Business Theme 2 and 3 Flashcards
Owner’s capital
How much the owner has invested into the business or the assets of the business the owner owns
Creditors
People who the business owes money to
Retained profit
Profit that gets stored then reinvested into the company
Sources of finance - where the finance is coming from
Family and friends, crowd-funding
Methods of finance - how the finance is provided
Loans, venture capital, grants
Insolvency
The inability to pay debts because of heavy loss
Liquiditation
Turning assets into cash
Business plan
A plan documenting how a business will reach their objectives
- Company and product description
- Target audience
- Competetive analysis
- Funding requirements
Cash flow forecast
A statement of expected cash inflow from sales, and expected cash outflow to cover costs
Overdraft
When a bank allows you to withdraw more money than the money that actually exists in your current bank account
Main causes of cash flow problems
Low profits, overtrading
Overtrading
When a business expands too quickly without the resources to support that growth
Debt factoring
When a business liquidates their invoices via a third party. (quick easy cash, don’t have to wait for payers)
Lean production
A method of production where reducing waste is a priority.
Advantages of lean production
Reduced waste, improved quality (because root of defects and errors are addressed)
Disadvantages of lean production
Requires high amounts of training, investment in equipment
Margin of safety
Margin of safety shows how much a business’ revenue can fall before it starts making a loss. The greater the margin of safety, the better the position for the business.
Sales forecast importance
Assesses ability to break even, help set budgets
Ways to increase capacity utilisation
Staff work longer shifts, containerisation
Efficiency
An employees ability to increase the output of products with a fixed amount of raw materials
Productivity
How much output an employee can produce in a fixed amount of time
Lean production
A method of production that focuses on minimising waste
Capacity
Refers to the maximum amount of output that it can produce with its limited raw materials
Flexible workforce
A flexible workforce is a group of employees who have the ability to adapt to changing work demands and schedules
Merger
a combination of two separate firms to create one new business entity
Joint venture
When two businesses come together to work on a specific project, they can share ideas and resources
Batch production
Producing a batch of identical products before switching to a different set.
Flow production (mass)
A continuous production process where items are produced in a sequence along a production line.
Job production
Producing a single product or service, often customized to a specific customer’s requirements.
Cell production
A team-based production system where the production process is divided into cells, and each cell is responsible for completing a part of the product.
Buffer stock
Buffer stock is excess stock that is kept by a business in case of an emergency lack of supply.
The depreciation of the pound does what to import costs and export costs?
Weaker pound imports dearer exports cheaper (WPIDEC)
The appreciation of the pound does what to import costs and export costs?
Stronger pound imports cheaper exports dearer (SPICED)
Exchange rate
The value of one currency expressed in that of another
Interest rates
The cost of borrowing (for the client) or the reward of saving (for the business)
Inflation
The general increase in price
Ansoff’s Matrix
- Market Penetration
- Market development
- Product development
- Diversification
Organic growth
The expansion of a company achieved through internal efforts
Inorganic growth
company’s expansion through external activities like mergers, acquisitions, partnerships, or alliances
Limitations of some general graph analysis types like (decision trees, time-series, critical path analysis, supply and demand, balance sheets)
- Potential bias
- Limited to quantitative or qualitive data
- Doesn’t work for large projects
- Static representation, its only a snapshot
Horizontal and vertical intergration
- Horizontal integration occurs when a company acquires or merges with another company that operates at the same level of the supply chain in the same industry.
- Vertical integration occurs when a company acquires or merges with businesses that operate at different stages of the supply chain
Unincorporated
- When the owner is personally liable for the business’s debts and obligations, they are not separate from the business.
- (Sole traders, partnerships)
Incorporated
When the business is a legal entity that is separate from its owners or managers, they are only liable for investments they’ve put into the business.
- (All other businesses)
Financial risks
- Investment risk
- Loans and debt
- Economic downturns
Why would a business want to stay small
- Flexibility in responding to customer needs
- Reduced costs in terms of rent, wages
Working capital
Expenses for day-to-day operations:
- Cash used for change in the cash register
- Invoices (formal document documenting a payment made)
- Working capital helps businesses meet short-term liabilities, keeping the business smooth
- Excess working capital can be reinvested into the business
Causes of change in a business
- Change in leadership style
- Change in performance (leads to pricing and marketing strategy adjustments)
PESTLE - influences of a global organisation
Political
Economic
Sociological
Technological
Legal
Environmental
Operating profit
Profits before taxes and interest
What do budgets do
- Provide benchmarks to compare to
- Help businesses allocate resources
Limitations of investment appraisal
- Future market and inflation conditions are unpredictable
- Only shows quantitative factors
Benefits of investment appraisal
- Helps businesses assess potential risks and returns
- Helps businesses allocate appropriate capital
