68-qa-ocrf291

68-qa-ocrf291 - 2010 Edition The nature of

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Unformatted text preview: 2010 Edition The nature of business......................................... 2 Economies & Diseconomies of Scale ...... 23 Cost revenue and profit.................................. 4 Incorporated businesses ........................ 26 Business Activity ............................................... 2 Adding Value....................................................... 3 Types of customer ............................................ 4 Stakeholders ....................................................... 5 Legal structure ................................................ 25 Unincorporated businesses................... 25 Franchising ....................................................... 28 Ownership......................................................... 28 Decision Making ................................................ 6 Objectives ............................................................... 29 Sources of finance ............................................. 7 The Market............................................................. 32 Human Resources .......................................... 12 Supply ................................................................. 34 Opportunity Cost............................................... 6 What businesses need.......................................... 7 Business Plan................................................... 10 Cash flow ........................................................... 10 Recruitment...................................................... 13 Market research and analysis ................... 15 Sampling ............................................................ 16 Corporate objectives..................................... 29 Strategy and tactics ....................................... 31 The Market........................................................ 32 Demand and Supply ...................................... 32 Equilibrium Market Price ........................... 35 Capacity and markets ................................... 38 Market Structures and Competition....... 39 Organisation..................................................... 18 Other influences................................................... 41 Economic sector ............................................. 21 Social and Cultural ......................................... 43 Accountability.................................................. 19 Classification of business................................. 21 Size ....................................................................... 21 Market size and share .................................. 22 External environment .................................. 41 Technological Change................................... 42 Moral and ethical issues .............................. 44 AS F291 Glossary................................................. 45 1st Edition. First published 2010 © Richard Young. All rights reserved. The right of Richard Young to be identified as the author of this Work has been asserted in accordance with the Copyright, Designs and Patents Act 1988. | Business Activity 1 A stakeholder is anyone with an interest in a business. Stakeholders are individuals, groups or organisations affected by the activity of the business within a firm include owners, managers & employees. outside a firm include customers, suppliers, creditors, local & national government and local communities. A stakeholder objective is an aim of a stakeholder group. . Each stakeholder group has its own set of aims. Typically: The want a profit and capital gain from an increasing share price want high salaries and benefits and job satisfaction seek high wages, long holidays and good working conditions seek low priced good quality products ie value for money expect to be paid on time and to be a regular customer ie repeat business want a loan to be paid back on time, with interest wants jobs but no harmful spillover effects from production eg noise wants employment for voters, a source of taxes to pay for public services want to maintain a price and quality advantage over its rival Stakeholders can have objectives that conflict with other stakeholders or corporate objectives. Eg: A wage rise for employees increases costs and so reduces short term profits for owners A price rise may increase profits but disappoint customers Delaying the payment of bills improves cash flow but loses the goodwill of suppliers Particular attention is paid to meeting the requirements of dominant stakeholders eg owners. Note aims and priorities may vary within anyone stakeholder group eg some in the community may want growth and jobs. Others may oppose expansion because of associated external costs eg extra noise and pollution ? Profitable firms can benefit Owners by generating profits which rewards risk taking Staff by creating jobs and income Customers by supplying products that meet their requirements Government by paying taxes and reducing unemployment Local community by offering work and better infrastructure eg new roads Shareholders are part owners of a company while stakeholders are any group affected by the activities of a firm. | Stakeholders 5 A cash flow forecast predicts the future flow of cash in and out of the business over a given period of time eg three months. At the beginning of January the business has £1,000 worth of cash. This is the for the month of January The total flow of cash into the business (receipts) for January is expected to be £12,000, while the total outflow from the business (payments) is forecast at £10,000. is the difference between receipts and payments of money over a period. January’s net cash flow is £12,000 from cash in less £10,000 from cash out. This means net cash flow is = £2,000. Given an opening balance of £1,000 and a net cash flow of £2,000 there is a closing balance of £3,000 at the end of January that can be carried forward to February In February cash outflows are greater than cash inflows by £2,000. The firm has received £8,000 in cash but paid out £10,000 cash. The firm starts March with £1,000 cash. Given payments of £13,000 and cash receipts of only £10,000 net cash flow is -£3,000. Unless action is taken the firm does not have enough cash to pay its bills at the end of the month The owners can take action to by getting more cash in from sales or arranging a loan from the bank or put more of their own money into the business. by cutting costs eg cut staff wages, or delaying paying suppliers The business has a cash flow problem for just one month: March. If they take action and say arrange a one month overdraft with the bank for £2,000 during March they can avoid becoming insolvent ie being unable to pay their bills . Net cash = business receipts minus business payments Cumulative cash flow is the total amount of money that flows through a business over a given period and is calculated by adding net cash inflows and deducting cash outflows. The cumulative cash flow in the diagram from January to May inclusive is £2,000 - £2,000 -£3,000 +£9,000 = £6,000 ? Overtrading occurs when a firms expands without adequate working capital. If a firm has insufficient funds to pay day to day expenses it may have to cease trading. Working capital is money used to fund the day-to-day operation of a business and pay bills. Technically: current assets less the current liabilities. | Cash flow 11 A workforce plan identifies the present workforce and the desired future workforce. It highlights future expected shortages, surpluses and competency gaps. A workforce plan helps a firm to anticipate both how many workers they will need in the future and their skill level. Without the right number of people with the right level of skills, a firm is unlikely to meet its objectives. Workforce planning requires accurate data and forecasting. Are marketing research forecasts of future sales accurate? Workforce planning costs time and money and delays decisions. person for a vacancy Recruitment is the process by which a business seeks to hire the ‘right’ New staff are required to help make products ? Recruitment and selection involves: Identifying skills required for a post Writing a and the post internally and/or externally : selecting some applicants for an interview whose experience and potential most match the job using interview, psychometric (personality) or aptitude (skill) test or role play Issuing a contract of employment including job title, starting date, tasks, duties, hours, leave, pension, etc . Typically a job description listing the title of the post, expected tasks and duties, the line manager, targets and pay A describes the attributes an employee performing this role must have eg their qualifications & experience. Internal recruitment is when a business appoints a current employee to another post within the organisation. This saves the cost of advertising and induction but may result in low calibre appointments and resentment from former colleagues. It also does not encourage the introduction of new skills and attitudes into an organisation. Chosen on merit, new staff can bring new ideas and experience of alternative working practices. There is a risk the new worker may not ‘fit in’ or be incompetent Careful staff selection is important as it is difficult and costly to dismiss a member of staff. Recruiting the right person for the right job minimises the risk of a conflict between personal and corporate objectives. . Induction is the training given to new staff on work procedures, culture, managers, colleagues and expectations to help them perform their role. Induction reduces the time taken for a new worker to become productive and helps avoid costly errors time delays from not knowing what to do. Moreover it reduces labour turnover by making new employees feel welcome and part of the team | Recruitment 13 Classification means putting items into groups according to type. There are a number of equally valid ways of classifying businesses eg by: : primary secondary or tertiary or : businesses owned by private households or the state : small medium or large : unincorporated sole traders or partnerships and companies Specialisation is when workers, firms, regions or countries concentrate on a particular product or task. Eg bakers spend all day making bread . Economic sectors refer to categories of economic activity Business activity falls into one of three types of economic sector : extracting raw materials eg agriculture, forestry, fishing, quarrying, and mining : production of goods eg energy, manufacturing and construction : services such as banking, finance, insurance, retail, education and transport Intellectual services eg data gathering, education and research and development. The chain of production is the different stages of making, distributing and selling a product. Firms that rely on other businesses are interdependent Sectors are . The primary sector supplies raw materials for processing into products to be sold by the tertiary sector. Eg a farm (primary) supplies wheat for breakfast cereals (secondary) for sale in a supermarket (tertiary). . Deindustrialisation is a decline in the size of the secondary sector Indicators of size include: : large firms generate millions of £s worth of sales revenue in a year large firms generally employ many workers : large firms make large profits – or large losses : large firms use of millions of pounds worth of plant and equipment : the larger the percentage share of the market the larger the business, Turnover is total sales made in a given period of time eg annual sale of £1m. Large firms have large turnover. | Economic sector 21 Setting clear objectives Give the firm a and ie ‘where we are going’. Eg staff understand what they are expected to achieve within a given period of time Allow firms to and the of employees, departments or the whole business against set targets. Where objectives are SMART success can be measured Are : workers and departments understand clearly the target to be achieved within a given time period. Departmental objectives are the target for a specific function, eg marketing. They are aim to contribute to the successful delivery of corporate objectives. The accounts objective to reduce credit may conflict with marketing aim of seeking increased sales by offering interest free credit Corporate objectives set the overall targets for the business for the next, say, year. Individual departments then establish their own objectives for their function to contribute to the successful delivery of corporate aims. Within each department, each team set targets to deliver the department’s objectives. Managers and subordinates then agree individual targets needed to meet team objectives. . MBO involves managers agreeing SMART objectives with subordinates and then regularly monitoring their progress. Eg a performance management meeting may be called to review a subordinate’s progress against set targets. The process of negotiated target setting and appraisal can improve the two flow of information within an organisation. Training needs are identified. Negotiating and achieving goals helps satisfy higher order Maslow needs. aims depends on Ensuring The ability of business to meet its leads to ie customers keep buying the firm’s products for operations and expansion – if required to pay bills on time Good so that production is maintained Monitoring customers, markets and products and have the flexibility to responding to change quickly The ‘right’ workforce with the skills and size to enable the firm to meet objectives Effective so that staff understand their objectives and role Monitoring progress to ensure the firm stays on track to meet objectives External factors such as the and the 30 Corporate objectives | An increase in the number of firms offering a product shifts the supply curve to the right, causing a fall in price. products . The four categories of market structure are with no barriers to entry where many firms produce identical with low barriers to entry where many firms produce differentiated products with high barriers to entry where a few large firms dominate the market with high barriers to entry where a single firm supplies the market. Product differentiation occurs when firms make their product distinctly different from goods or services offered by rivals. ? Firms adjust the marketing mix (price product, promotion, and place) make items distinct from those offered by rivals. Advertising is used to establish a brand image and suggest an item meets customer needs better than rival products. Product differentiation is a source of market power and creates a barrier to entry enabling high long run profits to be sustained. 40 Market Structures and Competition | the process of holding individuals or institutions answerable for their responsibilities, actions and decisions. the main objective of the business eg survive, make a profit, or grow an evaluation of staff performance over a given period of time usually against stated objectives rule governing the internal running of a company items of value owned by a business eg cash, equipment and stock the power managers have to direct subordinates and make decisions. the cost of making one item ie unit cost when a judge decides an individual is insolvent ie unable to pay their debts the obstacles that restrict firms breaking into a market and competing with established firms. the subjects chosen for a survey are unrepresentative of the population £ billion denotes £1,000 million ie £1,000,000,000 individuals elected by the shareholders of a company to manage the business. Directors control the business any organisation that uses resources to create products for its customers the process of turning inputs such as raw materials into outputs ie goods and services shared attitudes, values and behaviours within an organisation. fluctuations in the level of economic activity over time causing booms and slumps. Also called the economic cycle. the activities of different departments in an organisation the way in which staff roles and responsibilities are arranged within a firm a report stating the nature of the business, research findings, cash flow and sales forecasts, and an action plan for future business activity a number value of the chance of bad outcome from a decision. Eg a 75% or 75:25 chance of a new business surviving its first year. the maximum amount a firm can make in a set time period using all its current resources eg 100,000 cakes a week the process of organising production to ensure the forecast level of demand can be met (1) funds invested in a business (2) producer goods (3) assets available to a business the total amount of funds invested in the business. The difference between total assets and current liabilities the extensive use of machines compared to workers in the production process a group set up by rival firms to take common action eg agree prices, market share or exchange information on costs the amount of money the firm has in notes, coins, and money in the bank the movement of money in an out of the business over a given trading period eg one month authority is retained by senior managers at the top of the organisational chart. There is minimal delegation. how instructions are passed down a business from superiors to subordinates. the different stages of making, distributing and selling a product the selection of one option between alternatives market clearing price is the one price which leaves neither unsold products nor unsatisfied demand ie equilibrium price. assets pledged as security by borrowers that can be sold by lenders if the loan is not repaid when rival producers cooperate or collaborate eg agree a minimum market price. the transfer of information between individuals a method of transferring a message a business with its own legal status separate from its owners called shareholders | Moral and ethical issues 45 when rival firms in the same industry contend for customers an industry made up of many rival sellers each competing for the same customers. the proportion of total sales (market share) of the largest firms. the number of times out of 100 the results of a survey are expected to be representative factors that restrict business activity, both internal and external the process of identifying the views of individuals and stakeholders the individual or business who finally uses a product the preferences of households responsibility for day to day running of a firm whole organisation the shared attitudes, values and behaviours within an organisation which affect expectations of staff a specific target the entire organisation aims to achieve through the combined activity of staff and departments an organisation voluntarily considers the interests of society in its business activities the expenses incurred in supplying a product borrowed money any individual or organisation to whom money is owed refers to shared attitudes, values and behaviours of a group short term business debts that must be paid back within a year individuals or organisations that buy a product the process of analysing data to establish patterns and relationships between variables authority is delegated down the chain of command to subordinates who are empowered to take decisions selecting a course of action between several alternatives when less of a product is demanded at each and every price causing the demand curve to shift to the left 46 Moral and ethical issues | a legal document setting out in writing the duties and responsibilities of partners eg how to share profits and working hours a decline in the size of the secondary sector a reduction in the number of layers of hierarchy within the organisational structure managers pass down authority to subordinates while retaining responsibility for the outcome the amount of a product consumers are willing and able to purchase at various prices in a given time period eg one month a graph showing the amount of a product consumers are willing and able to buy at different prices, in a given period of time eg one month a table showing the amount of a product consumers are willing and able to buy at different prices, in a given time period, eg one month the size and composition of the population the target for a specific function eg marketing secondary research the process where a new idea or new product is taken up by producers and consumers an individual appointed by shareholders to help manage a company the disadvantages to the firm, in the form of higher unit costs, from increasing their size of operation a situation where there is a state of imbalance and so a tendency for change income left over after paying direct taxes and receiving state benefits ie take-home pay or net pay. the amount of profit paid out to shareholders (owners) that part of company profits distributed (paid out to) to its shareholders where production is broken down into separate tasks and each task is completed by an individual worker. Ever changing the benefits, in the form of lower unit costs, from increasing the size of operation ...
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