Unit 1- Topic 6: Business Strategy & Planning (not fully finished yet)

Question 1

What is a business plan?

Answer 1

Summarises a business’s key objectives and the strategies employed to achieve the stated objectives. A plan of action when addressing future operations made by the management team.

Question 2

Advantages of a business plan.

Answer 2

1. Enables management to analyse business performance (e.g. sales revenue, costs, market share).
2. Allows for the consideration of resources required to support business activities across key functional areas.
3. The financial position is summarised and applied to strategies to justify the use of internal funding to achieve business objectives.

Question 3

Disadvantages of a business plan.

Answer 3

1. Management is required to spend considerable time and resources to complete the business plan.
2. The data used to complete a business plan may date very quickly.
3. May be difficult to extrapolate data over the long term making it difficult to plan ahead & achieve objectives.

Question 4

What does SWOT stand for?

Answer 4

S- Strengths (internal)
W- Weakness (internal)
O- Opportunities (external)
T- Threats (external)

Question 5

Advantages of SWOT.

Answer 5

1. It encourages businesses to develop strategies in order to translate weaknesses into strengths.
2. It highlights current & potential changes in the market.
3. It concentrates on the important factors that affect your business (e.g. address weaknesses).

Question 6

Disadvantages of SWOT.

Answer 6

1. It oversimplifies strengths, weaknesses, etc. Of a business.
2. The external factors can change rapidly. (A strength may become a weakness).
3. It is only one stage of the business planning process. More in-depth research and analysis required.

Question 7

What does PESTEL stand for.

Answer 7

P- Political
E- Economics (oil, gas, electricity)
S- Social
T- Technological
E- Environmental
L- Legal

Question 8

What is PESTEL used for?

Answer 8

Used to identify, explain and analyse the external issues facing the business in order to help the business make decisions in pursuit of achieving their business objectives.

Question 9

Advantages of PESTEL.

Answer 9

1. Helps identify opportunities for growth present in the external environment.
2. Helps businesses take advantage of some opportunities such as failing businesses by examining economic aspects.
3. It can focus the business on the environmental aspect to give the business a good image and competitive advantages.

Question 10

Disadvantages of PESTEL.

Answer 10

1. It oversimplifies the issues, may not reflect reality, and leads to incorrect decision-making.
2. Has to be updated regularly to be effective i.e. takes time and money.
3. Some issues cannot be changed by analysing such as legalisation.

Question 11

Advantages of using owners own savings as a source of finance.

Answer 11

1. Cost-effective (no interest charges)
2. Available immediately
3. Private source of finance

Question 12

Disadvantages of using owners own savings as a source of finance.

Answer 12

1. Owners may be reluctant to risk further investment.
2. May have already invested savings.

Question 13

Advantages of using retained profits as a source of finance.

Answer 13

1. Cost-effective (no interest involved)
2. Flexible
3. Private source of finance
4. Retain control

Question 14

Disadvantages of using retained profits as a source of finance.

Answer 14

1. Not an option if the business is operating at a loss.
2. Slow source of finance
3. Shareholders’ reluctance- less dividends paid out.