Unit 3

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Public Limited Companies

Advantages to its stakeholders

  • Has limited liability- they only risk the amount they have invested in the business in the event of failure-cant loose personal possesions- owners can't loose possesions
  • Can sell shares to anyone- via the stock exchange- stakeholders can buy shares- more money for the business
  • Likely to be in the media frequently- Hebden Carpets "regular apperances in the media"- attracts more attention and publiciy- Stakeholders can see its progress- affects local community- more jobs if doing well
  • Gives Hebden Carpets a more prestigious profile- have been PLC for 32 years- attracts more people
  • Large plc's may find it easier to get a loan from banks- helpful when raising money for their large investment
  • Cheaper borrowing and bulk purchasing- economies of scale- suppliers benefit from the business purchasing more- Hebdens can buy more supplies for overall less price
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Public Limited Companies

Disavantages to its stakeholders

  • Accounts have to be published showing detailed financial information- competition could benefit from this- depends on current success of busines, if doing well people can see and might buy shares ADVANTAGE, if not people might decide not too- affects the stakholders e.g. owners/ managers and customers
  • Have to pay a percentage of profit to shareholders- dividends- less money for stakeholders
  • Hebdens owners may lose control because anyone can buy shares- affects the stakeholders

How they are financed

  • Grants
  • Loans
  • Selling shares via Stock Exchange

In conclusion- e.g. advantages outweigh disadvantages...

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Hebden Carpets

For undertaking the large investment

  • Sales have risen steadily for vinyl flooring products since 2000 in Europe
  • Cheaper to have factory in Poland- could continue with high uneployment areas for employees
  • Good distribution network in Europe and good relations with many retailers
  • Could be easier to get a bank loan as they are a well established and successful plc- needed for investment
  • Profits from vinyl are 50% higher than for carpets
  • Could please the Shareholders- improves their financial performance#
  • Cash flow forecast shows....
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Hebden Carpets

Against undertaking the investment

  • Hebdens dont have much competition in UK- could open factory here to produce vinyl
  • Got a USP if produced in UK- "Made in Britain"- could then sell online abroad- good promotional technique
  • Already had success/ many awards, in media- could continue in the UK, could be jeopardised in Poland
  • Hebdens market research shows its competitive
  • £124 million is a lot of money- could instead expand product range in UK- open/ expand factories,- continue to employ from high unemployment areas
  • Could loose customers in the UK

Conclusion

  • e.g. could be a high risk project
  • might be more successful if save the money and use it in the UK instead

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Sole Trader

  • Pros
  • Have all the control over the business
  • Make all of the decisions, you are your own boss
  • Keep all profits
  • Full ownership
  • Cons
  • Only have your ideas within the business
  • You are responsible for everything
  • Unlimited liability
  • Inflexible

Financed

  • Personal savings
  • Investment from friends and family
  • Loans
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Partnership

Pros

  • Can share responsibility
  • Less pressure on the partners
  • Opinions get shared
  • Flexibility
  • Raise capital

Cons

  • Disputes over decisions and ideas
  • Unlimited liability
  • No full ownership

Financed

  • Partners' savings
  • Loans
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Private Limited

Pros

  • Has limited liability
  • Accounts dont have to be published- private
  • Easier to raise finance- shares

Cons

  • Cant sell shares to anyone- less money
  • Growth may be limited
  • Disputes- loss of control

Financed

  • Grants
  • Loans
  • Suppliers
  • Leasing

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Public Limitied

Pros

  • Has limited liability
  • Can sell shares to anyone
  • Raise lots of money

Cons

  • Accounts have to be published- could be good or bad
  • Pay percentage of profit to shareholders- dividends

Financed

  • Grants
  • Loans
  • Selling shares via the stock exchange
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Sources of finance- credit cards

Credit Cards

Pros

  • Allow you to purchase items and pay them off in monthly investments
  • May offer cash back
  • You can use them practically everywhere

Cons

  • May spend more money than you have
  • Cost of interest and fares

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Sources of finance- retained profit

Pros

  • Long term finance
  • No fixed obligation of interest
  • Cost effective

Cons

  • Not making any excess profit
  • Wasted money
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Sources of finance- sale of assets

Pros

  • Way of making money on items that you no longer need
  • Instant money

Cons

  • You might need these items at another time
  • Losing resources
 
 
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Sources of finance- loans

Pros

  • Not repayable on demand
  • Interest rates may be fixed so wont change
  • Quick

Cons

  • Have to pay the money back by a certain time with interest
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Sources of finance- Renting assets

Pros

  • Way of making money on items you dont always use
  • May make profit

Cons

  • Assets could get damaged or abused
  • You might need these items at another time
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Sources of finance- government grants

Pros

  • You dont have to pay the money back

Cons

  • Takes a lot of time to be approved
  • Great deal of competition to get the grant
  • Not easily available
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Sources of finance- venture capital

Pros

  • get capital

Cons

  • Venture capitalists get some of your profit
  • Take some of your control
  • May have disputes
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Business Plan

Main sections

  • Cover
  • Contents Page
  • The executive summary- main points
  • Key features of the business
  • Aims and objectives
  • Industry analysis- understanding the market you are selling to
  • Market research
  • Marketing- 4P's
  • Human resources
  • Financial forecasting
  • Operational requirements- IT, machinery
  • Appendix and research

Why needed?

  • To set out clear plans supported by accurate forecasts, validity purposes and records, guide for success, bank requirement, sets out key aims and objectives
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Business Plan

Key stakeholders interested in a business plan

  • The business's owners
  • Banks and other investors
  • Suppliers
  • Employees

Advantages

  • Enables you to measure how you are getting on
  • Sets a direction
  • The plan is flexible and adaptable
  • Source of finance
  • Initiates strategic thinking- what your strategy will be
  • Building relationships

Disadvantages

  • Takes a lot of time, data could be inaccurate, false certainty-projection/projection-biased, can be inflexible if followed
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Business Resources

Labour intensity: Pros

  • Provides employmeny and therefore brings income and opportunities for individuals
  • flexible
  • Job production- made specialised/ personalised products e.g. wedding cakes
  • Cheaper in the short term
  • Better for small businesses- cheap

Cons

  • Usually used to produce products on a small scale- normally seen in small scale enterprises
  • Have to fund for wages, recruitment, training, benefits etc
  • Inconsistent effor- quality
  • Hours- breaks- holidays
  • Different personalities
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Business resources

Capital intensity: Pros

  • Can produce on a large scale
  • high rate of success- produce things quickly and efficiently
  • flow production- conveyor belt
  • Low competiiton
  • Low risk of losing your investment
  • 24/7 work- flexible hours
  • Consistent qulity/ precise

Cons

  • Requires a relatively high level of capital- short term cost
  • Can be costly and time consuming
  • Have to pay for repairs if they break- stops production
  • Consistent effors- e.g. Toyota breaks
  • Inflexible to change production
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