as_business_u2_20230227145412 Flashcards
Divorce of ownership and control
Owners and those who control the firm (managers) are different groups with different objectives. The owners will wish to pursue a profit maximising objective; managers will more maybe have their own agenda.
Incorporated
Private/Public limited companies - Legally declaring the business as a separate entity to the owners. Owners have limited liability.
Limited Liability
Investors financial commitment is limited to the total amount invested into the business.
Unlimited Liability
A business where owners share joint and responsibilities for the entire amount of debt and other liabilities amassed by the business.
Nationalised Industry
Nationally owned for its importance. Royal mail used to be.
Not for Profit
A business with motives other than profit. Social benefit to society or support a cause.
Partnership
Two or more people join to form a business which is unincorporated. Partners have unlimited liability.
Public Corporation
An organisation to perform a governmental function , like a hospital.
Shareholders
Investors who are part owners of a business, liability limted to the amount invested.
Sole Traders
An individual who runs/owns their own business. Unincorporated.
Monopoly
When 25% or more of the market is owned by one company.
Loan
Medium to long term, usually from banks. Repayable with interest.
Secured Loan / Moragage
Collateral / specific property asset. Debt less risky for lender.
Personal Sources
Own money acquired by savings, inheritance, selling a business or family member loans.
Hire Purchase
Acquiring non property assets without need for initial cash, just payments.
Business Angel
Formal investments between 10,000 and 600,000. In early start-up usually by wealthy businessmen and entrepreneurs.
Share Capital
Value of the sum invested into the company by shareholders. Cannot get money back by firm, managers can rely on these funds. Referred as Permanent Capital
Trade Credit
Obtaining credit for the purchase of an asset. Deposit and instalments of equal amounts over time. Doesn’t require collateral.
Collateral
Something pledged as security for repayment of a loan, to be forfeited in the event of a default.
Debtor
A person, country, or organization that owes money.
Debt Factoring
Buying debts at a discount. A factor collects a company’s debts when due, and pays the creditor in advance part of the sum to be collected, thus “buying” the debt.
Venture Capitalist
Specialist finance providers that invest in small/risky ventures in return for business ownership/profits.
Government Funding
Activities in the national/public interest, may create jobs in developing areas.
Retained Profit
Money taken after, trading costs, overheads, taxation and dividends deduced from sales revenue. Long term and relatively cheap.
Leasing
Simplest form of external financing, through a cheap and flexible source. Business obtains goods/services from another business.
Sale of Assets
Established business with assets sells, but has the use of the cash. Good business sense to dispose of redundant assets.
Sale and Leaseback
Involves the sale by the business of an asset to a financial company which then makes the asset available to the business on a lease basis. Releases capital, without the loss of the use of the asset.
Overdraft
Flexible source of unsecured finance, repayable on demand. Interest is payed only on the negative balance outstanding each day. Cheap.
Squeezing Working Capital
Reducing stocks, chasing up debtors more quickly/delaying payment to creditors cash can be generated from a firms working capital. Internal Source of Income. Track down debtors to pay up.
Property
Secured loan/ Mortgage
Dilute Control
Sell shares
Need equipment (Hi-tech)
Leasing/hire purchase
Firms Objectives
Survival/expansion - Rapid expansion requires a lot of debt. Survival strategies are financed with savings or retained profits, slower and less risky.
Purpose of Finance
Medium term loan, better for machines, overdraft use to finance short-term working capital but not for purchasing assets.
Cost
Better to use internal, cheap, than external. Internal, cheap and flexible. Trade credit is cheap short term external, prompt payments earn discounts. Hire purchase expensive. Cost is the interest, rate of interest affected by economic climate.
Control
Owner not wanting to dilute their control, debt may be the best option; restrictive conditions in loan conditions, may cause loss of control.
Collateral (Security)
If no assets available against a loan, may opt for more expensive finance, which doesn’t offer security e.g hire purchase.
Time Period
Choose source of finance relevant to time. Sale of shares for long term - purchase new building ; trade credit/debt factoring for short term.
Availability and Reliable
Some forms take a longer time to complete e.g mortgage whereas leasing is short and simple.
Flexibility
How easy to change terms e.g repayment period.
Revenue Expenditure
Payment for goods that will be used i.e wages, raw materials, fuel. Shown in profit/loss. Financed over short term sources.
Capital Expenditure
Goods/services that can be used over and over again. I.E vehicles, equipment and new factory. Firm balance sheet. Medium/long term payments.
Risk
Risky ventures harder to raise loan finance (credit crunch). Lenders cautious, want to be repaid. Gearing ratio, High gearing (high debt proportion to equity). High risk to lenders, choose equity not loan.
Equity
Value of shares issued by company
Fixed costs
Costs that do not change with output, for example rent, utilities, tax, phone, loan repayments.
Variable costs
Costs that change directly from output, for example stocl, delivery costs
Profit
Profit = total revenue - total costs
Profit Centre
Part of a business to which costs and revenue can be allocated to.
Cost Centre
Sections of a business that are distinct from others and which costs can be attributed to.
Adverse Variance
The difference between the budgeted and the actual figure which has a negative impact on profit.
Favourable Variance
The difference between the budget and the actual figure which has a positive impact on profit.
Budget
Financial targets for the future covering revenue and expenditure over a period of time.
Inventory
The stock of goods held for re-sale. The current assets of a business.
Limiting factor
A constraint upon a businesses budget. Determining which budget is drawn up first.
Over-trading
The rapid growth which places a significant burden on a firms ability to to meet its debts.
Sensitivity Analysis
Technique used to reduce the uncertainty in decision making, adjusting and assessing the impact of the change on break-even output.
Variable Costs
These costs change as a result of changes in output only, e.g raw materials.
Zero-Budgeting
Where budgets are set at 0 and managers have to fully justify their spending levels.
Profit Maximisation
Where the target is to receive the most amount of profit .
Survival
May be a target for the first few years of a business, especially if there is a crisis in the development stages.
Sales Growth
Where owners believe that sheer quantity of sales is the best chance for survival.
Social objectives
For a social enterprise it may be to correct one os societies problems, although may affect break-even or the finances.
Why set objectives
DirectionTarget to derive plans fromInform leaders/investors about the aimsGuideline to assess the achievements of the business
SMART
Specific MeasurableAgreedRealisticTime specific
Risks
Lack of business and management skillsLack of knowledge of legal requirementsCompetitionIncreased taxes or interest ratesChanges in tastesTechnology
Business failure
Insufficient Capital (money)Poor management skillsPoor locationLack of planningOver-expansionExternal factors
Marketing
The management process of identifying, anticipating and fulfilling customer needs profitably.
Niche Marketing
Targeting the needs of a small group of people with specialised needs
Mass Marketing
Targeting the needs of a very large group of potential customers, essentially aiming at the population as a whole.
Customer
Organisations/individuals who purchase goods/services.
Business to Business Marketing
Serving the needs of business customers
Business to Consumer Marketing
Creating and delivering products that meet the needs of consumers.
Product Orientated
An approach to marketing where businesses concentrate on the product then how to market it.
Market Orientated
An approach to marketing where businesses base products solely on the researched needs.
Work Force Efficiency Measures
Methods an organisation uses to assess the performance of the workforce.
4 types of Workforce Efficiency
Labour TurnoverLabour ProductivityAbsenteeismWastage rates
Unit Cost
The average cost of producing one unitTotal cost —————–Total quantity
Training
The process of equipping employees with the skills required to carry out the job.
Span of Control
The number of subordinates a line manager is directly responsible for.
Selection
Actions taken by a firm to identify the best candidates from a range of candidates.
Recruitment
Steps taken by a company to identify a vacancy and attract suitable candidates.
Person Specification
A document in which the essential and desirable qualities, skills and experience of the candidate is stated.
Off-the-job Training
Any form of education to improve productivity away from the place of work.
Matrix Structure
A form of organisation where staff are organised into teams that include all necessary specialists.
Labour Productivity
Output per worker, per period of time.Output——————–Number of employees
Labour Turnover
The rate of change in a firms workforceNumber of employees leaving——————————————–Average number of employees
Job Description
A document which states title, duties and responsibilities.
Induction Training
Training which takes place at the start of the term of employment.
Hierarchy
The structure of the workforce which shows who is accountable to whom.
Assessment Centre
A selection method that involves assessing candidates performance through activities, exercises and meetings.
Absenteeism
The number of staff who were not at work for a proportion of the total number of staff.Number of days taken off—————————————Total days working
Hierarchy Advantages
- Clear line of authority- Management free to concentrate on strategy- Quicker response due to smaller chain of command
Hierarchy Disadvantages
- Training Costs- Poor Decision made by inexperienced managers- Slow communication- Long chain of command
Matrix structure Advantages
- Encourages team work| - Communication very fast
Matrix structure Disadvantages
- No defined line of authority| - No defined chain of command
Break-even output
The level of output at which the company is making no profit or loss; where total revenue = total costs
Business Angel
An affluent individual who is willing to invest in the business for a high return.
Capital expenditure
The spending on fixed/non-current assets, property equipment ect.
Cash flow forecast
The process of estimating the size and timing of cash inflows and outflows within a business
Contribution
The amount that each unit contributes towards covering fixed costs. Selling price - variable costs
Cost centre
Sectors of the business of which costs can be attributed to
Creditors
Suppliers who the business has brought goods from and whom the business has yet to pay.
Debt factoring
The sale of a businesses invoices to a third party. Business is charged for processing the invoices and the business selling the invoices receives 80-90% of the invoice value.
Debtors
Customers of which have brought money on credit and are yet to pay.
Direct Costs
Any cost which can be directly attributed to a cost centre or production of any good/service of a particular good e.g raw materials.
Dividends
A percentage of the profits of a business which is paid to shareholders as a reward for their investment
Fixed costs
Costs which do not change in proportion to output in the short term.
Indirect costs
A cost not directly attributed to a cost centre or production line e.g administration.
Interest
The cost of borrowing funds and the return to savers
Limited Company
A form of ownership in which the owners have limited liability
Limited liability
An investors financial commitment is limited to the total amount invested int he business
Liquidity
The ability of a firm to meet its short term liabilities. Measured by comparing current assets with current liabilities.
Liabilities
A company’s legal debts/obligations that arise during the course of business operations. Liabilities are settled over time through the transfer of economic benefits including money, goods or services.
Margin of safety
The difference between actual output and breakeven output.
Opportunity cost
The value of the next bets alternative forgone when a decision is made.
Overtrading
The rapid growth of a business which places a significant burden on a firm to meet its debts
Profit centre
The part of a business of which costs and revenue can be allocated.
Sole trader
An individual who runs their own business.
Sensitivity analysis
The technique which is used to try and reduce the uncertainty in decision making.
Variable costs
These costs change as a result in the changes in output e.g raw materials.
Revenue
Selling Price x Quantity
Profit
Revenue - Costs
Contribution
Selling Price - Variable Costs
Break Even Output
Fixed Costs ÷ Contribution
Margin of Safety
Current Output - Breakeven Output
Gross Profit
Revenue - Variable Costs
Net Profit
Revenue - (Fixed Costs + Variable Costs)
Net Profit Margin
Net Profit ÷ Revenue x 100
Return on Capital Employed
Net Profit ÷ Capital Employed
Loan Capital (Overdraft)
Where a business can withdraw out more money than what is in their account to an agreed limit.
Loan Capital (Bank Loan)
A sum of money lent for a fixed period of time.
Share Capital
Where one asks for an investor into the business for a share of the business.
Venture Capitalist
Professional investor in return for shares of the business.
Total Profit
Total Contribution - Fixed costs
Absenteeism
The number of staff who were not at work as a proportion of the total number of staff in a given period. N.O of days off divided by total days worked.
Assessment centre
A selection method that involves assessing the candidates performance throughout a series of activities, exercises, meetings over a period of time
Capacity utilisation
The actual level of output as a percentage of total output. Actual level divided by potential level times 100
Communication Flows
How communication flows within an organisation
Cost reduction
The range of methods that firms use to reduce the costs and therefore improve profits.
Delegation
The passing of authority down the hierarchy
Empowerment
Giving employees greater control over their working lives. by giving them the power to determine what they do, how they do it.
External recruitment
Candidates for recruitment outside the organisation
Financial methods of recruitment
A method of which has monetary value used to reward the workforce.
Gross profit margin
A measure of profitability which relates revenue minus the cost of goods sold to sale revenue.
Hierarchy
The structure of the workforce which shows who is accountable for whom.
Improving Cashflow
Speeding up/increasing the volume of cash inflows or slowing down the amount of cash outflows.
Improving Profit
Actions taken to increase the difference between total costs and total revenue.
Maslow’s Hierarchy of Needs
Physiological, Security, Love/belonging, Self esteem, self actualisation.
Motivation
The forces acting on (extrinsic) or within (intrinsic) an individual to cause them to behave in a particular way.
Operating profit margin
A measure of flexibility which relates revenue minus costs of goods sold and expenses to sales revenue. Operating profit divided by net sales.
Operations management
The function which tries to ensure that the rights goods/services are being produced at the right time to the right standard of quality.
Profit budget
The target amount of surplus to be achieved in a given time.
Rationalisation
Actions taken to cut costs by reducing the scale of the organisation, reducing capacity.
ROCE
Profitability ration which measure profit in relation to the capital invested in a firm. Operating profit divided by Capital employed.
Capital employed
Total assets - current liabilities.
Span of control
The number of subordinates a line manager is directly responsible for.
Taylors Scientific Management
A motivation theory which states that tasks should be studied scientifically in order to find the most efficient way of completing them. Standardised and all employees should be trained.
Variance Analysis
The process of calculating and analysing any differences between actual and budgeted figures.
Absenteeism
The umber of staff who were not at work as a proportion of the total number of staff in a given period.
Adverse Variance
The difference between budgeted and actual of which has a negative impact on profit.
Assessment Centre
A selection method that involves assessing candidates performance throughout a series of activities, exercises and meetings over a period of time.
Budgets
A target amount of money set by a business in a specific time period.
Capacity Utilisation
The actual output as a percentage of potential output.
Communication Flows
How communication occurs within an organisation.
Customer Service
The meeting of customers expectations before, during and after sales.
Delegation
The passing of authority down the hierarchy.
Empowerment
Giving employees greater control over their working lives, by determining how, what, when they complete a task
Expenditure Budget
A target amount of money a business is permitted to spend within a time period.
External Recruitment
Candidates for a position are identified outside the place ofwork
Gross Profit Margin
A measure of profitability which relates revenue minus the cost of goods sold.
Income Budget
A target amount of money to be received from sales.
Induction Training
Training that takes place at the start of the term of employment, with the aim to help staff settle in.
Job Description
A document which sets out title, main duties and responsibilities.
Job Enlargement
The process of increasing the number of tasks and responsibilities an employee has.
Job Enrichment
An increase in the level of responsibility that an employee has in order to increase motivation.
Labour Productivity
Output per worker per period of time.
Labour Turnover
The rate of change in a firms workforce.
Levels of Hierarchy
The numbers of layers of employees in an organisation.
Maslows HON
All humans have the same needs of which need to be met in order to move onto a new important need. Basic, safety, social needs, self esteem (recognition/promotion) , self actualisation (responsibility).
Matrix Structure
A form of organisation in which the staff are organised into teams that include all necessary specialists.
Mayo’s
A theory of which believes that all workers are a member of a group, therefore HUMAN RELATIONS - positive attention, involve in decision making.
Motivation
Forces acting on (extrinsic) or within (intrinsic) an individual to cause them to behave in a particular way.
Net Profit Margin
A measure of profitability of which relates net profit to sales revenue.
Off the job Training
Any form of education to improve productivity which takes place away from work.
Operational Targets
Predetermined targets which relates to a number of efficiency measures e.g unit costs, quality, capacity utilisation.
Operations Management
Tries to ensure that the right goods/services are produced at the right time at the right cost at the right quality.
Person Specification
A document in which the essential and desirable qualities, skills and experience of the candidates are detailed.
Profitability
Measures the efficiency with which a business generates profit from revenue or long term invested funds.
Quality
The ability of a product to meet consumer expectation.
Quality Assurance
The checking of a product or service at each stage of its production as opposed to quality control.
Quality Control
The checking of a good/service at the final stage of its production, as opposed to quality control.
Recruitment
Steps taken by a company to identify a vacany and attract suitable candidates.
ROCE
Profitability ration which measures profit in relation to capital invested in a firm.
Selection
Actions taken by afirm to identify the best candidate from a range of candidates,
Span of Control
The number of subordinates a line manager is directly responsible for.
Taylors Scientific
Theory which states that the workers are motivated by money, therefore piece work and splitting up the production line into smaller individual tasks increases piece work chance.
Total Quality Control
A philosophy which places consideration of quality at the heart of every decision.
Training
The process of equipping employees with the correct skills required to carry out a task.
Unit Cost
The average cost of producing one unit.
Variance Analysis
The process of calculating and analysing any difference between actual and predicted budgets.
Workforce Efficiency Measures
Methods a workforce uses to assess the performance of the workforce.
Marketing
The process of identifying, anticipating and fulfilling customer needs profitably.
Niche Market
A small group of customers with specialised needs
Mass market
Targeting the needs of a very large potential customers essentially aiming at the whole population.
Customer
Organisations or individuals who purchase goods/services.
Business to Business
Creating and delivering products that meet the needs of final individual customers.
Product Orientated
An approach to marketing where businesses focus on the product and then decide how to market them.
Market Orientated
An approach to marketing where businesses focus on the most appropriate marketing opportunities that fit their existing strengths.
Marketing Mix
The combination go product, price, promotion and place, designed to achieve the marketing obectives of a business.
Product
A good/service offered to customers by a business.
Unique Selling Point
A feature or function of a product that makes it different from any other on the market.
Boston Matrix
A model used to analyse a firms product portfolio by considering market share in relation to market growth.
Cash Cow
High market share, low market growth.
Rising Star
High market share, high market growth.
Problem Child
Low market share, high market growth.
Dog
Low market share, low market growth.
Product Life Cycle
Shows the stages that a product will go through and how sales levels might vary in its lifetime.
Research and Development
The initial stage of the product life cycle in creating and innovating new ideas
Product Launch
The stage in the product life cycle when the product is introduced to the customers.
Growth
The stage in the product life cycle when sales are growing.
Maturity
The stage of the product life cycle when the product is established and sales level off.
Decline
The stage of the product life cycle when sales are falling.
Extension Strategy
A plan to modify some or all of the 4 p’s in order to prolong the maturity stage of the product life cycle.
Price
The component of the marketing mix that determines the amount of money that os paidfor a good/service.
Price Leader
A business that has the power to influence market price for a product due to significant market share or inelastic demand.
Price Taker
A business which sets its price at the market price due to low market share or elastic demand.
Pricing Strategies
Long term pricing plans to achieve business objectives.
Price Discrimination
Charging different groups of customers different prices.
Price Skimming
Charging high prices in order to recoup the cost of R&D.
Penetration Pricing
Low prices in order to gain market share.
Destroyer Pricing
Illegal, however this aims to put others out of business, so there is less competition.
Loss Leaders
Selling the product below the price in order to attract customers to the shop.
Psychological Pricing
A tactic designed to entice customers to buy products by making them think they are cheaper than it actually is.
Promotion
Bringing a product to the attention to existing/potential customers.
Advertising
A promotional campaign that involves the use of media to communicate with potential/existing customers.
Branding
The creation of an identity for a business and or individual products in order to differentiate from rivals.
Place
The component of marketing mix which defines both physical and where a product is available.
Monopoly
Where one business dominates the market share in the market.
Oligopoly
Where a few businesses dominate the market, each with a high market share.
Competitive Advantage
A feature of a business that allows it to perform successfully than others in the market.
Competitiveness
The degree of which a business is successful in selling its products compared to a rival.
Market Conditions
The characteristics of a market in which a firm operates, such as competition, needs of customers, market growth.
Market Concentration
The proportion of total market sales accounted by a particular number of firms.
Capacity Utilisation
Current output as a percentage of potential output.
100% Capacity
- Cannot take on new orders.- Quality may decrease.- Delays if machinery breaks, due to it being constantly on.
Increase Capacity
- Staff hours/motivation/training.| - Increase Capital Goods.
Under Utilisation
May increase costs, fixed costs spread over less output increasing unit costs.Higher capacity creates economies of scale decreasing variable costs.
Quality
This is when the good/service meet customer expectations.
TQM
This is when the idea of quality is instilled throughout the business, where quality is checked after each stage.
Quality Assurance
Each Stage
Quality Control
Final Stage
Benefits of Quality
- Less wastage rate.| - Motivation increase productivity Recognition.
Suppliers
Those that offer goods/services of which match or exceed the needs of the business.
Factors Affecting Suppliers
Price, Payment Terms, Quality, Capacity, Reliability, Flexibility
Technology
Goods of which make the firm more cost effective and efficient, requiring updating and maintenance.
Pros/Cons of Tech
Staff costs fall, more accurate/reliable| Staff lose jobs, high initial and maintenance costs.
Improve Cashflow
Short term/long term finance i.e factoring, loans, sale and leaseback.Lengthen the credit time to pay back suppliers.
Improve Profits
Raise the price of the good/service.| Reduce the cost of production of the good/service.
Pros/Cons - Internal/External Recruitment
Internal - Know them, Shorter/less expensive.Another vacancy to be filled, cause resentment.External - New ideas, experience organisat, pool choose.Don’t know candidate, long and expensive, induction req.
Pros/Cons of Off/On Training
Off - Specialists, intensive, new theories/equip.Expensive, may not access tools at work, not productive.On - Easy to organise, costs lower, job specific.Not productive, bad practices passed on, bad coms.
Determinants/Improving Competitiveness
Price (reduce costs, staff tend to be the biggest), Quality, Type of Market.Customer Service (increases customer loyalty, increased by setting higher standards of training and recruitment).
