Business Revision Guide2

Beal High School

GCSE Business Units 1&2 Revision Guide

GCSE Business Revision Guide – Beal High School 1

BUSS1 – Year 10

Unit 1 – Setting up a business

1 Starting a Business Enterprise 1.1 Starting a Business Enterprise

• Sources of business ideas

• Looking for a gap in the market,

• Identification of a product or market niche

• Reasons for starting a business

• Franchises AQA Syllabus Candidates should understand what a business is and the reasons why businesses are set up e.g. to produce goods, supply services, distribute products etc. Businesses should include social enterprises. Candidates should understand the advantages and disadvantages of operating as a franchisee, rather than setting up an independent business.

Key Terms Primary sector: Involves the extraction and production of raw materials

Secondary sector: Involves the transformation of raw materials into goods e.g. manufacturing steel into cars.

Tertiary sector: Involves the provision of services to consumers and businesses, such as cinema and banking.

Entrepreneur -‐ a person who sets up a business or businesses, taking on financial risks in the hope of profit.

Gap in the Market -‐ An unmet ’consumer need or a group of potential customers who are not yet purchasing a good or service. Also, the meaning behind GAP the clothing retailer. Market Share -‐ The percentage of an industry or market's total sales that is earned by a particular company over a specified time period. Market niche -‐ the subset of the market on which a specific product is focusing. Social enterprises -‐ an organization that applies commercial strategies to maximise improvements in human and environmental well-‐being, rather than maximising profits for external shareholders. Franchise -‐ A type of license that a party (franchisee) acquires to allow them to have access to a business's (the franchisor) knowledge, processes and trademarks in order to allow the party to sell a product or provide a service under the business's name.


Key Facts

Sources of business ideas

¥ Personal experience

¥ Business experience

¥ Market research

¥ Eureka moment

¥ Brain storming

Why do businesses exist? ¥ To produce goods

¥ To distribute products

¥ To provide a service

¥ To help others

¥ To meet the needs of society

Reasons for starting a business ¥ Challenge and satisfaction

¥ To make money

¥ Be own boss

¥ Government encouragement

1.2 Setting Business Aims and Objectives

• Types of business aims and objectives

• Purpose of setting objectives

• Using business objectives to measure success

• Influence of stakeholders on business objectives. AQA Syllabus Candidates should be aware of the main types of business aims, including: survival, profit, growth, market share, customer satisfaction, ethical and sustainable. Candidates should be familiar with the role of objectives in running a business and how they can be used to measure the success of a business. Candidates should have an understanding of the importance of stakeholders in influencing the objectives of a small business.


Key Terms Business aims -‐ the goal a business wants to achieve

Market share -‐ the portion of a market controlled by a particular company or product.

Ethical – Ensuring business is operating with moral principles, such as environment, or treating employees fairly

Sustainable business -‐ An enterprise to be that has minimal negative impact on the global or local environment.

Business objectives -‐ detailed picture of steps the business plans to take in order to achieve a stated aim Stakeholders – are individuals, groups or organisations that are affected by the activity of the business.

Key Facts

1.3 Business Planning

• The purpose of business planning

• The main sections within a business start-‐up plan

• Uncertainty and risk for start-‐up businesses. AQA Syllabus Candidates need to understand how business planning assists in the setting up of a business and the raising of finance. Candidates should know the main sections of a business plan. Candidates will not be expected to write a business plan. Candidates need to be aware of the risks faced by businesses and what can be done to minimise risk.

Key Terms Business plan -‐ A written document that describes in detail how a new business is going to achieve its goals.

Business risk -‐ the possibility of inadequate profits or even losses due to uncertainties e.g., changes in tastes, preferences of consumers, increased competition, etc.


Key Facts Key sections of a business plan

¥ Company description: Contains a historical account of the company, as well as its future prospects

¥ The product or service: Explains what is unique about the products or services that your business plans to deliver

¥ The market: Creates a picture of the market in which your business competes

¥ Marketing: Informs your reader of how you plan to capture your business’s potential market (packaging, distribution, advertising, Web marketing, and so on)

¥ Management/ownership: Introduces the people holding leadership positions in the business, their relevant experience and credentials

¥ Competition: Focuses on your competitors' strengths and weaknesses

¥ Financial statements and projections: Includes a lot of numbers (hopefully black), like your balance sheet, income statement, cash flow statement, and financial forecasts

http://www.dummies.com/how-to/content/key-sections-of-a-small-business-plan.html

Reducing risk of failure ¥ Research market

¥ Get advice from experts

¥ Plan for ‘worst case scenarios’

¥ Update and review business plans

1.4 Choosing the Appropriate Legal Structure for the Business

• Sole trader

• Partnership

• Private limited company (ltd). AQA Syllabus Candidates should know the benefits and drawbacks of the different legal structures including the appropriateness of gaining limited liability status and the consequences of increasing the number and range of stakeholders.

Key Terms Sole trader -‐ any business that is owned and controlled by one person Partnership -‐ businesses owned by two or more people

Deed of partnership -‐ A document containing an agreement that details the rights and obligations of each partner participating in a venture.

Unlimited liability -‐ where owners share sole or joint responsibility for the entire amount of debt and other liabilities amassed by the business.

Private limited company (ltd) -‐ a limited liability company whose liability is limited by their investment in shares and whose shares are not traded on the stock market.

Articles of association -‐ A document that defines the company's purpose, and lays out how tasks are to be accomplished within the organization, including the process for appointing directors and how financial records will be handled.


Incorporated -‐ The process of legally declaring a corporate entity as separate from its owners. Limited Liability -‐ A type of liability that does not exceed the amount invested in a partnership or limited liability company. Shares -‐ A unit of ownership interest in a company Shareholder -‐ Any person, company or other institution that owns at least one share of a company’s stock. Key Facts Liability of companies


1.5 Choosing the Location of the Business

• Factors influencing start-‐up location decisions. AQA Syllabus Candidates should understand the factors influencing where a business is located, including: the availability of raw materials, transport, labour, competition/other businesses, technology, proximity to the market and costs. Key Facts Factors influencing start-‐up location decisions.

¥ Type of business.

¥ Availability of locations.

¥ Competitors

¥ Availability of raw materials.

¥ Availability and cost of labour.

¥ Transport links.

¥ Technology

¥ Costs


2 Marketing 2.1 Conducting Market Research with Limited Budgets

• Reasons for conducting market research • Market research methods.

AQA Syllabus Candidates should understand the methods of market research likely to be used by a business with a limited budget including: telephone and other surveys, questionnaires, customer/supplier feedback, focus groups and internet research.

Key Terms Market segment -‐ A group of people that share one or more characteristics. Each market segment is unique and marketing managers decide on various criteria to create their target market(s). Primary research – Data acquired first-‐hand, rather than being gathered from published sources. Secondary research -‐ Market research that's already been compiled. Examples of secondary information include newspaper articles and trade reports. Focus groups -‐ A small group selected from a wider population and sampled for its members' opinions Key Facts Advantages and disadvantages of different research methods

2.2 Using the Marketing Mix

• Elements of the marketing mix

• Selecting an appropriate marketing mix for a small business. • The use of ICT in assisting international marketing.

AQA Syllabus Candidates need to be familiar with the four elements of the marketing mix – Product, Price, Promotion and Place. Detailed knowledge of each, however, is not required. Using a given scenario, candidates should be able to recommend appropriate marketing activities for a business with a limited budget. Candidates should consider the products that a small business is likely to offer and how it could alter the products to meet customer needs. Candidates need to have an understanding of the basic relationship between price and demand. E.g. a price rise would probably affect the profits of a small business in a competitive market. Candidates should understand the promotion methods suitable for a small business, given a limited budget e.g. advertising in local newspapers, the Internet, use of personal recommendation and business cards. When considering place, candidates should recognise the growing importance of e-‐commerce and how it can extend the reach of businesses to include international markets.


Key Terms

Marketing Mix -‐ The 4Ps of marketing: product, price, place, and promotion, and these four elements are adjusted until the right combination is found that serves the needs of the product's customers, while generating maximum revenue

Word of mouth advertising -‐ An unpaid form of promotion in which satisfied customers tell other people how much they like a business, product or service e-‐commerce -‐ The buying and selling of products and services by businesses and consumers through an electronic medium, without using any paper documents. E-‐commerce is widely considered the buying and selling of products over the internet, but any transaction that is completed solely through electronic measures can be considered e-‐commerce.

Key Facts 4P’s

Top ecommerce clothing companies in 2012


3. Finance 3.1 Finance and Support for a Small Business

• Sources of finance

• Sources and types of advice available to small businesses. AQA Syllabus Candidates need to be aware of the difficulties that many new businesses face when attempting to raise funds. Candidates should be familiar with the main sources of finance available to a small business, including: overdraft, bank loans and mortgages, loans from friends and family, and grants. Candidates should be aware of organisations that can support small businesses.

Key Terms Overdraft -‐ An extension of credit from a lending institution when an account reaches zero. An overdraft allows the individual to continue withdrawing money even if the account has no funds in it. Mortgage – A loan where the lender holds the legal rights over the business property/land until the loan is fully paid. Grants -‐ Money given by a government or other organization for specified purposes to an eligible recipient Business angel -‐ an affluent individual who provides capital for a business start-‐up, usually in exchange for part ownership. Key Facts Main Sources of finance

¥ Owners funds/savings

¥ Friends and family

¥ Government grants

¥ Bank loans/mortgages

¥ Overdrafts

¥ Hire purchase and leasing

¥ Venture capital

¥ Selling shares

Advantages and Disadvantages


3.2 Financial Terms and Simple Calculations

• Basic financial terms •

Calculating profit and loss. AQA Syllabus Candidates need to understand the terms: price, sales, revenue, costs and profit and the relationship between these. Candidates should be able to perform simple calculations based on these figures to determine profit/loss.

Key Terms Sales -‐ The exchange of goods or services for an amount of money Revenue/Turnover -‐ The amount of money that a company actually receives during a specific period. Revenue is calculated by multiplying the price at which goods or services are sold by the number of units or amount sold. Fixed costs -‐ A cost that does not change with an increase or decrease in the amount of goods or services produced, for example, rent. Variable costs – Costs that vary with production output. Variable costs rise as production increases and fall as production decreases, for example raw material costs. 3.3 Using Cash Flow

• Interpreting simple cash flow statements

• The importance of cash flow statements

• Identifying solutions to cash flow problems. AQA Syllabus Candidates should be able to interpret simple cash flow statements. Candidates need to understand the consequences of cash flow problems and that these could lead to the business going into receivership and closing down. Candidates should be able to recommend possible solutions to cash flow problems, such as re-‐scheduling payments and receipts of income. Candidates will not be expected to complete a cash flow statement.

Key Terms Cash flow -‐ the movement of money into or out of a business. Cash flow statement -‐ A summary of the actual or anticipated incomings and outgoings of cash in a firm over an accounting period (month, quarter, year). Cash flow forecast -‐ Estimate of the timing and amounts of cash inflows and outflows over a specific period (usually one year). Insolvency -‐ When an individual or organisation can no longer meet its financial obligations with its lender or lenders as debts become due Receivership -‐ A type of corporate bankruptcy in which a receiver is appointed by bankruptcy courts or creditors to run the company.


Key Facts

Example

Why cash flow must be managed

¥ A cash shortage is a problem: Insufficient cash means bills cannot be paid

¥ Planning ahead means an overdraft can be secured for the months when there is a cash shortage

¥ Unless a cash shortage is managed the business can fail

¥ A cash surplus is a problem: cash in the bank earns a very low rate of interest.

¥ It is better to turn that cash into assets so that the business can earn a bigger profit

¥ Overdrafts can be reduced when there is surplus cash.

A business can improve its cash flow position by

¥ Increasing sales

¥ Reducing costs

¥ Getting suppliers to pay bills more quickly

¥ Delaying paying creditors

¥ borrowing


4. People in Business 4.1 Recruiting

• The need for recruitment

• Recruitment methods • Remuneration

• Monetary and non-‐monetary benefits.

AQA Syllabus Candidates should understand the benefits of full and part-‐time employment to the business. Candidates need to understand the appropriate internal and external methods by which a business might recruit staff, such as: personal recommendation, advertising and interviewing. Candidates should have an understanding of the factors that determine the level of wages/salaries paid to employees, including levels of skill and experience. Candidates should have an understanding of the use of other monetary benefits, including pension payments and bonuses. Candidates need to understand the use of non-‐monetary rewards to employees, such as fringe benefits.

Key Terms Internal recruitment – Hiring from within a business External recruitment – Hiring from outside the business Psychometric tests -‐ tests that are designed to show someone's personality, mental ability, opinions, etc., in order to decide whether or not to employ them. Remuneration -‐ Reward for employment in the form of pay, salary, or wage, including allowances, benefits (such as company car, medical plan, pension plan), bonuses, cash incentives, and monetary value of the noncash incentives. Wages -‐ Payment for labour or services to a worker, especially remuneration on an hourly, daily, or weekly basis Salaries -‐ Fixed compensation for services, paid to a person on a regular basis. Fringe benefits -‐ Compensation in addition to direct wages or salaries, such as company car, house allowance and medical insurance. Monetary benefits -‐ money-‐based reward given when an employee meets or exceeds expectations. Monetary incentives can include cash bonuses, stock options, profit-‐sharing and any other type of reward that increases an employee's compensation.

Non-‐ monetary benefits -‐ Compensation given in a transaction which does not involve cash, such as a free lunch.

Key Facts

Types of contract

¥ Full time

¥ Part time

¥ Temporary


The Recruitment Process

Internal recruitment -‐ selecting someone from within

¥ abilities are known already.

¥ motivating for the workforce.

¥ quicker.

¥ less expensive.

¥ reduces the risk of employing the wrong person.

External recruitment: advertising outside the firm.

¥ Attract new ideas and skills

¥ Wider pool of people to choose from

Reasons for training

¥ the development and introduction of new products

¥ restructuring of the firm

¥ the development and introduction of new technology

¥ changes to procedure, including improvements to customer service

¥ high labour turnover

¥ low morale

¥ changes in legislation

Top Five Non Monetary Items Employees Want in the Workplace

¥ Opportunity to Learn, Develop and Advance as an Employee.

¥ Flexible Hours.

¥ Recognition.

¥ The Opportunity to Contribute.

¥ Independence and Autonomy. http://www.recognitionrewards.com/top_


4.2 Motivating Staff

• Benefits to the business of motivated staff

• Methods of motivation used by small businesses. AQA Syllabus Candidates should understand the benefits to the business of having well-‐motivated staff. Candidates should be able to suggest relevant ways by which small businesses might motivate their employees. These could include: training, greater responsibility and financial rewards.

Key Terms Motivation -‐ Internal and external factors that stimulate desire and energy in people to be continually interested and committed to a job, role or subject, or to make an effort to attain a goal Maslow's hierarchy of needs -‐ Motivation theory which suggests five interdependent levels of basic human needs (motivators) that must be satisfied in a strict sequence starting with the lowest level. Job enrichment -‐ Job enrichment adds new sources of job satisfaction by increasing the level of responsibility of the employee. Job rotation -‐ employees are moved between two or more jobs. The objective is to expose the employees to different experiences and wider variety of skills to enhance job satisfaction.

Key Facts

Maslow’s Hierarchy of needs

Benefits of motivated staff

¥ More productive

¥ Greater loyalty – less staff leaving

¥ Better customer service


4.3 Protecting Staff through Understanding Legislation

• Equal pay and minimum wage laws • Discrimination • Employment rights • Health and safety.

AQA Syllabus Candidates need to have an understanding of the legal responsibilities of employers and their staff. Whilst it is not necessary to be able to name and quote from an Act of Parliament, candidates require a broad understanding of how such laws can affect small businesses.

Key Terms Legislation -‐ Laws imposed by the UK or European Union courts and government. Minimum wage – Employees in the UK are guaranteed at least £6.31 (aged over 21 as at 9/1/14) Discrimination -‐ Bias or prejudice resulting in denial of opportunity, or unfair treatment regarding selection, promotion, or transfer. Key Facts

National Minimum wage

The Equal Pay Act 1970

¥ Prohibits any less favorable treatment between men and women in terms of pay and conditions of employment.

The Equality Act 2010 ¥ The primary purpose of the Act is to codify the complicated and numerous array of Acts and

Regulations, which formed the basis of anti-discrimination law in Great Britain. This was, primarily, the Equal Pay Act 1970, the Sex Discrimination Act 1975, the Race Relations Act 1976, the Disability Discrimination Act 1995 and three major statutory instruments protecting discrimination in employment on grounds of religion or belief, sexual orientation and age.


5 Operations Management 5.1 Production Methods for Manufacturing and Providing a Service

• Methods of production

• Efficiency and technology

• Quality issues. AQA Syllabus Candidates should be familiar with job and batch production methods and understand when each is appropriate. Candidates should understand the importance to businesses of operating efficiently and the ways in which costs might be lowered, especially with changes in technology. Candidates should have an understanding of customer expectations of quality.

Key Terms Job production -‐ Type of business model that performs or creates single and customized projects for a specific client. Typically performed by skilled experts to a high standard and usually allows for considerable flexibility and customisation in the finished product. Batch production -‐ A manufacturing process in which components or goods are produced in groups (batches) and not in a continuous stream Efficient -‐ A level of performance that describes a process that uses the lowest amount of inputs to create the greatest amount of outputs. Quality -‐ a measure of excellence being free from defects, deficiencies and significant variations. Key Facts

Methods of production

How can a business be more efficient?

¥ Use technology to speed up workflow

¥ Shorter meetings

¥ Smart office space pays

¥ Small changes, big savings

¥ Manage staff expenses

http://www.theguardian.com/small-business-network/2013/oct/18/top-tools-techniques-efficient-business

Job production Customised for customer needs

• Fashion design • Kitchen design

Customer satisfaction

Batch production Products made in groups

• Bakeries • Restaurants

Cheaper and specialised


5.2 Customer Service

• Importance of customer service

• Consumer protection

• Impact of ICT.

AQA Syllabus Candidates should be aware of the importance to small businesses of providing good service to customers, including: reliability, product information and good after sales service. Candidates need to understand that customers are protected by law, which influences businesses, such as the fitness for purpose of the product sold. A detailed knowledge of consumer protection legislation is not required. Candidates should be familiar with the ways in which advances in ICT have allowed customer services to develop, such as the use of websites, e-‐commerce and global and international markets.

Key Terms Customer service -‐ The process of ensuring customer satisfaction with a product or service

After-‐sales service -‐ Service to customers after they have bought a product

Consumer protection laws -‐ Laws enacted to safeguard consumer rights.

ICT -‐ information and communication technology: the use of computers and other electronic equipment and systems to collect, store, use, and send data electronically

Key Facts

What is good customer service

¥ Engage with your customers at every opportunity.

¥ Offer clients flexibility, so they get exactly what they want

¥ Employ the right people

¥ Develop your staff

¥ Invest in the best equipment

http://www.theguardian.com/small-business-network/2012/nov/05/small-businesses-improve-customer-service

Benefits of good customer service

¥ Customers come back

¥ Existing customers ‘spread the word’ and attract new customers

¥ More sales and profits

¥ Rising market share

Main Consumer laws in the UK

Consumer Credit Act

¥ Regulates credit card purchases but also gives you protection when you enter into a loan or hire agreement, offers you extra protection if you buy goods or services on your credit card.

Unfair Trading Regulations 2008

¥ Protect consumers from unfair or misleading trading practices and ban misleading omissions and aggressive sales tactics.

Data Protection Act

¥ Gives you the right to know what information about you is held by companies.


Sale of Goods Act

¥ Goods must be as described, of satisfactory quality and fit for purpose. If your goods are faulty, you can make a claim to the retailer.

Advantages of using websites

¥ Cheap to set up and cheap form of advertising.

¥ Gives customers information about the products such as videos, pictures etc.

¥ Use email to contact the business and can include answers to questions.

¥ Offer advice.

¥ Hire web designer to update the website cheaply.

Advantages of e-‐commerce

¥ Shops get higher profits as profits are not shared.

¥ Shopping can take place anytime resulting in higher sales.

¥ Do not need to pay a shop to sell their products.

¥ Helps to sell to customers all over the country and the world.


BUSS2 – Year 11

Unit 2 – Growing as a Business

1 Operations Management 1.1 Expanding a Business

• Benefits and risks of expansion

• Methods of expansion

• Conflict between stakeholders.

AQA Syllabus Candidates should understand the benefits and risks to a business of expanding and be aware of methods of expansion used by large businesses, for example: mergers and takeovers, organic growth and franchising. Candidates should consider the ways in which the growth of a business can impact on its stakeholders. Candidates need to consider the ways in which stakeholders might react to protect their own interests.

Key Terms Merger -‐ The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock.

Takeovers -‐ When an acquiring company makes a bid for a target company. When the target is a publicly traded company, the acquiring company will make an offer for all of the target’s outstanding shares.

Organic growth -‐ The growth rate achieved by increasing output and enhancing sales. This excludes any profits or growth acquired from takeovers, acquisitions or mergers.

External growth – Growing by purchasing other companies

Economies of scale -‐ The cost advantage that arises with increased output of a product.

Diseconomies of scale – Rather than experiencing continued decreasing costs per increase in output, firms see an increase in marginal cost when output is increased.

Franchising -‐ A party (franchisee) acquires access to a business's (the franchisor) knowledge, processes and trademarks in order to allow the party to sell a product or provide a service under the business's name.

Stakeholders -‐ A party that has an interest in a company. The primary stakeholders are usually investors, employees, customers and suppliers. However, additional stakeholders are usually include the community, government and trade associations.

Key Facts

Businesses grow by:

¥ Merging with other businesses

¥ Buying other businesses (takeover)

¥ Organic growth

¥ Selling franchises


Integration types

¥ Horizontal

¥ Vertical

¥ Conglomerate

http://www.dineshbakshi.com

Advantages of selling franchises

¥ Access to better talent

¥ Faster expansion

¥ Minimised growth risk.

Advantages of selling franchises

¥ Less control of managers

¥ Harder to maintain consistent standards

Types of stakeholders

1.2 Choosing the Right Legal Structure for the Business

• Private limited companies (ltd)

• Public limited companies (plc).

AQA Syllabus Candidates should understand the advantages and disadvantages of a private limited company becoming a public limited company. Candidates will not be expected to know about the legal process of incorporation.

Key Terms Private Limited Company -‐ A type of company that offers limited liability for its shareholders but that places certain restrictions on its ownership. Shares cannot be traded on the stock exchange

Public limited Company – Also offers limited liability for its shareholders, but shares can be traded on the stock exchange

Limited liability -‐ there is a limited risk for the investors. If the company fails, they stand to lose only what they have invested in the shares


Flotation - The process of changing a private company into a public company by issuing shares and inviting the public to purchase them.

Divorce between ownership and control - In large corporations shareholders own the firm but may not be able to exercise control. Managers often have control

Key Facts

http://busorg.wordpress.com/

Advantages of a private limited company (LTD) ¥ Suppliers and customers may have more confidence in dealing with the company

¥ Owners often remain as directors or senior managers and run the company

¥ Limited liability for all shareholders

Disadvantages of a private limited company (LTD) ¥ Cannot be listed on the stock exchange – difficult to raise very large sums of money

¥ Accounts are available at Companies house so it is possible to find out how the company is performing

Advantages of a public limited company (PLC) ¥ Can sell shares and raise large amounts of finance

¥ Higher status

¥ Shareholders always know the value of shares and can buy and sell easily

¥ Limited liability

Disadvantages of a public limited company (PLC) ¥ Original owners lose control as a high proportion of shares are sold

¥ Owners may have different objectives to managers

¥ All accounts published creating pressure for short term profit

¥ Company can be taken over if shareholder buys majority of shares


1.3 Changing Business Aims and Objectives

• Reasons for changing aims and objectives as businesses grow • Ethical and environmental considerations.

AQA Syllabus Candidates should consider how the aims and objectives of larger businesses might differ from smaller businesses, for instance becoming the dominant business in the market or expanding internationally. Candidates should be familiar with the wider social costs and benefits facing business operation, such as ethical and environmental considerations, and why it might be in the interests of a business to consider these issues within its objectives.

Key Terms Dominant business -‐ Firm that controls at least half of the market in which it operates and has no significant competition. Ethical -‐ is about doing the right thing. Ethical behaviour requires firms to act in ways that stakeholders consider to be both fair and honest.

1.4 Choosing the Best Location

• The importance of location to growing businesses

• Issues relating to overseas location.

AQA Syllabus Candidates should understand the importance of location to growing businesses in terms of minimising costs and increasing revenues. Candidates need to be able to consider the issues relating to international or global expansion. These issues include physical presence in international markets and cost considerations.

Key Terms Physical presence -‐ Being actually located in a country with something physical, such as a factory or office.

Outsourcing -‐ A practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally.

Reshoring -‐ Reversal of outsourcing; the transfer of a business operation back to its country of origin.

Protectionism -‐ Government policies that restrict or restrain international trade, often done with the intent of protecting local businesses and jobs from foreign competition. Typical methods of protectionism are import tariffs, quotas, subsidies or tax cuts to local businesses.

Quota -‐ Set limit of amount of goods imported to a country

Tariff -‐ A tax on imports into a country

Key Facts

Advantages and disadvantages of moving abroad


2 Marketing

2.1 The Marketing Mix – Product

• Product portfolio/mix

• Product life cycle. AQA Syllabus Candidates should understand how and why businesses might broaden and balance their product portfolio as they grow. Candidates should understand that the demand for a product or service might change over time. They should be aware of the various stages of the product life cycle: development, introduction, growth, maturity and decline. Candidates should be aware of the methods that a company might adopt to extend the life of a product in its decline phase, and the impact these strategies might have on other aspects of the business.

Key Terms Product portfolio -‐ A Business with a range of products Boston Matrix -‐ used in planning the business strategy by identifying those business units in the organization that generate cash and those that use it Product life cycle -‐ The period of time over which an item is developed, brought to market and eventually removed from the market. Extension strategies -‐ the attempt by a company to increase sales of a product by, for example, making changes to it or finding new uses for it: Key Facts

Product life cycle

Boston Matrix


2.2 Using the Marketing Mix – Price

• Pricing decisions for growth

• Factors affecting pricing decisions. AQA Syllabus Candidates should understand how pricing can be used to facilitate business growth. These include: price skimming, price penetration, competitive pricing, loss leader and cost-‐plus. Candidates should be able to recognise the factors which might influence the pricing decision, e.g. the nature of the market, and the degree of competition.

Key Terms Price skimming -‐ a firm charges the highest initial price that customers will pay.

Penetration pricing -‐ the practice of offering a low price for a new product or service during its initial offering in order to attract customers away from competitors.

Competitive pricing -‐ Setting the price of a product or service based on what the competition is charging.

Loss leader -‐ a business offers a product or service at a price that is not profitable for the sake of offering another product/service at a greater profit or to attract new customers.

Cost-‐plus -‐ the selling price is established by adding a mark-‐up to total variable costs

Key Facts

Factors influencing pricing decisions ¥ Costs

¥ Demand

¥ Competition

¥ Objectives of company

¥ Product life cycle

2.3 Using the Marketing Mix – Promotion

• Promotional activities to enable growth

• Selecting the promotional mix. • Promotion continued

AQA Syllabus Candidates should be familiar with the promotional methods which are likely to be employed by growing businesses. These include: advertising, sales promotion, sponsorship and direct marketing. Candidates should be able to recognise the factors influencing the selection of the promotional mix, e.g. the nature of the market, the nature of the product, and the activities of competitors.

Key Terms Direct marketing -‐ physical marketing materials are provided to consumers in order to communicate information about a product or service, such as catalogues and fliers. Public relations -‐ The act of communicating with the public directly, “PR”.


Key Facts

Promotion types

2.4 Using the Marketing Mix – Place

• Channels of distribution to enable growth

• Selecting channels of distribution. AQA Syllabus Candidates should be familiar with the different channels of distribution used by businesses to gain access to potential customers. These include: retailers, wholesalers, telesales, mail order and internet selling. Candidates should be able to recognise the appropriateness of each distribution method for a given scenario.

Key Terms Distribution channel -‐ The chain of businesses or intermediaries through which a good or service passes until it reaches the end consumer. Wholesaler -‐ The sale and distribution of goods to users other than end consumers. A wholesaler can act as a middleman, brokering deals between these businesses. Telesales -‐ The act of marketing goods or services to potential customers over the telephone. Zero level distribution -‐ No intermediary between producer and seller Key Facts

Distribution channel

Distribution marketing


Advantages and disadvantages of using wholesalers ¥ Efficient distribution as wholesaler has many customers

Disadvantages and disadvantages of using wholesalers ¥ The manufacturer has less control over the quality and eventual delivery of the product.

¥ It is potentially less profitable for the manufacturer, because the wholesaler takes his cut.

Advantages of e-‐commerce: ¥ Your business would have a store open 24 hours a day, 7 days a week, 365 days a year.

¥ Very low running costs

¥ Opportunity to reach new markets.

¥ Sell a wider range of stock items.

¥ Make more profit per item sold.


3. Finance 3.1 Finance for Large Businesses

• Sources of finance available

• Appropriateness of the sources. AQA Syllabus Candidates need to be familiar with the main methods that a large business might use to raise funds. These include: retained profits, a new share issue, obtaining a loan or mortgage and selling unwanted assets. Candidates should be able to recognise the advantages and disadvantages of each method for a given situation.

Key Terms Retained profits -‐ the portion of net income of a corporation that is retained by the corporation rather than distributed to shareholders as dividends New share issue -‐ New shares sold to the market for the first time. Flotation if it’s a PLC Asset -‐ Something of value owned by a business Key Facts

Types of finance

3.2 Profit and Loss Accounts and Balance Sheets

• Purpose of financial statements

• Components of financial statements • Interpretation of data given on financial statements.

AQA Syllabus Candidates should understand the importance of a profit and loss account and balance sheet to the stakeholders when assessing the performance of the business. Candidates should be able to identify the various components of a profit and loss account and balance sheet. Candidates should be able to make judgements on the performance of a business through interpretation of the information contained in simplified versions of the profit and loss accounts, balance sheet and by the application of gross and net profit margins and current and acid test ratios. Candidates will be given the relevant formulae for ratios, where appropriate, as part of the examination paper.

Key Terms Income statement (Trading Profit and loss account -‐ Financial statement over the year showing income and costs and profits made.

Revenue (sales) -‐ Money earned by the business through selling goods and services

Cost of sales (Cost of goods sold) -‐ Direct or 'variable' costs involved in supplying the good or service

Gross profit -‐ Revenue less cost of sales


Overheads -‐ 'Indirect' or 'fixed' cost that do not change with output, sometimes called expenses

Statement of financial position (Balance sheet) -‐ A financial statement that summarises a company's assets, liabilities at a specific point in time.

Capital (Equity) -‐ financial resources available for use

Non-‐current assets (Fixed assets) -‐ A long-‐term piece of property that a firm owns and uses in the production of its income and is not expected to be consumed or converted into cash any sooner than at least one year's time.

Current assets -‐ assets that are reasonably expected to be converted into cash within one year

Inventories (Stocks of raw materials and stocks of finished goods) -‐ The value of materials and goods held by an organisation Receivables (Debtors) -‐ People who owe the business money

Current liabilities -‐ Debts that will be paid within one year

Payables (Creditors) -‐ People who the business owes money to.

Non-‐current liabilities (Long-‐term liabilities) -‐ Debts that will be paid back over many years

Gross profit ratio -‐ The relationship between gross profit and total net sales revenue.

Net profit ratio -‐ The relationship between net profit and total net sales revenue.

Current ratio -‐ A liquidity ratio that measures a company's ability to pay short-‐term obligations.

Acid-‐test ratio -‐ A stringent indicator that determines whether a firm has enough short-‐term assets to cover its immediate liabilities without selling stock.

Key Facts

Income Statement (Profit and loss account)


Statement of financial position (Balance Sheet)

Financial Ratios


Types of costs


4 People in Business 4.1 Reorganising Organisational Charts and Management Hierarchies

• Internal organisational structures

• Appropriateness of centralisation/

• Decentralisation for growing businesses. AQA Syllabus Candidates should be familiar with internal organisation structures, organisation trees, and layers of management. Candidates should understand the term ‘span of control’. They should be aware of the effect that the shape of the organisational structure has on how the organisation is managed. Candidates should be familiar with the concepts of centralisation and decentralisation and the benefits and challenges that both can bring to a business.

Key Terms Organisation structures -‐ The typically hierarchical arrangement of lines of authority, communications, rights and duties of an organisation.

Organisation trees -‐ Shows the hierarchy of a business organisation

Line manager -‐ An employee’s immediate boss

Span of control -‐ the number of people for which an individual is responsible.

Tall structure -‐ Pyramid-‐type organization that has relatively large number of levels in its hierarchy of authority

Flat structure -‐ structure in which most middle-‐management levels and their functions have been eliminated.

Centralisation -‐ Decision making is done from the centre of the organisation

Decentralisation -‐ Power that is withdrawn from a centre or place of concentration and delegated outwards.

Delegation -‐ Passing down of authority lower down the hierarchy

Key Facts

Hierarchical structure


4.2 Recruitment and Retention of Staff

• The staff recruitment process

• Appraisal and training • Methods of motivation

• Retention of staff.

AQA Syllabus Candidates should understand the process that businesses use to recruit and select new employees. Candidates should understand the benefits of an induction training programme and what might be included in it. Candidates should be aware of the advantages and disadvantages of on the job training, such as in house training, and off the job training such as external courses. Candidates should understand how and why businesses use an appraisal or performance review system. Candidates should understand the methods by which businesses motivate and retain suitable employees, including the roles of training, remuneration and styles of management. Specific motivational theories (such as Maslow) will not be examined.

Key Concepts

Recruitment process

Key Terms Job description -‐ Outlines duties and tasks of a job

Personal specification -‐ Details the qualities, skills and qualifications a person needs for a job

Induction -‐ aimed at introducing the job and organisation to the recruit and him or her to the organisation

On the job training -‐ form of training taking place in a normal workplace

Off the job training -‐ form of training taking place outside of normal workplace, usually provided by an external provider

Appraisal -‐ The process by which a manager examines and evaluates an employee's work behavior by comparing it with preset standards,

Remuneration -‐ Payment or compensation received for services or employment.

Democratic management style -‐ Decisions are decided by everyone in an organisation

Autocratic management style -‐ Manager makes most of the decisions


Key Concepts

Types of training


5 Operations management 5.1 Production Methods for Growing Businesses

• Use of flow production

• Efficient production methods

• Lean production techniques. AQA Syllabus Candidates should be familiar with flow production and the how this can create efficient use of resources. Candidates should understand how specialisation and division of labour can impact on efficiency. Candidates should consider how production might be made more efficient by the use of lean production techniques, e.g. Just In Time and the impact these might have on employees (such as training and motivation).

Key Terms Flow production -‐ the production of large amounts of standardized products, including and especially on assembly lines.

Specialisation -‐ A method of production where an individual or business focuses on the production of a limited scope of products or services in order to gain greater degrees of efficiency

Lean production -‐ involves never ending efforts to eliminate or reduce waste

Just-‐in-‐time -‐ An efficient process whereby goods or raw materials are received by a company only when they are needed.

Kaizen -‐ A philosophy that sees continuous improvement in productivity

Key facts

Different types of production

5.2 Recognising Challenges of Growth

• advantages of growth • disadvantages of growth.

AQA Syllabus Candidates should understand the ways, both internal and external, in which large businesses obtain a cost advantage over smaller businesses. Candidates should also consider how the disadvantages of growth might occur within a growing business E.g. longer chains of communication and complexities within the production process.

Key Terms Chains of communication -‐ How communication is processed throughout a business

Economies of scale -‐ The cost advantage that arises with increased output of a product.


Diseconomies of scale – Rather than experiencing continued decreasing costs per increase in output, firms see an increase in marginal cost when output is increased.

Key facts

How do firms achieve economies of scale

5.3 Maintaining Quality Assurance in Growing Businesses

• Identifying quality problems • Methods of maintaining consistent quality.

AQA Syllabus Candidates should be aware of the possible quality issues that growing businesses face e.g. consistency and the cost of maintaining quality (outsourcing, inspection costs). Candidates should be aware of the methods of maintaining consistent quality, including concepts such as Total Quality Management (TQM).

Key Terms Outsourcing -‐ The contracting or subcontracting of noncore activities

Total Quality Management (TQM). -‐ consists of organisation-‐wide efforts to install and make permanent a climate in which a business continuously improves its ability to deliver high-‐quality products and services to customers.

Key facts

How to ensure quality ¥ Quality control

¥ Quality assurance

¥ Mystery visits

¥ Customer feedback

¥ Staff feedback

Principles of TQM ¥ Customer Focus

¥ Leadership

¥ Staff Involvement

¥ Statistical Quality Control (SQC)

.


¥ Supplier Relationships

¥ Continuous Improvement

Benefits of TQM ¥ More competitive business

¥ Higher productivity

¥ Enhanced market image

¥ Elimination of defects and waste

¥ Reduced costs

¥ Higher profitability

¥ Improved customer satisfaction

¥ Increased customer loyalty

Documents

Business Revision Guide2