A2 Business

A2 Business

Ethics
1. • enhance reputation/image • increase competitiveness • increase sales • increase profit • to gain awards/recognition • encourage repeat business/customer loyalty • satisfy/motivate employees • increase staff retention • staff recruitment easier • unique selling point • satisfy stakeholder needs • reduces stakeholder issues (award for each different stakeholder if correct) • ethical consumerism.
2. Improve - above the minimum wage • good working environment • fair wage • avoid using child labour • non-financial incentives.
3. Reasons to be ethical - o • social trend • corporate social responsibility • attract ethical investors • mission statement • ability to charge premium prices • lower production costs allowing ethical practices and high profits • government regulations encouraging ethical practices. • shareholders demand higher dividends • lose control • higher profit • risk of takeover.
4. Laws are legal requirements while ethics are moral obligations.
Budgets
1. Historical
  1. Advantages: Easy to construct because it is based on past performance . Likely to be more realistic and attainable because it is based on figures from previous years
  2. Disadvantages: Unexpected events would render it unachievable (1) eg a sharp rise in interest rates . Assumes that there are no major changes from one year to another.
2. Zero
  1. Advantages: As it is based on needs and benefits allocation of resources tends to be more efficient (1). Drives managers to find cost effective ways to improve operations (1). Useful for service departments where the output is difficult to identify (1). Increases staff motivation by providing greater initiative and responsibility in decision-making (1). Increases communication and coordination within the organisation (1). Forces cost centres to identify their mission and their relationship to overall goals
  2. Disadvantages: It is time-consuming because decision makers are forced to justify every detail related to expenditure . Honesty of the managers must be reliable and uniform .
3. Cont. Incremental budgeting
  1. Advantages: The budget is stable and change is gradual . Managers can operate their departments on a consistent basis . The system is relatively simple to operate and easy to understand . Co-ordination between budgets is easier to achieve . The impact of change can be seen quickly
  2. Disadvantages: Assumes activities and methods of working will continue in the same way (1). No incentive for developing new ideas (1). No incentives to reduce costs (1). Encourages spending up to the budget so that the budget is maintained next year (1). The budget may become out of date and no longer relate to the level of activity or type of work being carried out (1). The priority for resources may have changed since the budgets were set originally (1).
Costs
1. Variable - change as output varies.
2. Fixed - do not vary according to the amount of output
3. Break Even
  1. W -external factors • ignores economies of scale • assumes selling price does not change • selling price might change with bulk orders • fixed costs could rise with new proposals • variable costs could change • assumes everything produced is sold • does not account for a range of products • apportionment of fixed costs if more than one product is produced • assumes all costs/revenue are linear • does not take into account start-up costs.
  2. Selling Price - Variable Price
  3. Average Selling Price = Sales revenue divide annual output
  4. Contrubution - Selling price minus variable cost
4. VAT
  1. • insurance • printing • stationery • stock • materials • utilities • postage
5. Cashflow Forecast
  1. S - shows viability • shows where more funding is needed • to show stakeholders e.g. banks • monitor business performance • for budgeting purposes • compare proposals • shows where savings can be made.
6. actual wages vs budged wages • more employees might have been needed • (minimum) wage has increased • staff may have been given a pay rise • employees worked more hours than anticipated/overtime • more skilled employees were used.
Tools
1. S.L.E.P.T
  1. Social – preference for reusable nappies, care for the environment, etc • Legal – minimum wage, tax payable, health and safety laws
  2. Technology – IT software/hardware, robots
  3. Political – government policies on foreign investments, incentives offered to businesses, stability of ruling party, tax
  4. • Legal – minimum wage, tax payable, health and safety laws
  5. Economic – unemployment, inflation, interest rates, exchange rates, tax
2. P.E.S.T
  1. Economic – recession/credit crunch, recovery, unemployment, inflation, interest rates, exchange rates
  2. s - to help respond to external factors which might impact on business/to help draw up contingency plans for changes in external environment/ to help to make strategic decisions based on social trends/political factors.
  3. Political – government campaign/funding, change of government, EU funding
  4. • Technology – equipment/machinery to aid farming • Demand • Cost of supplies
  5. • Legal • Environmental • Weather/climate • Competition • Pressure groups.
3. S.W.O.T
  1. Stregths, Weakness, Opportunities, Threats
  2. S- examines the internal/external environment a business operates in • can build on strengths • overcome weaknesses • make sure opportunities are identified and exploited • know what threats the business faces • highlight the positives. Indicative benefits: • better planning • higher profits • greater control • reduce risk • increase chance of success • exploit opportunities • get ahead of competitors • allows contingency plans to be drawn up • supports financial application • resolve issues before they occur • devise a solution.
4. Ansoffs Matrix
  1. Products Existing
  2. Markets Existing
    1. Market Penetration
  3. Products New
    1. New Product Development
    2. Diversification
  4. Markets New
    1. Market Development
  5. S - Brief outlook
  6. W - Does not consider other factors - competition
  7.  assesses levels of risk  the matrix is split into four quadrants – market penetration, product development, market development and diversification  enables a firm to determine into which quadrant a planned investment fits  diversification - a new product in a new market  diversification being the most risky option.
5. Boston Matrix
External Stakeholders
1. Government
  1. Raise awarness to public
  2. Provide Grants
  3. Government loans
  4. Grant planning permission
  5. Changes in legislation
  6. advice on start-up
  7. tax break
  8. price cap
  9. Makes sure employes paid fairly
2. Local Communities Impact
  1. • could protest if not happy • could complain • might generate bad publicity • might object planning applications • write to the press • talk to local radio • might boycott produce/service • frequent the business • recommend business to others.
3. government/revenue and customs/tax office(1) • Local government/council/parish council (1) • customers (1) • competitors (1) • local community (1) • suppliers (1) • environmentalists/pressure groups (1) • bank (1) • investors (1) • trade unions (1)
Businesses
1. Franchise
  1. A type of license that a party acquires to allow them to have access to a business's proprietary knowledge, processes and trademarks in order to allow the party to sell a product or provide a service under the business's name.
  2. S - trade under an established brand • established customer base • support/advice network • training is provided • reduced risk • easier to obtain finance • advertising is paid for • financial support • equipment provided
  3. W - royalty fees/pay percentage of profit to franchisor • high start up payment to franchisor • does not have full control • has to follow rules laid down by franchisor • franchisor could close down • dependent on reputation/image of other franchisees • high targets set by franchisor • set prices • cannot sell other products • cannot decorate/promote shop own way. • cannot chose geographical location
2. Private Limited Business
  1. A type of company that offers limited liability, or legal protection for its shareholders but that places certain restrictions on its ownership. These restrictions are defined in the company's bylaws or regulations and are meant to prevent any hostile takeover attemp.
  2. Tax advatages
3. Public Limited Business
4. Sole Trader
5. Partnership
6. Co-operative
Variance Analysis
1. s - identifies adverse/favourable • identifies underspend/overspend • compares actual figures to budget figures. • monitor and control financial performance • identify overspend • minimise waste • set future budgets/amend budgets • control expenditure • identify reasons for variance.
Order tracking - information on the status of an order • information on the despatch of an order.
1. S - enable planning of schedule • indicate whether work can be completed on time.
Technology Software
1. Advantages: • Greater yields • Lower maintenance • Lower wages • Faster output/saves production/admin time • Improved stock control • Effect on quality/less wastage.
2. Disadvantages: • Lack of skills • Costs of hardware and software • Training • Effect on quality/wastage • Maintenance / breakdown costs • Cost of updates in technology • Reliability • Reliance on technology cost of upgrade • cost of maintenance • security issues - risk of hacking, virus, firewalls, encryption , storage, cost of electricity
3. spreadsheet • accounting package (• formulas can be used • can be edited/changed • templates can be used. (e)identify two disadvantages of using IT in a business)
4. -methods using it to communicate – emails, video conferencing, skype/webcam
Enviromental Importance
1. • enhance reputation/image • to meet consumer demand • competitive advantage • satisfy specific needs of stakeholders/pressure group • to observe legal requirements • to minimise contribution to global warming • to minimise pollution • ethical issues • preserve the environment for the future.
Economic
1. • interest rates • inflation rate • recession/growth/state of economy/economic climate • employment/unemployment rate • exchange rates • government spending • taxation (other than VAT) • minimum wage. • recession • price/availability of raw materials • stakeholders e.g. government, customers, competitors, local community, suppliers • insurance premiums • weather • unexpected events.
2. Consequences to moving main workforce - • cash-flow problems • efficiency of factory • huge variances • objectives not met • demoralised workforce • project not going to plan • problems obtaining finance • loss of business. • cause overspending • business unable to run smoothly.
Sources of Finance
1. • retained profit – eg internal, interest free, retain control, sufficient • mortgage – eg long term, repay in instalments, lower interest rates, secured
2. • bank loan – eg long term, repay in instalments, secured, professional advice
3. • (sleeping) partner – eg equity funding, debt free, control • being incorporated – eg equity funding, debt free, limited liability, control
4. • friends and family – eg, disagreements, costs, availability
5. • grant – eg interest free, no repayment, availability • Small Business Government Loan Scheme – eg availability, advice, no deposit required, lower interest than banks, unsecured
6. • selling assets – eg availability • venture capitalists/investors – eg equity funding, control.
Factors
1. Internal: • degree of risk (internal factors) • likelihood of success • cost • time • profitability • staffing • impact on workforce • retained profit available • knowledge of the market – experience/expertise • practical and operational matters
2. External: • wider business environment • customer profile • legislation • degree of risk (external factors) • economic stability • economic conditions – exchange, interest, inflation rates, etc • social trends • disposable income levels.
3. An increase in the national minimum wage
  1.  higher labour costs  higher cash outflows  decreased net cash flow  lower returns on investment.
4. An increase in interest rates
  1.  higher costs of business borrowing  increased bank loan/overdraft payments  higher cash outflows  higher costs of consumer borrowing  decreased disposable income  fewer customers/lower sales  lower cash inflows  decreased net cash flow  lower returns on investment.
5. A weakening in the value of the pound
  1.  cheaper/more competitive exports  increased sales abroad (in Europe)  higher cash inflows  dearer imports  increased production/variable costs  higher cash outflows  increased/decreased net cash flow (net exporter/net importer)  higher/lower returns on investment
Point, Explain, Effect
Business Aim/Objective
1. Objective is a short term target/Aim long term
2. Can be more then one objective
3. S - Give employees sense of achievement when reaching objective, give business motivation something to work towards
The rate of absenteeism
1. Percentage of employees not at work during a period of time e.g. health issues (stress, pregnancy) & holidays
2. Number of days of absense / total number of working days X 100
Labour Productivity
1. Total Output / Number of hours/employees of labour time
Contigency Plan
1. A cause of action that is follwed if a preferred plan fails
  1. Productive approach
  2. Reactive appoach
Marketing Strategy
1. product/packaging – quality, welfare, safety, convenience, caring, USP
2. price – strategies (eg premium/ psychological/penetration/competitive/cost-plus/value pricing), euros
3. place – outlets, mail order, location, web sales
4. promotion – methods (eg advertising, sales promotion, sponsorship, public relations), message
Payback Period
1. E.G Outflow Year 0 £11,000,000 Inflow = £1,500,000+£1,500,000+£2,500,000+£2,500,000+ 3, 000,000/4,500,000 Payback period = 4 years and 8 months
Quantitative and Qualitative Data
1. high degree of risk – diversification - Ansoff’s Matrix  likelihood of success – unknown product/unknown market  diversification – spread risk, would not be entirely dependent on the UK costume jewellery market  gap in the market for heat-sensitive babygrows  likely increase in demand for jewellery  cost – £11m equity funded plus borrowing requirement  sunk costs - strategic risk when debt funded  ARR 8% (lower than current ROCE of 9%)  predicted net cash flow for first 6 years £16,280,000  payback period 4 years 8 months (past Pearce’s planned retirement date)  current modest returns on investment  company struggling to survive despite being very busy  lack of market research/product testing  conversion to plc – time, money, bureaucracy, loss of control, share price volatility, risk of takeover  directors’ conflicting aspirations  directors’ different stages of life  directors’ differing domestic situations  aims and objectives  staffing issues – high absent

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