Theme 2

1)The way in which you manage money needed to grow / run a business.

2) To pay debts, To help over a slow trading period in the future, To expand
, To startup, To buy stock

1)Also known as owners equity, stake the owner has in a business.
Represents net-assets of the company if all debts were paid
(how much would be owned by the owner)

2)Pro - no intrest, easy access to funds, no complex paperwork

2)A - Personal savings and rudundancy pay-outs may be invested by the
owner tostart up this is owed to the owner but realistically never paid back.
B - Sole traders mostly use owners capital.
C- partnerships use owners capital expand and grow.

1)After 1+ year/s trading a business may have made a profit,
Retained profit is the act of re-investing this profit into the business to grow.

2)Pro - no intrest paid, owner keeps control, easy access to funds
Con - once used cannot be re-used for un-forseen events

1) after 1+ year/s otherwiseit will not be able to use retained profit,
it hasent made any to retain
If a business has not made profits it cannot retain any either.

(2.1.1)
1)What is sales of assets?
2) When is sale of assists appropriate

1)when a business raises finances by selling items their own items.
E.G, Land, Premisis, Vehichles,
(2)All types of business can sell assets
E.G. Assets like a van be sold quickly for cas

1)Larger business which have big portfolio's of products can utilize this to improve efficiency.
Assets from one brand can be sold off to invest into another.

2)May no raise enough for growth/expantion.
May signal to investors business is having to sell-off assets in order to survive/keep-up
A smaller business might not survive selling of its assets.

1)Stock, Estate, Stake, Accounts, Investment, Banking, Financing, Assets, Commerce

1)Investment for the business obtained outside the business E.G, Banks and Investors

2)Where the finance comes from E.G, a business obtained its money from the bank

3)Use of finance or what use it would be suitable for E.G, A loan is used buy a computor

1)Family/friends, Banks, Peer-peer funding, Business angels, Crowd funding, Other businesses

1)Raise finance by selling shares to friends and family

2)Little need for security, lower rates + longer periods

3)Can cause tention if not re-payed, may demand money back unexpectedly

1)Banks lend loans to expand or start up, they might also provide overdrafts for cash flow issues

2)Banks lend without asking for a % in the business, allow owner to continue with full control

3)Expensive, difficult for new business to secure a loan, assets may be liable as collateral

1) Lending marketplaves gain trust of consumers by offering lower rates than banks. Many individuals contribute small amounts.
2) Can apply online, gain funding within a week once approved, expect returns of 6-7%
3) May not be able to aquire full funding if there are not enough individuals willing to invest

1) An angel investor offers to lend their personal disposable finance
2) Access to investor knowlede/contacts, No repayments/interest
3) Not suitable for investments below £10,000 or above £50,000. Owner needs to give up many shares of business

1) Where a large number of people fund via the internet, they can donate, lend or invest.
2) Good alternative to loans for small business owners, promote business and generate funds at same time.
3) Need to showcase good ideas to attract investors.

A business that may have a surplus profit may view this as a way to get good returns on investment

Loans, Grants, Share Capital, Trade Credit, Leasing, Overdrafts, Venture Capital

1) 'Renting Money' from banks. Affected by interest rates.
2) No loss of business control, fixed length in time so owners know what repayments will be.
3) Charges an interest, requires security/collateral.

1) PLCs can raise finance by issuing shares
2) Investors likely to invest more upon growth, no interest to pay back, based on aquiring equity rather than gaining debt.
3) Alot of background info may need to be provided before shares are bought.
More shares sold = More profits paid out as dividends. Can be expensive

1) Large sums of other peoples money put into a business in return for shares. High return rates in specific time periods. (e.g. Dragon's Den)
2) Good for if looking to raise alot of money quickly. Gain skills/networks of ventur capitalists.
3) High stakes of typically 20-30%

1) Allows businesses to enter a deficit when profits are low. Organised by banks
2) Ideal within a difficult trading month, instant decision from bank, only pay interest on the amount overdrawn.
3) If goes over authorised overdraft, will be charged heavily. High interesr rates, not suitable over long periods of time.

1) Aquisition/Borrowing new equipment that can be changed once worn out.
2) Always reliable, working equipment. Lower monthly costs than loans.
3) Over a fixed term meaning if wishing to switch companies, a contract may be difficult to get out of.

1) Trade credit allows business a set time to pay for a good after purchased. e.g. 30, 60, 90 days.
2) Allows the business to make a profit from the good before paying for it.
No interest payments. Can build relations between firms for better deals.
3) Not all stock can be bought using trade credit, if not paid in time, credit may be rejected in the future.

1) Government provides financial help to overcome financial problems
2) No need to pay back, no interest payments and no loss of control.
3) Finding a grant that suits a specific project may be difficult, competition is high.
Can be a very time consuming process. Normally only given to projects that havent started yet.

1) Business owners are a seperate legal identity to the business
2) Public & Private Limited Comapnies (Plc & ltd)
3) Can sue/ be sued seperately, own seperate assets, can sell shares.
If business enters debt/ collapses, owner cannot be made to sell possessions to pay debt

1) Business owners have the same legal identity to the business
2) Sole traders & Partnerships
3) Personal assets may have to be sold to pay off business debt.

Loans, Angel Investors, Credit Cards, Crowd funding, trade credit, owners savings, overdrafts.

Retained profit, sale of business assets, issuing shares, government grants, venture capital

1) To set out objectives/plans for the business. To identify problems and monitor effectiveness.
To persuade lenders that the business will make enough profit to be able to pay back any payments owed.

2) A cash flow forecast. Name of business, market aimed at, 4Ps - Product, Price, Place, Promotion.
HR (who works there), Production costs, Premises, Financial information

1) It predicts the net cash flow of the business over a future period (Inflows - Outflows)
2) Negative net cash flow flow at end of month, represented by having brackets around value for 'balance carried forward'.

1) Money coming in - Income
2) Cash being spent in business - Expenditure

1) Help control/monitor cash flow in a business, a good forecast can help owner secure a better deal on their finance.
2) Only a 12 month snapshot which is a short time to make concrete business decisions.
Only an estimate therefore can over/ underestimate revenue or expenses.
Investors would be making a big risk if they are making decisions on the cash flow forecast alone.

1) sales forecast estimates the volume or value of future sales using market research or past sales data.

1) avoid cash flow problems, frees up management time, production capacity, employ more workers, start promotional activity

1) Consumer trends, Economic variables, Actions of competitors.

1) no guarantees, dynamic markets,short term thinking

1) Money into your business through sales is called sales revenue
2) Variable costs are costs that do vary with level of output.
3) Fixed costs are costs that do NOT vary with the level of output
4) financial gain of a business through trading and can be found be deducting expenditure from income; P =TR-TC

1) Money into your business through sales
2) SR = SP x SV

1) SV = SR/SP

1) TVC = AVC x Q
2) TC = VC + FC

1) point at which Total Revenue equals Total Costs so
the business is making neither a profit nor a loss, TR=TC

1) amount that each unit produced ‘contributes’
towards the fixed costs of the business
2) C = SP – VC

1) FC/ Contribution

1) calculation shows the
number of sales that could be lost before business makes a loss
2) Actual sales - break-even level of sales

Pros: Creates room for error
Helps you account for multiple risks Cons: Based on subjective factors
Doesn’t guarantee returns
Less appropriate for growth investors

1) estimate of income or expenditure for a set period of time
2) Estimation of much will earn
3) estimates the costs
4) Any changes between estimation and real

1) planning, forecasting, communication, motivation

1) based on previous performance of sales and costs
2) based on a prediction of performance usually or a start up

1) has underspent in department, this would be regarded as a success as any costs cut will have an impact on profit
2) overspent and it would depend on the reasons, perhaps the needed
more staff than was budgeted for and had to hire during the year

1)financial gain of a business through trading and can be found be deducting expenditure from income; P =TR-TC
2)Gross profit​ ,Operating profit​,Net profit ​
3)Need to publish their accounts every year, this is UK law​

1)GP = Sales revenue – Cost of sales​
2)OP = Gross profit - expenses​

1)NP = OP - interest​

1)Helps managers, owners and investors to know how the business is
doing by measuring the profitability​

1) Gross profit /sales rev x 100
2) OP/ sales rev x 100
3)NP/sales rev x 100

1)Have a sale, reduce the prices​
Advertise more e.g. Yorkshire tea
Promote the products more ​

1)Restructuring, delayering and redundancies​
Automating production​

1) Profit :
recorded straight away​
A business can trade for many years without profit​
To improve profitability a business must either increase their revenue or reduce their costs as:​ P = TR- TC​
2)Cash will not be recorded until it is paid out or received which could be in a different trading year ​
business may go bust of it runs out of cash to pay a supplier or wages of staff​
If owners introduce cash via savings or a loan this will not affect the profit figure​

​

1) business to turn its assets into cash to pay its current liabilities​
2)while stock is easy to sell on​,machinery for example may take a while to sell
​

1)statement of the assets, liabilities, and capital of a business or other organization at a particular point in time, detailing the balance of income and expenditure over the preceding period

1)Current ratios ,Acid test ratio

1)Current assests /Current liabailities
2) 1.5:1, lower than this and there is not enough money to pay bills​

1)Current assests -inventory / current liabilities
2)If a business has an acid test ratio of less than 1:1 then its current assets (minus stocks) do not cover its current liabilities.​
3) cannot guarantee to sell all of the stock. Stock can also spoil, become obsolete or just go out of fashion. ​
-some retailers with strong cash flow and fast moving stocks may have an acid test of 0.4:1 and be fine

1)reduce the amount of stocks that it holds
reduce the credit period offered to customers
pay suppliers later on agreed credit terms​
increase borrowing long term and clear the short term debts​

1)Working capital means the day-to-day finance needed in a business and can be calculated by CA-CL​

1)n a business ceases to trade or when a business does not trade in a profitable way or when a business makes a terrible decision​
2)Poor effciency,poor marketing,failure to innovate,Bad management of working capital
3)Economic recession,weak/strong pound

2) Economic recession​
Strong pound – reduced export demand​ (SPICED)

1)outout oer input per hour
2)total amount of output that is produced in a time period​

1)Job,Batch,Flow Cell

1) where one single product is made at a time​(Products are made for a specific client or customer​)
2)Bespoke, unique, one off, to customers ,motivated workers who can see one item made from start to finish​,more productive and have lower rates of absenteeism​

1)Skilled labour and craftsmen are expensive​
Wide range of tools may be required​
Hard to speed up if demand increases​

1)when a business wants to make more than one item at a time​
2)Production can be changed to meet customer needs
-Standard production of items = mechanised =less labour involved than job production​
-Employees specialise so become good at their job​
-Lower skilled workforce means lower wages can be paid​

1)Small batches carry higher average unit costs (EOS)​
-Workers may be less motivated with repetitive work​
-Idle time between batches needs to be managed as this is wastage​

1)production lines with continuous movements of items through the process​
(Assembly lines)
2)Toothpaste​,Cola​,Crisps​,Chocolate bars​
3)bulk buy raw materials and save money (economies of scale)​
Automated and computerised production=improved quality and more complex designs can be made in shorter times​
business can use the JIT (just-in-time) system​

1)High costs to buy the factory and machinery​
-Low motivation of staff due to repetitive tasks​
-Break downs and lost production can be costly​
-Very inflexible, hard to change the factory machinery to make different products, the production process will be set up to make just one item e.g. bottled cola​

1)dividing up production into separate self contained areas that are each responsible for a section of work​
2)Wastage through movement of materials is reduced​
Time waiting for stock to arrive is reduced​
Bottlenecks in the production process are reduced
Cell production can = increased worker commitment and motivation and therefore increased productivity​

Any breakdown of machinery will stop the production​
Needs more staff to supervise than a continuous flow​
Expanding can be hard as space may be limited or restricted by tasks​

1)Productivity bonus​,Productivity deal​,Staff training​
Investment in new machinery and equipment​

1)Quality of inputs in the production process,investment in new technology,
Labour shift organisation of worker
2)If produce more better EOS=charge a competitive price​

1)Aim to operate at the minimum average cost per unit so that they can take advantage of economies of scale​
2)TC / output​ Where TC = FC + VC​

1)makes products using mostly human effort (or labour)​
2)goods are produced using mainly machines and equipment​

1)Maximum capacity for output that is being used – it is normally expressed as a % of maximum output

In high capacity utilisation; fixed costs are spread more over units if production. In Low Capacity utilisation, fixed costs cant be too high to stay in Business.

1)the fixed costs are spread over more units of production​
2)fixed costs can be too high to stay in business or keep producing that product​

1)price cut sale or through promotion​,off peak times the business could offer special deals ,redudentacy
sell assests.lease to toher busineses

Current output ​
________________ x 100​
Maximum output ​

1) Current output is less than maximum output​
2)Current output is more than maximum output​

1)control of the flow of stock in a business, it concerns the ordering and management
2)time it takes from ordering the product to delivery to customer​

1)stocks which are held in case there is unforeseen rise in demand or a problem with supply​
2)easily respond to changes in consumer demands​,if the suppliers cannot deliver on time that production will not be affected​
3)cost of storage is high,tie up the working capital of a business​

1)Loss of customer goodwill​
Loss of sales revenue​
Damage to reputation​
Disruption to production​

1)business does not keep stocks of parts in a warehouse​
2)no wastage ​,cost saving in terms of premises and staff​,less likely to go out of date
improve their cash flow, as their money is not tied up in stock​
3)won’t be able to meet unpredicted surges in demand ​not ,able to quickly replace damaged parts​,

1)Any activity or result that the customer doesn’t value and is not willing to pay for.
These activities that don’t add value for the customer between the inputs and the outputs must be removed or minimised.
2)reduce the unit costs of production​

1)Over production ​,Waiting time ​,Transportation time ​,Excess processing ​
Excess stock ​,Excess motion ​,Product quality ​

1)The aim is to reduce resources used in production, to use less of everything;​
Time ​,Labour​,Capital​,Space in the factory​,Raw materials​

1)Improved productivity,Quality improvements through reduction in defects,
improved customer service through delivering exactly what is required
shorter lead times,Reduced waste in terms of the 7 types of waste​,Safer work environment, with a more organised leaner

1)how well a product or service does what it was designed to do​
2) traditional way of managing quality​
3)design the way a product of service is produced or delivered to minimise the chances that output will be bad

1) management approach change in business culture that puts quality at the heart of everything in the business
2)Not paying for inspectors​,Empowered employees are motivated (esteem needs met)​
Improved quality therefore more satisfied customers​,Enhanced reputation ​
Builds good partnerships with suppliers​,More involved workers​
Less development time for new products​

1)Takes time to introduce​,Some staff can be resistant to change​
Will cost to train staff​,Defects may not be spotted until the end which can be expensive e.g. mobile phones​

1) group of employees who meet on a regular basis to talk about quality problems
2)constantly introducing small incremental changes in a business in order to improve quality and/or efficiency

1)when a business is affected in any way by economic factors e.g. inflation

1)Rise in the price of goods in the UK economy​
2)Consumer price inflation is the rate at which the prices of goods and services bought by households rise or fall​
3)price of one currency in exchange for another​

1)rise in the £pound against other currencies=imports will be cheaper and exports will be dearer​(SPICED)
2)Fall in currency =

1)means the cost of borrowing money​
rates rise = cost of borrowing will rise =cost of supplies for a business may increase
fall in rates = cost of lending falls which = increase in profits (costs less to borrow so less to pay back)​
2)monies demanded from the government, so they have money to spend elsewhere

1)Taken off an employee's or business owners’ salary. ​
2)period when an economy is growing strongly​
3)a period when growth or output become negative

1)when demand for goods and services starts to improve​
2) period where there is a particularly deep and long fall in output​

1) set of laws suggested by government and made official by parliament​
2)consumer protection​,employee protection​,environmental protection​
competition policy​,health and safety​

1) to make sure that consumers are protected when buying products or services in the UK​
2) to protect the rights of employees in UK businesses ​
3) to ensure that business recycles and managers their waste effectively​

1) promote competition for benefit of consumers, prevent abuse of monopoly power, prevent collusion and prosecute cartels​
2)to ensure the health and safety of every worker in a UK business regardless of their trade​
3)Training staff​,Protection equipment for staff e.g. hairnets or googles​,Cost of paying NMW​

1)where more than one seller seeks to sell goods or services to a customer​
2)Nature of business ownership,​ Pricing strategies used,​ Marketing methods used
Nature of product or services produce ,Nature of the product range ​