What businesses need

Second unit in AS course

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  • Created by: Siobhan
  • Created on: 02-11-09 12:25


What is capital and revenue expenditure?

What are internal and external sources of finance?

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Capital expenditure is the cost of long-term improvents to the company, such as buying new products.

Revenue expenditure is the general running costs of the company such as fuel.

INTERNAL SOURCES OF FINANCE - finance from inside the company.

EXTERNAL SOURCES OF FINANCE - finance from institutions such as banks.

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What are the 12 sources of finance? (Describe them)

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PROFIT - Difference between the companies total revenue and opperunity costs.

SHARE CAPITAL - Money put into the business by it's owners for use by the business in acquiring assets and retained profits.

LOAN - Money lent at interest usually from a bank.

MORTGAGE - Legal agreement on the terms and conditions of a loan for the purpose of buying legal estate.

SALE OF ASSETS - The sale of current assets such as accounts.

OVERDRAFT - A pre-aggranged limit to which a person can exceed an account balance.

TRADE CREDIT - A short-term source of finance to buy goods which do not need immediate payment.

WORKING CAPITAL - Cash or assets which are readily convertable into cash.

HIRE PURCHASE - A contract to hire goods for a specified period at fixed cost.

LEASING - Where something is hired to someone else and is on a fixed contrac t.

FACTORING - The selling of a businesses account to a third party for funding.

DEBENTURE - A fixed interest stock (bond) secured on the assets of the company.

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Why do businesses need finance?

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- When setting up a business

- To finance the day to day running of the business.

- To finance expansion.

- To finance a takeover.

- Special circumstances.

- To fund research and development.

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What are the seven factors which would influence which choice of finance you would choose?

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State the four stages in the development of a business.

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Start up phase

Growth Phase

Maturity Phase (To gain stability)

Decline Phase

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What are cash flows?

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Cash flow shows us what sales are coming in and the money needed to make them. Cash is the most liquid asset avaiable to a firm.

There is INFLOW and OUTFLOW.

Cash flow does NOT show profit.

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Why are there differences between cash flow and profit?

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- Some goods sold would be on credit

- Cash may be recieved at the start of the year from sales from the previous year. (TRADING YEAR IS 5TH APRIL-5TH APRIL)

- Owners may introduce more cash such as selling an unwanted asset or taking on a new partner.

- Buying new assets can increase profits.

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Why is cash flow important?

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- Allows the firm to see if they can pay their suppliers.

- Cash gives the firm opportunity to pay bills.

- It helps to prevent insolvency (when the firms external liabilities are greater than it's assets.)

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How is it possible for profitable businesses to fail?

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Yes, as with a lack of short-term funds, poor managment or unable to pay bills.

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What is HRM and what is it's job?

Also, what are it's goals?

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HRM stands for Human Resources Management and is way of management that links people-related activities to the strategy of a business or organisation. Can also be called "strategic HRM".

They have several goals; to meet the needs of the business, to link human resources to objectives, to find ways to add value.

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What is workforce planning and what are the main steps invloved?

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Workforce planning involves looking at the present workforce and the future requirements. There are certain steps which are taken...

  • Auditing the current staff (how old are they, how many?)
  • Future business needs (right employees to help reach objectives)
  • Implement its human resouce polices
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Name two of the factors which make workforce planning particularly crucial.

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  • People leave all the time for a variety of reasons.
  • The firm should be ready to replace them.
  • May be time to find people with new skills.
  • Internal rather than external appointment.
  • Respond to change.
  • Reasons for leaving need to be analysed.
  • Technology requires revision of workforce.
  • Redundancy, retraining and/or new employment must be planned.
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Appart from human resources, what other information must companies gain during resource planning?

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  • Research future sales.
  • If wages rise, businesses may seek greater use of technology.
  • The plan will show changes in the output of the workforce. IE. change to the working week.
  • Technology departments may impact on the plan as this field may reduce the need for unskilled employees.
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Define market research and name the two types.

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Market research is the process of gathering data from potentail customers, competitors and distributers within the firm's target market.

The two types are:

  • DESK (i.e looking at secondary information from the internet)
  • FIELD (i.e going and getting the research first hand from a selected sample)
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Name the five different types of sampling.

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Quota Sampling: The selection of a predetermined number of elements from different sectors of the population.

Stratified Sampling: A sample in which each element in the population has an equal chance of being chosen for the sample.

Random Sampling: Given a specified sampling procedure, all consumers within the universe have an equal chance for respondent selection.

Convince Sampling: A non-random sampling technique based on convenient access to study participants.

- Cluster Sampling: Cluster sampling is most frequently applied in situations where members of the population are found in clusters

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What are the five ways which a business can be organized into?

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  • Function (ie. human resources, marketing, production, finance)
  • Product/ Activity (ie, soups, beans etc)
  • Area (ie. country)
  • Customer (ie. a specific group)
  • Process (ie, departments may take responsability for each area)
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What is meant by hierarchy and what is meant by "span of control"?

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Definition: a series of ordered groupings of people or things within a system.

The span of control is who they have DIRECT control of.

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Define the role of a manager.

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  • To plan
  • To control
  • To lead
  • To organise
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Define the term "accountability"

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The idea that a business and it's owners are responsable and answerable to the stakeholders for their activities.

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What are the two sections of a company report called and what is contained within them?

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  • Report and has a timeline/text about the year.
  • Account and contains details as to where money has gone.
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