Exam Flashcards

1
Q

State and describe each sector of industry (4)

A

Primary
The primary sector of industry is concerned with the extraction of raw materials or natural resources from the land. Any business that grows goods or extracts materials from the land would be classed as a primary sector business.

Examples of businesses that operate in the primary sector would be farming, mining, fishing or oil production.

Secondary
The secondary sector of industry is concerned with manufacturing. This would involve taking the raw materials from the primary sector and converting them into new products.

Examples of businesses that operate in the secondary sector would be car manufacturers, food production or building companies.

Tertiary
The tertiary sector of industry is concerned with providing a service. Services are activities that are done by people or businesses for consumers.

Examples of businesses that operate in the tertiary sector would be hairdressers, banks, supermarkets or cinemas.

Quarternary
The quaternary sector consists of those industries providing information services, such as computing, ICT (information and communication technologies), consultancy (offering advice to businesses) and R&D (research, particularly in scientific fields).

The quaternary sector is sometimes included with the tertiary sector, as they are both service sectors. The tertiary and quaternary sectors make up the largest part of the UK economy, employing 76 per cent of the workforce.

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2
Q

Difference between structures in terms of ownership, control and finance between public sector organisations and plc’s

A

Larger businesses may choose to become a public limited company (PLC) in a plc shares are sold to the public on the stock market. People who own a share are called shareholders. They become part owners of the business and have voice in how it operates.

They have limited liability, meaning an investor only loses the initial stake if a company goes bust.

Whereas,

The public sector means the organisations run by government that exist to provide a service for the population and communities.

Money to pay for these is raised through a variety of taxes, eg:

income tax
National Insurance
VAT
air passenger duty
fuel duty
Once this tax is collected it is allocated to various government budgets.

There are three different levels of government in Scotland:

UK Government
Scottish Government
local government

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3
Q

What is the objective Corporate Social Responsability? (SCR)

A

Corporate social responsibility (CSR) is when a company aims to act ethically and responsibly to ensure the public perceive them in a positive light.

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4
Q

What is the objective Growth?

A

Growth
Most businesses within the private sector will aim to grow. In order to survive in a competitive market a business must change and develop over time to keep up with market demand. The larger a business becomes, the more opportunities become available for profit and increased economies of scale. Larger companies are at less risk of being taken over by competitors.

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5
Q

What is the objective Satisficing?

A

A company who aims to satisfice will be looking to be just good enough to achieve their other objectives but no more than that. They do not aim to be the best possible but to do the best they can to satisfy stakeholders such as shareholders and customers. This may be due to external pressures such as low economic growth or internal factors such as a lack of finance.

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6
Q

What is the managerial objective ‘Working with a budget’

A

Working within a budget – managers will be given a set budget to which they have to adhere. This may prevent them from meeting some of the objectives of the organisation.

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7
Q

Different types of objectives

A
survival
increased profit
increasing market share
growth
satisficing
managerial objectives e.g. working within a budget
corporate social responsibility
provide a quality service
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8
Q

What is outsourcing, describe and disadvantages and advantages

A

Outsourcing is when a company hires another business to do some work for them. Many firms outsource cleaning or IT operations to smaller, more specialist companies.

ADV
You Get More Experts
You’re Able to Focus on What Matters
Things Get Done Fast

DISADV
You Lose Some Control
You Reduce Quality Control
There are Hidden Costs

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9
Q

The impact of PESTEC (Political)

A

Political factors involve the decisions and laws that governments make. These include:

tax
laws
political stability
Political factor Impact

Governments can raise or lower corporation tax. They can also affect businesses by increasing value-added tax on products or business rates
This can impact profits. If the rate of VAT is raised a company will need to increase their selling price which may reduce sales

Government can implement new laws like the National Minimum Wage Impacts on profits as the wage costs of the business will rise

Governments can introduce new health and safety legislation This means that a business may have to change the way it works, for example by training its staff or upgrading its machinery or safety equipment

The vote to leave the European Union, also known as Brexit will have an impact on the way UK firm’s trade with the EU single market

The impact may be negative (a loss of trade with EU customers) or positive (less restrictions placed on firms by EU lawmakers). For example, Scottish fishermen hope that leaving the EU will help boost their industry. On the other hand UK-based car manufacturers are worried about losing out on free access to wealthy customers in France and Germany

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10
Q

The impact of PESTEC (Economic)

A

This is the behaviour of the government in influencing the economic performance of the country. This would include the decisions the government make on:

taxation
government spending
interest rates
Economic policy covers two areas:

fiscal policy – this area deals with tax rates and the level of government spending
monetary policy – this area deals with setting interest rates and controlling the supply of money in the economy

Economic factors are all concerned with the so called ‘levers’ of the economy. These include:

economic growth
unemployment rate
interest rates
inflation
exchange rates
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11
Q

The impact of PESTEC (Social)

A

Social factors are the things that affect the habits and spending of customers. These include:

demographics
lifestyles
tastes and trends
ethical
Demographics
Demographic change is most commonly used to reflect changes in population such as:

birth rate
life expectancy
levels of immigration

Tastes and trends
Tastes and trends are changing constantly. For example:

loom bands became the biggest selling toy of 2014 but fell from popularity the following year
fidget spinners grew rapidly in popularity over a matter of months in 2017

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12
Q

The impact of PESTEC (Technological)

A

Technological factors refers to the ways new practices and equipment can affect businesses. These include:

ICT
research and development
automation
e-commerce

Automation
Automation refers to the introduction of machines to do work that was previously done by people.

For example the introduction of self-scan checkouts in supermarkets means that fewer employees are needed on the tills.

E-commerce
More and more firms are online. E-commerce:

widens the number of customers
lowers the costs of production
is highly competitive

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13
Q

The impact of PESTEC (Environmental)

A

Environmental factors cover two main aspects:
The physical conditions that a business has to deal with, such as:

climate change
weather

Physical conditions
The weather can have a major impact on a firm’s sales:

many products and services are seasonal
good summers mean the increase in sales of fizzy drinks and sun tan lotion
bad weather can cause disruption to deliveries which could lead to a business being unable to fulfil customer orders

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14
Q

The impact of PESTEC (Competitive)

A

Competitive factors cover how businesses who offer similar products or services affect each other. This includes:

imitators
price wars
product differentiation

Imitators
When a successful product is introduced, rival organisations will often respond by trying to undercut it by quickly producing cheaper alternative versions which will affect the sales of the existing company.

Price wars
Companies may start a price war in order to:

gain customers
increase market
A price war happens when companies compete for customers by dropping their prices below the rate of their competitors.

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15
Q

Describe Tall and flat structures

A

A hierarchical or ‘tall’ structure has many leaders and layers of management has a long chain of command.

Flat organisational structure is an organisational model with relatively few or no levels of middle management between the executives and the frontline employees

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16
Q

Adv/disadv tall structure

A

Advantages
more opportunities for promotion which can lead to greater staff motivation
staff gain more support from their line manager

there is a higher degree of supervision as each line manager has a limited number of people they are responsible for

Disadvantages
many levels of hierarchy

span of control is narrow, and the chain of command is long, making communication slower as instructions take longer to travel through the levels of the organisation
longer lines of communication can make the firm less responsive to change

can be expensive to run due to high wage costs

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17
Q

Adv/disadv Flat structure

A

Advantages
few levels of hierarchy

lines of communication are short, making the firm responsive to change and decision-making quicker

staff working in a flat management structure can be empowered to work independently and take on more responsibility

Disadvantages
wide span of control means that tasks must be delegated, which can lead to employees feeling stressed and managers feeling overstretched

less promotion opportunities within a flat structure, which may lead to the company losing staff to other organisations

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18
Q

Describe delayering

A

Delayering involves removing a layer of management
Within hierarchical structures a method that can be used to reduce costs is to remove a layer of management, while expecting staff to produce the same level of output. This can:

save the company money on managerial wages

make the business more responsive to change due to the reduction of layers of management

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19
Q

Describe factors that affect quality decisions and ways of measuring the success of decisions.

A

Finance
There may not be finance available to the business to make the decisions they would like to.

For example, a business may wish to invest in new machinery to increase production but they do not have enough capital to allow them to do this.

Human resources
The quality of decisions made by managers can be affected by:

their skills and expertise
the amount and quality of information they have available
The staff involved in implementing the decision need to be willing to cooperate and work with the decision for it to be successful.

Technology
Lack of the correct equipment or technology may restrict the decision-making process.

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20
Q

The role of a manager making decisions (POCCDM)

A

Managers have different jobs or roles they undertake in order to be efficient and effective.

plan - preparing for the future and create action points

organise - having resources ready and putting plan into action

command - ensuring employees are working

co-ordinate - making sure all departments work together to achieve the end goal or objective

control - checking the effectiveness and
efficiency of the proposed plan

delegate - entrusting a task or responsibility to another member of staff

motivate - encouraging staff to give their best

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21
Q

Different methods of field research

+ costs and benefits

A

Face-to-face interview
ADV
Two-way communication
Mistakes and misunderstandings can be cleared up right away
Researcher can encourage respondent to answer

Disadvantages
Personal interviews can be expensive
Researchers have to be selected and trained
Home interviews unpopular with consumers

Online survey
ADV
Large sample sizes
Inexpensive

DISADV
Limited to people with internet access

Focus group
ADV
Qualitative information provided in the form of opinions, feelings and attitudes
Topics can be explored in some depth

Disadv
Can be difficult to analyse qualitative information
Expensive

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22
Q

Different methods of desk research

+ costs and benefits

A

Methods of collecting desk research include:

sales figures
newspapers
websites
government publications e.g. social trends
commercial publications e.g. Keynote and Mintel reports

ADV
Saves time
Relatively inexpensive
Widely available

Disadv
Not specifically gathered for the business
May be out of date
May contain bias

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23
Q

Product portfolios costs and benefits

A

A product portfolio is the range of items sold by a business.

A company like Sony has a product portfolio that includes computers, cameras, televisions and games.

Costs of maintaining a large product portfolio

increased research and development costs due to multiple products being produced
marketing and advertising costs may be high due to the promotion of a large range of products

bad publicity incurred by one product may affect sales of all products within the portfolio

resources may be spread too thin and this could affect the performance of existing cash cow products

Benefits of maintaining a large product portfolio
having different products can spread risk between markets. This mean there is less chance of a company making losses
having a range of products can lead to

greater brand awareness
can encourage customer loyalty as customers are more likely to buy multiple products from the same brand
easier to launch new products due to

greater brand awareness
can meet the needs to different market segments

can allow for seasonal fluctuations
allows for new products to replace products at the end of the product life cycle

can increase profits from selling a range of different products

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24
Q

Advantages and disadvantages of skimming price strategy

A

Advantages of Price Skimming
Higher Return on Investment.
It Helps Create and Maintain Your Brand Image.
It Segments the Market.
Early Adopters Help Test New Products.
It Only Works if Your Demand Curve is Inelastic.
It’s Not a Great Strategy in a Crowded Market.
Price skimming Attracts Competitors.

Disadvantages of price skimming
Price skimming only works with an inelastic demand curve that doesn’t respond to price changes.
Early adopters might become turned off by price decreases after their initial purchase.
A skimming pricing strategy doesn’t work if you have competitors creating similar technologies.

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25
Q

Advantages and disadvantges of penetration pricing stratergy

A

Penetration pricing is used to enter a new market. The price will be set lower than competitors to gain market share

Once a product becomes established the price will increase to be more like the market price.

This strategy can be used to encourage customers to switch brands, although it does mean the company will not be making much profit during the initial launch of the product.

Disadvantages of Penetration Pricing

If prices gradually increase, customers may become dissatisfied and may stop purchasing the product or service. Low customer loyalty: Penetration pricing typically attracts bargain hunters or those with low customer loyalty. you have competitors creating similar technologies.

26
Q

How can social media be used for marketing, costs and benefits

A

Twitter, Facebook, Instagram and Snapchat can all be used to interact with customers. Products can be advertised at any time and they allow access to a wide range of customers. Social media allows customers to:

respond to adverts
ask questions to the company

costs:
not Everyone may not have access to social media

27
Q

Features costs and benefits of J-I-T inventory control

A

Benefits
No money is tied up in inventory meaning it can be used elsewhere in the business

Less storage space is required which reduces costs

Reduced wastage as less risk of stock going out of date

Costs
Delay in recieving orders from suppliers will lead to produtction having to stop

Stock being delivered frequently increases administration and delivery costs

28
Q

Costs and benefits of capital intensive ,mechanised and automated production

A

Advantages

Quality can be standardised, the same every time
Machines can work continuously, 24/7 meaning products are produced quicker
Less employee wages and costs

Disadvantages
More difficult to customise orders
Breakdowns in production can be costly
Initial set up costs of machinery are high

29
Q

The costs and benefits of labour-intensive production

A

Advantages
Customised products are easier to make
Humans can use their own initiative and problem solve
Less expensive machinery costs

Disadvantages
Quality of products can vary due to expertise of the worker and there is increased risk of human error
Skilled workers take time to train
Skilled workers will be paid more than unskilled workers

30
Q

Reasons for production choice

A

Whether a company chooses to uselabour intensiveorcapital intensivemethods of production will involve many factors:

Finance available- a large amount of capital is required to invest in capital intensive production. Some businesses may not be able to afford to invest in this method of production

Quantity- if large quantities of identical goods are required then a company will be more likely to use capital intensive methods of production. Whereas if the product being supplied is a low quantity of a tailored product then labour intensive methods would be preferred

Technology- if the required technology to produce the goods is unavailable than the company would have no choice but to use labour intensive

31
Q

The importance of quality to organisations and customers

A

Quality is one way of ensuring businesses attract and retain happy and loyal customers and build up an excellent reputation.

A business that gets a reputation for poor quality will lose market share quickly and will cause customers to be put off buying again from that company.

There are a number of methods that business can use to help ensure quality:

high quality raw materials
quality assurance
quality control
quality management
benchmarking
quality circles
mystery shopper
32
Q

What is the distinction between quality control methods (inspection) and quality assurance methods (prevention)

A

This is where finished products are checked by inspectors to see if they meet the set standard. Products are inspected at the start and the end of the production process. Any product not meeting the standards of quality set by the business will be:

sent for rework
discarded completely
This is a costly process. There is a high degree of wasted material, as faulty products are not identified until the end of the production process.

However, less checks are required throughout the production process. This will save the business time and money.

Quality control ensures that no faulty product reaches the consumer as all finished products are checked thoroughly.

Quality assurance
This is where quality is built into the production process.

For example, all staff check all items at all stages of the production process for faults. In this way everyone takes responsibility for delivering quality.

Successful quality assurance:

results in zero defect production
aims to prevent the faulty product from being produced
With quality assurance the product is checked throughout production. This means that mistakes can be identified quickly. This will reduce waste. This in turn will save the company money.

However, this method of quality control can be costly due to the regular checks being made throughout the production process. Regular checks can also slow down production. This means lower productivity.

33
Q

Costs and benefits of methods ensuring quality for quality control

A

Benefits
Reduces chance of poor quality products reaching end users
Only some employees need to be trained as inspectors to look for faults

Costs
Faults only found at the end of production
High wastage costs
Reworking faulty products costs time and money

34
Q

Costs and benefits of methods ensuring quality for quality assurance

A

Successful quality assurance:

results in zero defect production
aims to prevent the faulty product from being produced

However, this method of quality control can be costly due to the regular checks being made throughout the production process. Regular checks can also slow down production. This means lower productivity.

35
Q

Costs and benefits of methods ensuring quality for benchmarking

A

Benchmarking involves finding the best practice in your industry and then copying your competitor but adding some extra value or USP to the product.

Benefit
Identifies best practice in the market which will improve performance if these methods are adopted by the organisation
Can provide a goal for employees which will increase motivation
Can make the organisation more competitive in the market

Costs

  • May be difficult to gather required information from competitors
  • It can be time consuming to study techniques used by other companies
  • Internal factors such as lack of finance may prevent the adoption of competitors practices
36
Q

Costs and benefits of methods ensuring quality for quality circles

A

Quality circles are small groups of workers of different levels in the firm who come together to discuss and solve problems in production.

Managers, assembly line workers and engineers mix together and everyone’s opinion is valued and respected. Membership of quality circles is voluntary.

Employees involved in quality circles may become more motivated as they feel valued within the company. Employees who are doing the job often have a better idea on how to improve processes.

37
Q

The costs and benefits of fairtrade activities including (fairtrade)

A

The result of world trade is that workers in primary industries in less economically developed countries often lose out. This includes:

low wages
poor standards of living
inability to afford education for their children
children required to work to help their families earn a living

Benefits
Quality of life should improve for workers in primary industries
The long-term prospects for children in the area should improve
Improves the company reputation if they are seen to be ethically responsible

38
Q

How can Computer-aided-design (CAD) be used in operations and costs and benefits

A

Computer-aided design (CAD) is when a computer system is used to create or modify a design such as:

the layout of a kitchen
the design of a building
the design of cars and other vehicles
the design of consumer products
the design of clothes and textiles
CAD can be used to simulate a design in a 3D environment allowing the designer to have an idea of how the finished product will look.

This will lead to more accurate design processes, meaning less wastage. Amendments can be made to designs without having to redo drawings or rebuild prototypes. This saves the developers time.

Benefits
Its highly accurate and consistent making products

Costs
It takes away jobs from people

39
Q

Describe elements of workforce planning, for example:

— *skills analysis of current staff

A

Tests may take several forms:

  • IQ Tests measure a candidate’s mental skills including their numeracy, literacy and problem solving skills.
  • Psychometric Tests are used to find out a candidate’s personality and involve a series of statements to which a candidate would strongly agree, agree, disagree or strongly disagree with the statement. Conclusions on the candidate’s personality can be drawn from his/her responses.

-Medical/Fitness tests measure a candidate’s physical suitability for a job.
Attainment Test is a demonstration of a learned skill. A secretary may be tested on her ability to type 100 words per minute without error.

-Aptitude Test measures a candidate’s natural abilities related specifically to a job.

40
Q

*elements of workforce planning, for example:

— *staffing forecasts to meet demand

A

The firm writes a job description and person specification for the post and then advertises the vacancy in an appropriate place.

-Job descriptions explain the work to be done and typically set out the following:
job title
location of work
main tasks of the employee

-Person specifications list individual qualities of the person required, eg:
qualifications
experience
skills

These elements are arranged into two categories:
essential
desirable

41
Q

*elements of workforce planning, for example:

— *planning internal and external supply of staff

A
  • Internal recruitment involves appointing existing staff. A known person is recruited.
  • External recruitment involves hiring staff from outside the organisation. They will bring fresh ideas with them but they are unknown to the company - will they fit in?
42
Q

Internal recruitment

Advantages & Disavantages

A

Advantages

  • internal candidates abilities are already known
  • they know the culture
  • they need less training
  • process is quicker and cheaper
  • internal promotion is good for overall staff morale

Disadvantages

  • the pool of candidates is limited
  • no new ideas are brought in
  • creates another vacancy that needs to be filled
  • unsuccessful candidates may be resentful or demotivated
43
Q

External recruitment

Advantages & Disadvantages

A

Advantages

  • external candidates can bring in new ideas
  • large pool of candidates to choose the best one from
  • external candidates may have wider range of experience

Disadvantages

  • no prior knowledge of how candidates perform on the job
  • process is expensive as job adverts cost money
  • process can be slow and lengthy
44
Q

Describe one-to-one appraisal

A

This is a regular and formal review of an employee’s performance by their line manager, which normally takes place at least once a year.

One-to-one appraisals involve a review on an employee’s progress towards their targets. Time is taken to set targets for the coming year.

45
Q

Describe — *360-degree appriasal

A

Each person asked to take part in a 360-degree appraisal will be given a set of identical questions about the employee. The answers will be used to compare and analyse how the employee is performing. This will help them with self-evaluation and improvement.

A 360-degree appraisal allows for different viewpoints to be considered when reviewing your performance and identifying future training needs.

46
Q

Describe peer-to-peer appraisal

A

This type of appraisal excludes an employee’s line manager. Other workers in the same or similar position are asked to provide feedback on different aspects of an employee’s performance.

47
Q

Benefits of appraisal’s

A
  • can motivate employees as employers have a chance to acknowledge any good work or improved performance
  • training needs can be identified which will lead to a higher standard of work

-targets can be set for employees which will lead to increased motivation and purpose
good practice can be identified and shared across the organisation

  • improved employee relations as managers and employees have time to have a professional discussion and resolve any problems
  • opportunity for wage increases and promotions may occur through using appraisals
48
Q

Costs of appraisals

A
  • can be time consuming to carry out appraisal with all members of staff
  • negative appraisals can lead to demotivated staff
  • employees may feel under pressure during an appraisal and take on too many development tasks
49
Q

Describe Employee participation (Work Councils)

A

Works councils are made up of employees and managers that come together to discuss factors that may impact the business. Work councils can be used to promote discussion between managers and employees or to set up policies and procedures that are then implemented in the business. Due to employees being involved in decisions and policy making they may be less resistant to change.

50
Q

Describe Employee Participation (Consultative committees)

A

Consultative committees are similar to works councils and are set up to discuss issues that will affect the business. These committees are made up of employees and managers but may also involve other stakeholders such as customers or members of the local community.

51
Q

Describe Employee Participation (Worker directors)

A

A worker director is an employee that is elected to sit on the board of directors to represent the interests of the workers. This can lead to employees feeling they have some representation and influence in the decision making process.

52
Q

Impact of the Equality Act

A

The Equality Act 2010 aims to prevent discrimination in the workplace. It is illegal to discriminate against workers based on nine protected characteristics:

Impact of the Equality Act
Policies and procedures – organisations need to have policies and procedures in place to ensure that there are equal job opportunities for all. They must also prevent discrimination across all aspects of the organisation.

Employee training – staff must be trained on the requirements of equal opportunity legislations.

Recruitment procedures – organisations may have to revise their recruitment policies to ensure there is no discriminatory wording in job adverts and no discrimination during the recruitment process.

Accessibility – the business needs to ensure it is accessible to all. This may require investment in equipment such as ramps or the installation of lifts.

Prosecution – the organisation may be prosecuted if they fail to comply with regulations resulting in a fine.

Investigation – an organisation must investigate any accusations of discrimination or harassment against employees or customers.

53
Q

What is retained profits (sources of finance)

A

Retained profit is profit that has been made by the business in previous years that is then reinvested back into the company.

Advantages
Does not need to be repaid

Disadvantages
For profits to build up to use in this way can take too long and good business opportunities missed

54
Q

What is retained profits (Sale of assets)

A

This is when a business sells items that they no longer need for example machinery or transport. They can then use this money to re-invest into other areas of the business.

Advantages
-Does not need to be repaid

Disadvantages
-May be difficult or may take time to sell the assets

55
Q

What is retained profits (Bank Loan)

A

A bank loan is a long term source of finance. It is a fixed amount of money that is given to a business by the bank that has to be repaid over time with interest, usually in monthly instalments.

Advantages

  • loan can be repaid over a long period of time
  • Can be arranged quickly

Disadvantages
-Interest has to be paid in addition to the loan amount

56
Q

What is retained profits (Grant)

A

A grant is a fixed amount of money usually awarded by the government, EU (European Union) or charitable organisations. Grants are given to a business on the condition that they meet certain criteria such as providing jobs in areas of high unemployment.

Advantages
Does not need to be paid back

Disadvantages

  • Business needs to meet certain criteria
  • It is time-consuming to apply for grants and to complete the paperwork
57
Q

What is retained profits (Crowdfunding)

A

Crowdfunding involves getting small amounts of finance from a large amount of people. This is usually done through social media or crowdfunding websites. Crowdfunding investors may:

donate money
get rewards for their investments
receive a share of the profits

Advantages
-Access to large amount of investors
Fast way to raise finance

Disadvantages
-A public request for investment risks your project being copied by competitors

-If the targeted amount isn’t reached the money is returned to investors and the business gets nothing

58
Q

what is the purpose of budgeting as an aid to decision making

A

A cash budget is a document produced to help a business manage their cash flow.

A cash budget is prepared in advance and shows all the planned monthly cash incomings (receipts) and any planned cash outgoings (payments).

59
Q

What are solutions to cash flow

A

Solutions to cash flow problems
-Find a cheaper supplier
This will reduce the cost of purchases meaning more cash available from each sale

-Lease machinery or equipment
This allows a business to spread the cost of the purchase over many months

-Sell any assets that are not being used effectively
This will release cash that can be used elsewhere in the business

-Apply for a loan or overdraft from the bank
This will help to cover immediate cash flow problems but will need to be paid back over time with interest

-Offer discounts to customers for paying up front or paying for goods quickly
This will encourage customers to pay quickly and reduce the number of people who owe the business money

-Increase advertising or sales promotion
This will increase sales meaning more cash coming into the business

60
Q

What is the purpose of an income statement

A
  • shows the profit/loss made by the company from the buying and selling of goods
  • can be used to compare gross profit and profit for the year over different years of trading to identify any trends and to aid decision making
  • comparisons can be made with similar companies in the same industry
  • can be used to compare expenses and sales over the years or between department to see if there are any areas where they can be minimised or improved