The Nature of Business

• Business


  The organised effort of individuals to produce and sell, for a profit, the products that satisfy individuals needs and wants
• Types of products


  • Goods
  • Services
• Goods


  • Items that can be seen or touched, tangible products usually purchased from retail businesses, improve consumer's quality of life
• Services


  • Things done for an individual by another, intangible, cannot be carried or packaged, improve consumer's quality of life
• Business size classifications


  • Micro business (less than 5 employees)
  • Small business (5-19 employees)
  • Medium business (20-199 employees)
  • Large business (200+ employees)
• Industry classifications


  • Primary industry (collection of natural resources)
  • Secondary industry (processing raw materials into finished/semi-finished products)
  • Tertiary industry (services for people)
  • Quaternary industry (services that transfer information and knowledge)
  • Quinary industry (traditionally home-based services)
• Internal influences on a business

  • Products
  • Location
  • Management
  • Resources
  • Business culture
• Product influences


  • Type of goods and services produced
  • Type of business (service, manufacturer, retailer)
  • Size of the business
• Location


  Can make the difference between success and failure, affects many aspects of how a business operates
• Management


  A critical factor in determining the internal business culture, structure, and approach to the market
• Business resources


  • Suppliers
  • Labour
  • Financial
  • Technological
  • Energy
• Business culture


  The beliefs and behaviours that determine how a company's employees and management interact and handle outside business transactions
• Aspects of business culture

  • Values
  • Communication
  • Leadership
  • Learning & Development
  • Recognition
• External influences on a business

  • Economic
  • Financial
  • Geographic
  • Institutional
  • Social
  • Legal
• Local business


  A type of business that operates within a specific geographic area
• National business


  • Operates within the boundaries of a country, has at least 20 locations, understands the culture, has lower operating costs, has access to a larger market
• Global business


  A large company that branches into many different countries, with finance, assets, technology, information, employees and goods/services flowing freely across borders
• Incorporated


  The process companies go through to become a separate legal entity from the owner(s)
• Unincorporated business


  Has no separate legal existence from its owner(s), either a sole trader or partnership
• Sole trader


  A business owned and operated by one person
• Partnership


  A legal business structure owned and operated by between two and 20 people
• Proprietary (private) company


  The most common type of company structure in Australia, with between two and 50 private shareholders, providing limited liability protection
• Public company


  • Has at least one shareholder with no maximum, no restrictions on share transfers or raising money from the public, must issue a prospectus, minimum 3 directors, 'Limited' or 'Ltd' in name, must publish audited financial accounts
• Government enterprise


  A government owned and operated business
• Factors influencing choice of legal structure

  • Size of the business
  • Ownership of the business
  • Finances
• Stages of the business life cycle

  1. Establishment
  2. Growth
  3. Maturity
  4. Post-maturity. Can either go into a steady state, decline, or renewal.
• Factors contributing to business decline

  • Failure to meet customer needs
  • Lack of demand
  • Failure to plan
  • Increased competition
  • Lack of cash flow
  • Poor location
  • Lack of management skills
  • Uncontrolled growth
  • Failure to adapt
  • Unfavourable economic conditions
  • Ignorance of competition
• Business Life Cycle


  • Establishment
  • Growth
  • Maturity
  • Post-Maturity
• Establishment stage


  1. Generating revenue

  2. Choosing a suitable location

  3. Appropriate marketing strategies for awareness
• Growth stage


  1. Controlling stock (not overstocked and understocked)

  2. Ensuring they don't expand too quickly to lose control over the business
• Maturity stage


  1. Maintaining consumer loyalty and interest

  2. Motivating employees

  3. Maintaining financial position

  4. Addressing threats from competitors
• Post-Maturity stage


  1. Being aware of legal responsibilities

  2. Creating a culture in the workplace
• Steady state refers to the path in the post-maturity stage of the business life cycle, when the business maintains its position
• Renewal will provide management with an opportunity to revitalise the business/ or product range
• Decline occurs when the business has been unsuccessful in addressing the various challenges it has faced in its earlier stages
• Cessation refers to the closure of a business
• Factors that can contribute to business decline

  • Inadequate leadership skills
  • Unclear business plan
  • Poor cash management
  • Insufficient emphasis on the customer
• Voluntary Cessation


  When the owner of a business decides to cease its operations
• Involuntary Cessation


  When the closure of the business is forced on the owner
• Liquidation


  Occurs when all assets of a business are sold to generate cash to pay liabilities and creditors, the receiver takes all responsibility for the recovery of the debt