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Economic and Legislative Impacts on New Business Owner: Case Study

1901 words (8 pages) Business Assignment

1st Dec 2020 Business Assignment Reference this

Tags: Business AssignmentsBusiness

Abstract

In modern society, many aspects should be considered to open a new business. To mitigate the potential risks, it is the most important for a new business to take into legislative and economic factors into account. Investigating the corresponding laws are compulsory because, in the case of hairdressing business, some legislations and regulations are particularly applied to owners and their hair salons. Conducting market researches is as important as complying with laws for those who start hair salons. This is because this type of business is categorised differently from other, ordinary, types of business, and has some extraordinary characteristics. This paper explores those legislations and economic forces that may affect an owner of a hair salon to make a decision. Contents that this paper deals with are following;

Federal Government Level:

  • A New Tax System Act 1999 Australian Government
  • Business Names Registration Act 2011 Australian Government

State Government Level:

  • Public Health and Wellbeing 2008 Victoria
  • Workplace Injury Rehabilitation and Compensation Act of  2013 Victoria

Local Government Level:

  • Public Health and Wellbeing Regulation 2009 Victoria
  • Public Health and Wellbeing 2008 Victoria
  • Economic factors
  • Supply and Demand
  • Elasticity
  • Market structures and Pricing

ACU hair salon is scheduled to open in the heart of Melbourne region. To open and run a business, there are some essential factors, which are mainly related to legislative and economic forces. This business is planned to employ a minimum of 5 hairdresser/designer and 3 trainees (who get trained to be a hairdresser). This paper will thoroughly elaborate on what part of laws the owner should take into account and what economic factors can affect the decision-making process.

In Australia, opening a business, including hairdressing business, should go through some legal procedures. The first step a new hair salon should consider is to get an Australian Business Number (ABN) (Ablis.business.gov.au, 2019). According to A New Tax System Act 1999, this unique identifier, ABN, enables a business to register for the business name and Goods and Services Tax (GST). Registering a new business name is also mandatory. The new name must be on the Business Name Register to comply with the Business Names Registration Act 2011. Moreover, to operate a business in Australia, registration for a tax file number (TFN) is mandatory as it is used to identify a business for tax purposes. Without TFN, the owner of a hair salon would not be able to pay wages to hairdressers properly (Ablis.business.gov.au, 2019).

Apart from federal legislations, which is broadly applied across all industries, a new owner of hair salon must investigate which state government’s laws are applied. As for Victoria State legislation, the owner should take health-related issues into account thoroughly. The State government particularly states health guidelines for those who operate personal care and body art industries, which include hairdressing business. Public Health and Wellbeing 2008 Victoria emphasises the importance of providing precautions to clients and staffs to prevent the likelihood of infection associated with service procedures. Moreover, following Workplace Injury Rehabilitation and Compensation Act 2013 Victoria, if more than $7,500 wage costs are incurred per financial year, an owner of the business must register for WorkCover insurance; this insurance is applicable for those who hire apprentices or trainees. This insurance covers the cost of workers compensation entitlements, which is likely from any health-related and financial losses (Worksafe.vic.gov.au, 2019).

Narrowing down to Melbourne region, there are also some mandatory regulations for opening a hair salon. Melbourne council specifically applies sections of Public Health and Wellbeing Act 2008 Victoria to hairdressing business. According to the council, if a premise for hairdressing business is changed from other types of business, such as warehouse, and retail shops selling commodities, it must be registered under Public Health and Wellbeing Regulation 2009. In the case that buying existing hairdressing business, existing registration for the corresponding business is transferable, but the new owner will also be responsible for existing and possible issues that may breach the Act (Melbourne.vic.gov.au, 2019). Regular inspection, which is another feature in the Act, should be considered as well. Environmental health officers from Melbourne council will conduct regular inspection to check all aspects in the business fall under the Act. Such aspects may include environmental factors (cleaning and sterilisation) and operator procedures.

If there is no problem with legal procedures for opening a hair salon, the owner should thoroughly consider the pros and cons of opening a business in the heart of Melbourne in economic aspects.

There are few reasons why the metropolitan area of Melbourne region is a good location to open hairdressing business. Like other personal service business, the key factor of opening hairdressing business is to study the level of demand, which may be many potential customers, and existing business. In terms of the demand side, the metro polytan area of Melbourne is the most appropriate location as the size of the population and the population density is the highest in Victoria, which means that the exposure to potential customers is also the highest. Furthermore, the boom in male grooming is undoubtedly positive news for those who prepare to open a new hair salon (Statista, 2019). However, those population factors also imply that there is a large number of rivals because the size of the population and the number of existing hair salons are, in general, positively correlated.

Another economic factor that should be considered is how the market is structured. The market structure of the hairdressing industry in Melbourne region is more likely close to monopolistic competition that has characteristics of both perfect and imperfect markets. In accordance with the Market Research Report by IBIS world (2019), there is no company monopolising the market share. This aspect indicates that the market is consist of many numbers of small business who are producing homogenous services. Moreover, the barriers to entry and exit are very low. This is because this type of business is mainly run by the employee’s service, which means that sunk costs are very low relative to other business. In case of Australia, there is an increasing number of potential employees, who are taking hairdressing courses and training sessions and it is expected to be a rise in the future as well (National Industry Insights Report, 2019). However, the main reason why the market should not be considered as the perfect competition market is that companies are not price takers, but price makers and the price competition is one of the most vital factors to run a business successfully; that is characteristics of the contestable market. Although there is an ‘overall’ market price, the price of service is normally determined by skills (or career) of a hairdresser. For example, the overall price of men’s hair cut is ranging between $15 and $20, which is naturally set throughout the market, but famous hairdressers, who get paid at least $35 for male grooming, are also always fully booked.

In terms of elasticity, it can be said that the hairdressing business is highly elastic. As mentioned above, the market provides homogenous services by many small businesses and this fact can also be interpreted as hairdressers, regardless of skills and careers, are also sufficiently distributed. In this market circumstance, customers’ demand is highly responsive to the price.

The graph below explains the simple case of high elasticity in demand. (Note that x-axis is price and y-axis is demand)

For example, if a hair salon increases the price by $10 (from Green to Blue point), customers may not hesitate to switch to an alternative who provides similar quality of service rather than being loyal or paying extra money (demands drops more than price rise). Because of this aspect, hair salons tend to make a competitive advantage by providing promotions, such as providing coupons, membership discounts, and packaging of multiple services. These types of marketing strategies can mitigate fluctuation in demand as it makes customers unable to find the reasonable price if there is no precise price guideline of each service. And, this characteristic is the reason why a new owner of hair salon should take high advertising costs into account when opening new business.

To conclude, with careful considerations of related legislation and regulations produced by all three government levels as well as economic factors, it can be said that opening a hair salon in Melbourne city is not nonsensical. The market itself is relatively less competitive and more stable to other types of business and related laws are also mainly what an owner should do, such as taking care of employee’s health and welfares. However, the owner must be aware of the business itself and the owner’s obligation can be changed by external factors, which means that there is always a potential risk to operate a business.

References

  • Ablis.business.gov.au. (2019). ABLIS | Enabling business. [online] Available at: https://ablis.business.gov.au/service/ag/tfn-application-enquiry-company/233 [Accessed 27 Aug. 2019].
  • Ablis.business.gov.au. (2019). ABLIS | Enabling business. [online] Available at: https://ablis.business.gov.au/service/ag/australian-business-number-abn-registration/26 [Accessed 27 Aug. 2019].
  • Ibisworld.com.au. (2019). Hairdressing and Beauty Services – Australia Industry Report | IBISWorld. [online] Available at: https://www.ibisworld.com.au/industry-trends/market-research-reports/personal-services/hairdressing-beauty-services.html [Accessed 23 Aug. 2019].
  • Melbourne.vic.gov.au. (2019). Healthcare businesses - City of Melbourne. [online] Available at: https://www.melbourne.vic.gov.au/business/permits-and-approvals/healthcare-businesses/Pages/healthcare-businesses.aspx [Accessed 25 Aug. 2019].
  • National Industry Insights Report. (2019). Hairdressing. [online] Available at: https://nationalindustryinsights.aisc.net.au/industries/personal-services/hairdressing [Accessed 23 Aug. 2019].
  • Statista. (2019). Number of hairdressers in Australia 2017-2022 | Statista. [online] Available at: https://www.statista.com/statistics/618532/number-of-hairdressers-in-australia/ [Accessed 23 Aug. 2019].
  • Worksafe.vic.gov.au. (2019). Do I need to register for WorkCover insurance? - WorkSafe. [online] Available at: https://www.worksafe.vic.gov.au/do-i-need-register-workcover-insurance [Accessed 27 Aug. 2019].

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