AQA BUSS2 unit 2 managing a business

Everything you need to know about BUSS2 according to spec

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Business unit 2 revision ­ managing a business
A budget is a financial plan of the future
Income budgets ­ forecast company's revenue, predict amount and cost of product to be sold, estimate used from previous year sales and market research
Expenditure budgets ­predictions of annual total cost for company, takes into account fixed costs and variable costs which increase on output and is
predicted by managers.
Profit budget-uses totals from the income and expenditure to calculate profit or loss for that year
Benefits of budgeting = control, review activities, delegation, coordinate spending, motivate staff and satisfying to meet target
Drawbacks of budgeting = resentment in departments, restrictive, not adaptive to demand, time-consuming, effort and money can be used elsewhere
Variance ­ business performing better or worse than expected
A favourable variance = increased profit, exceeding expected revenue, lower costs than predicted
A adverse variance = reduced profits, selling fewer items, spending more on costs than predicted
Variance analysis = identifying and explaining variances, fixing problems that caused variances, a small variance is motivation, large variances may
demotivating, as they may lack effort in favourable situations or see large adverse variances as impossible.
Improving cash flow
Overdrafts ­ bank lets business spend more money than it has in the account up to a limit, recorded as a negative figure, ideal for short term cash flow
Advantages ­ quick, easy, flexible and only pay interest on amount borrowed
Disadvantages ­ interest rate is high, expensive for long term, ability to remove facility at any time (banks)
Short term loans ­ borrow fixed amount of money, paying it over a fixed period of time with interest, depending on time and interest rate
Advantages ­ guaranteed money, only loan and interest rate to be paid back and not selling shares or profits
Disadvantages ­ difficult to arrange, need security, difficult keeping up with payments, charged if you pay loan back earlier
Debt factoring ­ instant cash to firms whom customers haven't paid invoices, agent (bank) pays 80% of value of instant cash. Agent keeps 5% of value of
invoice, factoring costs money as agent needs to earn living
Sale and leaseback- firms sell equipment to raise capital then lease it back in small instalments each month
Causes of cash flow problems ­ producing too much, having to pay staff and suppliers more, may go bankrupt before customers pay up, (overtrading)
Improving cash flow- reducing time between supplier/customer payments, hold less stock, debt factoring, sale and leaseback
Measuring and increasing profit
Profit = costs deducted from revenue. Increase profits by increasing prices if inelastic, and decreasing price if elastic
Net profit = revenue ­ (fixed costs + variable costs)
Net profit margin ­ how profitable a business/product is by relationship of net profits made and volume of sale. Best to be high, can be improved by raising
prices or cutting costs depending on elasticity. Stop selling products with low net profit margin
Net profit margin = (net profit/revenue) X 100%
Return on capital employed (ROCE) ­ important profitability ratio, best way to analyse profitability, how much money is made compared to amount invested
ROCE = (net profit/capital employed) X 100%
Good ROCE is 20%, need to be compared to interest rate at the time. Improved by using profits to pay debts and reduce capital employed.
Revenue is the amount of money that a business receives from sales of its products and profit is what is left after costs have been deducted.
People in business
Improving organisational structures
It shows the structure and hierarchy of a firm with the levels showing responsibility and authority to make decisions. Individuals are accountable for those
below them. The chart is divided into functions e.g. production, marketing etc or by product or geographical structure.
Key elements: hierarchy, span of control, workloads, job allocation, delegation, and communication flows
Work force roles: supervisor, team leader, manager and director
Tall structure: lots of levels in hierarchy, long chain of command, could affect communication, decisions longer to make, more paper work to deal with
Chain of command-path of communication and authority up and down hierarchy
Flat structure: few levels in hierarchy, more responsibility and freedom, but may have pressure if responsibility is high
Span of control ­ number of people who report directly to manager
Measuring the effectiveness of the workforce
Labour productivity ­ measures how much each employee produces. Higher the productivity, better performance. Increased productivity, labour costs per
unit fall.
To increase: improve motivation and train workers to be more productive.
Consequences: rewards for productivity may make quality suffer. Job losses if sales don't increase. Productivity needs to be balanced with quality.
Labour productivity = output per period/ number of employees
Absenteeism ­ proportion of time employees are of work
Absenteeism = (number of staff days lost / number of working days) X 100%
Labour turnover ­ proportion of staff that leave. The higher the figure the higher the proportion of staff leaving annually making with chances of
unemployment and growth of other firms. However, turnover can give new ideas.
Labour turnover = (no. staff leaving / average no. Staff employed) X 100%
Developing an effective workforce: recruitment, selection, training
Recruitment (time-consuming) process ­ 1- identify vacancy 2- write person specification and job description 3-advertise job 4- process applicants 5-
shortlist most suitable candidates 6 ­ interview most suitable candidates 7 ­appoint most suitable candidate
Internal recruitment ­ people who already work for the business
Advantages - know candidates, know business, less expensive
Disadvantages ­ another vacancy opens, resentment is not selected
External recruitment ­ recruit people from outside the company
Advantages ­ new ideas, new experience, larger choice
Disadvantages ­ unknown candidate, time consuming, expensive, longer induction
Selection ­ getting the right people for the job
Job description ­ the tasks/ responsibilities to be carried out, job title, location, salary, conditions

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Person specification ­ outline of profile desired, qualifications, experience, interests, personality
Interviews- one to one, panel, phone
Assessment centres ­ testing candidates, psychometric ­ personality fit, aptitude ­ ability at job tasks and group exercises
On the job ­ sit near experienced worker, be mentored or coached
Advantages ­ easy, cheaper, specific to job
Disadvantages ­ not productive, bad habits may be inherited, trainer may have weaknesses
Off the job ­ studying part time or having a short course training
Advantages ­ specialist trainers,…read more

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Advantages ­ increased productivity, improved quality, reduced waste, effective and efficient delivery, staff utilisation, reduced admin and financial costs,
better communications
Disadvantages ­ initial costs high, constant updating expensive, increased need for staff training
Marketing and the competitive environments
Effective marketing
Marketing identifies the customer's needs and wants. Covers research, analysis, planning the "marketing mix". Marketing is important in a competitive
environment. High disposable income increases the need for marketing. Globalisation and brand awareness can affect marketing strategy.…read more

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Growth ­ sales grow fast, economies of scale decrease unit cost, USP from competition; product may be improved or developed encouraging more
outlets to stock product
4) Maturity ­ sales reach peak and costs are now paid for; product saturates so sales drop; competition gets fierce
5) Decline- no appeal to customers, may be profitable if promotion costs are low; divestment ­ sell product to another company if sales fall
Promotion ­ inform customers about a product/service, or to persuade them to buy it; increase…read more


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