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Copy of RUNNING A SMALL BUSINESS YEAR 10 COMMERCE STAGE 5

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Nicole McKinnon

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Transcript of Copy of RUNNING A SMALL BUSINESS YEAR 10 COMMERCE STAGE 5

MEETING REGULATIONS
SMALL BUSINESS OWNERS NEED TO BE AWARE OF ALL THE LAWS (FEDERAL, STATE & LOCAL GOVERNMENT) THAT AFFECT THEIR BUSINESS. ESPECIALLY REGULATIONS, LICENSES & APPROVALS THAT THEY MAY NEED TO OPERATE LEGALLY

SELLING PRODUCTS
MAINTAINING RECORDS
Business owners must have accurate and up to date financial records. These records enable them to

plan for the future

ascertain how their business is performing

meet reporting and taxation requirements imposed by bodies such as the Australian Taxation Office
Helpful websites
Aust'n Government Business Website http://www.business.gov.au/Pages/default.aspx
YouTube video "setting up a new business in Australia" www.youtube.com/watch?v=V6zgvRzFzp0
Small Business Toolkit http://toolkit.smallbiz.nsw.gov.au/chapter/24/115
McDonalds Franchising video (8 min) www.youtube.com/watch?v=54kt0xYOlMo
YouTube video on starting a business (13 min) www.youtube.com/watch?v=On2Xport26E
RUNNING A SMALL BUSINESS
GOING INTO BUSINESS
Two main ways of starting a business

1) Establishing a new business. This could involve buying into a
franchise

2) Purchasing an existing business

Each option has advantages & disadvantages

SETTING UP A NEW BUSINESS
It is usually better to establish a new business rather than purchase an existing one when:

a person has created a product or service that is unique (niche market)
an existing small business does not satisfy the needs of customers
the market has grown and existing businesses cannot support additional customers


SETTING UP A NEW BUSINESS

Advantages
Disadvantages
Owner can set the business up in the way s/he sees fit
The owner's goals and objectives can be matched more closely to the business
The owner is able to determine the rate of growth &/or change
Owner has total flexibility to select; location, target market, product range & level of customer service
There is no
goodwill
(the monetary value of a business' reputation) that needs to be paid
If funds are limited it is possible to begin on a smaller scale
Risk is higher
May be difficult to obtain finance
Need to develop a customer base from scratch
Need to establish supply chains
Profits may not be generated from the outset
May experience competition after start up
CLASS ACTIVITY
Read the case studies on page 334 & 335 of your text "New Concepts in Commerce" then answer questions 1-5 on page 335
KEY TERMS
FRANCHISE:
The rights from a manufacturer to distribute its products or services using its name.

GOODWILL:
The monetary value of a business's reputation

NICHE MARKET:
A very small segment of a larger market
PURCHASING AN EXISTING BUSINESS
When an existing business is purchased the business is ALREADY operating

Everything (e.g. premises, stock, equipment, staff, customer base and goodwill) is usually included in the purchase price

Existing owner will always portray the business in the most favourable light. Undertake thorough checks before buying. Get legal and financial advice before buying

Try to find out why the existing owners are selling. The business may be experiencing difficulties.
SOME THINGS TO CONSIDER WHEN BUYING AN EXISTING BUSINESS
BUYING AN EXISTING BUSINESS
Advantages
Disadvantages
Immediate income from existing customers
A good business history increases the likelihood of further success
Stock has been purchased and is ready for use/sale
Equipment required is on hand
Usually don't need to employ new staff
If business had a poor reputation this may be difficult to fix
How dependent on the ability and contacts/networks of the existing owner(s) is the business?
It may be difficult to assess the value of the business's goodwill
Existing employees may be reluctant to work for the new owner(s)
Read the following and make a note of some of the issues
PURCHASING A FRANCHISE
A
Franchise
(licencing agreement) provides a
Franchisee
with the right to:

Use the business name of the
Franchisor
(e.g. Subway, McDonalds)
Distribute the goods & services of an existing business

People buy a franchise with the hope of avoiding many of the problems associated with starting a new business
How it works
A set fee and a percentage of sales revenue (usually between 3% & 10%) is paid to the
Franchisor.
In return the
Franchisee
is provided with
1) a tried and tested business model and formula
2) a well recognized name and
3) marketing & established trademarks
Franchising is the fastest growing area of small business
YouTube video (8 min) Franchising, explained with advantages and disadvantages www.youtube.com/watch?v=746GSFWLMTA
YouTube video (8 min) on purchasing a McDonalds Franchise www.youtube.com/watch?v=54kt0xYOlMo
CLASS ACTIVITY
In groups of two create two lists.
List 1:
ADVANTAGES OF BUYING A FRANCHISE
List 2:
DISADVANTAGES OF BUYING A FRANCHISE
Be prepared to share your findings with the rest of the class
FRANCHISING
Teachers TV Starting your own business (13 min) www.youtube.com/watch?v=On2Xport26E
Show Clickview video on "Starting a new business" (40 min) http://online.clickview.com.au/MyLibrary/Play?Id=526af807-cf4a-885c-e58c-b0ea8909ce3f
Clickview video (20 min) Critical issues in the success and failure of a business http://online.clickview.com.au/MyLibrary/Play?Id=859962e7-5f78-fd18-f871-064e0f970f95
CLASS ACTIVITY
USING YOUR TEXTBOOK "New Concepts in Commerce" COMPLETE QUESTIONS 5-9 (page 337)

5) Suggest why some people choose to buy an existing business rather than set up a new one.

6) Explain what you consider to be the two most significant advantages and two most significant disadvantages of purchasing a franchise.

7) Why do you think businesses operating as a franchise have a success rate three times that of independent businesses?

8) Select a small business you patronise regularly. If this business was for sale, would you consider buying it? Give reasons for your answer.

9) Create an information brochure on franchises. Include useful facts, organisations and websites that will assist a potential franchisee.


RISK MANAGEMENT & KEY ISSUES
FEDERAL GOVERNMENT
YouTube video (3 min) on new "Australian Consumer Laws" www.youtube.com/watch?v=NM6SPp4_ChU&list=PLEKRjWEarex9OPSxgUx4_LStFIDYshkpj
YouTube video in depth "Australian Consumer Law" (13 min) www.youtube.com/watch?v=Ybsg5dIBmZk
Federal government obligations include:

payment of Pay As You Go (PAYG) income tax and fringe benefit tax

deduction of income tax from employees who earn above the minimum taxable wage level

possible collection of Goods and Services tax (GST) on behalf of the Australian Taxation Office

provisions for employee superannuation

abiding by unfair dismissal laws when dismissing employees

not engaging in anti-competitive practices.
ATO video on PAYG (3 min) www.youtube.com/watch?v=YWfUBKmqqvY
Pay As You Go
Tax Obligations
When paying employees tax must be withheld by the business from the employee's pay
The amount withheld from an employee's pay must be forwarded to the Australian Taxation Office by the business.

At the end of the financial year the employee completes a tax return. This is when the amount of annual tax that the employee should have paid is reconciled against the amount that they actually paid (via the tax that their employer has withheld/taken from their wage)
INDIVIDUAL ACTIVITY
Go to the Australian Taxation Office website and locate the PAYG tax withheld calculator . Then calculate the amount of tax that would be withheld (assuming the "Medicare levy" & "Tax Free Threshold" are included) on the following weekly wage amounts $250, $500, $750, $1000 and $2000)
ATO tax withheld calculator
https://www.ato.gov.au/uploadedFiles/Content/MEI/downloads/BUS00319019N10050512.pdf
ANSWERS
$250 Nil
$500 $38
$750 $96
$1000 $183
$2000 $549
FRINGE BENEFITS TAX
A fringe benefit is a benefit (usually a non cash benefit) given to an employee in place of or outside of their regular wage or salary.
Examples include cars, trips, fuel, business expense account, share allocation, paying health insurance costs or school fees.

Paid by the business (not the employee)

FBT exemptions are available if the item is used by the employee as a necessary part of their job (e.g. laptop, protective clothing, tools)
ATO video on FBT (4 min) www.youtube.com/watch?v=J3_lE_FvuQs&list=PL5-ESUNqws-OZetr2ch34hL-n7VwYmnaK&index=19
GOODS & SERVICES TAX
ATO video on GST (5 min) www.youtube.com/watch?v=I0pk24tSdXw&index=8&list=PL5-ESUNqws-OZetr2ch34hL-n7VwYmnaK
A broad based tax of 10%. levied on the sale price of goods and services supplied in Australia at the point of sale
GST is added to the price of the goods/services
GST is not applied to fresh food, education services, exports, water & sewerage services, bank loans
Collected by businesses on behalf of the Government. Usually paid quarterly. Requires business to complete a "Business Activity Statement" BAS.
SUPERANNUATION
Superannuation is a way of saving so an employee has enough money for retirement
Employers must pay eligible employees and contractors superannuation
The amount of the Superannuation that the employer must pay is 9.5% of the employee's wage or salary payment
Funds can be paid into any Superannuation Fund that the employee desires
Funds must be paid quarterly as a minimum
To be paid Superannuation an employee must earn a minimum of $450 per calender month

ATO video on paying employee superannuation (4 min) www.youtube.com/watch?v=UEtrtIGc_Nw&list=PL5-ESUNqws-OZetr2ch34hL-n7VwYmnaK&index=18
SUPERANNUATION cont'
STATE GOVERNMENT
State government obligations include:

registration of the business name unless the business carries the name of the owner

provision of employee entitlements such as:

workers' compensation

occupational health and safety

award rates of pay and conditions

not engaging in misleading or deceptive advertising

abiding by any pollution controls

observing regulations relating to the sale of food, cigarettes and alcohol

adequate and non-deceptive labelling of all foodstuffs and clothing.

LOCAL GOVERNMENT
Any business using premises or land must first seek local government approval. Commencing trade before approval is obtained could result in the closure of the business.

Local governments have control over the following business activities:

determining land zoning (use) and approving new development applications

fire regulations, especially fire prevention facilities

parking regulations governing the number of spaces that need to be provided

health regulations, especially the safe handling of food

the size, shape and location of business signs.
SELLING PRODUCTS
You must be able to attract customers to your product/service. No customers = no sales = no profit

Business owners must
promote
(methods used by a business to inform, persuade and remind customers about its product/service) their business
Visit the following website to see some examples of some promotional hiccups for various http://mashable.com/2011/03/27/youtube-marketing-mistakes/
TOP 10 MARKETING FLOPS
WAYS OF PROMOTING
YOUR BUSINESS

Networking.
Tell people about your business and what you do for a living.

Creating a website.
The website can be used for product displays, e-tailing and blogging.

Advertising
. Use print or electronic media to communicate messages about your products.

Social media.
Create a business page on different social media platforms.

Testimonials
. Existing customers tell others about their positive experiences with your business.

Publicity.
Write articles and give seminars on topics related to your business.
CLASS ACTIVITY
Choose one of the following regulatory bodies and complete the questions listed below:

NSW Fair Trading

Australian Securities and Investments Commission

Australian Competition and Consumer Commission

Briefly describe their role.

Why is their role important in terms of business?
There are 3 main types of financial records that businesses prepare

1)
INCOME (or REVENUE) STATEMENT
(used to calculate a business' profit or loss)

2)
BALANCE SHEET
(shows the financial position of a business at a particular point in time)

3)
CASH FLOW STATEMENT
(allows the business to monitor the movement of cash receipts {income} and payments {expenses} over a specified period {usually monthly}
LIFE OF A FRANCHISEE
YouTube video on Gloria Jeans (4 min) www.youtube.com/watch?v=tkBysCnUuRw
FURTHER INFORMATION & LINKS
Watch this video to gain an insight into the life of a Gloria Jeans Franchisee
McDonalds Franchising
https://mcdonalds.com.au/franchise-opportunities

Dominos Pizza www.dominosfranchise.com.au

Franchising Council of Australia http://www.franchise.org.au

Franchise Businesses for sale in Australia. http://www.franchisebusiness.com.au
Dominos Pizza
REVENUE STATEMENT
A business earns money by selling goods or services to customers. This is known as "trading".

A Revenue Statement is a financial record that records how successful a business is at "trading"
3 STEPS TO PRODUCING AND REVENUE STATEMENT
Step1:
Record the revenue, which is the income earned by a business.

Step2
: Record the expenses, which are the costs incurred in running the business. Common expenses include wages and salaries, purchases of raw materials, payments for telephone, electricity and so on.

Step3
: Calculate the profit or loss. A gross profit/loss is the amount remaining when the cost of goods sold is deducted from revenue. A net profit/loss is the amount remaining when operating expenses are deducted from gross profit. The word ‘net’ means that all expenses have been deducted. To understand a revenue statement, we will examine Angelo's Eatery, an eat-in and takeaway café.
HAVE A GO
Julian Moloney owns and operates Blue Hills Corner Store. Last year, he had a sales revenue of $178 000. His cost of goods sold totalled $75 000. His operating expenses were: electricity $1800, advertising $2200, interest charges $3000, salaries $12 000, rent $15 000.

Construct an income statement for Julian and tell him whether or not he has made a net profit.

Advise Julian on how he could increase the net profit for the following year.
BALANCE SHEET
The
balance sheet
(or statement of financial position) shows the financial position of a business
at a particular time
.

It records three different sets of accounts
value of
assets
(things the business owns)
value of
liabilities
(things the business owes) and, proprietorship or
owner's equity or capital
(what the business is worth after all liabilities have been paid off)
INTRODUCTION TO FINANCIAL STATEMENTS
Video #1 (11 min) www.youtube.com/watch?v=r_t3zjRx4cU
Video #2 (8 min) www.youtube.com/watch?v=r_t3zjRx4cU
Video #3 YouTube financial statements for service businesses (5 min) www.youtube.com/watch?v=20IOGPcdJwM
Video #4 YouTube financial statements cash flow statement (5 min) www.youtube.com/watch?v=vV6FWtJ_yeU
INDIVIDUAL ACTIVITY
Complete the word find titled "
Revenue statement
" on page #12 of the handout provided by your teacher.

Complete the revenue statements for "
Sam's Phones
" and "
Sarena Phong
" #14 of the handout.
WATCH THE FOLLOWING VIDEO FOR AN INTRODUCTORY EXPLANATION OF FINANCIAL STATEMENTS
YouTube video Intro to financial statements (3 min) www.youtube.com/watch?v=dqOCRIcapoI
THE INCOME STATEMENT (sometimes called the "Profit & Loss Statement")
YouTube on the Income Statement (3 min) www.youtube.com/watch?v=2RupCSFcY7w
FORMULA TO CALCULATE A BUSINESS' NET WORTH
ASSETS
LIABILITIES
OWNER'S
EQUITY
ALOE Vera plant
Video explanation of Assets, Liabilities & Owner's Equity
http://education-portal.com/academy/lesson/what-are-accounts-definition-and-use-to-categorize-transactions.html#lesson
ASSETS
Assets
are items of value that are owned by the business.

Assets can be divided into two different categories

CURRENT ASSETS:
These are assets that will be used within one year e.g. cash, accounts receivable, stock

NON-CURRENT ASSETS
: These are assets that will last longer than one year e.g. motor vehicles, equipment, land, buildings
LIABILITIES
Liabilities
are the debts owed by the business to others

There are two types of liabilities

CURRENT LIABILITIES
: These liabilities must be repaid within one year e.g. accounts payable/creditors

NON-CURRENT (LONG TERM) LIABILITIES:
These liabilities are repaid over the long term (i.e. one plus years) e.g. Bank loans, leases
VIDEO SUMMARY OF BALANCE SHEET
YouTube video on Balance Sheets (3 min) www.youtube.com/watch?v=J5D_jJ1MOMo&list=PLMPuRmTnhdI3SANlsoy98sAdUQ4SCZ8EC&index=2
OWNERS EQUITY (or CAPITAL)
Owners Equity
represents the value of the business to the owner. It represents the money the owner has invested into the business

To calculate
Owner's Equity
we subtract the liabilities of the business (the things the business OWES) from the assets of the business (the things the business OWNS)


EXAMPLE OF A BALANCE SHEET
INDIVIDUAL EXERCISE
Complete 1) question #9 on page 341 of your text &
2) the exercises on pages 14 & 15 of the handout titled "
Running a Small Business - Financial Statements
"
CASH FLOW STATEMENT
A
cash flow statement
indicates the movement of cash receipts (inflows — such as money from sales), and cash payments (outflows — such as payments for expenses), over a period of time.

By regularly comparing the totals receipts and payments, a business is able to calculate its surplus or deficit of cash.

An important indicator of a business's
liquidity
— the ability of a business to pay its debts on time.
EXAMPLE OF A CASH FLOW STATEMENT
INDIVIDUAL ACTIVITY
Complete question #10 in your text by preparing a monthly Cash Flow Statement for Adriana's Craft Shop
YouTube video on CashFlow statements (3 min) www.youtube.com/watch?v=9DcRJD9rbbQ&list=UU6jjT2iyziAZ8vX6Ye3T4Iw
COMPLETE ACTIVITIES IN WORKBOOK
Clickview video

"The Bottom Line"

http://online.clickview.com.au/mylibrary/videos/0163edb7-3ddc-9e0f-fc18-44b918d5a645
RISK MANAGEMENT
Planning for the future
Key issues

OPERATING A BUSINESS

RISK MANAGEMENT
There are many risks that a small business owner must be prepared to take AND manage

RISK MANAGEMENT
is the process of;
evaluating the risks faced
calculating the possible costs/outcomes
implementing procedures to minimise those risks
PLANNING FOR THE FUTURE
Unexpected occurrences can be costly, time consuming & threaten the viability of your business

Planning for these contingencies assists
In pairs come up with some suggestions to minimise the above business risks
MANAGEMENT
Management
refers to the coordination of the human, physical, financial and information resources to achieve the goals of the business

There are 4 major functions that require managing

Production
Staffing/Human resources
Marketing & sales
Finance
GROUP ACTIVITY
In groups of two prepare 5 lists that detail what the management of each function entails/requires (refer to pages 342-243 of your text)
Full transcript