business studies unit 3

Improving Cash flow

CashFlow: the movement of money into and out of a business

TradeCredit: When a supplier gives a customer a period of time to pay off an invoice

De-stocking: reducing the levels of stock in a business

Changing Cash inflows:

• Increasing sales revenue

• De-stocking

• Improved cash flow from customers

• Loans

• Issuing new shares

• Selling off physical assets

Changing Cash Outflows:

• Reducing the orders of stocks

• Delaying paying invoices

• Leasing rather than buying assets

Improving profit

Profit: occurs when revenue is greater than costs over a period of time.

Revenue: the amount of money received from selling goods or services over a period of time.

Profit = Revenue – Costs

Ways of cutting costs:

• Materials costs

• Labour/workers

• Investment

• Marketing

Revenue = number sold X average price

Ways of increasing revenue:

• Improving marketing

• Better products

Break-even charts

Break-even point: The level of output where total revenues are equal to total costs.

Variable costs: Costs which change directly with the number of products made by a business

Margin of safety: The amount of output between the actual level of output and the break-even level of output.

Contribution = price per item – variable cost of the item

Break-even level of output = fixed cost / contribution

Break-even analysis can help to:

• Achieving future targets

• Launching a product

• Starting a new business

• Business Plans

Financing growth

Share capital: The monetary value of a business that belongs to the businesses owners.

Share: A part ownership in a business

Overdraft: Borrowing money from a bank by drawing more money than is actually in a current account.

Bonds: A long-term loan which typically interest is paid at regular intervals, the loan is repaid at the end of its lifetime; Bonds are traded on stock markets.

Internal sources of finance:

• Retained profit

• Asset sales

External sources of finance:

• Share capital

• Debt –Overdraft, Bonds, Trade Credit

Advantages and Disadvantages:

• Cost

• Risk

• Availability of finance

Organisational Structure

Subordinate: workers in a hierarchy who work under the control of a more senior worker.

Chain of command: The path down where orders are passed; in a company, this goes from the board of directors down to other workers in the organisation.

De-layering: removing layers of management and workers in the hierarchy.

Empowerment: giving more responsibility to workers further down the hierarchy.

Downsizing: When a business employs fewer workers to produce the make amount through increasing productivity which can be achieved through de-layering.

Span of control: The number of people who report directly to another worker in an organisation.

Delegation: Passing down of authority for work to another worker further down the hierarchy.

Centralisation: A type of business structure where decisions are made at the centre or core of the business and then passed down.

Decentralisation: Where decision making is pushed down the hierarchy and away from the centre of the organisation

Motivation Theory

Physiological needs: breathing, food, water, sleep...

Safety needs: security of body, employment, resources, morality, family, health and property.

Love and Belonging: friendship, family, intimacy.

Self-esteem: confidence, achievement, respect for others, respect of others.

Self actualisation: morality, creativity, spontaneity, lack of prejudice, problem solving, acceptance of facts.

Communication

Internal communication:

• Sending a memo/email

• Talking to another member of staff

External communication:

• Talking to a customer

• Talking to suppliers

Remuneration

Wages: Tend to be paid for a fixed number of hours

Basic pay: Pay for working the basic working week.

Salary: Pay which is expressed as a yearly figure, per annum.

Commission: Where earnings are dictated by how much they sell.

Bonus: Addition to the basic wage or salary, for achieving a target.

Fringe benefits: Payments above the wage salary, in the form of a valuable asset, such as a company car instead of money or a bonus.

Piece rate: Pay based on the amount of items produced by the worker.

Ethics in Business

• Production – waste, by-products

• Suppliers – fair payment

• Workers – pay/rights, treated fairly and respectfully

• Customers – prices / treatment / deception

• Competitors – no major domination of the market / unfair trading

• Products – is it controversial

• Environment – sustainability, safe handling

• Local communities – unemployment, supporting jobs / competition with local businesses

Environmental Issues

Short-term effects:

• Traffic congestion: more vehicles, customers and trade

• Air/noise/smell and water pollution

• Recycling

Long-term effects:

• Climate change

• Resource depletion

Economic Issues affecting International Trade

• Incomes:

  • Developed = higer

  • Developed = more imports, developing = developed consumers.

• Wages and Prices:

  • Developing = advantage of lower wages

  • Developing = Cheaper raw materials and supplies.

• Quality and technology:

  • Developing = poorer quality, not technologically advanced.

  • Developing = must import from developed for higher quality.

Protection policies: reduce foreign products but give an advantage to home companies who export.

Tariffs: taxes on imports

Quotas: limits on tangible goods that can be imported.

Export subsidiaries: reduce prices of exported goods.

The Impact of the government and the EU on a business

• Tax:

  • Set by individual governments

  • Reduce the amount of money that businesses and consumers have to spend.

  • Can discourage/encourage business behaviour

• Regulation:

  • Must submit financial records

  • Vehicles must be insured

  • Must conform to trade descriptions act

  • Must dispose of waste in accordance to the waste disposal regulations

  • Must locate factories and offices on planned sites.

• Minimum wages:

  • Not fixed by the EU

  • Reflect the economic stability of a country

• Maternity and Paternity rights:

  • Women are entitled, men are not

  • Businesses can give more/less

• Health and Safety:

  • Length of work time without a break

  • Storage of dangerous substances

  • Level of heating and ventilation