business Flashcards
internal sources
Retained profit-retaining profit for later investment
adv-no interest
dis-shareholders may want in dividends
Owners capital-money owner invests into business
adv-does not need paying back
dis-limited deedning on perosnal wealth of owner
Selling assets-old machinery is sold to generrlise capital
adv-no interest
dis-no longer own asset
may be time consuing to sell asset and get the cash
external cources of finance
banks
freinds and family
other businesses
peer to peer lending
crowd funding
freinds and family
adv-no interest
dis-limited and may put strain on relationship if not paid back in time
banks
offer loans, overdrafts and mortages
adv-recognised finanical instititon
terms and conditions are clear
can advice business
dis-strict lending criteria
peer to peer lenders
operate online
alow individuals to lend money to businesses
lender says how mich willing to lend and borrowers say how much wanting to borrow
assess how risky by lending compay and then match them with appropriate lenders
business angels
wealthy indiivuals who invest in business they see as potentially being successful
adv-may have buisness contacts and lots of business knowledge
dis-have a share of business, so they may gain some control of business and its decisions
crowd funding
done on webstie
put details onto webiste
company put up business idea and people invest money if like idea
people then get discounts,upon releaset etc
adv-raises aawareness, increases sales
dis-reputation may be damaged if business idea fails
risk of idea being copied
short term methods of finance
Grants-fixed sum paid by government
adv-no need to pay back
no interst
no share of business given up
dis-applicatio process can be time consuming and difficult to get
Loans-
Overdrafts-where bank allows business to have negative amount in bank account
Trade credit
business plan
outline what a business wants to achive and how
good plan contains a business overview, aims and objectives, marketing and sales stregy, finanical forecasts, cash flow forecasts,
adv of business plan
helps convice potential investors that everything has been well thought through and low risks of business failing
shows how profitable business expects to be and whe si investors know when they could start getting returns on their investment
what are cash flow ofrecasts
show cash inflows(sums of money recived by business)
cash outflows(paid out by business)
what is working capital
amount a business has for day to day spending
adv of cash flow forecasts
show amount of money that managers expect to flow into busienss adn flow out over period of time
makes sure enough cash around to pay suppliers and employees
can preict when will run out of cash adn can provide loan in time
makes banks and venture capitalist see they done their resratch and idea of where business going to be in future
dis of cash flow forecasts
needs lots of experience and research
if dyanmic makret, hard to make accurate cash flow forecast as costs can constnatly go up and down
net cash flow
cash inflows-cash outflows
closing balance
opening balance plus net cash flow
sales forecasts
predict future sales volume and revenue based on past sales data
what are the 3 things sales forecasting helps a business make decsions about
finance-important to generate accurate cash flow forecasts
what are the 3 factors affecting sales forecasting
consumer trends-sometimes fairly predictbale e.g more fairy lights in christmas but sometimes more uncertain
economic variables-e.g interest rates, inflation rates, unemployment leveles
people have less money then less liekly to spend as much
actions of comeptitors-e.g coemptior decides to decrease their prices or launch a new product, oredicted sales may decrease
(also hard for dynamic markets as external factors affecting sales are constantly changing
what is sales volume
number f untis sold in period of time
sales revenue
value of sales in given time period
sales revenue calcualtion
selling price times sales volume
what are fixed costs
DONT chnage with output e.g rent, business rates, basic salaries
what are variable costs
costs that do change with output e.g e.g packaging costs, wages, raw material costs
what is profit
total reveue-total costs
what 9s break even
level of sales a business needs to cover its overall costs
at breakeven point total variable costs+total variable costs=total revenue
break even point calcualtion
total fixed costs divided by distribution
sales and break even point relationship
when sales are below break even point, then business makes a loss
when sales are above break even point, business makes profit
what is a break even analysis
it tells them how much they need to sell to break even
adv of break even analysis
easy to do. if can plot figures on graph accurately, do break even analysis
quick, managers can quickly take action to reduce costs or increase sales if tehy need to increase their margin of safety
help persuade sources of finance to give them money
margin of safety
acutak ouput-break even ouput
dis of break even anlaysis
simple for single product but most businesses sell lots of different products, so looking at business as whole can be more complicated
if data ia inaccurate, results will be wrong
doesnt take into account wastage
assimes business sells all products without any wastage
what are budgets
finanical plan for future
what are the 3 types of budgets
product budgeting-ues income budget minus expenditure budget to calcuate expected profit by end o year
income budgeting-amount of money that will come into business as reveue
ecpendirture budgeting-predict what businesses total costs will be by end of year
acroyn-PIE
what does business do to set what expenditure and income budgets are going to be
income budget-research and predict how sales are going to be
expendiure-research on labour costs, raw materials etc
adv of budgeting
can be motivating-give employees tagets to work towards
help control income and expendiure
help managers review their activites and make decisions
dis of budgeting
inflation is hard to predict
can be time consuming making owner lose what should be focused on/the real issues taking place
can cause resentment and rivalry if departments have to compete for money
historical budgeting
updated each year
based on percnetage increases and decreases from last years budget
adv of historical budegting
quick adn simple
dis of historical budgeting
dis-assumes that business conditions stay unchanged
zero based budgting
starting from scratch each year
adv and dis of zero based budgeting
adv-more accurate then historical
dis-time consuming
what is fixed budgeting
means budget holderst stcik to their budget plans throughout the year
adv-provides discipline and certainity
dis-prevent a firm reacting to new business opportunities
what us flexible budgting
allows budgets to be altered in reposnse to significant changes in makret or economy
gross profit margin
gross profit divided by revenue times 100
gross profit
total revenue-cost of sales
operating profit
gross profit-other operating expenses
net profit
operating profit-interest
formula for measuring percentage change in profit
current years profit-previous years profit divided by preveious years profit times 100
gross profit margin
gross profit divided by revenue times 100
what does a statement of finanical postion show
shows how much money is coming into a business and how much is coming out of a business
can be used to assess businesses finical performance
what is the difference betweeen profit and cash
cash is what business has now to pay its bills
wheras, may not get profit straight away
busienss could be making lots of profit, but still run out of cash
statments of finical postion
lists of assets and libaiities
can also be called balance sheets
snapshot o firms fianances at a fixed point in time
show business assets (things that belong to business)
business liabilties (things business owes)
what are non-current assets
assets kept for longer tehn a year
current assets
assests likely to be exchanged for cash within an accounting year
curent liabilties
debts which need to be paid off within a year
non-current liabilties
debts which will be payed off over several ears
what are bad debts
where dont pay up
liquidity
how easily an asset can be turned into cash and used for buying things
cash is very liquid
non-current asstes e.g machinery are not very liquid
current ratio
cuurent assets divided by current liabiltiies
acid test ratio
current assets minus inventory divided by current liabilties
working capital
current asstes-current liabilties
liquidy
shows how easily an asset can turn into cash used for buying things
insolvent defintition
where business doesnt have enough current assets to pay its liabilties
what ways can liquidity be improved
decreasing stock levels, speeding up collection of debts owed to the business
current ratio
current assets divided by current liabitlies
acid test ratio
current assets-inventory divided by current liabilties
working capital
amount of cash that business has to pay day to day debts
cant survive if dont have enoih working capital to pay debts when due
what is the working capital cycle
length of time between buying raw materrials and getting cash from sales of finished product
when does a business fail
when it cant cover its expenses
internal finanical factos of business failure
bad management of working capital can result in not having enough cash for day to day running of business
poor efficiency-where has costs not as low as could be meaning need to charge higher prices than their competitors
bad decisions about how firm is financed e.g relying on overdrafts in long term meaning costs are high
non finaical internal factors of business failure
poor communciation e.g different departments of business arent working well together, reducing the efficiency of the business
poor market research meaning cannot moitor changes in makret that could affect it
finanical external influnces of business failure
economic recession can result in consumers having less money to spend, causing falls in sales
change in exchange rates
e.g
non-finanical external factors of business failure
acronym: CCC
actions of competitors-if they are able to offer simialr products at cheaper prices
or develop new products more desirbale to consumers
chnage in consumer trends-if consumers suddenly stop wanting product you sell
poor communciation outside of the business e.g suppliers
lack of technology can cause dynmaic business to fail
job prodcution
selling one of items
produced by skilled workers
adv-can charge higher prices as person more wiling to pay higher prices for something handmade, unique
dis-cannot reach EOS as products are unique and cannot be made in bulk making unit costs high
dis-have to charge high prices to staff
dis-producivity is lower as takes long time to make few products
dis-may not feel very valued beacuse of being replaced by machiens/demotivated/priodcution lower
flow production
uses an assembly line to produce lots of identical products
adv-can operate 24/7
adv-achieve EOS as products identifical so materials can be brought in bulk, reducing unit costs and allowing business to charge lower prices
dis-boring/demotivating for workers
dis-if one bit of machinery breaks down, stop the hwole production
dis-if one bit breaks down, whole flow of production is delayed
dis-if change in demand for product, then whole system has to be changed e.g new machines need to be updated
batch production
making small batches of different products
same products are in each batch
when one batch made, equipment is cleaned and next bacth is made
adv-producivity higher then job prodcution but lower then flow production
dis-having to stop and clean equipment inbetweewn can be time consuming and delay production
adv-EOS
dis-cost and inconveience of having to store lots of raw materials
cell production
flow is divided into sets of tasks
each task being completed by a work group
adv-working with others, happeier in work, increases motivation, therefore production levels
adv-not having to carry out repeteive tasks
adv-involved in alreg chunk of work, increase pride in work, improving quality of work
dis-because product is removed from flow at each cell,prodcuivity can be lower
adv of use of machines
-easier to mange then humans (have no emotions)
can operate 24/7
no chance for human error/everything made in same quality level
dis-if stops, can stop whole production process
dis-high initial cost
dis-may make workers feel less valued
dis-any chnage neds to be completed installed and updated, humans are multiskilled
reprogrammed
human workforce adv and dis
adv-can multitask
increased motivation
dis-initial frop in producivity while workforce takes time training
what is efficiency
where production happens at an overall minimum average cost
ways to imporve efficiency
cutting csts
could adopt a lean production approach
labour intensive firms
mostly workers rather then machinery
adv-multiskilled so if any alter in prodctuion, can quickly chnage what they are doing
can be retrined wheras mahcines will have to be replaced
for small firm may not make much sense to buy expensive machines to do jobs that humans could do
can solve any problems which arise
dis-harder to mange people then machines
people can be unreliable e.g can get sick
need rest breaks
capital intensive firms
firms which mainly use machines rather then human workforce
adv-operate 24/7
easy to mange dont have human emotions
no chance for human error/tend to produce everythig at consitnely high quality
dis-initial cost is expensive
can make workers feel replaced/less valued
if break down, can stop whole production process, missing out on sales, reputation being damaged
if alter production, needs to be reprogrammed adn del
capaicty utlisation
how much capacity a businesss is acutally using
current output divided by max possible output times 100
dis of over utlisation
may turn awy potential customers as cant increase output any more
no downtime-machines on all the time
no margin of error-eveything has to be perfect first time, putting stress on workers, might make them work flat out and make mistakes
capacity
max am
what does under capciaty mean
business has resources its not using e.f factor space
consewunces of uner utlisation
increases unit costs meaning less likely to achieve EOS, may also mean they have to increase their prices, therefore less comeptitive
can create bad image eg empty shelves therefore reputation is damaged
reduce employee motivationa as not enough work to do
ways to increase caiaty utlisation
use different makreting stregies e.g promotions to increase demand for product, to increase sales
changing ways to distibute goods and services they sell
rationalsation-downsizing organisation to reduce capacity, increasing capaity utlisation to reduce costs
e.g removing to smaller facilty
sellign asstes that are underultisated
making staff redundant
wyas to deal with over capicty utlisation
outsourcing-outsourcing some of its work to other businesses
hire other firms to complete work on their behalf
reduce demand for product by increasing prices
waitlisting-makes it more luxurious
stretegies for over utlsaiton
expand organisation
grow bsuiness
move to move sigth
invest in greater technology
take on new staff
what is stock
raw materials needed for making a product
businesses try to minimise stock just to its costs
flow prodcution-high levels of stock
what is the minimum stock level called
buffer stock
what is the lead time
time it takes for goods to arrive after ordering them from the supplier
adv of holding buffer stock
needed to avoid running out of stock. good for mass markets whcih need to constantly be reaching demadn
may be good to hold large buffe stocks as can offer discounts for bulk buying stock
purachasing EOS
dis of holding buffer stock
storage costs
wastage costs espcially if its perishable where could go out of date
what happens if business doesnt control stock properly
high stick in costs costs associated with holding too much stock
what is lean production
efficient form of prodcution thag focuses on waste minimisation (using as few resources as possible)
JIT production
type of lean production
aims to reduce waste of materilas
having as little stock as possible
products avaliable just in time for when customers need them
adv-storage costs are reeduced so cash flow imporved as money isnt tied up in stock
less waste as less damaged or out of date stock lying around
more flexibale so can deal with changes in demand
reduced costs means can charge lower prices then comeptitors, comeptitive advantage
dis-having little stock means rely on frequent deliveries from suppliers
can be hard to organise adn difficult for staff
need to make sure supplier is reliable, or else firm may run out of stock and have to stop production
having smaller more freuwnt deliverieis means cant acheve EOS
what is quality control
where product is checked at end by inspectors
adv-done by professionals
doesnt delay production/stop and start
dis-may mean more waste
qulaity assurance
where qulaity is checked throughout production process by workers
adv-motivating/feel valued
dis-need t be trained/expensive
total quality management
quality is the centre of everything a business does
adv of total quality management
help them bond as team as everyone is involved in improving quality
boosts companys repuation having high quality products
reduces waste as less faulty products are produced
dis of total quality management
may take long time to introduce
can demotivate staff-having to focus on quality at everrypart of firm can seem like lot of effor
expensive-often means investign in traning for all employees
quality circles
workers come together to discuss quality control issues
use knowledge from various different departments
adv-get staff involved/make there opions feel valued
dis-suggestions can be unrelaistic adn may not listen to floor workers
kaizen approach
type of lean prodcution
employees should be improving their work a little all the time
employees are constnatly evaluating work they have done
interest rates
are the cost of borrowing or return of savings
a fall interst rates means a decrease in cost of borrowing
an increase interest rates means an increase in cost of borrowing
bank of england influences changes in interest rates
high interest rates can affect consumer spending, high interest rates means less money to spend
have to pay more money back in interest so less disposable income
products that tend to be borrowed e,g cars are more affected by changes in interest rates
inflation
an overall increase in goods and services within an economy
two types demand pull inflation-when there is too much demand, too much disposbale incomee and business cant supply goods quickly enough so increase the price of their goods
cost push inflation-rising costs push up prices e.g employee wages rise
deflation
reduction in prices of goods and services within an economy
causes a fall in producivity
what measures inflation
conumer price index
why are preminim luxry businesses liekly to be affected by changes in inflation
as means people have less disposbale income so aree more likely to save rarther then spend
they could change their prices by reducing them but then could impact brand image and mke it seem lower wuality then it is (psychological pricing)
what are the 4 stages of a business cycle
boom-GDP is high, wages rise for employees
rpdocution reaches max capaity
recession-incomes start to go down, demand goes down ‘
confiedence is reduced
slump-gdp is at a low
close factories andd lots of redundancies
uneployemnt is high
recovery-prodcuivity increases, employment increases
busienss legisalion
all about laws
misson satment-overall purpose of business
needs to be clear nd precise
written descirption of aims
adv-motivating for workers/have something to work towards/shared purpose/common goal
dis-no proof needed, people can just put wht consumers want to hear
if cqught, reputation is damaged
dis-limited, doesnt go into detail about how a mission statement can be acheived
cooperate obejctive
aim of business as a whole
departmental obejctives
what that department will do to help achieve coopearate aim
specific to each department
should be SMART
specific-should not be vargue, need to be specific to be achieved
measurable-needs to be measurbale to know if met
agreed-everyone involved needs to know about it and agree
reslaitic-too ambitious, when not met can be demotivating
timely-needs to be in set time bound so people see it as improtant, if not could see it as not very important and put it to the side
ansoff matrix
makret penetration-trying to increase market share in existing makretne.g promoting, pricing strategies least risky strategy
NEW prodcut development-selling s=new products to existing makret
market development-sellign exisitng products to new markets
can be done through repostiioning-busienss focuses on new segment within market
diversification-sellign new products to new market
most risky
adv of ansoff matrix
forces managers to think about expected risks of moving in certain direction
dis of ansoff matrix
doesnt take into account day to day spendinh
oversimplifies the options avaliable for growth
doesnt take into accoount actions of competitors
porters 3 generic strageies
cost leaddership-being the lowest cost of prodcution. means can change low prices
adv-good for bigger businesses and can acheive EOS
diversifiction-having unique attributes
adv-can change higher prices
dis-imiation by comeptiros
focus-for niche amrkets on whether they choose to be the lowest cost or being unquie
adv of porters genric stratigies
if business is stuck in middle meaning inbetweeen both it can help stir them in a direction
dis of proters generic stargies
doesnt take into account busiensses who successfully achive both
only tells business where they currently sit not how to improve
kays three capabilties model
Archeticture-relatiosnhip between stakeholders
Reputation-keeping customers satified e.g good customer serbices or high quality products
Innovation-allows a business to bring in new innovative products so can have a USP therefore gaining competitive advantage
what does it mean that then need to be susitbable
need to be maintained over time
what doesnit mean by appropriable
other businesses cant copyrigjt e.g traddemarks and patents
swot analysis
strength
weaknesses
opporutnites
threats
adv of swot analysis
can help managers to make stretgic and tacital decisions
can easily be redone to take in any change in conditions
PESTLE analysis
poltical-goverment taxation e.g goverment who wants smaller busiensses to grow can lower taxes sp they can grow
economical-e.g consumer spening, interest rates, exchange rates #
social-changes in social tredns e.g increase in concern for sugar means fall in demand for sugary drinks
technological-e.g new tachnology helping increase productivty levels hwoever expensive intital cost for business
legal-changes in law e.g nincrease in concern for poluution
enviromental-people being more concerned with protecting the environment
porters five forces model
barriers to entry
supplier power
buyer power
threats of substitutes
rivalrys-how much competition is there
barriers to entry
how easy it is for new firms to enter the makret
patents and trademakrs can be used to make it harder for firm to sell similar products
existing firms may make it hard by usig a price war, predatory pricing, reducing their prices so firm pushed out then increasing agaij (illegal in EU laws)
buyer power
buyers want as low price as possible
more power when few buyers and many sellers
inorganic growth
expanding from outside the business
takeover-when one busijness buys asstes of another business
merger-when two busijenss come togetrh
hiriozntal-at same stage
vertical-difefrent stage
adv of inforganic growth
synergy(greater sum then consitient parts)
economies of scale
profits are doubled
reduced csts
duplicated resources can be sold off
dis of inorganic growth
diecsonomies of scale(poorer communciarion
regualtors may sign off due to risk of being too powerful
human resource issues e.g increased job inscurity for staff who may feel job is threated
may get relocated
motivation is redued, increases abseetism
feel less favlued working in larger firm
culture clashses-may haev different objectives and cultures
costs-staff may be made reducnat which increases redundancy costs
learn new porcedures may lead to poorer customer service, loss of sales
organic growth
expanding within your business
adv-can maintain tis managemnt style, ethics and culture of business
-less risky as expanding what the business is good at
-easy for business to mange and control -not as many disprupitve changes so workers efficnet aand prodcuitvity remain high
dis of organic growth
takes a lot time to grow organically
businesses may miss out on oportunities for ambirtiou growth if they grow organically
risk that competion could combie inoragnically cuasing you to lose sales and be behind competiors
problems with growth
why may a business not want to grow hge/restirct growth
want to maintain the culture of a small buisness
becomes more complicatedd to manage if biffer
why may business not be able to grow large (kays 3 distinctive capabilties )
product difefrentiation-production process for product is not sutired to mass production adn would result in business losing its USP
maintain their USP-kays distnictive capability of innovation
flexibility to respond to customers needs-small business is able to repond to customers needs more quickly
communcation between staff and customers can be quick and easy
create good relaitonsuip with external people, strengthening kays distinctive capability of archeticture
customer service
dun by original owner =, soo more personal and high quclity customer service
if grw, owner would not ahve time to indiviually eet all customers
PFC
moving averges
taking averges
adding all togetrh adn and then divideing by number of years
investment
must balance out risk and reward
like risks to be low and rewards be high
3 methods businesses can use to help them make decision
calcualting AVR
payback period
dicounted cash flows
dpc
payback period
how long it takes to get the money back
payback period formula
amount invested divided by annual net cash flow
adv of payback period
easy to calcualte and understand
good for high tech or any prjects that may not provide long term returns
dis of payback period
IGNORES cash flow after payback
IGNOREs teh time value of money
adv of ARR
easy to caluate and undertsand
takes into account all of the projects cash flows
dis-ignores time value of money
net present value
expected montary value
probaliability times number at end
adv of decision trees
forces managers into possible options and identifies the opportunity cost
injects quantitative analysis into the decision making process
dis of decision trees
accuracy of estimations 9probailtites)
know businesses are effected by exernal enviroment and over time situations can change
wehn did it year ago, external environment different to now
managerical bias
quantitive-does not include employees opinions
hard to be accurate due to external changes
critical path analysis
identifies the most efficient and cost effective way to compelting a complex task
EST
earliest start time-earliest time can begin by
adv of cirtical path analysis
find teh shortest time possible for completing a complex project thereofre can put a business at a Competive advanatge firm is first to get a product to the market
can be sued to review progress on indivuald tasks
dis of critical path analysis
relies on estimates of how long each task will take
doesnt taKE INTO accoutn factors which could delay the porject e.g staff illness or weather
capital employed formula
non curent liabitilies plus total equity
Gearing ratio
non current libailties divided by capital employed times 100
what does it mean if your highly gearged
gearing is above 50% shpwing more than half of businesses finance has came from bowwrinf such as loans, overdrafts
become vulnerable to changes in interest rates as will need to pay back in interest
adv of being highly geared
extra funds for expansion-
dis of being highly geared
might not be able to afford the repayments
might not make enough profit to pay back loan and interest
more likely to be affected by changes in interest rates
adv of high gearing on investors
get paid interest on money they loaned
ROCE ratio
return on capital employed ratio
operating profit divided by capital employed times 100
tells you how much money is made by firm compared to amount put into business
roce
tells us what profit in comparion in how much we orginally invested
the larger the ROCE, the better
labour prodcutivity
ouput per period divided by number of employees
what may business do if labour prodcivty increases
reward employees with bonuses and pay rises
to keep motivational levels high
what may business do if labour producity is reducing
might choose to retrain staff
offer bigger incentives
may offer reducnacies and replace workers with skilled labour
labour tunover
measures proportion of staff who leave
number of staff levaing divided by number of staff employed
tthe higherthe labour turnover, the higher the amount of staff leaving
resraons may be due to reduced motivation, low wages, lack of opportunities for recruitment
labour retention
ability to keep its employees
higher the labour tunover, the lower the labour retention
abestteisom
proprotions of days missed by employees
what may cause high rates of absentissm
high levels of stress which could lead to staff avoding work or becoming ill
low motivation so staff do not feel inclined to work
dangerous work whcih could lead to injuries
what are ways business can do to increase labour producivityt and retention and reduce turnover and abseentism
finanical rewards as can imporve motivatinon, making staff want to stay at work
consulation strategies-using employees within the decision making process
taht way feel more valued and more likely to stay at work
empowerment strageies-giving workers more reposnbility and control over their work
change in organisational size
adv-bigger business, more workers
mor workers, redeuced produciton time ‘economies of scale
however, if unable to manage increase in nuber of workers ], prodcuitvity to decrease
harder to communicate quickly and efficievetly slow communcation=appropriate action not being taken as staff are not informed of decisions in time
decrease in organisational size
making staff redundant
acn achieve EOS , high unit cksts, charge higheer preices, reducion in comeptiveness
changes in ownership
poor business performance
what is a transformational leader
owner or manger who makes large innovative chnages to a firm
often recurited when firm has had period of bad business perfromance
what is change managment
process and procedures perfomed by manager to plan and prepare for changes
Culture and size
speed at whcih the chnage can happen
potential repistane of stakeholders to change
scenrio planninng
where bsuiness considers specifc events that may happen in future and plan how to pperate them if event occurs
e.g specific natua=ral disatter
dis of scenrio planning
time consuming and expesive, may need speicilait knowledg so firm may need to hire an expert with this knowledge
continutity planning
more general then scenrio planning
e.g planning place to locate if something goes wrong
succession planning
planning for the loss ofa key member of staff
dis of share cpaital
orginal owner no longer owns whole business
shareholders may expeect to gt share of profits in dividends
adv of share capital
new shareholders can bring in extra expertise into a business
venture capital
can be used as method of finance for buisness at high risk, but has potential to be successful
can be provided by business angels
dis-have to give up share of business and sometimes investors want big say
adv-money does not need ot be paird back
may benefit from expert advice that investors can offer
unlimited liabiltit
they own all debts of business
e.g can lose personal assets such as house
limited liability
only can lose what they invest in
adv of limited liability
easier to persuade people to join firm as peole more willing to join firm where only at risking losing the amount they invested
can raise lots of finance via share capital
business plan
outline of what business wants to achieve and how
consits of cash flow forecasts, staments of finanical postions, aims and objectives
adv of business plans
potential investors can see done research so more likely to invest
cqn show how profitbale business expects to be
cash flow forecasts
show cash inflows(recived by business)
cash outflows(what paid out by business)
adv of cash flow forecasts
helps managers see when expecting to run out of cash so can provide loan in time
assures there is enough cash to payy suppliers and employees
dis of cash flow forecasts
needs lots of experinvce and research into market
does not take into acccount changes in economy e.g interest rates
not good for dynamic amrkets as cash is consitly chnaging so hard to predict
net cash flow
cash inflows-cash outflows
closing balance
closing balance plus net cash flow
sales forecasts
predict future sales volume and revue based on past sales data
what does sales forceasts help make business decisons on
finance-
makreting
resoureces
what are the 3 factors affecting sales forecsting
can be triky to make accurate sales forecast
consumer trends-demand could drop suddenly, some change more unexpedely then others
economica varibles e.g interest rates axchnage rates, infaltion etc
actions of comeptiors-if they decide to charge lower pirces or innovate new product
hard in dynamic markets when changes are consitnely being made
sales volume
number of units sold in given time
sales revneu
value of sales over given time
sales revenue formula
selling price times sales volume
fixed costs
cosyts which stay the same with output e.g rent, basic salaries
variable costs
costs which cahnge with outout e.g wages, cost of raw materials
total variable costs calcualtion
avergae varibale cisy times quanity demanded
total costs fomrula
fixed costs plus variable costs
what is profit
difference between revenue and costs
if rebveue is greater then costs=proft
when revenue below costs=loss
break even point
level of sales business needs to make to cover its costs
at break even point total fixed costs plus total variable costs=total revenue
break even analysis
tells them how much they need to sell to break even
contibution per unit
selling price-variable cost per unit
berak ven point fomrula
total fixed costs divided by contribution per unit
margin of satefy
amount between the actual ouput and break even
adv of break even anlaysis
easy to do
quick managers can see break even ouput and margin of sategy straight away so can quickly get into action
cutting costs to increase sales
help persude socures of finance to gove them money
dis of break even analysis
assumes businesses sell all the products, without wastage
simple for singluar product hard tfor lots of difefrent porudcts
if data is inaccurate, then results will be wrong
margin of sategy formula
acutal ouput-break even ouput
budgets
finaical plan for future
what are the 3 types of budgets
profit budget-uses income budget and minius expesnditure budget
to calcuate epected profit for that year
icome budget-forecast amount of money which will come into a business as revenue
expenditure budget-predicts what businesses total costs will be fore year
adv of budgeting
van be motivating-employees hav target to work towrds
stemtemnt of comprehensive incomste
shows how much money has been coming into the business adn how much has been going out over a period of tiem
statemtns of finaical positions
lists of assets and liabilties
current asstes-assets that are liekly to be paid back in return for cash within accounting year
non current assets-assets that tend to not be exchanged for cash within accounting year
current liabilties-debts which are paid back within accounting year
non-current laibitlies-debts which tend to not be paid back within a year
bad debts
when debt is not paid
liquidity
how easily a asset can change into cash for buying things
cash is liquid
non-current assets are not liquid
current ratio
current assets divided by current liabiltiies
acid test ratio
current assets-inventory divided by current laibitlies
working capital
amount of money business has for day to day spendig
current assets-current liabiltie s
working capitalcycle-legnth of time between buying raw materials and getting cash from sales of finaished good
business failure
when cant cover its expenses
internal finaical resaons why business may fail
poor efiifciency-unit costs too high so have to charge higher oruces
bad management of working capital-not having enough to pay for day to day running of business
bad decisionns about how a firm is finaned e.g too much reliability on overdrafs
PBB
internal non finiacal factords
poor communcation means diffent departments are not working well together
ineeadapuet maket research and analysis means business fails to monitor changes in market
external financial factors
econimic recession having less money to spedn
exchnage rates
external non finaical factros
actiosn of comeptiors if competiors are able to offer cimialr products for lower pcies. they gain competive advanatge
chnage in consumer trends , lead to drop in demadn for prduct
poor comunnciation outside of business e.g losing suppliers etc
job rpdocution
where skilled workers produce one off items
adv-people more willing to buy product which is unique/handmade
dis-have to pay high wages to staff
dis-cannot reach EOS as products ar different so materials cannot be brought in bulk
flow production
producting identical products along an assembly line
adv-EOS as can buy products in bulk meaning can therefore reduce prices and gain comeptitive advnatge
adv-if use machines, can operate 24/7
dis-boring for workers
if issue with mahines, can stop whole production process
chage in demand may leev whole prodcution porcess shaving to stop
batch prodcution
small bacthes of difefrent products
one batch sells one product then stops, equipment is cleaned ansd new batch is made
adv-may be able to stilla chiev EOS
dis-slow production down having to clean it throughout
cell prodcution
flow is divided into sets of tasks
adv-all feel valued and involved /have more reposnibility
can work within a team
feel more pride for work, increase in quality levels
dis-producivity can be lower then flow as product is removed from the flow at each cell
labour intesve firm
uses more workers rather then machinery
adv-muliskilledd so can quickly chnage and alter what they are doing wheras computer woild need to be fully repreogrammed
adv-solve any problems that arise
cheaper to pay low wages then buy expensive equipmen
dis-harder to mnage then machines
less reliabe can call of sick and need rest breaks
capital intensive firm
uses more machinery rather then human workforce
adv-easier t manage/do not have emotions
adv-no chnace of human error/produce evrything at a good quality
adv-can operate 24/7
dis-inital prie is expensive
dis-if break down, stop all production process, loss of sales, reutaion damaged
dis-need reprogammering if they decide to alter their production
under utilation
not using all reources e.g sfactory sapce
dis-demotivating for workers as do not have much to do
higher unit costs so have to charge higher prices
negative brand image e.g empty shelevs
ways to deal with underultisation
rationlise-relocate to a smaller place
make some of their staff redundant
sell some assets which are not being used
cange its marketing stregty e.g promotions
over utlsiation
e.g working over 100 percent e,g no downtime ‘‘dis-more lieklt yfor staff to make mistakes as lots of stress
no downtime
may have to turn away potenital customers
reduce life of machines, no tiem for equipment maintenance
ways to cope with over utlisation
outsourcing work to other businesses
buy more machines
increase staff levels
increase their prices to reduce their demand
stock
raw mateials needed for making a product
buffer stock
most bsuinesses try to minimise amount of stock held to reduce costs
flow production-need large stock of raw materials
batch-needs less
job production-NO STOCK
adv of holding buffer stock
needed to avoid running out of stock
good for mass makret where need to be consistely meeting demand to be making as many sales as comeptitors
hoding large ampounts of buffer stock=reach EOS
dis of hokding buffer stock
increased costs of storgae
not good if good is perishable/likely to go out of date as means can be wasted costs
lean production
focuses on WASTE minimisation
using as few resources as possible
JIT production
type of lean production emthod
where get the products just in tiem for when customer wants them
adv-saves csosts on storage and cash flow imporved as not tied up in stock
adv-less waste as less out of date goods lying aorund
adv-good for dynamic market where trends are consitnelty changing
dis-rely on lots of fewuent deliverys from suppliers?bad for enviroemnt
dis-if suppier is not reliable then could not get there in tiem, casuing loss of sales and reputation to be damaged
adv and dis of total quality management
everything is based on immporving quality
adv-good brand image/boosts companys repuation
adv-can change higher prices
adv-help them bond as team
dis-can seem like a lot of effort for workers
dis-may require training/expensive to introduce
quality circles
workers come together and discuss quality issues within business
adv-will ahev ltos of knwoledge on their department
adv-makes staff feel more valued,given more repsonsbility to make any inputs
dis-may know listen to floor workers
dis-suggestions may be unrelaistic/they dont have much experience
kaizen approach
lean prodcution method
workers should be imporving there work slightly each time
instead of just making one off improvements
erduces wastes as employees constanetly tryign to find ways to be most efficient
chepa fpr business to introduce
makes wrokers feel more valued and involved in qaulity assurance
dis-not good for uragently imporvign qaulity as only imporves quality slightly over time so business has to be commited in long run
quality assurance
workers checks product throughout production process
adv-feel more valued
adv-less waste
dis-not expertise so still chance faulty product could not b/checking throughtout can be highly motivating
quality control dis
does not prevent waste
interest rates
cots of borrowing or return on savings
high interest rates means borrowing is more expensive so people tend to have less disposbale income therfore tend to save rather then spend
hav to pay more money back in interest
not good for businesses whcih sell things which are often borrowed e.g car are more sentive to changes in interest rates
bank of england base rate infleunecs other banks interest rates
inflation
increase in price of goods and services within an economy
demand pull inflation-where busienss demadn is so high that they cant supply quick enoigh, they increase their priecs toreduce their demandd
cost push inflation-where costs rise pushing up prices e.g wages increase
what tracks inflation
consumer index complex
what businesses are really highly affected by inflation
busienses which sell premimum goods as customers have less spend to spned so less liekly to spedn mony on luxury goods
could reduce their prices but then peoel may associate that as being woeerr quality (psychologuical)
busines cyele
boom-GDP increased
recession-incomes start to go down, demand goes down, confiednc goes down
slump-GDP is at a low, close factories and ots of reducndancies
recovery, employkment increases again
how does business cycle affect businesses
boom, increase their prices
recessiom. may make more staff redundant
business legisaltion
all about laws
certain laws protect consumers adn customers
what are the 3 discrimation laws businesses must obey too
recuritment-arent allowed to state in job adevrts that candiates must be a particualr age, rave, gender etc
pay-same pay for females and males for equal work value
promotions and reducndancies-everyone should have same opportunity to be promoted
employment contract
sets out duties and right of both the empoyer and employee
entitled to paid hoiday
right to be paid maternity leave
have to attned work when there supposed to
what are the 3 diffebt tyoes of compeitton
monopoly
opliogy
perfect
MOP
monolpoly
where one large firm has all the control within the market
theres NO competition
can change any price
perfect
lots of businesses compete at an equal basis
e.g sellign simailr products at simailr prices
opligody
small number of large furms dominate the market
mission satemnt
tekks yiu purpose of business
adv of mission statemtns
gives staff sense of shared purpose/common goal
dis-dont have to proff what they put is correct so business can just put down what customers want to hear
however, if they realise actions dont reflect then repuation damaged and loss of sales
cooperate obecjtives
objectives of business as a whole
departmental obecjtives
more specifc aims of each department to reach cooperate objective
e.g manager of that department may figure out way for their department to help reach tha whole aimt
SMART
specific
measurable
agreed
realsitic
time bound
straties
plans for achieving obejctives
ansoff matrix
makret penetration-increasing market share in existinf makret
e.g proming, changing pricing stregtu etc
adv-least risky
new product development-selling new products to existing market
see growth and want Competive advanateg
market development-selling existing prodycts to new market
may be by researchin into new segment in makret and how it can adpat its prodct or preomotion to reach aims
diversification-selling new products to new makret/most risky stratgy
adv of ansoff matrix
allows managers to think about expected risk of going in a certaijn direction
dis-fails to show that diveristictio and makret devleopment tend to ahev significant change in day to day workings
porters 3 generic strgeies
cost leadership-being the lowest lcosts of prodcution means can charge lower pcies, achiev EOS
differntiation-making prodcyts ahev unique attributes that consumer value over competiors t
that way gain USP
focus-whether niche amrket wants to decide to focus on minisming costs or making their prodcut more unique to allow them to charge high prices
keys istincative model9three capbailties)
Archeticture-relationship a business has with its main stakeholders
Reputation-good custoemr severice/good wuality prodycts etc
Innovation-bringing in new inovative ideas to create USP
appropriate and sustainable
appropriable-can be maintained for long time
sustainable-uable to copyright e.g trademakrs and patents
