information contained in the
stimulus material; for example, factoring is a way of solving a debt crisis but not
if the question relates to a sole trader like an ice-cream vendor.
Dont write too much. It is not necessary. Generally the mark allocation and the
space given will indicate the required length of your response.
Show your working out for the calculations, as part marks can be given for
incorrect answers that show a level of understanding.
Dont omit any parts of the question. Go back to any difficult questions and
try to respond.
Use appropriate business terminology, as this shows a superior level
of understanding.
311
Again it is important to use your time carefully. For example, in a 2-hour exam
with three extended response questions worth a total of 60 marks you would
spend approximately 35 minutes on each.
If given a choice; select the question that allows you to maximise your marks
by referring to case studies, such as businesses that you have studied or recent
business events.
Clearly label each part of the question.
Without a doubt the main factor that will ensure your success in the Business
Studies HSC exam at the end of your studies is the amount of work you do in class
and the seriousness of your revision program during your last year of school. To
capitalise on your hard work during the year, you also need to consider certain factors
that will contribute to your ability to produce very good HSC answers.
Producing a high standard answer
Success in producing a solid answer in the Business Studies HSC course depends
on three variables:
How well you focus on the question. Do you address what the question
is directing you to do?
How well you structure and present your answer. Is it logical and easy to read
and follow?
How well you support your answer with factual information and actual case
studies.You need to show that you have an understanding of business concepts,
and that you can apply these concepts.
Avoiding a low standard answer
Answers may achieve low marks for a variety of reasons. However, poor answers
tend to share a number of the following characteristics.
They are off the topic.
They do not address the key directions of the question. They are often
a pre-prepared answer that is not focused on the actual question asked.
They are too short.
They contain too many unsupported generalisations.
They do not follow a logical approach.
They are hard to read and difficult to follow.
They contain too few references to examples from real businesses.
The exam
Before the exam
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As noted earlier, there is no substitute for hard work in the months before the exam.
There is no secret that will overcome lack of knowledge and understanding. Without
an adequate depth of knowledge, understanding and skills, no exam technique will
work magic.
In the months before the exam you should keep these points in mind:
Become familiar with the syllabus topic outcomes. These can be obtained from
your textbook, or from the syllabus document in your library. The HSC exam
really assesses how well you have achieved the outcomes of the particular topics.
Use the outcomes as a revision checklist.
Be aware of current business trends and issues. Watch programs such as Business
Sunday, Small Business Show, Landline and relevant Four Corners and Lateline
programs. Read material such as that found in the Sun Herald, Business Review
Weekly and other financial publications. In your answers show that you are aware
of what is happening in the business world.
Answer as many sample questions as you can. This is the most effective way
of revising and it should be your main method of study. Simply reading through
notes is an insufficient way of revising.
Attend all lessons and work hard in class. An hour spent in class where work is
focused on the key concepts is worth at least four hours of undirected home study.
In the exam room
Allocate sufficient time to each question. It is much easier to gain the first ten
marks than the last two.You cannot afford to do badly in any question.
Read the question carefully and underline the key directive terms (e.g. explain,
describe, propose, prepare, discuss). Some directive terms require a much
greater treatment than others. For example, list simply requires you to write down
a series of facts and no elaboration is needed, explain requires an explanation
of the listed facts, and evaluate requires you to assess the points and make value
judgments.
Take careful note of what the question asks you to do.You only receive marks for
the way in which you have actually answered the question, not for the amount
of factual material you have included (if it is not relevant to the question).
Where stimulus material is given, make sure you refer to it in your answer.
Follow the question sequence with your answer. Answer the first part of the
question first and indicate clearly that that is the part you are answering.
Allocate more time to the more important parts of the question. The most
important part of the question will not always be the last part of the question,
although this will often be the case. The directive terms will indicate the most
important parts of the question, for example, a part that asks you to evaluate
something or to devise a marketing plan.
Refer to real business examples as often as possible. Many questions will direct
you to refer to examples you have studied and to ignore this directive would be
extremely foolish. Even if you are not expressly asked to do so, still refer to actual
examples.
Create a good impression with your introductions and conclusions.
Checklist for an extended-response answer
Answers all parts of the question at the appropriate level of depth for each part.
Demonstrates a superior knowledge and understanding of business terminology,
practice and procedure.
Evaluates and applies relevant business data and trends to particular case studies.
Communicates business information, ideas and issues in a superior way.
Uses diagrams to communicate concepts.
Is logically sequenced with all parts clearly labelled.
Refers constantly to the resource material and follows the question directly.
Uses the report format in the context of the structured response. This is an
appropriate method as it allows the student to list points under suitable headings
and tables.
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Oral component
Oral communication skills are important in business. Managers and salespeople are
expected to be effective oral communicators. Oral skills are assessed through a formal
oral presentation with the assessment criteria clearly defined. Oral skills can also be
incorporated into the business research task.
Possible oral tasks (2 minutes per talk)
Recent changes to a law and its impact on business.

A biography of a significant business personality.
Profile of a business opportunity.
Precis of a business article.
The importance of being honest in business.
Key issues and highlights of a business video/book.
Outsourcing as an alternative.
Social cost of downsizing.
Personal characteristics of a business person.
Justifying the location site for a business.
Assessment criteria
1 Content: depth, appropriateness, interest

2 Presentation: logic, clarity, conviction
3 Timing
TOTAL
10 marks
10 marks
5 marks
25 marks
Developing oral presentation skills
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The best presentations are the ones that are interesting and are delivered with
confidence. This will come about through:
knowledge of the topic
logical sequencing
some degree of humour
use of appropriate language.
Oral presentations can be challenging but rewarding. Oral skills can be practised
and improved. The following are some hints for improving your presentation.
Do plenty of research.
Sequence your ideas logically.
Prepare and practise an attention-grabbing introduction.
Prepare and practise a thought-provoking conclusion.
Illustrate your ideas with interesting examples.
Practise many times on family, friends, pets and the mirror for timing, delivery
and to gain confidence.
Dont read your talk. Have palm cards that act as a reminder but allow you
to maintain eye contact with the audience.
Maintain interest by incorporating amusing examples, questions, gestures and
voice variations.
Evaluate your presentation through self- and peer assessment, and critically
compare your presentations with others.You can improve your presentation skills
by assessing the strengths and weaknesses of the presentation of other students and
public figures.
Appendix C
Assessment terms used
in Business Studies
Assessment Terms
The type of assessment term used in an extended-response question gives an indication

of the way in which to approach that question or particular part of the question.
The assessment term used in the question indicates such things as the level of
depth and degree of analysis required in an answer. The terms listed below are the
most commonly used directive terms in past assessment tasks in Business Studies.
Analyse
Example
Analyse the changing role of trade unions
Comment Analyse is a high-order and more complex term and is usually
incorporpated into the later part of the question. Students would
be expected to show the essential nature of each change in the role
of unions and to critically examine the changes and their impacts.
Assess
Example
Assess the impact of the Asian crisis on tourism in Australia.
Comment Assess is a commonly used high-order directive term. Students would
be expected to make a judgment on how significant the impact was
and provide extensive evidence for their judgment.
Compare and contrast
Example
Compare and contrast two types of external funding
Comment Students would be expected to show how the two types specifically
differ and how they are similar. In some instances both or only one
of the terms may be used.
Define
Example
Define what you understand by the term factoring.
Comment Define is not a commonly used term in exam situations and when used
is usually in the initial part of the question. Students would be expected
to provide a brief, precise meaning of the word or concept. An example
may be used to enhance the definition.
Describe
Example
Describe the ways in which planning increases business success.
Comment The term describe is not extensively used in exam questions, as it often
leads to vague generalisations. When describing the role of planning in
success, students would be expected to give a general outline without
a great deal of analysis.
Discuss
Example
Discuss the importance of small business in the Australian economy.
Comment Discuss is a very commonly used term in exam questions. In discussing
the importance of small business, students would be expected to clearly
identify the reasons why small business is important and to provide both
evidence and examples. This discussion should include specific detail,
often presenting both sides of an issue.
315
Evaluate
Example
316
Evaluate how successful changes have been in the industrial relations

process
Comment Evaluate gives the student an opportunity to make a judgment based
on evidence. A student would be expected to carefully weigh the
evidence concerning industrial relations reform and make a judgement
on the overall success of the changes, taking into account the positive
and negative impacts.
Examine
Example
Examine the management factors that the new owners of a business
would consider when planning the expansion of the business
Comment Examine is often used to allow students to discuss and analyse the
factors involved in a particular situation. It is a higher-order directive
term. Students would be expected to show what the relevant factors
were and analyse their particular importance.
Explain
Example
Explain the importance of a business plan to overall business success
Comment Explain is one of the most commonly used directive terms and is used
at various levels in a question. By explaining, students have to show that
they understand a concept or area of content. This usually requires a
detailed explanation. Students may have to examine reasons and causes.
Students would be expected to give reasons why a carefully developed
business plan eliminated many of the causes of business failure.
Identify
Example
Identify and explain the various methods of expansion into international
markets
Comment This directive term is often in the first part of a more detailed question.
Students are expected to name the various expansion methods, and
to do this without, initially, a great amount of elaboration. Elaboration
would take place later in the question.
List
Example
List the main causes of business failure
Comment List is a similar term to identify and is often used in the early stages
of a more complex question. By listing the causes of failure, students are
expected to provide the range of reasons in summary form. The reasons
would be expanded on later in the question. In many cases the items
listed may be expected to be in some type of order. List is rarely used
as a directive term in an exam situation.
Outline
Example
Outline the characteristics of small business
Comment Outline is a directive term similar to list and identify, but it is more
widely used. It is commonly used in the first stages of a multi-part
question. In outlining the characteristics, students are expected to
summarise the characteristics, omitting details and examples.
Appendix D
Glossary of terms
Affirmative action The use of a plan to
achieve equal opportunity for those who are
disadvantaged or who have been discriminated
against. Often affirmative action plans have been
produced to promote women in the workplace.
Anti-discrimination A process that attempts,
with legal support, to ensure that persons are
not excluded from being equally considered for
a position because of their sex, age, race, social
origin, etc.
Assembly line Henry Ford invented the
production or assembly line where the product
being made was moved to the workers who were
stationary (stayed in one place). The assembly line
allowed mass production.
Assets Things of value that are owned by the
business.
Australian Bureau of Statistics The ABS
plans, prepares and collects data, information and
statistics about Australia and Australians, especially
about their business behaviour and the behaviour
of consumers.
Australian Stock Exchange (ASX) The
marketplace where the shares (ownership)
of companies are traded, bought and sold.
Automation Technology involved in the design
and development of processes and machines that
complete tasks without human labour.
Bad debt A debit or debt that is declared
unrecoverable.
Balance sheet A list of all assets, liabilities and
ownership of a business at any one time. The
balance sheet shows what the business owns and
owes at any one point in time. Balance sheets
come in two forms: an account form where assets
are listed on one side of the page and liabilities
on the other, or a narrative form where only
one column is used.
Glossary of terms
Absenteeism Occurs when employees stay

away from work without valid reasons, usually
associated with low job satisfaction.
ACCC The Australian Competition and
Consumer Commission is the Federal
Government body responsible for ensuring
companies and businesses follow the regulations
of the Trade Practices Act and the competition
legislation.
Account A detailed record of all debt or credit
transactions relating to any person, asset, liability
or revenue expenditure (e.g. the account showed
a debit of $87.50).
Accountability Means being responsible
for ones own actions. In Human Resources,
accountability means those aspects of the job
or task for which the employee will be held
responsible.
Accountant Person trained and qualified
in financial record keeping.
Accounting The recording, reporting and
analysing of the financial transactions of a business.
Accounting equation The balance is written
in two ways:
1. Assets = ownership (equity of owner)
liabilities of the business, or
2. Ownership (equity of owner) = assets
liabilities
Accounts payable A record of what is owed
by the businessall of the amounts that are owed
to creditors.
Accounts receivable Short-term assets; the
amounts due to a business for credit sales to trade
debtors.
Acquisition In Human Resources, refers
to finding and selecting new employees for
the business.
Advertising The business of preparing
advertisements, an integral part of marketing.
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Bank statement A bank record of all the

transactions in a savings or cheque account
up to a specified date, which is sent to the
owner of the account. It is the banks record
of a customers bank account.
Bookkeeping Transactions are collected and
recorded in the order in which they were made.
They are kept in books or files. This is known
as bookkeeping.
Break-even analysis Devising through the
break-even point the minimum sale level that will
be required by the business to cover its costs at
that production level.
Break-even point The amount sold where total
revenue from sales equals total cost of production.
Also the minimum amount of sales required to
cover total costs.
Budget A written plan for using money wisely
to allow for paying expenses and saving. A plan
for spending and saving money. Also a statement
of the proposed government income and
expenditure for the coming year.
Business adviser Experts in business; they
diagnose business problems and give managers
advice on how to improve their business.
Business culture The way a business completes
tasks in relation to sales, output, costs, revenue
and profit.
Business environment All businesses operate
in a wider environment or society. The external
environment refers to the economy and society
not under the control of the business. The internal
environment refers to aspects of the business
under the control of the business (the workplace,
costs and output).
Business establishment The process of starting
a new business.
Business failure When businesses cease trading
or go into liquidation because they are unable
to pay their debts and are insolvent.
Business functions The many different tasks
businesses accomplish. They make profits for
their owners, employ workers, produce goods or
services, or undertake marketing. There are many
different business functions.
Business goals Refers to the aims of the

business. A business may try to make a greater
profit, increase its market share or establish
a brand loyalty. These are all business goals.
Business life cycle Businesses grow and change
(like people) and so have what is termed a life
cyclefrom establishment to growth and maturity.
Business opportunity Where there is a chance
of making a profit by satisfying consumers needs
or wants for goods and services. The chance
to make a profit is the business opportunity.
Business plan A detailed written document that
sets out the steps and requirements for the future
development of the business.
Capital Funds or money that can be used for
investment to help produce goods and services.
To produce goods, money is needed to purchase
all of the things needed for production to start.
Capitalisation Capitalisation has a number of
meanings. In establishing or starting a business it
refers to the amount of capital (assets) that have
been used to start the business. It also refers to
the number of shares in a company multiplied
by the current share price.
Cash flow The movement of cash into and
out of a business. The forecasting of cash flow
is an important part of business management.
Cessation Refers to the ending of a business,
when a business has stopped trading.
Chain of command The way a business
structures its channels of authority, power,
accountability and responsibility.
Chief Executive Officer (CEO) The CEO
of any business is the manager responsible
for the entire business. The CEO of a public
company is appointed by the board of directors
of the company.
Commission An amount of money (usually
expressed as a percentage of the total) paid to
an agent or salesperson for the selling of goods
and services on behalf of a client.
Company A commercial enterprise.
Company report A public company listed
on the stock exchange must provide a company
report.The report usually contains a summary
of the years trading highlights, reviews of
performance, financial statements, an independent
auditors report and directors report.
Decision tree A process of looking at a range

of alternatives in order to make a decision.
Decline A fall; often firms in post-maturity
experience a decline in sales and revenue.
Demographics Relating to population. Often
a firms sales are to a particular demographic
market (e.g. young children, teenagers, the aged).
Demographics refers to characteristics of the
population who buy a product or service.
Demographic segregation Offering different
products and services to different groups
of people who have different population
characteristics (age, income, habits).
Departments Businesses can be organised
into different units called departments (e.g. sales
department). They can be organised by function
(sales, accounting) or geography (NSW or
regional department).
Distribute To give out. A business must have
a way of getting its products to consumers
(distribution).
Distribution network The way that business
products are taken from the manufacturer to
wholesalers and on to retailers ( i.e. they are
distributed to many firms who distribute the
goods and services to the market).
Diversification A practice where a business
grows and produces a range of goods and services
in unrelated activities and markets.
Dividend The money shareholders receive from
profits of a company.
Division of labour Dividing work among a
range of people, so that workers do specialised
tasks.
Downsize The process of reducing the scale
or size of something. Refers to the practice
of reducing the size of the workforce, with the
existing workforce still doing the same amount
of work.
EFTPOS Electronic Funds Transfer at Point
Of Sale. The point-of-sale cash register is really
a computer that transmits information about the
sale to computers that transfer funds from the
customers bank account to that of the retailer.
Employment Working for another person
in business or for pay.
Glossary of terms
Competition Most businesses have to work in

markets where there are a lot of similar businesses.
For example, there might be lots of shops that
sell similar products. The businesses are rivals and
each business tries to beat its rivalsbusinesses
compete by having lower prices than others or
advertising more.
Competitive advantage Gaining a price
advantage over competitors because of a lower
cost structure.
Competitor A rival company.
Consumer One who uses an article or service;
one of the buying public.
Contract labour The situation where employees
and workers are hired for short periods or under
certain conditions. The conditions are set out in
the contract with the worker. Contracting out
means reducing the full-time permanent staff
and hiring staff for shorter periods on contract.
Cooperative Cooperatives are businesses set
up by a large number of small owners (e.g. a
cooperative owned by many small dairy farmers).
Shares are usually held by the owners.
Core business The main activity or function
of a business; its central and essential activities.
Corrective action Refers to fixing a business
problem that has been identified in the
monitoring process.
Critical path analysis Planning method
designed to help the planning and timing of
events and decisions. By careful planning complex
work can be programmed so that the task is
achieved in minimum time.
Current assets Those business assets that are
likely to be used up or converted into cash during
the normal operating cycle (usually a year).
Current liabilities Liabilities that must be paid
within the normal trading period (usually one
year) (e.g. creditors and bank overdrafts).
Debt finance In establishing a business or
expanding an existing one, money borrowed
from external sources such as banks and financial
institutions is referred to as debt finance. Equity
finance is money provided by the owners or
shareholders of the business.
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Entrepreneur Entrepreneurs are people who

can see a business opportunity and who have
the initiative to organise the resources needed
to produce goods and services to satisfy peoples
demands for them.
Equal Employment Opportunity (EEO)
A process designed to promote fairness and to
deal with complaints about discrimination in the
workforce. The Equal Opportunity Commission
makes judgments about the fairness of workplace
situations and practices.
Equity financing The money (finance) provided
by the owners or shareholders of a business, to
establish a business or to extend it.
Establishment The setting up, commencement
and beginning of a new business.
Establishment plan The business plan for the
commencement of a business is the establishment
plan; it would include establishment costs.
Ethical/ethics Ethical behaviour is following
a set of rules or procedures fairly, the rules
being designed to set principles of rightness and
correctness. Ethics is a set of standards that all can
agree on and follow to regulate behaviour.
Evaluate To judge the worth or value of
something and to assess and examine it.
Environment The conditions, influences and
economic conditions in which a business operates.
Executive summary The part of a business
report that summarises the main points of the
report. It is usually shortabout one page long.
Experience Experience is important in business
management and entrepreneurship because
common business problems are faced in all new
businesses. There is a learning curve in managing
a business and this is important to business success.
External factors Circumstances that are
outside the businesss control (e.g. economic
cycles or population changes) but still influence
the business.
Feasibility study To examine something in
order to make sure that it will work; usually to
determine whether a business will make enough
profit to survive.
Final market The place or process that enables
the exchange of goods and services to take place
between producers and consumers.
Finance A commercial term for money; finance

is also used as a verb to describe things to do with
money.
Financial goals/projections In the business
plan the planned and estimated profit, sales and
costs for the year ahead.
Financial statement A written record
of a business transaction involving money
(e.g. receipts, invoice).
Fixed assets Assets owned by the business that
are used in the operation of the business and are
not intended for sale.
Fixed 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. Also known as overheads.
Fixed liabilities Money the company owes that
will not be paid back in the next 12 months (e.g.
rent or mortgage, depreciation of assets).
Forecasting Determining what will happen in
the business and its external environment before
it happens, in order to prepare for it.
Franchise Franchisees purchase the right to trade
as a recognised company (e.g. Clark Rubber).
In return for this right, franchisees pay a royalty
of their sales.
Gantt chart A bar graph with times on the
horizontal axis and the activities, tasks and jobs
to be completed on the vertical axis. Used when
tasks are to be completed in order.
Geographic segmentation Markets can be
divided into geographic segments based on where
the consumers live, shop or consume.
Goods and services A generic phrase to mean
all production of goods and services (goods
things, servicessomething that is experienced,
used or consumed).
Goods and Services Tax (GST) An indirect
tax levied on goods and services at 10% of price.
The tax is collected by businesses and remitted
(sent) to the federal government.
Government authorities Organisations that
manage resources (e.g. Sydney Water) or make
regulations (e.g. Ministry of Education) or
enforce legislation (e.g. Human Rights and Equal
Opportunities Commission).
Internal factors In a business the internal factors

or the internal environment of the business refer
to situations under the control of the business,
such as its workforce, its plans and its production
processes.
Inventory The stock of raw materials and
components, partially completed goods, and
finished goods ready for sale.
Inventory control Activities associated with the
management of the level of inventory (stock) and
the movement of this stock.
Involuntary separation Refers to retrenchment
or being firedleaving the workplace or business
but not wanting to do so.
Job satisfaction The amount or level of personal
satisfaction that an employee receives from their
job.
Journal A book in which business transactions
are written down. Usually these transactions are
written in the order in which they were made.
There are many different journals for different
types of transactions.
Just-in-time The minimum inventory needed
to keep a perfectly balanced production system
running.
Kaizen The continuous improvement system
in a business named after the Japanese system
of building excellence into all stages of the
production process.
Lead-time Time from the idea to the
commencement of production.
Leading Leadership is one of the key functions
of management (the others being control,
organising and planning). Business leadership is
the process whereby the manager influences the
goals, values and attitudes of the workforce.
Lease A contract where a person hires something
for a rent over an agreed period of time.
Legal structure Refers to the type of ownership
of a business; sole traders, partnerships and
companies have legal requirements under
Australian law.
Liability What is owed by the business to others.
Glossary of terms
Government Business Enterprises (GBE)

These are businesses owned (majority ownership)
by the government or public sector (e.g. Telstra).
Gross profit An accounting phrase that shows
the profit made by subtracting the cost of goods
sold from the sales made. After tax is deducted
from gross profit, net profit is the amount left.
Human resource development The upgrading
of the skills of people working for an organisation
in order to meet the new challenges of the
workplace.
Human resource management The most
effective and efficient use of the people working
for the business.
Human resources cycle The acquisition,
induction and training of people working for a
business are part of the human resources cycle.
Incorporation The process of forming
a company by preparing and lodging the
appropriate documents with the relevant
government authorities.
Induction The planned process of introducing
new employees to the workforce of the business.
Industrial Revolution The period between
1760 and 1830 in England when there was an
unprecedented technological change in industry,
production processes and products.
Industry A group of businesses that do similar
things or produce similar goods and services.
Information technology Techniques such
as email, computers and the Internet that allow
businesses to gather, process and use information.
Innovation The commercialisation of invention.
When scientific research invents new products
or processes, invention occurs. When these are
developed and produced for sale in the market,
innovation occurs.
Intellectual property Copyright, patents and
trademarks are all intellectual propertya persons
or a businesss creative ideas, the property of their
mind or intellect.
Interdependence Being linked together
to achieve a common aim or goal.
Interest The price of borrowing or lending
money (i.e. the interest rate).
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Liquidation One of the ways of ceasing a

business. In liquidation the business is wound up,
stops trading and all of the assets of the business
are sold to pay for the debt of the business. Often
the asset sales do not cover the amount of debt
and the creditors lose money.
Liquidator A person usually appointed by
a court or creditors to wind up or cease a
company and seize the assets.
Location Where the business premises are
situated geographically.
Maintenance To keep something in good repair
or good working order.
Management The people who run the business;
the running of the business.
Management theories Theories or ideas on
how to best supervise employees and business,
and how managers should undertake their
responsibilities. These theories range from
style of management (democratic, laissez-faire,
autocratic) to systems of management (scientific
management, management by objectives).
Manager A person who supervises and directs
other employees in a business.
Margin The difference between the buying price
and the selling price of a good. Usually the profit
margin is smaller than the mark-up.
Mark-up The difference between the buying
(cost) price of a good and the selling price. The
mark-up is to pay for the businesss expenses and
profit. The amount added on to the purchase
price in order to obtain the selling price.
Market analysis Includes a range of processes
and methods to research the market for the
businesss goods and services.
Market share The percentage of the total market
gained by one particular supplier.
Market structure The way a particular market
is organised, how many producers there are in the
market, and their respective market shares.
Marketing/marketing mix/marketing
plan Developing plans and strategies to market
(sell) goods and services to a particular group
of consumers. The plans include developing
a marketing mix using the four psprice,
promotion, place and product.
Mass market A very large number (mass)

of consumers and customers. Mass marketing
is communicating to this very large number
of consumers, usually through advertising.
Merger The taking over or bringing together of
one or more businesses to form a new corporate
entity. A company that has been taken over might
become a subsidiary of the parent company. The
Trade Practices Act prohibits mergers that put too
much market power into too few hands.
Micro-business Very small businesses employing
fewer than five people.
Mission statement A short, precise statement
that sets out clearly why the business exists and
why it is operating.
Modification Changing and rewriting plans
or operations.
Monetary benefits Paid advantages of working
(as compared with non-monetary or unpaid
advantages).
Monitoring One of the key functions of
managing; supervising and observing operations
in order to review their progress.
Moores Law Computer chips double in speed
every 18 months.
Multiskilling Workers are encouraged to develop
skills in several areas rather than focusing on one
skill.
Needs analysis A process designed to collect
information on how best to provide the
most efficient training and human resources
development.
Net profit The final profit made by a business
after changes to the gross profit are made by any
non-sales revenue or expenses.
Networking Making contacts and links with
suppliers, distributors, competitors and other
stakeholders and players in a market.
Niche market A small specialised market such
as expensive sports cars.
No-liability companies Usually these are
mining companies (with NL in their name)
where the shareholders are not liable for debts
or unpaid amounts on issued shares.
Planning One of the key functions of

management (along with organising, leading
and controlling); it includes the establishment
of objectives and goals by the business and
working out of a strategy for achieving them.
Post-maturity The end point of the business life
cycle where a business will have to redevelop itself
or cease trading.
Premium location A business situated in
the best possible location to trade and meet
its objectives.
Price The value of a commodity, resource or
service expressed as an amount of money. Also
the money that you have to pay when you buy
a good or service.
Primary production Goods that are produced
from raw materials (e.g. trees into paper, wool
into jumpers).
Primary research Data and information
gathered from original sources.
Prime function The core or main activity
of a business.
Private sector The part of the economy that is
owned and controlled by individuals and privately
owned businesses.
Privatisation The sale and distribution
of publicly owned assets (e.g. government
enterprises) to shareholders in the private sector.
Production Creating, producing or
manufacturing goods. Also adds value to the
total item.
Production line Another term for an assembly
line; how the production process is organised
in a sequence.
Profit How much income is left after expenses
are paid.
Profit and loss statements A list of all the
sales minus all the expenses and costs to show
the amount of profit and loss the business has
made; also called an income statement or revenue
statement.
Profit maximisation Making as much profit
as possible by targeting profit as a key objective.
Prospectus A document that sets out accurately
all the details for a share issue by a company.
Glossary of terms
Non-current assets Those business assets that

are not likely to be used up or converted to cash
during the normal operating cycle; assets of more
than 12 months duration.
Non-current liabilities Liabilities that are not
due to be paid within the next 12 months.
Non-monetary benefits Unpaid advantages
and reasons for working, such as praise or power.
Objectives The outcomes that the business has
set for sales, costs and profit in the future.
Occupational health and safety A set of
practices (or a code) that sets out the safety rules
for the business to protect workers and employees
in the workplace.
On-costs Costs added to the basic cost of an
input (e.g. superannuation, sick leave, holiday pay).
Operation A function of the business where
it produces goods and services.
Operational plan Plans used by managers to
help them carry out their responsibilities; may
be ongoing or single use.
Organisation chart A diagram that sets out the
work, management and structure in the business.
Organising One of the key managing functions;
it refers to allocating tasks to different groups
within the business so that the business can
achieve its objectives.
Original concept A new business opportunity
not thought of before.
Outsourcing Using a business function provided
by a supplier outside the firm.
Owners equity The net worth of the business
that belongs to the owner(s). It is the total assets
less the total liabilities.
Partners Owners who have agreed to be joint
owners of a business.
Partnership A business with multiple owners
who sign a contract to divide up the profits.
Patent The registration of an invention or new
technique. Registration gives the patent holder an
exclusive right to use, make or sell the product or
idea. The standard patent is current for 16 years.
Perpetual succession A company limited by
liability may continue trading forever and outlive
the managers and owners over the years.
Personnel The people employed in any work.
323
324
Provisional tax A way of paying tax on nonwage and non-salary income; usually paid before
the income is earned; the present years income is
estimated (by using last years income) and the tax
is paid on that figure.
Psychographic features Involves the study
of consumers lifestyles, attitudes and behaviour
so that markets can be targeted better.
(Total) Quality management A system where
the businesss employees are encouraged to pursue
quality. Total quality management requires the
business to focus on continual improvement
of its goods and services.
Recruitment The search, selection and
employment of a businesss workforce.
Red tape The mass of regulations, rules, codes,
laws and practices that make it difficult for
entrepreneurs to establish new business and
owners to manage existing ones.
Redundancy The letting go of an employee
when he or she is of no use any more (to the
business).
Regulations Laws, rules, codes and practices
operated by government to regulate the business
environment.
Renewal The process of updating, refreshing
and refocusing business.
Rent The return on property.
Research and development (R & D) The
process of creating, analysing and developing
new products and services, or of improving and
updating current goods and services.
Resignation The voluntary leaving of the
business workforce.
Retail market The buying and selling
completed by the retail sector; shops and stores
selling directly to the public represent the final
consumer market.
Retrenchment The dismissal of workers
who are no longer needed, especially because
of reduced sales.
Revenue Income or money earned or collected
by business or government.
Revenue statement Also known as the income
statement or profit and loss statement, the revenue
statement identifies profit activities and earnings
of a business during the accounting period.
Risk Taking a chance that you might create a loss.

A chance of harm or loss.
Royalties Payments made for the use of ideas,
patents, books or designs. Usually a percentage
of total sales.
Salary Payment for work, usually paid fortnightly
or monthly.
Sales forecast An estimate of the amount that
will be sold in a trading period.
Sales promotion A part of marketing describing
how consumers are informed about the product
through advertising.
Secondary production Turning primary
production into other products (e.g. flour into
bread). Usually manufacturing includes those
involved in construction.
Segmentation A marketing term used to
describe the process of grouping people into
market segments of similar consumers.
Selection The process of obtaining the workforce
and employees with the appropriate qualifications,
training and attitude for a given job or task.
Self-employment A person is self-employed
when he or she earns their own income from
their own business.
Selling and distribution expenses The
operating costs of business that are incurred
in the selling of goods and services. Selling
and distribution expenses include advertising,
packaging and the salaries of the sales people.
Separation A human resources term that refers
to workers leaving the workplace.
Services Acts or means of serving.
Sexual harassment Any actions by a work
colleague of the opposite sex that is offensive
or unwelcome.
Shareholders People who own shares in
a business and therefore are part owners
of a business (a share is part ownership).
Small business Usually defined in Australia as a
business having fewer than 20 employees if the
business is in a primary or tertiary industry or 100
employees if the business is in manufacturing.
Sole trader A person who owns a shop or

business.
Source documents Documents that provide
original evidence of a transaction.
Sources of finance Business establishment and

expansion often depend on providing finance
from a variety of sources; shares, retaining profits,
borrowing and sales of assets are sources of finance.
Span of control The number of employees that
a manager can supervise effectively and efficiently.
Staff turnover Refers to the proportion
of employees who leave and join a firm over
a period of time.
Staffing The provision of human resources
in a business.
Stakeholder Anyone who has an interest in
a business; stakeholders include shareholders,
employees, suppliers, consumers, lenders,
government and community.
Statute Laws, legislation and Acts of Parliament.
Statutory bodies Government bodies (e.g.
Workcover) established by legislation and
Acts of Parliament.
Steady state The situation where there is no
potential for change in the current business
situation and circumstances.
Strategic plan Long-term plans (over long
periods of time) that set out the objectives of
the business and show how the business can
achieve them.
Superannuation A sum of money paid on
retirement to workers who have paid money into
a superannuation fund while they were working.
Sustainable competitive advantage The advantage
that a business obtains over its competitors by being
better able to satisfy consumer needs over time.
Glossary of terms
Takeover The purchase of one company

by another company.
Target market That sector of the total market
to which a business plans to sell the largest share
of its product or service.
Taxation Money paid by people and businesses
to the government to provide public goods.
Technology The science of industry, especially
in the use of modern technical machinery. Also
refers to the application of science to produce
new goods and services in new and different ways.
Tertiary production The moving or taking of
secondary products to where they are needed or
wanted. Most tertiary production is in services.
Trademark A symbol or word used to represent
a brand or product that differentiates it from other

products.
Training Involves developing learning activities
to improve the performance of employees at
work.
Transnational Firms that produce goods and
services in a number of countries and trade across
national boundaries.
Trust A special legal structure in which money or
property belonging to one person is entrusted to
a second person for the benefit of a third person.
Unfair dismissal Firing an employee without
a valid or reasonable basis.
Unlimited liability The unlimited responsibility
of a sole trader or individual for the businesss
debt.
Value added Adding value to a product or
service by enhancing it (e.g. when wool is woven
into a jumper, value is added to the wool).
Variable costs Costs that rise and fall in direct
proportion to production (e.g. to produce more
jumpers will require more wool, so wool will be
a variable cost in the production of jumpers).
Venture capital A source of business
establishment finance from firms that specialise
in investing in new business. Also the risk of
investing in new business.
Vision A mental image of where the business
should be, and what it should aspire to.
Voluntary separation Resignation or leaving
employment willingly.
Wage A sum of money paid to an employee
on an hourly basis.
Warehouse Building for storage of merchandise
that is ready to be sold.
Wholesaler Middle business between producer
and retailer; wholesalers sell large quantities to
retailers who sell smaller quantities to consumers.
Working capital The capital required by a
business to fund its operations and to enable it
to expand. Also the difference between current
liabilities and current assets.
Zoning Councils and local government often
restrict particular business (such as retailing or
manufacturing) to particular geographic areas.
325
Index
A
accounting 115
business research task 309
Allan Morton 137
American Express 112
assessing business plan, business
research task 31011
assessment requirements 31216
assessment terms, Business Studies
31718
AussieBum 6062
average industry profit comparisons
129
326
balance sheet 1234

behavioural approaches, management
867
Black Sheep 27592
Bobs Books 76
Bratton, Sarina 911
break-even analysis 2523
budgets 13032, 2545
business
classification 1728
defined 3
funds source 11518
government business enterprises
289
home-based 1967
importance of 49
in everyday life 3
role 49
social and economic roles 49
starting options 20914
statutory bodies 29
types 1728
women in 1867
business assignment, commencing
198
business capital 11517, 21517, 265
business culture, influence of 156
business decline 4047
business environment, influences on
328, 15362
competitive situation 32
economic/social factors 32
governments 32
business establishment
and personal qualities 17987
key considerations 20923

business functions
coordinating 8086
identifying 98
interrelationships 103
business goals 12, 747, 158, 24850
business growth 4047
business idea, the 1925
business life cycle 4047
business failure 456
cessation process 467
establishment 4041
growth 412
management role 445
maturity 434
post-maturity 44
business name 220
business opportunities, identifying
19097
business plan
elements 2613
example 27592
importance 2645, 27073
role 2368
see also planning
business plan, sample
business features 282
competitors 281
detailed plan 27982
executive summary 277
financial plan 28392
financial review 2835
financial statements 286
long-term objectives 279
management/ownership 27980
market analysis 280
market strategy 281
monthly income 2912
short-term objectives 279
start-up costs 28990
SWOT analysis 283
table of contents 276
business planning process 24057
business records
critical issues 271
problem strategies 272
business selection 3045
information sources 304
investigation guidelines 308
finding material 307

preparing questionnaires 307
presenting investigation 305
purpose of investigation 303
questions to follow up 30910
schedule 3023
steps 301
Business Studies assessment terms
31718
business success, critical issues
26473
C
capital see business capital
capitalisation 265, 267
Carman and Carolyn 1757
cash flow 1267
managing 2667
chain of command 1012
change
and management 15362, 237
identifying need for 158
resistance to 15860
using change models 158
choice 7, 9
classification of businesses 1728
business sector 17
companies 217
cooperatives 27
international businesses 18
partnerships 2021
sole trader 19
Coca-Cola Amatil 13, 348
competitors 36
Equal Employment 55
marketing strategies 36
Occupational Health and Safety
55
product diversity 356
work-life balance 54
commencing business assignment
198
communication and management
889
companies 217, 46
determining 2057
maintaining 265
contingency management
approaches 924
theory 934
cooperatives 27
coordinating business functions

8086
corporate social responsibility 14
corrective action 257
council zoning 221
credit policy
critical issues 271
critical issues in business success
26473
cultural background 1834
customer relations 271
D
Dan Murphys 247
databases 1378
debt versus equity 118
decision trees 255
determining competitive advantage
2057
diversification 42
division of labour 84, 101
Dominos Pizza 211
F
failure, business 456, 26473
Fayol, Henry 79
feasibility study see start-up plan
G
GBE see government business
enterprises
gender 1867
generational culture 1845
geography, influence of 154
GMA Tax Pty Ltd 1256
goals, achieving 12, 747, 158,
24850
Google 2034
government 28, 56, 21921, 223
government business enterprises
289
guarantee, companies limited by 26
H
hierarchical organisational structures
835
home-based businesses 1967
human resources 1328
see also resistance to change
I
identifying business opportunities
19097
identifying staffing needs 133
importance of business 49
income statement 1212
influences on business environment
328, 15362
innovation 7, 9
internal influences on business 50
58, 15362
interpersonal communication 712
J
James Hardie 578
Jims Mowing 21213
K
key personal qualities in business
17987
King, Poppy 181

KPMG 162
Kraft foods 106
L
law, influences of 154
leadership style 86
democratic 912
participative 912
legal requirements
critical issues 271
legal structure 1728
Levi Strauss & Company 95
life cycle 4047
limited/incorporated limited
partnerships 21
locating a business 215
M
3M 16061
management
behavioural approaches 867
classical approach to 7880
contingency approaches 924
defined 69
flexibility 72
importance 6970
leading and motivating 8892
nature of 6976
problem-solving 72
roles 7071
strategic thinking 72
vision 72
management and change 15362,
237
management approaches 7895
management consultants 161
management process, the 98147
managing change 15760
managing working capital 265
markets 99101, 1037
changes in 153
critical issues 271
entrepreneurial 204
final 200202
identifying 1047, 200207
intermediate 200202
potential 203
preliminary analysis 202
role 1034
the mix 10715
see also target market
market analysis 2456
market research 200202
Ebon Hair 1920

e-commerce 156
economy, the
and SMEs 1745
influence on business 154
effective management 7071
employee
rights/responsibilities 146
see also human resources
employer rights/responsibilities 146
employment 56, 9
see also human resources
employment contract 1456
entrepreneurship 89, 204, 228
getting business ideas 1934
key questions 17980
testing ideas 1945
see also personal goals
environment, the 567
establishing a business
key considerations 20923
personal qualities 17987
ethical behaviour 1478
ethical responsibilities 5051, 229
expenses 2512
see also business capital
external influences on business
5058, 15362
finance 11517
influence on business 154
see also business capital
financial goals 12
fixed assets expenses 217
flat management structure, influence
of 157
Flipsters 2269
Ford, Henry 92
forecasting 2514
franchise purchasing 210
funding of business 11517, 21517
getting finance 219
start-up 21920
327
market segments 203

medium business, defining 174
Microcredit 186
Mikes clips 1956
Millennium Y2 Software 21718
mission statement 24850
monitoring and evaluation 2567
critical issues 271
motivation 1812
Motive Power Pty Ltd 246
N
new business, establishing 20910
new systems, influence of 156
niche markets 203
no-liability companies 267
O
Occupational Health and Safety 55,
22021
opportunities, identifying 19097
Orion Expedition Cruises 911
outsourcing 223
influence of 157
328
partnerships 2021, 46
patents 222
Paul Mason 2445
Penrith Panthers 91
people skills 712
PepsiCo 1647
personal goals 13, 15
see also entrepreneurship
personal qualities in business
establishment 17987
personnel
see also human resources;
resistance to change; staff
planning 99103
and budgets 13032, 2545
business plan 2368, 2615,
27073
critical issues 271
ideas for 2412
management as 80
planning process, the 24057
politics, influence of 155
potential markets 203
price
competitive advantage 206
marketing 10910
primary market research 200201
private companies 22, 26
production, business research task

309
product value, competitive advantage
206
profit and loss 2523
profit generation 5
promotion (marketing) 110
proprietary companies 223
public companies 23, 26
purchasing
existing business 214
franchise 210, 214
Quality management 103
R
Ralph and Rose 183, 205
recruitment 1334
redundancy 1434
regulations, influence of 154
requirements for assessment 30416
resistance to change 15861
responsibilities of business 5051,
567, 756
Reverse Garbage 28
Richard Higgins Bus Service 2434
resistance to change 15860
risk management
critical issues 271
roles
managers 7071
of business 49
S
sales, business research task 309
see also marketing
sample business plan 27592
business features 282
detailed plan 27982
executive summary 277
financial plan 28392
financial review 2835
long-term objectives 279
market analysis 280
market strategy 281
short-term objectives 279
start-up costs 28990
SWOT analysis 283
secondary market research 2012
seduberries 197
separation process 1425
Simiones record shop 269
skill requirements 1912
skills management 712
small business, defining 174
small business enterprises (SME)
1747
economic importance 1745

expectations 182
experience 182
motivation in 1812
number of 175
social goals 12
society
influence of 154
responsibilities to 756
sole trader 19, 46
staff 222, 1328
critical issues 271
see also resistance to change
staff training 136
stakeholders 1415
responsibilities to 75
start-up costs 216, 21819
start-up plan 237
statutory bodies 29
Stormy Seas Australia 202
strategic alliances, influence of 157
success, critical issues 26473
SWOT analysis 2423
T
target market, identifying 200207,
2478
taxation 223
Taylor, Frederick W 78
teams and teamwork, management
8991
technology
critical issues 271
exploiting 265
influence of 155
the business plan see planning
Tony Hannaford 82
trade practices 222
trusts 278
types of business 1728
V
Vegemite 106
Veuve Clicquot Award 912
vision 24850
W
wealth creation 4, 9
Weber, Max 79
women in business 1867
working capital requirements 217
Y
Yahoo! 2034
Easy-to-follow and student-friendly text that will help students to

understand the complex concepts associated with business studies
Business Focus: up-to-date case studies that appear throughout

each chapter to help students contextualise information and
prepare for assessment
978 1 4425 2909 0
Major Business Focus: a detailed case study that reflects the content
of the whole chapter
Unit reviews that include key terms and concepts as well as structured activities,
which will help students engage in a range of skills, including literacy, thinking,
creating, and ICT
At the end of each chapter: mind maps that summarise and connect the content
taught and exam-style questions that will help students prepare for the HSC
Links in the text to the regularly updated Pearson Places web destinations page,
to provide teachers and students with additional content and references.
Pearson Places is the online destination that is constantly evolving to give
you the most up-to-date educational content on the Web. Visit Pearson Places
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Chapter openings that provide a contextual introduction to the

content. Chapter opening activities help teachers and students
recognise and organise existing knowledge
CU
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PR
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Full-colour design with an abundance of content, including tables,

statements and photographs, that helps students engage with the
material and which supports different learning styles
ES
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Preliminary
Key features:
SIN
The BUSINESS FOCUS author team has a wealth of experience

in teaching, curriculum development and research, resulting
in a text that reflects best practice in teaching business studies
to NSW students, while being closely aligned to the syllabus.
BU
series written specifically to meet the requirements of the revised

Business Studies Stage 6 syllabus being implemented in 2011.
BUSINESS FOCUS
BUSINESS FOCUS PRELIMINARY is the first book in a new two-book
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Easy-to-follow and student-friendly text that will help students to

understand the complex concepts associated with business studies

Business Focus: up-to-date case studies that appear throughout

978 1 4425 2909 0

Horsley Terry-Armstrong Biddle Mulas Anderson

Chapter openings that provide a contextual introduction to the

Full-colour design with an abundance of content, including tables,

978 1 4425 2906 9

The BUSINESS FOCUS author team has a wealth of experience

series written specifically to meet the requirements of the revised

BUSINESS FOCUS PRELIMINARY is the first book in a new two-book

Sydney, Melbourne, Brisbane, Perth, Adelaide

THE NATURE OF BUSINESS

1.1 The role and importance of business

BUSINESS PLANNING: STARTING AN SME 172

THE BUSINESS PLANNING PROCESS

The role of the business plan

Exam Caf CDS

Business Focus Preliminary

Business Focus Preliminary

Business Focus Preliminary

The unit reviews help

Major Business Focus

Business Focus Preliminary

The nature, role and

P1 discusses the nature of

Internal and external

P2 explains the internal

Business Focus Preliminary

P3 describes the factors

The functions and

P4 assesses the processes

P5 evaluates the application

P6 analyses the responsibilities

P7 plans and conducts

P10 applies mathematical

Business Focus Preliminary

Business is at the centre of the economic system we enjoy in Australia. It is the

The external environment lies outside the formal boundaries of a business.

The forms of ownership of a business organisation can be defined according to size,

Social responsibility refers to a businesss obligation to engage in activities that

Increasingly, ebusiness is becoming an important aspect of business.

Business in everyday life

Figure 1.1.01 The Sydney CBD is the heart of

The Nature of Business

Why is business important?

Business Focus Preliminary

Satisfying the needs of customers through the

The Nature of Business

Figure 1.1.04 Employed persons 200607

Intermediate clerical and service workers

Tradespeople and related work

Elementary clerical, sales and service workers

Labourers and related workers

Managers and administrators

Advanced clerical and related workers

Source: Adapted from Employed Persons, ABS website, 2009

Business Focus Preliminary

National Australia Bank

Commonwealth Bank Group

ANZ Banking Group

Westpac Banking Corporation

Australian Taxation Office

Source: IBIS World