Business

Owners Funds

Advantages

• No need to pay interest on the money

Disadvantages

• Could have been invested elsewhere, earning a higher profit
• Owner may not have enough funds to meet the needs of the business

Retained Profits

Advantages

• No need to pay interest on the money

Disadvantages

• Could have been invested elsewhere, earning a higher profit
• Shareholders may become unhappy if this means lower dividend payments

Selling Assets

Advantages

• The business is using money it already has- so no loans or charges paid

Disadvantages

• The business has to have something worth selling for this to be a option
• The business may sell something that they later need

Overdraft

Advantages

• Very quick to arrange
• A good short term solution to a cash flow problem

Disadvantages

• Interests and charges are paid
• Only suitable for small amounts of money

Trade Credit

Advantages

• Gives the business more cash to use in the immediate future

Disadvantages

• Can only be used to buy certain goods
• Bills usually have to be settled within 30,60,90 days

Debt Factoring

Advantages

• Allows the business to get money for debts that otherwise never be payed
• Saves business time chasing customers

Disadvantages

• Time consuming to organise
• Business receives less money than it was originally owed- may affect profability

Leasing

Advantages

• Cost of the asset is spread over its life
• No need to find a lump-sum of money to purchase it

Disadvantages

• May be more expensive than buying the asset- the owner will want to profit from it 
• the business does not own the asset so it does not appear on the balance sheet

Bank Loan

Advantages

• Easy and quick to set up
• Large amounts of money can be borrowed 
• Structured repayment term

Diadvantages

• Interest payable
• If repayments cannot be kept up, the business risks getting a poor credit rating or becoming bankrupt

Issuing Shares

Advantages

• No need to repay the money invested 
• Cheaper than a loan
• Some businesses can raise large sums of money this way

Disadvantages

• Need to pay the shareholders a share of future profits
• Ownership also means some influence over how the business is run
• Risky for the shareholder- investment may be lost if the business fails

Mortgage

Advantages

• Only method available to buy property
• Structured repayments over a long term 

Disadvantages

• Large sums of interest charged 
• Can take a long time to repay debt

Goverment Grants

Advantages

• No need to repay the grant

Disadvantages

• Limited funds are available
• May be restrictions on what the money can be used for

Hire Purchases

Advantages

• Flexible method- can hand back the item if no longer required 

Disadvantages

• High interest often charged
• Item doesn't belong to the business until the end of the term

Venture Capital

Advantages

• Can raise money from them even when banks have refused to lend to the business

Disadvantages

• Risky for the venture capitalist
• The VC may want to have some control over how the business operates

Break Even= Fixed Costs / Contribution per Unit

Sales Revenue= Number of sales x Price of product/ service

Total costs= Fixed costs + Variable costs

Profit= Total Revenue - Total Costs

Unit Contribution= Selling Price - Variable Costs

Market Share= Sales of firm / Total market sales x 100

Total size of market= Firm sales / Firms marketshare x 100

Firms sales= Total size of market / 100 x market share

Fixed Costs= The same at all levels of output in the short run

Stepped Fixed Costs= This can occur over long periods of time following

Variable Costs= Costs of production that increases directly as output rises

Semi- Variable= Costs that consists of a fixed cost + Variable cost

Total costs= All the costs added together

Total revenue= Amount of money received from selling of a product

.... determines the point at which a business neither makes a profit or a loss

Margin of safety= The difference between your break-even outut and your actual output

Budget= A target for costs or revenue that a firm or department must aim to achieve over a given period of time.

Why is it important for a business to

• Prioritise funds
• Business can have a good idea of what to expect
• Performance of workers can be assessed 

Types of budgets

• Income budget- sets a minimum target for the desired revenue level to be achieved 
• Expenditure budget- sets a maximum target for costs
• Profit budget- a function of the income and expenditure

Small budget research

• Geographical mapping
• Mapping particular businesses 
• Check on prices, deals, discounts
• Arrange to spend time in particular bussinesses 
• Carry out market mapping

Market mapping

• Identify key features that characterise consumers within the market
• Check brands out there and put them on a market map

Market niche- Gap in the market

Advantages of running a franchise

• Easier to receive bank funding compared to independent businesses
• rates of interest charged less compared to indeendent businesses

Advantages for the franchisee

• Business is based on a proven idea
• Franchisee is using recognised brand name and trademarks
• Franchisor wil give support
• Franchisee given exclusive rights in their territory
• Financing business will be easier
• Relationships with suppliers already established

Disadvantages for franchisee

• Costs may be higher than expected
• Franchise agreement includes restrictions
• Franchise may go out of business 

• Other franchises could give the brand as a whole a bad reputation
• Franchisee may find it difficult to sell their franchise

Advantages for the franchisor

• Franchising creates another source of income 
• Franchisor can have smaller central organisation 
• Franchising means spreading of risks
• Business maintains more cost effective labour force

Disadvantages for franchisor

• Considerable capital allocation needed to build a franchise infrastructure 
• At beginning of franchise programme is a broader risk that company ruined by misfits
• Franchisor has to disclose confidential information to franchisee's

Royalties- The amount of interest payed by the franchisee to the franchisor

Primary- Growing, fishing, farming, mining, extracting

Secondary- turning raw materials into finished products

Tertiary- service sector

E.G.

Primary- Growing Apples 

Secondary- Turn apples into cider

Tertiary- Selling in pubs

Advantages

• Forces entrepreneur to think carefully about every aspect of the early start-up
• It may make the entrepreneur realise that they lack the skills needed for part of plan
• It may help achieve attractive terms for the investors
• If anything happens to the entrepreneur the business will be able to keep on going

Disadvantages of a business plan

• Making a forecast doesn't make it happen 
• The plan may be too rigid, needs to be flexible to cope with unexpected events
• Low costs/ Low expectations are better to start with as costs may be too high if sales wrongly forecated

Random Sampling- All individuals have an equal chance of being selected

Quata Sampling- Used when you need a certain number of respondants from each sub-category of an overall population

Stratified sampling- used when a sample is relatively small and random sampling may give unrepresentable results

Cluster sampling- A random selection from a sampling frame may be picked

Conveinence sampling- Subjects are selected purely on the bases of conveinance

Factors affecting location

Quantative factors- Financial

Qualitative factors- Non- Financial

Quantative factors

• Fixed costs- land, rent, utilities, salaries
• Variable costs- Transport, raw materials, wages
• Revenue- nearness to customers

Qualitative factors

• Working environment
• Ease of access
• Quality of infrastructure
• Quality of labour
• Planning laws and restrictions