UNIT 2:

2.3.1 Planning a business and raising

finance:
 1) Planning

Business Plan: A document plan for the development of a business

including details such as products to be made and financial forecast.

Contents of a business plan:

1) Executive summary
2) Personnel
3) Financial forecast
4) Premises and equipment

Relevance/Purpose of a business plan:

1) Supports applications for funds from investors or bank
2) Provides action plan, identifying key tasks and goals to be achieved
3) Identifies problems in advance so solutions can be found

Disadvantages of a business plan:

1) Does not consider external factors (state of economy, government)
2) Requires expert management time and resources
 2) Internal Finance

Internal finance:
Money that comes from inside the business, used to fund expansion and growth

Types of internal finance:

1) Owner’s capital/Personal savings
2) Retained profit
3) Sale of assets

Owner’s Capital:
Money that comes from the owner itself when starting a business

Advantages Disadavantages

- Quickly available - Savings may not be

enough

- No interest paid - May not have access to

personal savings in an
emergency

Retained profit:
Profit after tax put back into the business to help fund expansion
Advantages Disadvantages

- No interest paid - May be too low

- Doesn’t have to be - May cause conflicts of

repaid interests with
shareholders

Sale of Assets:
- Selling items the business owns such as machinery to fund expansion
Advantage Disadvantage

- Raises capital through - Capital may not be available

getting rid of in the future if capita is
 unwanted assets needed urgently

3) External Finance

External Finance:
- Money that comes from outside the business
- To be used to fund expansion

Types of External Finance:

1. Family and Friends
2. Banks
3. P2P funding
4. Business Angels
5. Crowd funding
6. Other businesses
7. Loans
8. Share capital
9. Venture capital
10. Overdrafts
11. Leasing
12. Trade credit
13. Grants
14. Debentures
15. Mortgage
Sources of Finance:

1) Family and friends:

- A common source of finance from people close to you
Advantages Disadvantages

- zero/low interest - Breakdown in family

relations if loan cannot be
repaid

- May not want ownership in - May not be enough

the business

2) Banks:
- A financial institution that may provide a loan, mortgage or
overdraft for a business
Advantages Disadvantages

- May provide advice to - High interest rates

business for free

- Can provide a large sum - security/collateral may be

of money needed to be provided by the
company

3) P2P (Peer-to-peer funding):

- People lending money to unrelated individuals
- Done online, and all loans are unsecured
Advantages Disadvantages

- Cean be done online, quick - Lack of

easy government
protection

- Interest rates are better than

the bank
4) Business Angels:
- Individuals who invest generally in start-up businesses/in early
stages of expansion
- And take a percentage stake in the business
Advantages Disadvantages

- Angel does not need to be - Angel can take a

paid back percentage stake in the
business

- Conflicts of interest between

owner and angel

5) Crowd funding:
- A large number of people who provide finance for a company
- All transactions are done online
Advantages Disadvantages

- Quick way to raise - Fee has to be paid to

finance crowdfunding platform

- Feedback and expert - Failed projects lead to risk

guidance given to damage to the reputation
improve business of the business
idea

6) Loans:
- Can be a bank loan, mortgage
Advantages Disadvantages

- Available quickly - Interest rates are added into

borrowing

- Large amount of - Certain criteria needed

capital is available before a loan can be
approved
7) Share Capital:
- For limited companies-
- Shares are sold to shareholders who invest capital into the
business and take a percentage stake of a business
Advantages: Disadvantages

- Can raise large amounts - Existing shareholders can

of capital become diluted

- Does not have to pay - Conflicts of interest if

shareholders back dividends are insufficient

8) Venture Capital:
- Specialists who invest in a small/medium sized business after
start up
- Generally investing in high growth potential companies
Advantages Disadvantages

- May provide specialist advice - Take a percentage stake

to help guide the company in the business

- Does not have to be paid - Conflicts of interest

back

9) Overdrafts:
- A business spends more money that they have available
- Going into minus
Advantages Disadvantages

- Allows the business to - Bank can call anytime

have acces to cash in for the money owed
an emergency

- Quick to arrange - Interest may be applied

10) Leasing:
- A contract through which a business uses resources
- Giving regular payments to the owner of the equipment
Advantages Disadvantages

- No large sums of money - May be more costly in the

required to buy equipment long run than buying it initially

- Maintenance and repair costs

are not the responsibility of the
user

11) Trade credit:

- A business buys now pay later
Advantages Disadvantages

- May be interest free - Delayed payments can

result to poor relations and
supplier not providing this in
the future

- Improves cash flow

12) Grants:
- Government provides money for businesses such as a
business helping the community
- Money does not have to be paid back
Advantages Disadvantages

- Does not have to be paid - Only applies to businesses

back such as social enterprise,
certain criteria to obtain a
grant.
13) Debenture:
- Long term loan
Advantages Disadvantages

- Debenture provider have no - Must be repaid on a set

voting rights date

14) Mortgage:
- Long term secured loan where the borrower provides security
to support the loan (UP TO 25 YEAR LOAN)
Advantages Disadvantages

- Payments can be spread - Interest attached to

out over a period of time mortgage
4) Forms of Businesses

Sole traders:
- A business owned by one person who owns + runs the business
Advantages Disadvantages

- Owner gets to keep all profit - Unlimited liability - owner

is responsible for any
debts and personal assets
can be taken if not repaid

- Owner has complete control - Owner may struggle to

to make decisions raise finance as lenders
consider them too risky to
offer credit

Partnership:
- A business owned by 2-20 people who agree to jointly own a
business and share the responsibility
Advantages Disadvantages

- Can raise more capital - Unlimited liability

- Partners can specialize in - Shared profit

their areas of expertise
Private limited company: (LTD)
- A company that is legally independent from its shareholders who have to
be invited to invest into the business
Advantages Disadvantages

- Can raise more capital by issuing - Profits have to be shared

shares

- Shareholders have limited liability - Have to publish their

financial position

- Control over the business cannot - Shares can’t be sold in

be lost to outsiders stock market, can’t raise
large sums of money

Public limited company: (PLC)

- A company owned by shareholders where shares can be traded openly on
the stock market.
Advantages Disadvantages

- Shareholders have limited - High set up costs

liability

- Shareholders can raise large - Accounts have to be published

sums of money (more info than ltd)

- May exploit economy of scale as - Divorce of ownership and control

company grows, production
costs may be lower

Limited liability - Where a shareholder in a limited company only loses what they
invested
- Less risk involved - Can be costly to set up

Appropriate finance for limited liability businesses:

- Share capital
- Debentures
- Retained profit
 - Venture capital
- Business angels

Unlimited liability - Where a shareholder in a limited company loses personal

assets and what they invested in
- More risk involved - Can be quick to set up

Appropriate finance for unlimited liability businesses:

- Personal savings
- Retained profit
- Mortgage
- Unsecured bank loans
- P2PL
- Crowdfunding
- Bank overdraft
- Grants

Stock market flotation:

- Process of converting a business into a PLC by issuing shares to the
public
Advantages Disadvantages

- Easier and less costly borrowing - Administration and costly to set up

from banks

- Enhanced reputation as they’re - Conflicts of interest

more recognized

- Raises more capital for growth - Divorce of ownership and control

Franchising:
- Franchisor grants a license (franchise) to another business
(franchisee) to allow it to trade using the brand/business format
Franchise:
Arrangement whereby one company allows another company to supply its
products

Franchisee:
The company allowed to conduct business using the other company’s
name and brand
Advantages Disadvantages

- Advertising is paid by - A fee has to be paid for

the franchisor start-up franchise

- Brand may already be - Limited flexibility in

well known making decisions

Franchisor:
The company allows another company to conduct business using its name
and brand
Advantages Disadvantages

Receive a royalty fee - % of rev Reputation can be damaged

made if something goes wrong

Quick and relatively low cost - Have to pay toward

method of expansion supplying &
equipment

Social enterprise:
- Trade with the aim of improving human and evironmental well-being rather
than making a profit for external owners

Lifestyle Business:
- An individual who makes enough money to provide the flexibility to live a
particular lifestyle

Online businesses:
- Using the internet to trade rather than a physical store
2.3.2 Financial Planning:

2) Sales, revenue and costs:

Sales volume:
- Number of units sold within a given time period

WAYS TO IMPROVE SALES VOLUME:

- ADVERTISING
- IMPROVE TARGETING
- EXTEND PRODUCT RANGE

Sales revenue:
- How much money a business makes from selling products

WAYS TO IMPROVE SALES REVENUE:

- INCREASE PRICES (INELASTIC)
- DECREASE PRICES (ELASTIC)
- ADDING COMPLIMENTARY GOODS AND SERVICES

REVENUE FORMULA
FORMULA: PRICE X QUANTITY

Fixed costs:
- Costs that do not change according to the businesses output
- E.g: Salary, rent

Variable costs:
- Costs that do change according to the businesses output
- E.g: Raw materials, Electrical bills
 TOTAL COSTS FORMULA:
FC + VC/ Fixed costs + Variable costs

PROFIT:
TOTAL REVENUE - TOTAL COSTS

DIFFERENCE BETWEEN REVENUE AND PROFIT:

● PROFIT: TOTAL AMOUNT LEFT AFTER TOTAL COSTS HAVE BEEN
DEDUCTED FROM TOTAL REVENUE
● REVENUE: MONEY BUSINESS MAKES FROM SELLING ITS PRODUCTS

AVERAGE COST:
TOTAL COST/TOTAL OUTPUT
 2) Sales Forecasting:

Sales forecast:
- A prediction of future sales revenue, often based on previous data

Purpose?
1) Identifies how much stock the business needs to buy and hold
2) In order to plan human resources - Identifies staffing levels needed
3) Reduces uncertainty and plans more effectively

Factors affecting a sales forecast:

1) Consumer trends:
- Demand in many markets change as consumer tastes and fashion changes
2) Economic variables:
- Demand is sensitive to variables such as: Exchange rates, interest rates,
taxation, consumer incomes
3) Actions of competitors:
- Difficult to predic actions of competitors

Inaccuracy in sales forecast:

- Business is a start up
- Elasticity demand
- Product is a fashion item (dynamic market)

Difficulties in sales forecast:

1. Volatile consumer tastes and preferences
2. Range of data
3. Subjective expert opinion

3) Budgets:
Budgets:
- A quantitative economic plan prepared and agreed in advance

Purpose of budgeting:
1) Control and monitoring:
Setting targets for the business to see at the end of the year to then take
appropriate action (e.g. control spending)
2) Planning:
Allows managers to compare performance and identify problems and solutions

Types of budgeting:

1) Historical based figures

- Budget made on past trading records
- More reliable - Consumer trends may change

- Slower to produce - External influences can affect the

new budget

2) Zero-based budgeting
- No money allocated for costs, unless justified by the budget holder
- Reduces unnecessary costs - Skillful decision making is needed
which may be lack in organisation

- Efficient allocation resources

3) Variance analysis - adverse or favorable

- Difference between budgeted and actual figure

Difficulties of budgeting:
1) Setting budgets - problems may arise when figures are plan based than actual
figures
 2) Motivation - If workers aren’t consulted about the budget they may feel
demotivated
3) Opportunity cost

4) Cash flow:

Cash flow:
- Money coming in and out of the business over a future period of time

Cash inflow/receipts:
- Money coming in to the business over a period of time. E.g: Sales of products,
bank loan and sales of assets.

Cash outflow/payments:
- Money coming out of a business over a period of time.

Cash flow forecast:

- An estimate of future cash inflow and outflows on a monthly basis

Formulas:
NET CASH FLOW: INFLOWS - OUTFLOWS

OPENING BALANCE: CLOSING BALANCE AT THE END OF THE MONTH

CLOSING BALANCE: OPENING BALANCE + NET CASH FLOW

 Advantages: Disadvantages:

- identifies time of cash shortages - Some financial information is

and surplus based on estimates

- supports applications for funding - Doesnt consider external

forces - e.g consumer taste,
legislation (laws)

5) Break-even charts, break-even analysis:

Break-even point:
- Level of output where total revenue equals total costs, therefore the
business does not make a loss or a profit

Break even formula:

Fixed cost / Contribution [Selling price - Variable cost PER UNIT]
 Formulas:
Total revenue: Price x Quantity

Fixed costs: Costs that don’t change

Variable costs: Costs that do change

Total costs: FC + VC

Profit: Total revenue - Total costs

Margin of safety:
ACTUAL PRODUCTION LEVEL - BREAK-EVEN LEVEL OUTPUT

Break-even analysis:

Advantages: Disadvantages:

- Planning tool - shows - Assume VC and PRICE

expected levels of profit and remains the SAME
loss at different levels of
 output

- Vital for gaining finance - - Assumes ALL stock is sold

part of business plan
2.3.3 Managing finance
 1) Profit:
Statement of comprehensive income (profit and loss
account):
- A financial document showing a company’s income and expenditure over a
period of time, usually one year
- Provides a summary of profit or
loss made during the year

Gross profit:
- E.g: raw materials
GP = Sales Revenue - Cost of sales

Operating profit:
- E.g: Salary and rent
OP = GP - Operating Expense

Net profit/profit of the year:

- E.g: Interest on loans
NP = OP - Finance costs

Ways to increase profit:

1) Diversify - Extend product range
2) Mergers and takeovers - E.g: facebook: whatsapp and instagram
3) Find new markets - Selling overseas
Measuring profitability:

Profitability:
- Size of profit in relation to revenue/Turnover

Gross profit margin:

GP Margin: GP/Sales Revenue x 100

Profit margin:
Profit Margin: Profit/Sales Revenue x 100

Operating profit margin:

OP Margin: Operating profit/Sales Revenue x 100

Net profit margin: ko

NP Margin: NP/Sales Revenue x 100

Ways to improve profitability:

1) Raise prices:
- Revenue may increase for every unit sold
2) Decrease costs:
- Buy cheaper raw materials from different suppliers and cheaper labour
 2) Liquidity

Liquidity:
- The ability of a business to turn its assets into cash

● NOTE: OPPOSITE OF LIQUIDITY = ILLIQUID e.g: stock (stock is not

guaranteed to be sold)

Balance sheet/Statement of financial position:

- A document showing a business their assets and liabilities
- At a particular time

Non-current assets:
- Long term assets of a business
- Which are not expected to be sold within the next year
E.g: Property, equipment and machinery

Current assets:
- Short term assets of a business
- Expected to be sold within the next year
E.g: Cash, Trade receivables, Inventories

Non-current liabilities:
- Debts not expect to be payed within the next year of trading
E.g: Franchising agreements, Pensions

Current liabilities:
- Debts expected to be payed within the next year of trading
E.g: Trade credit, Overdrafts, Tax liabilities
Uses and limitations of balance sheet analysis:

Uses Limitations

- To evaluate performance of the - Value of assets stated may not be the

business same as the amount they sell for

- To evaluate potential of a business to - A balance sheet is a snapshot of the

an investor business in one day, the next day the
picture may change

How to measure liquidity:

Current ratio:
Current assets/Current liabilities

Results:
- 1.5:1 - 2:1: Plenty of working capital to meet its day-to-day bills
- 2:1+: Too much money tied up in assets that are not making money
- 1.5:1-: May not have enough money to pay short terms debts

Acid test ratio:

Current assets ( - STOCK) / Current liabilities

Working capital:
- Money that covers its day-to-day expenses
Current assets - Current liabilities

Ways to improve liquidity:

1) Sales of assets - unwanted machinery and equipment
2) Supplier credit terms - delay paying suppliers to save cash
3) Factoring - getting a specialist/bank to pay for an invoice from a customer
4) Inventory JIT - minimize stock of raw materials to reduce storage costs
 3) Business Failure
Internal causes of business failure:

1) Poor management of cash:

Investing in too much money in fixed assets e.g equipment/allowing too much
credit
● therefore resulting in them being unable to pay their current
liabilities. The risk of this occurring can be reduced through cash
flow forecasts to identify and solve months in which there may be
shortages of cash.
2) Overestimation of cash:
May be too optimistic when completing sales forecasts = too much unsold stock

3) Overtrading:
Funding production with inadequate cash OR trying to expand too quickly and
borrowing money to fund the expansion

4) Poor inventory control:

Buying too much stock or too little

5) Poor marketing:
Investing in wasteful promotional campaigns that are ineffective
● Poor market research can cause the business to enter a market where there
is a lack of demand for their goods/services = lack of revenue which may
mean that the business is not profitable and therefore will fail.
6) Poor quality
External causes of business failure:
● BEYOND BUSINESSES CONTROL

1) Market conditions:
- May be dynamic with volatile consumer tastes and preferences
2) Competition:
- Competitors may charge lower prices/launch products that are more
superior (predatory pricing)
3) Economic:
- Change in economic conditions such as recession, boom that may result
in a decrease in demand = decrease disposable income = loss of
profit from businesses
4) Strong pound: SPICED = STRONG POUND IMPORTS CHEAPER
EXPORTS DEARER
- Strong pound = increase in the price of domestic exports = reduce the
competitiveness of domestic goods/services being sold abroad.
- As a result of this, exporting businesses will see a decrease in the
demand for their goods/services. This will result in a reduction in
revenue which could cause the business fail.
5) Interest rates:
- Increase in interest rates = cost of borrowing increases = disposable
income decreases = so do profits
6) Government policies:
- Imposement of legislations may lead to an increase in
CORPORATION TAX = INCREASES business costs of production =
INEFFICIENT BUSINESS FORCED OUT OF THE MARKET
7) Supplier problems
8) Natural phenomena:
- Calamities
AVOID BUSINESS FAILURE WITH INCREASED
COMPETITION:
1) USP
2) Product differentiation
3) Ethical source
2.3.4 Resourcing Management
1) Production, Productivity, Efficiency
A) Production:
Job production:
- Involves the production of a single product at a time

Advantages Disadvantages

- High quality because workers are - High labour costs (piece rate, time
skilled and specialized rate)

- Highly motivated workers as job is - Slower production = SLOWER LEAD

diverse TIMES (time frame from production to
product delivery)

Batch production:
- Production method involving completing one operation at a time on all
units before performing the next e.g bakery

Advantages Disadvantages

- Production is flexible - Less motivated

- Employees are specialized - Production may stop when switching

between batches
Flow production:
- Large scale production of a standar product usually on a production line
e.g car manufacturing

Advantages Disadvantages

- Unit costs are lower = higher - High set up costs for machinery
volumes of production = achieving
EOC

- Quicker output - Lower motivation = repetitive tasks

Cell production:
- Involves producing a family of products in small self contained units within
a factory e.g piano manufacturers
- Each cell is responsible for making different parts of the product =
achieves job rotation, TEAMWORK

Advantages Disadvantages

- Shorter lead times - Tension in cells if work gets

complicated

- Team working is encouraged - High costs of machinery for each cell

B) Productivity:
- Output per unit per time period

Effect of productivity:
- Increasing productivity = reduction in average costs
= business becomes more competitive as they produce more output
= economies of scale achieved
= PROFIT MARGIN increases
- THIS can then be used to lower their price = increasing demand
= increased market share

Labour Productivity
- Output per WORKER per time period

Formula:
Output/Number of workers

Ways to improve labour productivity:

1) Specialization
2) Training
3) Improve motivation

Capital productivity:
- Amount of output each unit of capital produced
 Formula:
Output/Capital employed

Ways to improve labour productivity:

1) Improve service/maintenance
2) Updating old technology

Factors influencing productivity:

1) Division of labor
2) Education and training
3) Motivation of workers

C) Efficiency:
- Producing a level of output where average costs are minimised

Factors that influence efficiency:

1) Quality of inputs
- High quality input = skilled workers to do better = amount of waste
reduced as fewer mistakes are made
2) Production
- E.g lean production, standardisation
3) Management of staff
- Organized = improvement in coordination of the business = less time
wasted = reduction in costs = increases efficiency
 Improve efficiency:

1) Standardisation
- Using resource and activities producing a uniform product e.g apartments
2) Outsourcing
- Work done by a business can be given to a specialist outside the business
that can be done at a lower price
3) Relocating
- Lower rent = lower labour costs
4) Downsizing
- Redundancy, closing unprofitable business divisions

D) Capital intensive:
- Production methods that make more use of machine relative to labour

Advantages Disadvantages

- Can operate 24/7 - High set up costs

- More precise reliable = less mistakes - Delay in production if it breaks down

D) Labour intensive:
- Production methods that make more use of labour relative to machinery

Advantages Disadvantages

- More flexible - More difficult to manage

- Cheaper in developing countries - May be unreliable

E) Competitive advantage from short
product lead-in times: (First mover
advantage)

Advantages Disadvantages

- Improved brand recognition and brand - High costs of product development

loyalty

- May charge premium prices - Followers can learn from mistakes of

the ‘first mover’
2) Capacity Utilization
Current output as a % of maximum output

Formula:
Current output/Maximum output x 100

B) Capacity Over-utilization:

Advantages Disadvantages

- May improve company’s image - Machines may be overworked =

breakdowns = slow down of production

- Average costs will be lower = - May not be able to respond to a sudden

improves competitiveness increase in demand / Inflexibility

- Workers may be put under excessive

pressure = unhappy, demotivated = high
absenteeism and labour turn over

C) Ways to improve capacity

utilization
Ways to improve over-utilization:
1) Make staff redundant
2) Special offers during seasonal demand
3) Lease to other businesses
4) Increase sales by decreasing prices
Ways to improve under-utilization:
1) Increase inventories
2) Outsourcing = to increase current output
3) Expansion

Capacity Under-utilization:

Advantages Disadvantages

- May be able to cope with sudden - Unit costs are minimised = loss of
increase in demand market share

- Less absenteeism as workers are - May lead to redundancies

less stressed

- Inefficiency: inability to produce at

maximum capacity = unable to full
exploit economies of scale = increase
in average costs.
3) Inventory control

Stock/Inventory:
- Raw materials/semi-finished goods held by a business

A) Inventory control diagram

B) Buffer stock:
- Amount of stock held as a precaution to cope with unforeseen demand in
case of stock shortage

Advantage Disadvantage
- Can dope with sudden increase in - Storage costs
demand to satisfy customers
C) Implications of poor inventory
control:
Too much inventory:
1) Production costs
2) Opportunity cost
3) Spoilage costs
4) Longer lead times

Too little inventory:

1) May not be able to cope up with sudden increase in demand
2) Deliveries may be delayed = storage delay
3) Cash flow problems = liquidity issues with inadequate cash to meet its
current liabilities and working capital

D) Just-In-Time Manage of inventory (JIT):

- Reducing the need to hold inventories of raw materials and supplies arrive
just at the time they are needed

Advantages Disadvantages
- Reduced storage costs - Cannot cope with sudden increase in
demand

- Reduces waste - Bulk buying advantage lost

- Improves cash flow as money is not

tied up
E) Waste minimisation:
Lean production:
- Minimization of waste and increasing efficiency through Kaizen or JIT

F) Competitive advantage:
- More potential profit due to less waste of defeated products

- Shorter lead times

- Zero defects = increase productivity

- Achieves economies of scale

IMPACT?:
- Businesses can charge lower prices and offer better quality and reliability
 4) Quality Management

A) Quality:
- Features of a product or service that allow it to satisfy customer’s wants

Quality Control:
- Checking standards of a product at the end of the production process
- Reactive
- Product orientated

Advantages Disadvantages
- Does not interrupt production process - Doesn’t achieve waste minimization

Quality Assurance:
- Checking standards of a product at every stage of the production process
- Proactive
- Market orientated

Advantages Disadvantages

- Reduces likelihood of faults existing in - Employees need to be trained which

the final product is costly
 Quality circles:
- A group or team of 5-20 employees that meet on a regular basis to
solve production problems and suggest improvements to current
system

Advantages Disadvantages
- Motivates workers as they’re involved - Only works if managers and
in decision making employees are supportive

- Workers may be best placed to - Production time is lost whilst

discuss and decide on improvements employees take part of QC meetings
to production

B) Total Quality Management (TQM):

- Management approach that focuses on quality and aim to improve
the competitiveness of a business. Where every individual,
department and activity takes quality into account at all times

Features TQM adapts:

- Quality circles
- Quality assurance
- Empowerment
- Zero defects
- Team work
 Advantages Disadvantages
- Improved quality = satisfied customers - Committment needed by the entire
business to work

- Empowered employees are motivated - Some staff may be resistant to change

- Enhanced reputation - Costly to train staff

C) Kaizen:
- Continuous improvement

Competitive advantage of TQM:

1) Higher quality = higher sales
2) Lower costs = higher profit
3) Quality can be used as USP

2.3.5 - External influences

Inflation:
- A general rise of prices in goods and services over time

Impacts of inflation:
- increased costs
- uncertainty
- consumer reactions
- international competitiveness
 How can a business respond to an increase in inflation:
1) Cheaper suppliers
2) increase prices
3) Build up inventory
4) Outsourcing

Exchange rates:
- The value of one currency against the other

Interest rates:
- The cost of borrowing money or reward for saving money

How can businesses respond to an increase in interest

rates:
- lay off staff
- cancel investment projects
- reduce loans and overdrafts

Disposable income:
- A level of income a person has left after they have payed their
taxes

Direct tax:
- Tax on income such as income tax and corporation tax
 Indirect tax:
- Tax on spending such as VAT and custom duties

Business cycle:
- Stages that the economy goes through as the GDP changes over a
period of time

Legislation:
- Laws that exist within a country set by the government that a
business has to follow

Health and safety legislation:

- laws that exist within a country to provide a safe and healthy
workplace

Factors influencing the business:

1) safety equipment
2) hygienic environment
3) protection from violence threats and bullying in the workplace

Advantages:
1) improved brand image
2) motivation of workers
3) less absenteeism

Disadvantages:
1) increased costs
2) Penalties
Employee protection legislation:
- Laws that exist within a country that a business has to follow to
protect employees

Factors influencing:
1) Health and safety
2) Minimum wage
3) Employment contract
4) Unfair dismissal

Environment protection legislation:

- Laws that exist within a country that a business has to follow to
protect the environment

Factors:
1) pollution
2) destruction of wild life
3) traffic congestion
4) resource depletion

Impact of environmental legislation on businesses:

1) marketing
2) operations management
3) human resourcing
4) financing
Consumer protection legislation:
- Laws that exist within a country that a business has to follow to
protect consumers

Factors influenced:
1) product quality
2) product safety
3) promotion and advertising

Impacts of consumer protection legislation on businesses:

1) increase costs to meet safety standards
2) more QA/QC”
3) may need customer service dept
4) change in business practice

Positive impacts:
1) better brand image
2) high level of customer satisfaction

Intellectual Property Rights:

- An idea, design or artistic work which a person or organisation has
created or invent and on which they have obtaned a copyright, patent
or trademark

Copyright:
- Used to protect creators work and stop others from using it without
permission
 Patent:
- Used to protect inventions

Trademark:
- Used to protect logos, names and symbols

Impact of Intellectual property rights:

Pros: Cons:

- Likely gains a competitive - Increased costs

advantage

- Encourages product - Lawsuits can be time

development and more choice consuming and costly
of goods

Competition policy legislation:

- When the government monitors and ensures that markets are
not dominated by a small number of large businesses

Ensures that:
1) Consumers are not exploited by anticompetitive/restrictive practices
2) Collusion does not ocur (businesses agreeing to a restrictive practice)
3) Avoids monopoly (when one company takes over all of the market)

Barriers to entry:
- Something that prevents/deters new businesses from entering
the market
 - If a business goes against competition policy such as doing price
fixing his means barriers to entry will be high

Impact of competition policy on businesses:

Pros: Cons:

- More opportunities to enter the - Restricts business activities

market as there are less barriers such as mergers and takeover
to entry may be done slower

- Encourrages innovation as - Increases costs if a fine has to

businesses may develop new be paid for being anti
products competitive

Competitive Environment:
- When different businesses compete against each other in a
marketplace

Effects of an increase in competitor size and numbers on a

business:
1) Prices may decrease
2) Profit margin may decrease
3) Improve communication
4) Innovation will be encouraged
5) EOC may be more difficult to achieve

How can competitor behavior affect a business:

1) Prices may have to decrease as customers switch to cheaper
suppliers
2) Increased spending on marketing campaigns
3) High level of product development is needed
 4) Product development is needed
5) Collusion may take place

Ways for small businesses to compete in a competitive

environment:
1. USP
2. Personal Service
3. Innovation
4. Develop a niche market

What really counts to be COMPETITIVE:

- Great product (USP)
- Efficient operation
- Customer service