Business Theme 2 and 3 Flashcards
(66 cards)
1
Q
Offer something unique to a specific market segment.Owner’s capital
A
How much the owner has invested into the business or the assets of the business the owner owns
2
Q
Creditors
A
People who the business owes money to
3
Q
Internal sources of finance
A
- Retained profit
- Owner’s capital
- Sale of assets
4
Q
Insolvency
A
The inability to pay debts because of heavy loss
5
Q
Liquiditation
A
Turning assets into cash
Liquid assets include:
- Cash
- Shares of stock (sold on the market)
- Trade receivables (money owed to the business)
6
Q
Business plan
A
A plan documenting how a business will reach its objectives
- Company and product description
- Target audience
- Competitive analysis
- Funding requirements (budgeting)
- Helps monitor progress
- Justification for authenticity
7
Q
Cash flow forecast
A
A statement of expected cash inflow from sales, and expected cash outflow to cover costs
8
Q
Overdraft
A
When a bank allows you to withdraw more money than the money that actually exists in your current bank account
9
Q
Main causes of cash flow problems
A
Low profits, overtrading
10
Q
Overtrading
A
When a business expands too quickly without the resources to support that growth
11
Q
Debt factoring
A
When a business liquidates their invoices via a third party. (quick easy cash, don’t have to wait for payers)
12
Q
Lean production
A
A method of production where reducing waste is a priority.
13
Q
Pros and cons of lean production
A
Reduced waste, improved quality (because root of defects and errors are addressed)
However, requires high amounts of training, investment in equipment
14
Q
Margin of safety
A
Margin of safety shows how much a business’ revenue can fall before it starts making a loss. The greater the margin of safety, the better the position for the business.
15
Q
Sales forecast importance
A
Assesses ability to break even, help set budgets
16
Q
Ways to increase capacity utilisation
A
Staff work longer shifts, boost demand for your products
17
Q
Efficiency
A
An employees ability to increase the output of products with a fixed amount of raw materials
18
Q
Productivity
A
How much output an employee can produce in a fixed amount of time
19
Q
Lean production
A
A method of production that focuses on minimising waste
20
Q
Capacity utiilisation
A
A measure of how efficiently a business is using its production resources.
21
Q
Flexible workforce
A
A flexible workforce is a group of employees who have the ability to adapt to changing work demands and schedules
- Workers can be scheduled based on demand (more staff during peak times)
- Multiskilling
22
Q
Merger
A
a combination of two separate firms to create one new business entity
23
Q
Joint venture
A
When two businesses come together to work on a specific project, they can share ideas and resources
24
Q
Batch production
A
Producing a batch of identical products before switching to a different set.
Pros:
- Making items in bulk spreads fixed costs
- Flexibility in production
Cons:
- One mistake may spoil the whole batch, lots of waste (not good for lean production)
- Can’t charge premium prices (not rare product)
25
Flow production (mass)
A continuous production process where items are produced in a sequence along a production line.
Pros:
- Easy to achieve economies of scale
- Capital intensive so fewer workers are needed (cheaper)
Cons:
- Products are usually of lower quality
- Repetitive tasks can demotivate workers
26
Job production
Producing a single product or service, often customised to a specific customer's requirements.
Pros:
- Higher quality
- Can charge premium prices
Cons:
- Hard to achieve economies of scale as items are made one by one (slow)
- Requires skilled workers
27
Cell production
A team-based production system where the production process is divided into cells, and each cell is responsible for completing a part of the product.
Pros:
- Better employee morale through teamwork and communication.
- Improved quality and waste control.
Cons:
- Requires skilled workers, which require training
- Produces a lower output than other methods of production
28
Buffer stock
Buffer stock is excess inventory kept by a business.
- Helps cover an unexpected increase in demand
- If suppliers fail, buffer stock can be sold
However,
- Requires storage space and is rarely used, which increases waste and costs
- Stock may be 'perishable' or 'go bad' if stored idly for too long
29
Ansoff's Matrix
- Market Penetration
- Market development
- Product development
- Diversification
30
Organic growth
The expansion of a company achieved through internal efforts
31
Inorganic growth
company's expansion through external activities like mergers, acquisitions, partnerships, or alliances
32
Limitations of some general graph analysis types like (decision trees, time-series, critical path analysis, supply and demand, balance sheets)
- Potential bias
- Limited to quantitative or qualitive data
- Doesn't work for large projects
- Static representation, its only a snapshot
33
Horizontal and vertical intergration
- Horizontal integration occurs when a company acquires or merges with another company that operates at the same level of the supply chain in the same industry.
- Reduced competition
- Wider market access
- Vertical integration occurs when a company acquires or merges with businesses that operate at different stages of the supply chain.
- Can integrate forward - sell directly to customer
- Wider market access
34
Financial risks
- Investment risk
- Loans and debt
- Economic downturns
35
Why would a business want to stay small
- Flexibility in responding to customer needs
- Reduced costs in terms of rent, wages
- More customisation opportunities
Depends on what market they operate in
36
Working capital
Expenses for day-to-day operations:
- Cash used for change in the cash register
- Invoices (formal document documenting a payment made)
- Working capital helps businesses meet short-term liabilities, keeping the business smooth
- Excess working capital can be reinvested into the business
37
Causes of change in a business
- Change in leadership style
- Change in performance (leads to pricing and marketing strategy adjustments)
38
PESTLE - influences of a global organisation
Political
Economic
Sociological
Technological
Legal
Environmental
39
What do budgets do
- Provide benchmarks to compare to
- Help businesses allocate resources
40
Benefits of investment appraisal
- Helps businesses assess potential risks and returns
- Helps businesses allocate appropriate capital
41
Absenteeism and Labour Retention
- Absenteeism is how often workers are absent
- Labour retention is the ability for a business to retain its employees
42
Stock market flotation (initial public offering)
When a private limited company (Ltd) becomes a public limited company (Plc) by selling its shares on a stock exchange.
43
Pros and cons of flotation
Pros:
- publicity and higher profile
- selling shares creates large amounts of finance
Cons:
- owners can lose company to shareholders (hostile takeover) who demand dividends
- costs are high, and that financial status has to be published publicly
44
Capacity utilisation
Capacity utilisation measures the extent to which a business is using its available resources to produce goods or services.
45
Porters 5 Forces
Factors used to assess how attractive or risky a market is:
- Competitive Rivalry (market share of competitors, how many competitors)
- Threat of New Entrants (how easy is it for businesses to enter market - trade barriers, high costs of production, saturated market, using patents)
- Bargaining Power of Suppliers (how reliant are we on suppliers?)
- Bargaining Power of Buyers (how loyal are the buyers?)
- Threat of Substitutes (companies in other markets but similar target demographic)
- Helps assess attractiveness
- Only a static snapshot
- Ignores internal factors
46
Peer-to-peer funding
A way for people to borrow and lend money directly to each other through online platforms, without going through traditional financial institutions like banks.
47
Under-utilisation of capacity.. (when a business is producing less than its maximum potential)
- Higher cost per unit as resources aren't being used
- Overstaffing
- Idle machinery
NOT EFFICIENT, WASTED RESOURCES
48
Over-utilisation of capacity (when a business is working at or near 100% of its maximum capacity)
- Not much flexibility in the business, inability to adapt to changes
- Can lead to burnout for employees, meaning lower quality products
- Lack of buffer stock
49
Critical path analysis
A project management tool used to identify the order of tasks that determine the minimum time needed to complete a project.
- Helps allocate resources
- Increases efficiency
- Based on predictions
- Doesn't account for external factors
50
Variance
Favourable variance and adverse variance. It measures the difference between the actual and expected performance in sales.
51
External sources of finance
- Loans
- Share capital
- Venture capital – Investment from individuals or firms in exchange for equity and involvement.
- Crowdfunding
- Overdrafts – Short-term borrowing from a bank allowing spending beyond account balance.
- Trade credit – Buying now, paying later (usually within 30–90 days).
52
Porters strategic matrix
Four strategies a business can use to gain a competitive advantage in the market.
Cost Leadership - Become the lowest-cost producer
Differentiation - Offer something unique that customers are willing to pay more for
Cost focus - Cost leadership in a niche market
Differentiation focus - Differentiation in a niche market
Porter warned that businesses trying to do both cost leadership and differentiation may fail to achieve either and lose their competitive edge, leading to being 'stuck in the middle'
53
Leasing
Paying a fee to borrow an asset for a period of time (machinery, vehicles)
- Cheap upfront costs
- But can be more expensive with long term use than buying
54
Company cultures
The attitudes, values, traditions, and norms that influence how employees behave and how the business operates.
- Power culture - Centralised decision-making
- Role culture - employees know their job and responsibilities.
- Task culture - Focused on teamwork to solve specific problems or projects.
- Person culture - Individuals are the central focus, and the organisation exists to support them.
55
Risk transference
VS
Risk mitigation/limitation
VS
Risk avoidance
VS
Risk acceptance
Transference: Outsourcing risk factors to a third party
Limitation/mitigation: Strategies and measures taken to reduce the impact of identified risks
Avoidance: Ceasing to follow a particular action that may cause risk
Acceptance: Happens when the cost of risk mitigation is higher than the cost of the risk happening
56
Types of economies of scale
Economies of scale: When average production costs fall as the business's output increases
Internal economies of scale: When a business invests in expanding production, it lowers average production costs
External economies of scale: The average cost reductions for all the businesses as the market grows
Financial economies of scale: With size comes the flexibility to choose more sources of finance
Purchasing economies of scale: Buying materials in bulk for cheaper
Managerial economies of scale: With size comes the ability to hire more specialist managers
Technical economies of scale: With size comes more machinery
Risk-bearing economies of scale: With size comes risk spreading (investing in more than one asset to reduce major loss) over more assets
57
Examples of fixed and variable costs
Fixed:
- Salaries (except for commissions)
- Rent
- Loan repayments
Variable:
- Electricity bills (the more you use, the more you pay)
- Raw materials
- Delivery costs
58
Just-in-time production
When raw materials are delivered as soon as they are needed in the production process
- No need for storage
- Reduces wasted materials
- High dependence on suppliers
- No buffer stock for raw materials
59
Quality assurance
VS
Quality control
VS
Total quality management (TQM)
Quality assurance is the measures taken to prevent the chances of defects being made
Quality control is the identification of defects and preventing them from being sold.
Total quality management is a philosophy of quality: to strive for 0 defects ever. Every employee shares a commitment to the quality of the product.
60
Benefits of kaizen
- Less likely to be resisted (small steps to improve)
- Improved efficiency in workplace
61
Difference between mission statement and corporate objectives
A mission statement is a long-term statement highlighting a business's purpose and values
Corporate objectives are short-to-medium term goals for the business to achieve
62
Limitations of sales forecasting
- Reliance on historical data (when markets might have changed in consumer trends)
- Data isn't influenced by important qualitative factors (new competition, seasonality)
63
Pros and cons of payback period method
Pros:
- Assists businesses in getting the fastest return from an investment
- Simple to calculate and decide the best
Cons:
- Ignores the long-term profitability of that investment
- Based on estimations of cash inflow
64
Pros and cons of ARR (annual rate of return) and NPV
Both tables identify the best option for highest return for an investment. Both are the same table and concept but NPV has a 'discount factor table'.
Pros of both:
- shows total returns of investment over its whole lifetime (long-term)
- Easy to understand (ARR)
- Accounts for money losing value over time due to inflation (NPV)
Cons of both:
- Estimated values
- Firms may want the cash quickly, but both show long waits to make the final return.
65
Difficulties in changing an established culture
- Can change job roles and authorities
- Interrupts workplace routines
66
Corporate social responsibility
When a business considers the ethical effects of its activities
