Business Management: Unit Two, Area of Study One Summary

Thus far, I have found this area of study to be the most difficult for two reasons: it covers a wide variety of topics and there is some financial stuff (which my maths-hating brain has a distaste for). However, as I have sat down and started studying for my upcoming SAC for this topic, I do think I was overreacting a little. I don't believe it is too different from the prior unit, just a step-up! If you felt overwhelmed initially too, make sure to let me know!

As expected, I recommend taking a look at the official study design. Unit two, area of study one is on page 12.

I view this area of study in three different sections: the legal stuff, the financial stuff and the other stuff. To begin with, we'll start with what I eloquently referred to as 'legal stuff'.

Legal Requirements

As I am studying for this area of study, I like to think of this section as further separated in the following categories:

Here is a brief, quick rundown on what you need to know in regards to each of the above topics:

Registering a Business Name:

• Names are registered by the Australian Securities and Investments Commission.
• All business names need to be registered, with the exception if a business is named after its business owner (such as John Smith). 
• The purpose of registering business names is to stop anyone from trading under the same name as another business and allow customers to identify the owner of a business. 
• In order to apply for a business name, a business needs an Australian Business Number. 
• If a business owner wants their name to be protected as an intellectual property, a business owner can apply for a trademark. 
• Companies may register for an option Australian Company Number. 
• The name of a company must indicate if it's a private or public company. In other words, it should have 'pty ltd' or 'ltd' after its name). 

Registering a Domain Name:

• A domain name is a business' unique URL on the internet. 
•  Domain names are registered on the Australia Domain Administration website. 
• Acquiring a domain name costs between $10 to $100 per year. 
• The qualities of a good domain name include reflecting the business' activities, being easy to remember and easy to spell. 
• Businesses can register multiple domain names. They may do this so other businesses won't register similar names and confuse customers. Also, it may help potential customers to find their website easier. 

Taxation: 

• Taxation is money which the government collects from individuals and businesses. 
• Businesses need to register for a tax file number in order for their tax to be collected. 
• The Australian Taxation Office is an organisation which collects tax. 

Woah, is it time for a little maths break? I believe it's time to explain calculating company tax. Private and public companies who earn less than $50 million per year have 27.5% of their earnings taken by the Australian Taxation Office. Meanwhile, businesses which earned more than $50 million have 30% taken. 

Therefore, if a business earned $25 million, an equation would look like this: 

In addition to learning how to calculate company tax, you will need to know how to calculate income tax. My brain which doesn't understand how to comprehend maths took like two hours to figure out how to do this correctly. However, I think if you have an adequate understanding of maths, you shouldn't be able to find it difficult. I'll try to break it down for you: 

First, you will be given this very important table: 

For this instance, let's say this business' income is $38,000. This is definitely not the best way to remember how to do this, but this is how I remember the equation: income, over, plus and first. This doesn't make much sense on its own, so I will elaborate.

First, you write what the business' income is. In this case, let's say our business' income is $38,000. Then, you will need to find where this number fits on the table. $38,000 fits into the third row. So now, you subtract the number after the word 'over' ($37,000) from the amount of income. The answer to this is 1,000. Then, you take the answer (1,00) and multiply it by the number after the word 'plus' (0.37). The answer to this is 370. Lastly, you add the number before the word 'plus' (3,572). Finally, we reach our answer of $3,942. Here is what the equation looks like in an algorithm:

$38,000 (the business' income) - $37,000 (the number after the word 'over') = 1,000

1,000 x 0.37 (the number after the word 'plus') = $370

$370 + (the first number) $3,572 = $3,942

Here it is without all the writing, which helps me, but might confuse people who don't need it: 

$38,000 - $37,000  = 1,000

1,000 x 0.37  = $370

$370 + $3,572 = $3,942

Now back to the content! You will need to know the definitions of the following federal taxes:

Pay as you go (PAYG): Taken from an employee's earnings.

Goods and Services (GST): 10% of the cost of most goods and services get collected as tax.  

Fringe Benefits: Taxes paied by employers who give additional benefits to their employees (such as a car).

And these state taxes:

Stamp Duty: Tax on documents that give evidence of transactions.

Land Tax: Tax paid by owners of the land.

Additionally, you will need to know that businesses which pay GST must complete a business activity statement. This must be given to the Australian Taxation Office to report on the business' taxation requirements. 

OH&S:

You will need to know the two following Acts of Parliament, which ensure the health and safety of employees: 

• Work Health and Safety Act 2011 (Cwlth)
• Occupational Health and Safety Act 2004 (Victoria)

You will also need to acquire knowledge about WorkSafe insurance, otherwise known as WorkCover. This is a compulsory insurance which employers must pay. The insurance covers  the replacement of lost income, medical and legal costs and compensation.  

Consumer Protection and Fair Competition: 

Similar to the OH&S section, you will need to know the following laws: 

• Competition and Consumer Act 2010 (Cwlth)
• Australian Consumer Law and Fair Trading Act 2012 (Vic)

You will need to know what these laws prohibit in regards to both consumers and competitors. 

You should also be able to recall what rights are given to customers by the Australian Consumer Law. This includes a product:

• Being fit for purpose
• Being owned by the individual who purchased the product. 
• Corresponding with advertising.
• Being of quality. 
• Having spare parts or repairs available. 

On the other hand, services must be conducted with care, skill and within a reasonable amount of time. 

Local Government Regulations:

Local governments have the following regulations:

You should be able to recall some of the types of land zoning (commercial, residential, etc) and the purpose of land zoning, which is to keep different types of activities separate. You should also know that a business which doesn't comply with the Food Act 1984 (Vic) will be given time to rectify the fault. If it doesn't, it will be shut down.

Financial Considerations

Bank Accounts:

The reason why a business should keep their personal financial records separate from the business' are the following: 

• The accounting principle 'separate entity' states that they should be recorded apart. 
• It's easier to monitor the business' financial performance
• Less difficult to calculate business expenses, making it easier to prepare tax returns. 

You should be able to recall the factors which business owners need to consider when choosing a bank account. They are:

The following is the justification for these factors: 

Bank Fees: Banks infamous are for charging hidden fees.

Interest Rates: Interest rates determine how much money a business will earn from their money in the bank and how much extra they will have to repay on loans. 

Overdraft Facility: A bank with this facility allows businesses to withdraw more than they currently have available in the bank. 

Credit Cards: Having a credit card allows for convenience.

Convenience and Support: Banks can offer support to business owners in regards to their banking needs. 

Financial Control Systems:

Financial control systems allow a business to monitor its financial performance. Additionally, it prevents issues such as lack of cash flow, theft, mismanagement and poor systems. Examples of financial control systems are: 

Elaborating a little on each of these systems now: 

Budgeting: Refers to predicting the business' financial performance for the future. Budgeting helps a business evaluate why or why not goals have been met. 

Cash-Flow Management: If a business doesn't manage their cash flow, they may find themselves not able to meet daily expenses required in order to run the business. 

Control of Accounts Receivable: Accounts receivable refers to customers who have made purchases, yet haven't made the payment yet.Therefore, businesses need to track when they have made a sale, yet money is still owed.  

Inventory Control: Keeping good management of stock allows a business to keep the cost of materials to a minimum by reducing storage costs and waste. 

Auditing: Refers to analysing a business' accounting processes. 

Record Keeping Strategies:

Source Documents: Original documentation of transactions (such as receipts) provide essential details needed in producing financial records. 

Cash Book: Records which consists of cash receipts and cash payments. 

Income Statement: Calculates how much profit was made in a specific period of time. 

Balance Sheet: Shows a business' assets and liabilities on a particular date. 

Other Considerations

Choosing Suppliers:

The first 'other consideration' is factors which business owners need to consider when choosing a supplier. These factors are: 

A business' supplier should be of low cost (to maximise profit). Additionally, a supplier should  have materials which are of quality in order to produce goods or services which are of a quality which customers expect. A supplier should be reliable so the business can continuously make sales. Furthermore, a supplier should be within close proximity of the business in order to save time and money. Lastly, a business should choose a supplier which aligns with their own social objectives.

You should also know the costs and limitations of having a supplier which is socially responsible. 

The positives are: 

- Reduced costs

- Customers favour the business

- Improves reputation

- Investors favour the business.   

The negatives are: 

- More expensive

- Time-consuming

- Quality of materials may be lower

Policies and Procedures:

Next, we will learn about policies and procedures. A policy is a set of guidelines which employees must follow. Meanwhile, a procedure is step-by-step instructions which allow a policy to be put into practice. 

In terms of legislation, you should remember the Equal Opportunity Act 2010, which aims to eliminate discrimination in the workplace. Types of policies which a business could have include anti-discrimination, recruitment policies, OH&S, privacy policies and supplier policies. 

The benefits and costs of implementing policies and procedures are as follows:

You will also need to know the typical process of producing a policy, which is: 

1. Identify an issue.

2. Analyse the business environments.

3. Consult stakeholders.

4. Write a draft with the stakeholders.

5. Revise the draft. 

6. Distribute the policy. 

7. Evaluate the policy. 

Technological Issues:

You will need to know how technology has affected the following areas of business: 

Manufacturing: The development of technology, such as 3D printing and robotics, has made producing products more cost effective and reduces the cost of human resources. 

Administration: Smartphone applications and web-based software for business have reduced the cost of administration. 

Marketing: Social media advertising is less expensive and easy to use. However, businesses don't have control of what customers say about their product online and the form of advertising can be difficult to measure the success of marketing campaigns. 

Customer Databases: Data such as contact information, personal details, previous interactions and buying habits can be collected from previous and potential customers. 

Global Issues:

The advantages of sourcing materials from overseas suppliers: 

- Materials are less expensive

- Source materials which aren't locally available.

- Can make contact with overseas suppliers through internet

The disadvantages of sourcing materials from overseas suppliers:

- Hidden costs (due to differing time-zones and culture)

- Hard to find an overseas supplier which meets the quality standard customers want.

The advantages of trading with overseas customers:

- Reductions in trade barriers have given access to greater international markets

- Growth in international economies (China) has led to increased demand for Australia products

- Exporting allows greater access to customers and larger markets

- Increases profit, spreads the business risk and reduces dependence on local markets

The disadvantages of trading with overseas customers:

- Not understanding cultures, language, laws and ways of doing business and hidden costs.

- Inability to compete with cheap labour available overseas

- More competitors

And that's everything summed up! I wish everyone luck if you have also yet to complete your SAC for this area of study. I'm excited about learning about marketing next, it seems like a more focused and less broad topic.