MNB1501 STUDY SUMMARY NOTES FOR 2022

MNB1501 STUDY SUMMARY NOTES FOR 2022. Exchange – products & services for money or other goods/services o Profit – reward for meeting people’s needs • Countries have different economies o Market economy – business can decide what to produce, how to produce & selling price. Business’ primary purpose:  Make profit while satisfying needs of the people. • Industry – group of businesses performing similar activities, e.g. mining, financial services, construction etc. • Business creates wealth & is catalyst for economic growth • Business serves community indirectly o Technological innovation, research & development, improvements to infrastructure. o Support education o Develop human resources, arts, conservation & sport • Interdependency between business and society o Business: influence on physical environment, consumers, economy and competitors o Society: regulations, legislation, exercise choice to support business (or not), pressure on business:  Social responsibility • Responsible & safe workplace • Housing • Health • Involvement – community issues • Environmental awareness • Empowerment of previously disadvantaged individuals  Business ethics • Ethical behaviour of managers & executives  Consumerism • Social force protecting consumers against unsafe products & malpractice – exert moral & economic pressure on business • Consumer Protection Act 13Nd&dtiftilOMoARcPSD|  Supply cannot be increased - scarce o Human resources  Production factor of labour e.g. physical & mental talents and skills of people employed  Size of labour force: size of population, level of education & training, retirement age. o Capital  Buildings, machinery etc. used to produce products, e.g. factories, equipment, roads and other infrastructure.  Generally long working life & high price. o Entrepreneurship  Collective capacity of entrepreneurs – risk taking to develop goods & services  Scarce – not everyone prepared to take risks and to identify opportunities • Choice to decide best use of resources – Economic problem • Economic principle – Ensure highest possible satisfaction of needs with limited resources available. o Which goods/services to produce/render? o Who should produce? ( State or private sector, individual business or industry) o How to produce? Use of resources. (Labour or machine intensive) o For whom are products produced/ services rendered? (Rich or poor, business clients or individuals/families) o Maximise income after applying economic principle The Community - Unlimited needs - Limited resources - Driving force: Economic motive Choose its need-satisfying system (Market/Socialism/ Communism) lOMoARcPSD| • Economic system influenced by politics o Countries choose economic system to address economic problem, i.e. what to produce, how and for whom. Market Economy Socialism Command (Capitalism) (Communism) Main characteristics • Private ownership of factors of production • Freedom of choice • Minimum state interference • Basic industries owned by State • Freedom of choice • State owns & controls all industries and agriculture • Communal ownership • Centrally direct economic system Markets Free competition Limited competition as No competition a result of State industries Driving force Profit & reward achieved according to individual ability • Recognise profit motive • Employee play in State owned businesses based on workers’ needs • Profit is not allowed • Workers urged to work for the glory of the state Management Private businesses Management State creates create management environment: management environment private & State environment • Managers free to Decisions restricted No freedom of take decisions to Government decision • People free to policy in state- Managers are party choose careers owned organisations members (SOO) Labour • Workers are independent • Workers can choose jobs and employers • Limited choice of jobs lOMoARcPSD| • Cyclical fluctuations SOOs can be living • High social costs unproductive Planning is difficult or impossible • No country has pure economy, mostly mixed o Economic system that includes a mix  Of both public and government control, or  Between capitalism and socialism o Relevant aspects:  Degree of private economic freedom  Centralised economic planning  Government regulation • State & economic systems o State intervention to solve economic problem in market economy does not indicate a move towards command or centrally controlled economy. o Government intervention aimed at encouraging economic growth and stability o Control of strategic organisations cannot be left to profit seeking entrepreneurs o An expanding entrepreneurial role by the state does not lead to a democracy • South Africa o Moving towards market-oriented economy o High degree of government participation in & control of economy 1.5. Need-satisfying institutions of market economy LO4: Explain the differences between need-satisfying institutions and non-profit organisations • Profit-seeking businesses o Privately owned or state-owned (public corporations – Telkom, Transnet, SABC) • Government organisations o Generally government departments, e.g. SAPS and DepartmentofPublicWorksoFundedfromTreasurybymeansoftaxeslOMoARcPSD|  Achieve highest possible income o Activities include:  Research markets to determine whether there is a need for the product  Acquire & process raw material  Appointing people  Obtaining capital  Co-ordinating/managing activities • General management o Overall function through which top management develops strategies for the whole business • Operations o Activities to mobilise resources to create finished products/services that can be distributed to meet the needs of customers into finished goods o Establishment and layout of the production unit and the conversion of raw General Management Human resources Production/ Operations Purchasing Financial Public relations Marketing lOMoARcPSD| • Purchasing o Acquisition of all products and materials required by the business to function profitably 2. Entrepreneurship 2.1. Key concepts Entrepreneur, entrepreneurship, role of entrepreneur, motivation of entrepreneurs, small business, entrepreneurial process, skills required of an entrepreneur, resources needed to start a new business, starting a new business, buying an existing business. 2.2. Entrepreneurs & entrepreneurship LO1: Explain the concept of entrepreneurship. • Process of identifying, creating or sensing opportunity where others do not see it • Finding & combining resources to pursue the opportunity until it becomes a successful established business LO2: Define an entrepreneur. • Person or personality type that takes up a new venture and is willing to accept full responsibility for the outcome • Take initiative and risk by harnessing production factors to produce goods/services • Have innovative ideas Identify opportunities • Find resources to pursue opportunities for personal gain • Take financial risks • Bring about change, growth and wealth in economy • Re-energise economy and create jobs • Start, manage and grow small business • Motivated by achievement 23Rlf&llbiiilOMoARcPSD|  Informal sector  Mainly undertaken by unemployed  Income generated below the poverty line, provide minimum means to keep owner and family alive  Little capital invested, not many assets  Not much training  Growth opportunities very limited  1-5 employees, usually owner & family  Example: street vendor o Micro  Turnover below R200K  Basic business skills & training  Potential to make transition to viable formal small business  Part of formal economy & make use of technology o Very small  10 paid employees o Small  Owner-managed, but more complex management structure  Up to 200 employees (generally 50 or less, depending on industry) o Medium  Mainly owner-managed, but decentralised management structure with division of labour  Operates from fixed premises with all formal requirements  Less than 200 employees  Annual turnover R64mil  Direct managerial involvement  Capital assets R10mil Entrepreneurs differ from small-business owners SllbiStifiditht&iblilOMoARcPSD| LO5: Discuss the skills and resources required to become an entrepreneur. Resources needed: • Financial resources o Cash, bank overdraft, loans or investment capital o In considering application for finance, banks generally the 4Cs which include collateral, capital, character & conditions (4Cs does not include capacity and cash flow). • Human resources o Management team, accountant, lawyer, consultants etc. o Obtaining a BCom degree as it will equip a person with a certain level of skill and ability to be able to produce the products and services required. • Physical/operating resources o Assets e.g. offices, vehicles, equipment, raw materials, machinery etc. Reasons why an entrepreneur starts a business: • Traits & characteristics: o Achievement motivation  Higher need to achieve  Characterised by actions of intense, prolonged and repeated effort to accomplish something that is difficult  Ambition & competitiveness  Attracted to activities that challenge skills and problem-solving abilities o Internal locus of control  Feeling that person is in control of his own destiny Personal characteristics, abilities & skills Access to resources Realistic & objective assessment of opportunity Feasibility study Business plan Launch & manage new business lOMoARcPSD| • Skills & industry experience o Experience, training and education in a specific field o Necessity entrepreneurs (e.g. job termination) v opportunity entrepreneurs o Skills (knowledge demonstrated by action)  Strategy – position business in competitive environment  Planning – plan for future of business  Marketing – identify target markets, identify wants/needs of market  Financial – manage business’ finances  Project management – organise business activities  Human relations – deal with employees • Outsourcing opportunities o Work done for a company by people who are not employed by the company o Example: food services (catering), security, cleaning services LO6: Distinguish between and describe the different ways in which an entrepreneur may start a business. • New business o New venture ideas o New venture opportunities  Fundamental requirements for good investment opportunity • Clearly defined market need for product/service • Able to achieve sustainable competitive advantage • Potential to grow • Rewarding to entrepreneur and/or investor • Timing right • Acquire existing business Advantages Disadvantages Business location Customers familiar with business location Location may be undesirable lOMoARcPSD| • Franchise o Opportunity to start a business that has been proven in the marketplace o Have to adhere strictly to plans/directions of franchisor o Franchisor = entrepreneur, franchisee = intrapreneur • Corporate entrepreneurship (intrapreneurship) o Introduce new and diverse products/services to existing business o Internal processes o Use corporation’s resources Feasibility study • Collection of data that helps forecast whether an idea/opportunity/venture will survive • Assist in decision-making process whether entrepreneur should risk the venture Precedes business plan LO7: Discuss the implications of choosing a specific business opportunity. lOMoARcPSD| 3. Establishing a business 3.1. Key concepts Legal personality, partnership, control, authority, ownership of a business, tax liability, sole proprietorship, business location, close corporation, company, legal requirements, business plan. 3.2. Importance of geographical location LO1: Identify the factors that influence the location of a business. • Sources of raw materials • Availability of labour • Proximity & access to the market • Availability & cost of o Transport facilities o Power & water o Site & buildings • Availability of capital • Attitudes, regulations and tariffs of local authorities • Existing business environment • Social environment • Climate • Central government policy • Personal preference 3.3. Legal forms of ownership LO3: Discuss the key considerations that are applicable when a form of business has to be chosen. • Legal/juristic personality • Limited liability • Degree of control/management • Potential for capital acquisition lOMoARcPSD| • Owned & managed by one person • No separate legal personality • Capital acquisition potential depends on owner’s financial strength & creditability • Business name must comply with Business Names Act • Very few formalities & legal requirements for establishment – least expensive business form • Owner personally liable for business debts & claims against enterprise • Personal income tax • Enterprise income forms part of owner’s personal income • Transfer of ownership – reasonably simple • Continuity – linked to lifespan and legal capacity of owner • Advantages o Simple to create o Least expensive way to start a business o Owner has total decision-making authority o No special legal restrictions o Easy to discontinue • Disadvantages o Owner is personally liable without limitation o Limited diversity in skill and capabilities o Owner has limited access to capital o Lack of continuity Partnership • 2 or more partners (limitation of 20 removed by new Companies Act) • No formal requirements for setting up partnership (generally partnership agreement – orally, written or tacit) • Joint control & authority over business – ‘mutual mandate’ • No separate legal personality • Capital acquisition potential – better than sole proprietor (each partner makes initial contribution) • Partners jointly & severally liable for partnership debts • Tax liability – each partner individually • Distribution of organisation’s profits – per partnership agreement or in dithiitiltibtilOMoARcPSD| • Members own & control CC • Legal personality • Capital acquisition potential higher than partnership • Name end in “CC” • Close Corporations Act and Companies Act • Limited liability of members • Tax liability – separate taxpayer – corporate tax rate • Distribution of organisation’s profits – in accordance with association agreement • Transfer of ownership – easier than partnership • Continued existence • No new registrations (previously submitted a founding statement to register) • Advantages o Advantages attached to separate legal (juristic) personality o Reasonably cheap and inexpensive to form (no longer possible to form new CCs) o Members have limited liability o Increased capital acquisition potential o Management is relatively simple o Continuity • Disadvantages o Membership limited to 10 o Juristic persons may not be members Company • Separation of ownership and control (Shareholders and Board of directors) • Legal personality • Potentially unlimited capital acquisition potential • Subscription to shares • Profit companies (State-owned ‘SOC’, private, personal-liability and public companies) and non-profit companies. o Private company lOMoARcPSD| • Continuity • Advantages o Limited liability o Ability to raise large amounts of capital o Continuity o Transferability of shares • Disadvantages o High degree of legal regulation o High operational cost Business trust • Unlimited beneficiaries • Managed by trustees • Legal personality – yes ito new Companies Act • Limited capital acquisition potential • Very little regulation • Limited liability • Separate tax payer – higher tax rate • Distribution of organisation’s profits – in accordance with trust deed • Transfer of ownership – amend trust deed • Continuity • Advantages o Ease of formation o Limited liability o Extreme flexibility o Absence of legal regulation o Continuity • Disadvantages o Limited access to capital o Potential for conflict between parties Co-operative society • Mainly in agricultural sector • Similar to private company • Co-operatives Act • Benefits o Economies of scale o Equity is generated o Increased incentives for workers oEncouragepublicgood–createsemploymentopportunitieslOMoARcPSD| o Identification of key success factors and primary risks o Description of how business will be managed – management & operating plan • Attract investors or other institutions to provide financial resources by illustrating viability of the business idea. Additional objectives • Management instrument & framework against which actual performance can be measured Importance • Overall importance = planning activities • Reasons for drafting a business plan o Sell the business to self o Obtain bank financing o Obtain investment funds o Arrange strategic alliances o Obtain large contracts o Attract key employees o Mergers & acquisitions o Motivate & focus management team Stakeholders • Internal o New venture management  Vision, mission, key objectives & overall strategy o Employees • External o Customers o Investors o Banks – 4Cs (Capital, collateral, character & conditions) LO5: Describe the various components of a business plan. • Cover page & executive summary o Executive summary holds together and unifies other components of the plan o Overview of total business plan o Write after other sections completed – highlights significant points • General description of the venture o Extension of feasibility analysis o Explain type of business & give history if it already exists o Type of industry lOMoARcPSD| • Financial plan o Specify financial needs & contemplated sources of financing o Projections of revenue, costs and profit. (1-5 years) o Assumptions & explanations • Supporting materials LO6: Write up a business plan. 4. Business environment 4.1. Key concepts Business environment, micro-environment, market environment, environmental change, macro-environment, composition of the business, environmental scanning, environmental Macroenvironment Market environment Microenvironment Business organisation lOMoARcPSD| Business environment • Sum of all variables which may influence the successful existence of the organisation • System approach to management: organisation is integral part of its environment and should adopt to it • Characteristics o Interrelatedness of the environmental factors/variables o Increasing instability & change o Environmental uncertainty – depends on amount of relevant information available o Complexity of environment – result of number of external variables LO3: Discuss each of the components of the environmental model. Micro-environment • Business itself – workers, managers & functional areas • Management has almost complete control o Vision, mission, objectives, business functions and resources o E.g. pricing & recruitment decisions • Analysis allows management to identify strengths, weaknesses to utilise opportunities and counter threats • Will influence market environment through strategy employed Market environment (aka Task environment) • Immediate external sub-environment that has direct influence on the business Management can exert some control – influence variables through strategy applied Key variables: o Consumers, competitors, suppliers & distributors/intermediaries • Give rise to opportunities & threats Macro-environment GlihiflbilOMoARcPSD| 4.4. Micro-environment Components • Vision, mission and objectives of the business o Vision – What does organisation want to become? o Mission – What is the business?  Enduring statement of purpose that distinguishes one business from other similar firms  Foundation for development of long-term objectives o Objectives – e.g. market share, profitability, worker empowerment • Organisational functions (management) o Purchasing, logistics, marketing, financial etc. • Resources o Include human resources (salaries, recruitment policies & staff retention) o Tangible resources  Production facilities, raw materials, financial resources, property, computers and other machinery/equipment. o Intangible resources  Brand names, patents, trademarks, reputation, technical knowledge, organisational morale & accumulated experience o Organisational capabilities  Ability to combine resources, people and processes in a particular way o Fight against HIV – Why?  Not only macro-environment (social) concern – internal policies  Better opportunities for growth in the market  Increased productivity  Decreased cost of healthcare  Reduced employer liability lOMoARcPSD| • Consumer market o People who have needs to satisfy and financial means to do so o Understand  Wants and needs of consumers • Macro-economic influences – demographics, # consumers • Industrial market – goods/services supplied for further manufacturing • Government market – goods/services acquired by government departments and institutions • Durable & semi-durable products and services  Purchasing power • Consumer’s personal disposable income  Buying behaviour o Keep track of changes • Supplier market o Material – raw material, manufactured goods, equipment and energy (electricity etc.) o Capital - financial resources (banks & shareholders) o Labour – incl. organised labour (trade unions & labour brokers) • Intermediaries o Institutions bridging the gap between manufacturer and consumer o E.g. wholesalers, estate agents and brokers • Competitors o Rival businesses competing for consumer spending o Factors influencing nature and intensity of competition  Possibility of new entrants (or departures)  Bargaining power of clients and customers  Bargaining power of suppliers  Availability of substitute products/