Introduction to business

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List 10 things businesses need

  • Finance
  • Effective staff (right skills, attitude and motivation)
  • Effective managers (planning, controlling and coordinating production)
  • Reliable suppliers (provide raw materials)
  • Unique selling point (UPS)
  • Effective marketing (identify, anticipate and satisfy consumer needs)
  • Customers (buy products)
  • Organisation and structure
  • Business planning (identify objectives, strategy and resources)
  • Good luck

List 8 reasons for business failure

  • Poor market research- fail to identify consumer needs
  • Insufficient demand- sales revenue cannot cover costs and allow a profit
  • Cash flow problems
  • Missing skills
  • Adverse external factors- unexpected economic downturn
  • Competition-may not be able to match rival's new product launches or price cut
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Sources of finance

Why do businesses need finance?

  • Start: and buy or hire the resources they need for trading
  • Survive: having enough cash to pay its bills
  • Grow: more machinery or new premises or investing in research and development

Define creditor

A creditor lends funds and so is owed money

Define debtor

A debtor borrows funds and so owes money

Define interest

Money borrowed from creditoors is paid back over time, interest is the cost of borrowing and the reward for lending

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Sources of finance

Define collateral

Collateral is an asset owned by the borrower that is used to gurantee repayment. If a debt is not repaid the asset offered as secrutiy can be sold by the lender (also known as security)

List 3 internal sources of finance

  • Retained profit- which has not been distributed to owners but kept back for re-investment within the firm
  • Sale of assets- that a business owns but no longer needs
  • Managing working capital- reducing stock held or delaying the payment of bills

State the 3 key influences that decide the sources of finance

  • Legal identity of the business
  • Matching time and use- use and length of finance
  • Cost

How can firms increase the chance of securing external finance?

Drawing up a business plan which sets out a case for investment

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Sources of finance

What is the difference between short, medium and long-term finance?

  • Short-term: up to one year (e.g overdraft)
  • Medium-term: 1-5 years (e.g bank loan)
  • Long-term: 5 years + (e.g sales of shares)

List 3 short term sources of external finance

  • Overdraft- is a flexible loan enabling a firm to borrow up to an agreed limit for a set period of time. firms only pay interest on the amount borrowed. a relatively expensive way of raising finance and used to counter cash flow problems and buy stock
  • Trade credit- suppliers agree customers can pay for products sometime after they take delivery 
  • Factoring- where a business sells its debts to a specialist firm and recives 

List the 4 main features of an overdraft

  • It has a limit i.e maximum amount by which the business can go in the red
  • Businesses only pay interest on the amount borrowed
  • The rate of interest charged is variable and can change at any time
  • The bank can be asked for the overdraft to be paid back at any time
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Sources of finance

What happens if a business exceeds its overdraft limit?

  • Banks may make a large charge for non-authorised overdraft
  • The bank may increase the rate of interest charged on the overdraft
  • Refuse to honour cheques written by the firm
  • Cancel the overdraft facility

How do firms use an overdraft?

Businesses use an overdraft to tackle a temporary and short term cash flow problem and buy stock

Explain the main features of trade credit

The supplier delivers the goods to the business and issues an invoice asking for payment by a given date e.g 28 days (interest free loan)

What happens if trade credit terms are broken?

The supplier may demand payment in advance or on delivering 

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Sources of finance

List 3 sources of medium-term finance

  • Bank loans: where funds are borrowed for a fixed period of time and repaid regularly with interest
  • Leasing: hiring fixed assets for a period of time 
  • Hire purchase: where firms have immediate use of equipment and pay regular instalments

List 5 sources of long term finance

  • Personal savings: where owners put more of their own funds into the business
  • Share issues: where a company sells new shares to raise capital
  • Debentures: is where a company issues a bond, promising to pay the holder a regular fixed payment until the debenture matures and is bough back 
  • Venture capital: where an outside investor offers fund in return for part ownership of the business and a share of future profits
  • Mortgage: a bank lends funds to buy premises, secured against property- loan is paid back over 25 years. Rate of interest can be fixed or variable. Failure to keep up the mortgage payments, means the bank sells the property to recoup the loan
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Sources of finance

How do firms decide on the best source of finance?

  • Purpose-working capital should be funded from short-term finance
  • Cost- taking into account interest
  • Ownership- issuing shares- giving up part ownership
  • Legal identity- sole traders and partnerships cannot issue shares
  • Experience- success track record- easier to gain finance
  • Collateral required (security)- bank often asks for security- deeds to property 
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Business plan

What is a business plan?

A business plan is a report by a new or existing business- setting out its marketing plan, financial statements and sales projections

List the 6 typical elements of a business plan

  • Objectives of the firm
  • Proposed strategy
  • Results of market research and competitor analysis
  • Unique selling point (UPS)
  • Forecasts for sales and revenue, costs, profits and cash flow
  • Details of finance required to move the firm into profit

List 2 of the main rreasons for business failure

  • Insufficient thinking ahead
  • Inadequate finance
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Cash flow

What is cash flow?

Cash flow is the movement of money in and out of a business (difference between the money coming into the businss and the money leaving the business, over a period)

What are cash inflows?

Money the firm recieves 

What are cash outflows?

Payments: the money the firm pays out to others

List reasons for cash outflow

  • Payments
  • Wages and salaries
  • Utility bills
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Cash flow

Define insolvency

An insolvent business can no longer pay its bills, as it has run out of cash

How can a business avoid insolvency?

A well-managed firms draws up a cash flow forecast to identify cash shortfalls and ensure action is taken to avoid insolvency

What is a cash flow forecast?

A cash flow forecast predicts the future flow of cash in and out of the business over a given period of time e.g 3 months

What is net cash flow?

Net cash flow = cash inputs and payments

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Cash flow

List two ways a business can tackle future cash problems

  • Increase reciepts by getting more cash in from sales or arranging a loan from the bank 
  • Reduce payments by cutting costs

What are cumulative cash flows?

The total amount o fmoney that flows through a business over a given period and is calulated by adding net cash inflows and deduciting cash outflows

What is overtrading?

Overtrading occurs when a firm expands without adequate worrking capital

What is working capital?

Working capital is the money used to fund the day-to-day operation of a business and pay bills

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Human Resources

Define human resources

The staff who work for an organisation, both employees and managers

Explain efficiency

Making the best possible use out of its resources. Maximise outputs from given inputs, minimising costs, whilst maintaing quality

What is productivity?

Productivity is output per worker

What is the difference between production and productivity?

Production is total output and productivity is output per worker per day

List 3 ways productivity is improved

  • Training
  • Better management and motivation
  • Access to better equipment
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Human Resources

List 9 functions of the human resource department

  • Recruitment and dismissal
  • Staff appraisal
  • Training
  • Welfare and discipline
  • Pay negotiations
  • Industrial relations
  • Training
  • Staff payment
  • Pension scheme

Define human resource management

Is the process of recruting, developing and making best use of staff to meet objectives

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Human Resources

What is human resource management?

Is a process that identifies the number, type and levels of skills of staff a business needs to meet predicted sales

Explain the 4 aspects of human resource planning

  • Audit: the skills of the present workforce
  • Estimate: the number of workers ikely to recieve or leave for another job
  • Assess external factors
  • Predict sales: and seasonal variations in demand
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Define recruitment

Recruitment is the process by which a business seeks to hire the 'right' person for the job

List the 6 key aspects of recruitment

  • Identifying skills required for a post
  • Writing a job description and person specification
  • Advertising the post internally and/externally
  • Short listing: selecting some applicants for interview
  • Selection using interview, personality, skill test or role play
  • Issuing a contract of employment including job title, starting date, tasks, duties, hours, leave, pension etc...

Outline the main features of a person specification 

A person specification describes the attribtues an employee performing this role must have e.g qualifications and experience

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What is internal recruitment?

Is when a business appoints a currwnt employee to another post within the organisationg

What are the implications of internal recruitment?

  • Saves the cost of advertising and induction
  • May result in resentment from former colleaugues 
  • Does not encourage the introduction of new skills and attitudes into an organisation

What are the implications of external recruitment?

  • 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

Why is the recruitment process important?

Careful staff selection is important as it is difficult and costly to dismiss a member of staff- recruiting the right person for the job minimised the risk of a conflict between personal and corporate objectives

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Explain induction

Induction is the training given to new staff on work procedures, culture, managers, colleagues and expectations to help them perform their role

Why is induction important?

Induction reduced the time take for a new worker to become productive and helps avoid costly errors and delays from knowing what to do. It also reduces labour turnover by making new employees feel welcome and part of the team

Why do firms train workers?

  • Improving skills and knowledge of workforce
  • Helps workers adapt to new technologies and processes
  • Improves productivity, the quality of work and can motivate employees

Define staff appraisal

Appraisal is assessing staff perfomance over a period of time against set targets 

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List the 2 main types of training

  • On-the-job training: employees learn in the workplace through observation (cheap and quick but disrupts production)
  • Off-the-job training:takes place outside the workplace (attending courses)

What are the costs of training?

  • Time
  • Money 
  • Disrupt production
  • Key workers are unavailable because they are on a course

Define severance

When a firm dismisses a worker e.g for breaking a condition of employment

Distinguish between fair and unfair dismissal

Fair dismissal occurs where a worker breaks their work contract, is unable to perform the task or the job ceases to exit. Unfair dismissal is unlawful severance of a job e.g on the basis of race

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What is redundancy?

Redundnacy is dismissla from work because a job no longer exists

Outline redundancy policies

Redundnacy procedures require careful planning if worker motivation is to be maintained and labour unrest and lost output avoided. By law firms must be fair in choosing those to lose their jobs. 

Define outsourcing

Outsourcing or subcontracting is the use of external labour or firm to do work previosuly performed in-house

Why do firms opt for outsourcing?

  • Support services where they have limited internal expertise
  • To reduce costs by using fir,s in developing countries with access to cheap labour
  • They lack the capacity to meet demand
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Market research and analysis

What is a market?

A market is any place where buyers and sellers meet to trade products 

Define marketing

Marketing is the business activity that identifies, anticipates and satisfies customer requirements

What is market research?

Market research is the process of collecting and analysing data about potential customers, competitors, products and market trends

Give 8 reaons for understanding market research

  • Identify market trends, the firm's market share, customer profile, customer needs, competition, the best way to package, the best way to promote, the right price to charge
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Market research and analysis

Give 3 reasons how market research results are used

  • To work out the size of the market and market share
  • Customer profile, preferences, buying behaviour and requirements
  • Research findings 

List 5 drawbacks of market research

  • Time consuming
  • Ties up staff
  • Increases costs
  • Delays important decisions
  • Inaccurate data can lead to inappropriate decision-making

Define qualitative data

GIves information describing feelings, opinions and judgements

Define quantitative data

Gives number information about facts and figures

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Market research and analysis

Define primary research (field)

Gathers new information for the first time

Define secondary research (desk)

Collects data from existing information already published 

List 4 mehtods used to collect primary data

  • Surveys- street interviews or questionnaires
  • Focus groups- small meeting of customers to discuss a product
  • Observation of consumer's- how thye shop
  • Experiment- test marketing a new product in a regional trial

List 2 internal sources of secondary data

  • Sales figures from previosu years
  • Loyalty cards
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Market research and analysis

List 3 external sources of secondary data

  • Newspapers
  • Internet
  • Magazines

Give 4 advantages of primary research

  • Customised
  • Specifically relevant
  • Up-to-date
  • Only available to the firm

Give 2 disadvantages of primary research

  • Expensive
  • Time-consuming
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Market research and analysis

Give 3 advantages of secondary data

  • Readily available
  • Cheaper
  • Quicker to collect

Give 2 disadvantages of secondary data

  • Out of data
  • Available to everyone 
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What is a sampe?

A sample is a group of people (subjects) selected for within the entire target population for study 

Explain sampling

Sampling is the process of selecting a group of people (subjectcs) for study that is representative of the entire target population

Why do businesses select a sample?

There is insufficient time and money to ask enitre population

What is a biased sample?

A biased sample occurs when the subjects chosen for survey are unrepresentative of the population. A sample is reliable if the views accurately represent those of the entire population

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Give 3 reasons how bias can be reduced

  • Best sampling method most likely to give representative findings at lowest cost
  • Sample size- required to make findings valid
  • Their required confidence level that findings are valid

What are the 2 main approaches to sampling?

  • Probability sampling- anyone in the population has an equal chance of being selected and surveyed (more reliable because subjects are chosen at random)
  • Non-probability sampling- respondents are selected on the basis of their availability

List the 2 main types of probability sampling

  • Random sampling- subjects are selected from a list by chance
  • Systematic sampling- every 50th person
  • Stratified sampling- the target population is divided into subgroups (strata) of people sharing similiar characteristics (used when a business wants to segment the market)
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What is a market segment?

A market segment is a part of the market that contains a group of customers with similiar preferences and buying habits

What is segmentation?

Segmentation is the process of breaking down one market into submarkets made up of individuals sharing common characteristics that causes them to have similiar product requirements

Why is identifying a market segment helpful?

Breaking down a market into segments can lead to a busines opportunity. It allows them to target specific segments and therefore a higher rate of sucess

List 4 ways of segmenting a market

  • Income (high/middle/low)
  • Gender (male/female)
  • Age (children, teenagers, over 50s)
  • Geographical location
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List the 2 main types of non-probability sampling

  • Convenience sampling- where the interviewes asks whatever individuals are available
  • Quota sampling- divides the population into sub-groups- interviewers are told to select a number of individuals from within each subgroup that reflect the size of that group within the population

Why use non-probability sampling if it is less reliable than probability sampling?

Random sampling is only possible if there is a list of the target population available. Firms use convenience sampling at the early stages of product development to gain initial feedback

Why is stratified random sampling better than quota sampling?

Both methods divide the population into segments. Stratified random selects subjects by chance, reducing the risk of bias. In quota sampling, interviewers select subjects leading to inevitable bias.

Why is sample size important?

The larger the number of subjects chosen, the greater the chance that their views are representative

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What are confidence levels?

Confidence levels measure the number of times out of 100 the results of a survey can be expected to be representative

Given an example of a confidence level in use

A 95% confidence level means that there is a 5% chance of bias

How can the reliability of a survey be improved?

By using a random sampling method with a large enough sample size to deliver the required confidence level

Explain non-sampling errors

  • Poor questionnaire desing that confuses interviewees who then give inaccurate answers
  • Processing erroros while data is being inputted
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Give 2 drawbacks to using market research

  • May be inaccurate due to a biased sample, non-sampling error or misinterpreted data
  • May dismiss new and innovative products which cutsomers do not understand 
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Why is organisation important?

Staff need to understand how their individual roles and responsibilities fit in within the whole organisation. Improving organisation allows a firm to increase outputs with given inputs and make quicker decisions

List the 4 business functions

  • Accounting and finance: record financial transactions, control costs, collect revenue, manage cash flow and monitor budgets to check business success against set objectives
  • Operations (production): organise resources to make products, maintain efficiency and quality, manage stock
  • Human resource (HR): idenitfy labour requirements. recruit, train, help motivate staff and ensure the business complies with employment legislation
  • Marketing: identifies customer needs and develops a marketing strategy and coordinated marketing mix of product, price, promotion and place for items supplied by the firm 

Define roles and responsibilites

Role refers to the tasks and duties of a member of stadd. Responsibility is the obligation on staff to finish a task 

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Define management

Management is the organisation and coordination of business activties 

Explain line managers and subordinates

A line manager is a member of staff directly responsible for a subordinate employee. Managers allocate tasks to subordinates

 What is the difference between authority and delegation?

  • Authority: is the power managers have to direct subordinates and make decisions
  • Delegation: occurs when managers entrust tasks or decisions to subordinates

What is the span of control?

Is the number of subordrinates reporting directly to a manger whom they are accountable. The optimal number of subordinates being supervised depends the complexity of the tasks, business culture and management style of the firm 

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What are hierarchies?

Hierarchy refers to the number of management levels within an organisation 

What is the chain of command?

The chain of command is the way in which instructions are passed down a business from superiors to subordinates

Why are organisation charts useful?

  • Visual summary of roles and areas of responsiblities
  • Levels of hierarchy
  • Lines of authority and accountability
  • Chain of command within a business

What is centralisation?

In centralised organisations, authority is retained by senior managers at the top of the organisational chart (minimal delegation)

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Explain decentralisation

Authority is delegated down the chain of command to subordinates who are empowered to take decisions. Decentralisation motivates and can lead to better decision making as subordinates understand the day-to-day context. 

Is decentralisation always effective?

The effectiveness of delegating power down the chain of comand relies on the capability of subordinates, culture and comunications systes

Define culture

Culture refers to shared atttitudes, values and behaviours of a group 

What is corporate culture?

Corporate or business culture refers to the shared attitudes, values and behaviours within an organisation

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List 3 management styles

  • Autocratic- issue orders and expect subordinates to follow their instructions-decisions are taken quickly but without consultation- can demotivate subordinates
  • Democratic- delegate authority- empower subordinates and consult on decisions- involvement and trust can motivate subordinates but delay decision-making
  • Laissez-faire- allow subordinates to organise their own work and make decisions- highly motivating but can lead to duplication of tasks
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Define accountability

Accountability is the process of holding individuals or institutions answerable for their responsibilities, actions and decisions

How are employees make accountable?

Line managers can ask for regular reports from subordinates on how well responsibilities and delegated tasks are being carried out. Setting and monitoring SMART targets is one means of managing accountability

Define board of directors

The board of directors are individuals elected by the shareholders of a company at an AGM to manage the business. 

How are companies held accountable?

Companies publish Annual Reports which allow stakeholders to evaluate the firm's success in meeting its objectives and wider obligations

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Define corporate social responsibility (CSR)

CSR is when an organisation voluntarily considers the interest of society by taking responsibility for the impact of their activites on external stakeholders 

List 4 obligations a firm might consider

  • Provide fair pay, training and outstanding working conditions for staff
  • Pay suppliers and creditors on time rather than delay payment to earn interest
  • Invest in community schemes and hire local staff to maintain employment levels
  • Minimise the social costs of their activities 

Explain social costs

Social costs are the total cost to the community of economic activity. Private costs (costs to individuals) and external vcosts (costs imposed on other parties- community)

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Define private costs

Private costs are the costs to individuals or firms who actually consume or produce a good or a service

Define external costs

An external cost is the cost a consumer or producer's own economic activity imposes on others

Give 3 examples of external costs caused by business activity 

  • Air and noise pollution
  • Traffic congestion
  • Loss of land

Given 1 example of a social costs caused by business activity

  • Late night deliveries in residential areas
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Explain transparency

Transparency is about being clear, open and honest about business activites. Transparent firms publish rather than hide information about their activties

List 4 benefits to acting with social responsibility

  • Increase sales and therefore revenue
  • Well paid workers are motivated and productive
  • Paying suppliers on time means 'special treatment' in some future emergency
  • Customers prefer to buy productss from firms that act responsibly e.g demonstrate concern for the environment and the wages of third world workers

Give 2 reasons how companies demonstrate they are socially responsible

  • Publish the results of a social audit on its environmental and ehtical performance
  • Include a section on the social, economic and environmental impact of their activites in the annual report to shareholders
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What are pressure groups?

Pressure groups are organisations trying actively to influence busines behaviour or government legislation on specific issues

How can pressure groups influence business?

Pressure gorups seek to change company behaviour by writing lettures to the press etc... and organising marches and running campaigns

How do pressure groups make firms accountable for their activities?

  • Pressure groups use media to expose business activities that fail to meet their objectives
  • A poor business image damages brands, sales and profits
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