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Unit 2 business studies- managing the business
A brand can be defined as a name, term, sign, symbol or design, intended to identify the goods and
services of one seller and to differentiate them from those of other sellers. A brand therefore
promotes an identity and an image that set it apart in some ways from its competitors. One aim of
building a brand is to make the price elasticity of the demand for the product more inelastic. This
enables the firm to increase the price of the product without demand falling significantly.
Furthermore, the building of a successful brand may allow the maturity stage of the product life cycle
to be extended indefinitely.
Budgeting and variances
Budgeting means making an estimate of the appropriate level of income or expenditure over a
future period of time. At the end of each month, budgeted figures are compared with actual ones to
identify any variances. These can then be analysed to help understand the reasons for the firm's
financial success or failure. It may also be necessary to change the budgets during the year, perhaps
when the firms overall profit levels look likely to be lower than expected.
The majority of new businesses, who do not survive their first year of trading, fail because of cash
flow problems. Without sufficient cash to pay day-to-day bills, even a highly profitable firm will be
unable to survive. In order to improve its cash flow situation, one action a firm can take is to speed
up cash inflows. They could do this by reducing credit time for consumers or by offering cash
discounts to encourage immediate payments. They could also ensure that current customers pay
promptly by sending reminder letters or phone calls. Alternatively a business could seek to delay
cash outflows. This can be achieved by negotiating longer credit terms with suppliers.
Cash flow forecasting
A cash flow forecast is an estimate of the expected cash inflows and cash outflows over a given
period of time. The forecast then shows the effect of each moth's cash flows upon the firm's cash
balance. The cash flow forecast will show how much cash is expected to be available each month. If
cash flow is negative the company has insufficient funds to pay its outflows and may need to use an
overdraft facility. When a business makes an application for a loan, banks will generally request a
cash flow forecast as this will provide an indication of whether the business is likely to have enough
cash to a) survive and b) repay the loan.
Cash flow management
Cash flow forecasting is always important, especially for new, small firms. In 2008, banks suddenly
became very worried about business loans (as falling house prices made them feel insecure). So they
came down very hard on any business that broke its overdraft limit. Any cash flow problem (such as
one big buyer failing to pay on time) could threaten to become a crisis. No firm wants a sudden fall in
its cash inflows or a rise in its cash outflows. So careful cash flow management is very important.
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Culture is the way we do things round here, i.e. the common attitudes and behaviours within an
organization. It stems from any sources: tradition, the personalities and actions of senior managers,
the leadership style and methods used for recruitment, training and motivation. It is very hard for a
new leader to change a negative culture, but quite easy to make a positive culture turn sour.…read more