Unit 1&2 WARM UP Questions....... - PowerPoint Presentation

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Unit 1&2 WARM UP

Questions.......

What is meant by? (2 marks)

Explain two methods/ ways (4-6 marks)

How could

?

Recommend? (9 marks)

Use the case study, when you state something back it up with a suggestion for the business.

9 marks – Assess – advantages and disadvantages, evaluation

Unit 1.1 Starting a business

Reasons for setting up a business, read the case:Own boss, keep profits, escape employment, pursue an idea, social enterprise

Social enterprise- a business set up to help society not just for profit

Gap in the Market (Niche)Benefits less competition, growing market, potential high sales

Franchise; Using an existing franchisor name and productsAdv - existing reputation, brand name, training support, national marketing supportDis- balance of power between franchisor and franchisee, give some profits away

Aims and objective: SurvivalMake a profitCustomer satisfactionBe ethicalMarket share

Stakeholders – employees, suppliers, customers , community, managers

Business plan – reduce risk, lack of experience, need capital – DIS – Cant guarantee success – owners maybe unsure how to write one

Sole Trader – ADV – Quick, handle all decisions, keep all profitDIS – Unlimited liability, stressful workload, may find finance difficult

Partnership (2-20)- ADV More finance, ideas, specialise in different areasDIS – disagreements, share profits, still UNLIMITED

Private Ltd –ADV Limited liability, sell shares, higher reputation DIS – Legal procedures, final accounts need to be produced

Location – Maximise revenue, minimise costs –

Availability, competitors , employees, costs, sales potential DEPENDS ON THE TYPE OF BUSINESS

Unit 1.2 Marketing

Market research enables a firm to find out about its market, customers and competitors

Primary research is gathering new information e.g Questionnaire

Secondary research is using existing research

SecondaryADV – Less time to carry it outSometimes larger scale information gathered

Marketing Mix – the four major variables of marketing - Price Place Product Promotion

Product – What products a SMALL business is likely to offer – sometimes unique to Large businesses to compete

Primary ADV –Tailor research questions specificallyCheapCan speak to consumers face to face e.g focus group/ customer or supplier feedback

PRICEWhat must a business consider when setting a priceCOSTCOMPETITIONLOCATION IMAGELow price is not always the answer

Place – Method of distributionHow goods are transferred from manufacturer to customer

PromotionLimited budget promotions such as Local newspaper advertising, PR, Direct mail, Personal selling, Website

Place

Producer – Retailer – Customer

Producer – wholesaler – retailer –customer

Unit 1.3 Finance

Sources of financeWhat do they need finance for?Bank LoanADV – Advice/ instalmentsDIS - InterestFamily and FriendsADV – Flexible paymentsDIS – Conflict OverdraftADV – Can regularly use itDIS – High charges/interestMortgageADV – instalments/ spread costDIS - interestTrade creditADV – Finance periodDIS – Extra debtGovernment GrantADV – FreeDIS – Need qualifications for grant

CalculationsRevenue = Selling price x units soldCosts = Variable costs + Fixed costsProfit = Sales revenue - costs

Cash Flow A prediction of a business inflows and outflows, showing the closing balance

Why have a cash flow:

Organise costsSee potential areas to improveHelp persuade a bank for investmentForesee overdraft

Ways to improve cash flow

Spread payments

Encourage receipts to be paid

Cut payments

How many?

Full- or part-timeWhat hours?When to start

What will be their duties and responsibilities?JOB DESCRIPTION*PERSON SPECIFICATION*The business must decide whether to recruitment internally (from within) or externally (outside)

NewspapersProfessional magazinesInternetJob centreWord of mouthBusinesses will think about the cost of advertising

Application formCVReferencespresentationsAptitude tests (role play)Interview panelsPsychometric tests

Care must be taken to ensure selection is mindful of laws relating to employment(discrimination) An EMPLOYMENT CONTRACT must be provided that states Job titleLocationHours of workSalary/wageHolidays and other entitlementsTerms of notice

Induction programmes are used to ensure staff are happy and prepared for employmentRules of the businessLocation of different departments how the business operates

Unit 1.4 People in Business

Monetary Motivation:Wage/ salary/ BonusNon Monetary motivation:Responsibility/ promotion/ fringe benefitsMotivated staff – output/profit increase/ reputation/ less staff leave

Protecting staff

Minimum wage

Equal Pay

Health and safety

Small business cannot ignore and can be costly

Unit 1.5 operations

Job production: making one off specialised product for each customerADV- meet customer requirements/ charge high priceDIS – slow to make/ labour coats/ material cost highBatch production: groups of identical items that pass through different stages of the production processADV – Lower unit costs/ make more of the same itemDIS – lose some specialisation

Operationally efficient –Keeping costs low but maintaining a good standardWays to be more operationally efficient? Efficient machineryMotivated staffMinimum wasteEffective managementADV – Can charge lower process

Changes in technology;ADV – Lower unit costs/ Better communications/ Quicker/ FlexibleDIS – Cost/ training/ demotivation/ breakages

Quality Assurance – checking products/ services

Customer serviceBeforeDuring After

Consumer protection;Good should be fit for purpose.Customers protected by law

ICT – Ecommerce

ADV and DIS to customers

ADV and DIS to business

2.1 The Business organisation

Reasons for Growth:To increase salesTo increase market shareTake advantages of economies of scaleReputation increases

Reasons against growth:Lose controlMay lose a personal service with customersRiskIncreased workload

Methods for expansionOrganic growth: expansion within the businessInorganic growth: expansion by merging or taking another business.

Organic growth:Open more branches/ launch a new productSelling on the internet (ecommerce)Sell Franchises

Inorganic Growth:Horizontal integration (TAKEOVER)

Disadvantages:Conflicts between stakeholders:E.G Customers might not be happyEmployees might lose their jobsShareholders have to sell shares, lose control

Private Limited Company (ltd)Features:More status than a sole traderLimited liability Original owners become directorsRaise share capital from private investors

Public Limited Company PLC

Sell shares to the public on Stock exchange

Higher status/ reputation

Pay dividends to shareholders

Potential to raise large capital

Accounts have to be made public

2.1 The Business organisation

Changing aims and objectivesProfit growthIncrease market shareIncrease shareholder valueEthical objectives

Social Cost and benefitsEthical objectives:Environmentally friendlyTreating workers fairlyTreating suppliers fairly (Fair trade)Benefits of being ethicalImprove reputation amongst customers, suppliers and workers

Location: Aims – Maximise revenue, minimise costsThings to consider:Cost of siteLabour costsTransport costsSales potentialManagers preference

International LocationBenefits of locating abroad:Low costs – labour and materialsAvoid trade barriersTake advantage of a different market

International Location

Drawbacks :

Language difficulties

Transport costs of goods

Bad publicity – lose national pride

Unethical – paying lower wages

UK employees lose jobs

2.2 Marketing4 P’s (Marketing Mix)

Market Research in Unit 2 is limited. As a growing business they receive market research through Competitors, consumer feedback, contact with producers/suppliers

Product portfolio –selling a range of products:Benefits:Customer spends moreDifferent target marketDiversify if product failing

Drawbacks of large portfolio:Many managers have to be employedPublicity could be harmed by another productDevelopment costs high

Launch

– sales slowGrowth – Sales demand acceleratedMaturity – Sales level off sue to competition, consumer already have the productDecline – sales fallExtension strategiesUpdate designRe BrandTarget new markets

Pricing decisions are based onCompetitionThe marketCost of production

Competitive pricing – setting a price for a product based on prices

Price skimming – setting a high price at a high level to create a high quality image

Price penetration – setting a low price at a low level to gain market share and gradually rising with reputation

Cost plus pricing – setting a price by adding a profit mark up to the cost of production

Loss leader Pricing: setting a price below cost hoping to gain sales

2.2 Marketing4 P’s (Marketing Mix)

Aims of promotionInform customerCreate brand imageSupport Price reduction, discountHelp sales growth

AdvertisingCommunication through media – TV, newspaper – CUSTOMER ONLY

Direct MarketingEmail, telemarketing, direct mail – TRADE and CUSTOMERS

Promotional considerations:CostNature of the productNature of the marketing

Place Producer – Retailer – CustomerProducer – wholesaler – retailer –customer

Telesales –Selling to the customer through telephone contact

Internet selling –Selling straight to the customer via the internet

Mail orderDirect marketing through mail (catalogues)

Sales Promotions2-4-110% off etc

Sponsorship

Sponsor an event – to raise profile, can be product related but must meet target market

Large businesses need extra CAPITAL (money) to expand

Retained Profit: Profit kept in the business

New share issue: PLC and Ltd companies can sell shares

Loan or mortgage:Borrowing money from the bank, mortgage for a property

Selling unwanted assets:Selling an asset such as a building to gain capital. Could leaseback (rent)

2.3 Finance

No interest paidNo loss of control

Share capital does not to be repaidNo interest

No loss of controlLower interest for larger companies

No loss of controlFinance raised but can still use the asset if leased

Profits maybe to low to fund expansion

Dividends will have to be paid

Interest could be highMust be repaidProperty will have to be given up if can t pay the debt

The asset is no longer ownedRental/ leasing costs

Advantages

Disadvantages

2.3 Finance

Financial statements:Profit and loss account and Balance sheets

Stakeholders interested in accounts because:Shareholders – whether to invest more, dividend returnBanks – see if loan can be paid back, safe to lend moreGovernment – Tax Employees – Job Security

Profit and LossSales £5mCosts of sales £2mGross Profit £3mExp/overheads £2mNet Profit £1mSales – the value of sales revenue. Selling price x units soldCost of sales – value of stock bought in to make the product/ serviceGross profit – Sales – Cost of salesOverheads – other fixed costs such as wages, elecNet profit – Gross profit – overheads IMPORTANT FIGURE

Balance sheetFixed Assets £20mCurrent Assets £10 mCurrent liabilities £5mLong term liabilities £2mNets assets £23m-----------------------------------Shares £10mRetained Profit £13mTotal Capital £23mFixed assets items owned over a year e.g. building, vehiclesCurrent assets items owned under a year stock, debtorsCurrent liabilities items owed under a year creditorsLong term liabilities owed over a year mortgage or loan

Interpreting accounts

Gross profit margin: GP/Sales x100

Net Profit margin: NP/ sales x 100

For every £1 of sales how much profit is there

Current ratio: CA/CL

Acid test Ratio CA-stock/CL

Test liquidity. For ever £1 assets how much liability is there.

2.4 People in Business

Organisational structure:Makes clear who is responsible for which departmentHow employees can communicateAllows layers of management

Two typesFlat structure – Less levels of management, more span of controlTall structure – more levels of management, less span of control

Layers of management:Number of different managers in an organisationSpan of control:The number of employees each manager is responsible for.

Flat advantagesQuicker communication to the top as less levels of managementMore responsibility to the workers – motivated by this

Tall AdvantagesFewer staff to controlSenior managers make decisions – less riskTraining costs fewerPromotion opportunities

Tall

Flat

Centralisation organisation

Senior managers make all decisions

Strong leadership needed

Central decision should be consistent

Allows for quick decisions

2.4 People in Business

Decentralisation organisationDecision making spread across middle managersLocal managers may have better knowledgeMotivation giving responsibility for lower managers

RecruitmentStage 1 – Analyse the jobStage 2 – Job description/ job specificationStage 3 Advertise Internally or externallyStage 4 ApplicationStage 5 Testing/Interview

Advantages of Staff training Cope with changesIncrease productivityReduce chance of poor qualityStaff motivated

Disadvantages of Staff training CostWorkers trained and not workingEmployees move on with qualifications gained

Staff appraisal Done between managers and employeesProvide feedbackSet objectivesIdentify training needed

Motivating staffTrainingManagementRemuneration methods

Autocratic – managers who believe in taking all decisionsDemocratic – allowing employees to make decisions

Remuneration methods

Method of paying employees to motivate them

Piece rate (paid for individual output)

Hourly wage rate

Salary

Profit sharing

Operations

Aims of operations:Efficiency – Little wastage, low costs , helps to competeHigh Quality – Maintain standards, justify price

Production MethodsFlow: Continuous production lineFeatures: Large scale, usually one product, specialisation of labour, Division of labour

Division of labour:Breaking a job into smaller tasks repeated by a machine or worker

Advantages of FPEconomies of scaleComputer/machinery accuracyLess stock need to be held

Disadvantages of FPSet up costsProduction problems causes whole line to stopWorker motivation

Lean ProductionA production approach that aims to use a few resources as possible

KaizenContinuous improvement-Workers look at ways to improve the production process

Just in Time manufacturingFeatures:Arranging with suppliers that materials/ stock arrive a day/week before producingProducing to order when customers make that order

Advantages of JITCuts stock holding spaceImproves cash flow by reducing paymentsGood supplier relationships

Disadvantages of JITCustomers may have to waitDependant on suppliersSmall orders may increase costs

Lean DesignCreating products visually before developing them

Cell production

Working in teams for one product

Operations

Benefits of growthFinancial – market share, revenue, profitOperations – Lower unit costs (EOS)

Main Economies of scaleBulk Buying – larger orders with discountsTechnical – more efficient technology and computersSpecialist managers – afford to employ specialist a managersFinancial – benefit from lower interest rates on loans

Main Diseconomies of scalePoor communicationLarge businesses have layers of management – difficult to pass through the whole businessPoor MotivationSome workers feel uninvolvedPoor coordinationComplex decisions can take timeMany outlets/ factories etc. hard to coordinate

Main causes of poor qualityPoorly motivated workersNo responsibility from workersLack of consistencyOutsourcing – other firms don’t have the same standardsInspection costs- every worker must be meeting standards TQM

Total Quality Management

Involving all employees in the quality checking and taking responsibility

Employees no longer think that quality is down to somebody else