bus mgt fg revision booklet

8/7/2019 Bus Mgt FG Revision Booklet

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KNOX ACADEMY

STANDARD GRADE

BUSINESS

MANAGEMENT

SUMMARY NOTES

KEY WORDS

FOUNDATION/GENERAL


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Contents

Unit 1.1What do businesses do?.............................................3Unit 1.2Why do businesses exist?...........................................4Unit 1.3How are businesses organised? ..................................5Unit 2 Starting up in business/business plans........................6Unit 3 Location of businesses..................................................7Unit 4 Marketing.....................................................................8 Unit 5 Operations .................................................................11Unit 6 Human Resources ......................................................13Unit 7 Finance ......................................................................16Unit 8 Business Growth ........................................................18Unit 9 Business Information and Communications................21Unit 10 Management and Decision Making...........................23Unit 11 Business Challenges ................................................ 25Unit 12 Business Success and Failure.................................. 26


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Unit 1.1 What do businesses do?

Key Word Definition

Needs

Wants

Goods

Services

Durable

Non-durable

Size of business

Small

Medium

Large

Sector of Economy

Private

Public

Voluntary

Sector of Industry

Primary Secondary Tertiary

What people must have in order to

survive

Items people would like to have justbecause they are available

Tangible: can be seen/touched

Intangible: cannot be seen/touched

Long-lasting

Used up quite quickly (perishable)

Owned by one or 2 people, local, less

than 50 people

Owned by group of people, national, 50-

250 people

Owned by large number of people, multi-

national, over 250 people

Sole traders, partnerships, private

limited companies (Ltd), public limited

companies (plc)

Nationalised industries, local

authorities, schools and hospitals

Charities, youth clubs, golf clubs

Extracting raw materials eg oil, fishing

Manufactured goods eg cars

Service eg insurance, banking


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Unit 1.2 Why do businesses exist?

Key Word Definition

Types of business organisation

Sole Trader

Partnership

Private Limited Company Public Limited Company

Aims of organisations

Private sector

Public sector

Voluntary sector

Stakeholders

Owned by one person

Financed by capital invested by owner,and bank loans

Owned by 2-20 people

Financed by capital invested by each

partner, and bank loans

Have to be invited to purchase shares

Financed by share capital and loans

Ordinary shares more risky

Preference share less riskyDebentures form of loan

Dividend

Learn advantages and disadvantagesof each type

Maximising profit, growth, survival,

increasing market share, efficiency,

improving quality of products

To provide essential product/service, to

provide a consistent level of service

Charities fund-raising to support

causes, raising awareness, providing

information on how money is spent

People who have an interest in the

business eg

Employees job security, wage increases

Management profits, efficiencyOwners profits, costs

Shareholders profits, level of dividend

Customers prices, customer service

Suppliers prices, reliability, credit

terms


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Unit 1.3 How are businesses organised?

Key Word Definition

Organisation charts

Line relationships

Lateral relationships

Tall structure

Flat structure

Exist between managers and the staff

below them

Employees on the same level of

authority

Many layers of management

Advantages

More promotion opportunities Less stressfulDisadvantages

Communication is slower Decision-making takes longerFewer layers of management

Chain of command

Functional areas

Downsizing

Delayering

Outsourcing

How instructions are passed down

through the organisation

Marketing, Finance, Operations, Human

Resources

Reducing number of employees

Removing layers of management

Using external companies to provide

certain services eg canteen, cleaning, IT


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Unit 2 Starting up in business/business plans

Key Word Definition

Enterprise

Risk

Factors of Production

Land

Labour

Capital

Enterprise

External advice

Business Plan

Idea for a product/service Develop idea Taking risks No-one buys the product/service Lose all money invested Unable to pay expenses

Natural resources and the things

produced from them

Workers who are paid wages

Includes money, buildings and

machinery

The development of ideas and the drive

to put them into action. Brings the allthe Factors of Production together.

Government agencies, development

agencies eg Local Enterprise Company,

Business Gateway, business partners,

consultants, banks

General details about the business Human resources Product or service Market Premises and equipment Finance eg cash flow, profit

estimates

Capital


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Unit 3 Location of businesses

Key Word Definition

Reasons for locating

Reasons for not locating

Infrastructure

Sources of finance

Nearness to markets Away from the competition Reasonable costs Near to good infrastructure Car parking Skilled labour Remote areas Very near competition Expensive Far from good infrastructureRoads, railways, air travel facilities,

schools and colleges, hospitals

Owner/s capital Bank loan Mortgage EU funding Grants from government/local

authority

Bank overdraft Finance companies Shares Debentures Hire Purchase Trade Credit Leasing Factoring


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Unit 4 Marketing

Key Word Definition

Market Research

Types of Market Research

Desk

Field

The Marketing Mix The 4Ps

Product

Price

Pricing Strategies

Low Price; Market Price; HighPrice

In todays competitive market, research

is very important. It gives managers a

better idea of:

what customers want the price customers will pay is there a demand for the

product/service

Will they do it themselves or employ an

outside agency?

Information has been previouslycollected for one purpose and is used by

you for another secondary

information eg Government statistics or

Annual Company Reports

Information is gathered either by

yourself or a market research company

primary information eg questionnaire,

telephone survey, personal interviews,

consumer audits

Product, Price, Promotion, Place

The name, how it is packaged and the

products life-cycle

Stages of the product life-cycle:

1 introduction2 growth3 maturity4 declineHow much you charge for your

product/service.


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Pricing Tactics

Introductory pricing Penetration pricing

Competitive Pricing Skimming Destroyer

Promotion

Why should a product be promoted?

Types of advertising

Branding

low price when product first launched

initially set low and then raised as

loyalty increases

based on other sellers

price set high and then lowered

low price aimed at destroying the

competition

This includes advertising, money-off,

discount vouchers, free gifts,

competitions and tastings

Reasons include: making customer aware give information about the

product

try to persuade customers to buyit

to tell them why it is better than acompetitors products

TV, radio, cinema, magazines,

newspapers, posters and the internet

Certain brands are very well known and

the logo, colours, packaging design, have

an image, which attracts the customer.

Brand names can cover a wide variety of

products eg Virgin

Place

Channel of Distribution

The method will depend on the

product, type and size of the

market and the competition

How to get your product/service to the

customer.

Considerations are:

how to get the product to the rightplace at the right time

what is the best distributionmethod?

From retailer to customer To wholesaler to retailer to customer Manufacturer to customer Manufacturer to wholesaler to

customer


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Unit 5 Operations

Key Word Definition

Input

Process

Output

Production Processes

Job production

Batch production

Flow production

Capital Intensive

Labour Intensive

This includes the raw materials,

equipment, and labour which are

directly put into production of a product

or provision of a service

This involves using the raw materials,

equipment and labour to make the

product or provide the service

This is the final product or service

Involves a one-off project eg film, uniquehouse, designer dress

Is the process of making several

identical products at once eg casks of

whisky, trays of seedlings

This describes forms of production such

as assembly lines; often aided by CAD

and CAM eg car manufacturing

It is more of a non-stop process andinvolves larger numbers than batch

processing

Learn advantages and disadvantagesof each method

When manufacturers rely heavily on

machinery eg when labour supply is

scarce or consistency is required

When manufacturers rely heavily on

their workforce eg when craftsmanship

is required or labour supply is cheap


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Technology in Production

Advantages

Disadvantages

increases output 24hrs 7days workers can retrain for more skilled

work

increases quality may be redundancies initial outlay is expensive cost of retraining workers involved in repetitive tasks

in mechanisation, often become de-

motivated

Supplier

Stock control

Quality

Quality Assurance

Quality Circles

Benchmarking

Total Quality Management (TQM)

Customer service

Choice could depend on:

price discounts quality reliability distanceThis must be very accurate and closely

monitored:

security and record keeping accounting/cost length of storing period

This includes quality of products and

quality of customer service. Targetsshould be set and monitored.

How customers are treated when

buying, telephoning or sending a written

complaint. It involves after-sales service.


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Unit 6 Human Resources

Key Word Definition

Why work?

Types of job

Full-time

Part-time Job sharing

Permanent

Temporary

Casual

Flexitime

Home-working/tele-working

Make money Job satisfaction and security

Companionship and friendship Achieve potential

means working every weekday: usually

from 9 am 5 pm

means working for only part of the week

two or more workers split a job between

them eg one works mornings and the

other works afternoons

where the job lasts as long as the

company remains in business. If it

ceases, then redundancy money must be

paid

lasts for a limited time and can be full or

part-time

temporary staff who are only employed

when needed. No job security

when a person works core hours and

then selects when the remaining hours

will be worked

when a person works part of the time at

home/away from the office

Recruitment and Selection

Job description

Person specification

Job description and person specification

are used to draw up an advert

Job advertisement

Gives details about a job eg hoursworked, pay, holidays, duties involved

List of attributes expected by the person

who will fill the vacancy (essential and

desirable) eg qualifications, qualities

needed, experience, driving licence

usually gives applicants information

about job, company details and what todo to apply for the job eg send a CV

and/or a letter of application, along with

deadline


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External advertising

Internal advertising

Selection

Applications

Shortlists

Interviews

Final candidate is chosen

Contract of Employment

Training

Induction training

On-the- job training

Off-the-job training

Apprenticeship

Appraisal

Employment Legislation

post advertised on Internet websites,

newspapers, trade journals, Job Centre,

Employment Agencies

post advertised in memos, staff

bulletins, notice boards, e-mail and staff

announcements

are checked and considered

a list of candidates to be interviewed is

drawn up

are carried out. May also be other

selection methods eg aptitude tests,

successful candidate offered the job;may/may not be accepted

must be given within 13 weeks of

starting work. Includes job title, hours

of work, rate of pay, holiday

arrangements

Training which is given to every new

employee. Lets them know how the

business works and helps them to settlein

Takes place in the workplace

Takes place outside the workplace:

maybe at a local college or training

centre

Can include re-training or upgrading

training

Mostly in the workplace but can be some

external training eg training centre or

college

Evaluation of an employees performance

Equal Pay Act 1970 Health & Safety at Work Act 1974 Sex Discrimination Act 1985 Race Relations Act 1976

Disability Discrimination Act 1995 Minimum Wage Act 2006


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Industrial Action If relations between employers and

employees break down, employees may

decide to take part in industrial action.

It can take the form of

go-slow work-to-rule overtime ban strike


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Unit 7 Finance

Key word Definition

Sales (income)

Costs

Fixed Costs

Variable Costs

Covering costs

Break Even Point

Budgeting/Cash Flow

Final Accounts

Trading Account

Gross Profit

Profit & Loss Account

How much a company sells of their

produce/service

Money the business must pay formaterials, wages, electricity, insurance

etc

Costs which must be paid, regardless of

output eg rent, council tax, rates

Costs which vary according to output eg

materials, labour, electricity, gas

A new business may aim simply to cover

costs in the first few years

The point at which total sales revenue

equals total costs. At this point the

business is not making a profit or a loss.

A cash budget shows the money flowing

in and out of a business for a period of

time eg 6 months. Can help with

planning.

Surplus/in the black: cash in > cash

out could spend money on equipment

Deficit/in the red: cash in < cash out

may need to arrange an overdraft or cut

costs

Accounts produced at the end of a

trading period: usually every 12 months.

The main final accounts are Trading and

Profit and Loss Accounts and the

Balance Sheet

Shows the Gross Profit/Loss from the

buying and selling of goods/services

Profit made on the buying and selling of

goods/services

Sales Cost of Goods Sold

Shows the overall profit made by the

firm during an accounting period


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Overheads (expenses)

Net Profit

Balance Sheet

Fixed Assets

Current Assets

Current Liabilities

Working Capital

Capital Employed

Accounting Ratios

Gross profit-to-sales ratio

Net profit-to-sales ratio

Return on capital employed (ROCE)

Working capital ratio

Rate of stock turnover ratio

Formulae

These include wages, rent, rates and

utility charges

Overall profit made by the firm during

an accounting period

Gross Profit Expenses

This is a snapshot of a businessfinancial position at a certain point in

time

Are owned by the business for longer

than one year eg premises, equipment

Items owned by the business for a short

term eg cash, stock and debtors

Are amounts owed by a business and

include bank overdrafts and creditors

Current Assets Current Liabilities

This is the total capital invested in the

business once liabilities have been

deducted

These are used to make comparisons

between years and organisations

Profitability Liquidity EfficiencyThese help a business to know if a

business has improved its profitability

Is a profitability ratio which tells us how

much profit we make for every 1 we

invest in the business

This is a liquidity ratio and tells us if

there is a cash-flow crisis

This is an efficiency ratio and tells us

how much stock we have sold in a given

time

GP Percentage

Gross Profit x 100Net Sales 1

eg 20%

NP Percentage

Net Profit x 100Net Sales 1

eg 5%

Return on CapitalEmployed

Net Profit x 100Capital 1

eg 10%

Working Capital

Current AssetsCurrent Liabilities

eg 4:1

Rate of StockTurnover

Cost of Goods Sold

Average Stock

eg 5 times


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Unit 8 Business Growth

Key Word Definition

Internal expansion

External expansion

Merger/amalgamation

Takeover

Integration

Horizontal integration

Vertical Integration

Forwards vertical integration

Backwards vertical integration

Diversification

Innovation

This is when a business grows within

itself eg opening new branches,

employing more staff

When a business grows as a result of

external influences. eg mergers and

takeovers

When two or more businesses, usually

of the same size, join together to form a

larger business

This is when one business buys another

eg House of Fraser bought Jenners

This involves the creation of one

business out of two or more previously

separate businesses

This integration involves businesses at

the same stage of production, makingsimilar products/services

These businesses are in the same

industry, but at different stages of

production

This is when the business at the

beginning of the chain, takes over a

business which is later in the

production chain

This is when a business in the later

stages of production, take over a

business in an earlier stage of

production

This is when a business begins to

produce or sell different goods and

services eg in the 1990s garages began

to diversify when they started to sell

newspapers, milk, etc as well as petrol

This involves developing and creating anew product or service. It may also

include creating new solutions for old

problems.


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Unit 9 Business Information and Communications

Key Word Definition

Types of information

Importance of good information

Purpose of communication

Internal communication

External communication

Why communication fails?

verbal written eg on paper

electronic eg as text and imagesthrough technology: internet,

teletext, fax, spreadsheets, video-

conferencing etc

To enable a customer to contact a

business by letter, telephone or e-mail

needed to ensure the efficiency of the

business: eg

recruitment verbal and electronic information

to and from management

regular meetings memorandums handbooks

It is an important part of management

because clear leadership and direction

cannot be given unless informed

decisions have been made AND these

decisions are communicated effectively

Takes place within the business eg

memorandums, e-mail (intranet),internal telephone systems, pagers,

loudspeaker systems

Takes place between a business and the

outside world eg email, teletext, letters,

etc

Needed by a business to help with

decision making

skills of people involved too much jargon wrong method used


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Information Technology

E-commerce

Websites

The sale and purchase of goods or

services over the Internet.

Advantages

can be used 24 hours a day, 7 daysa week

can make purchases from homeMost companies now have their own

website. Must be kept up-to-date.

Features:

on-line purchasing use of hyperlinks, search engines customer feedback used for promotions/advertising

Hardware The physical parts of the computer

eg monitor, keyboard, mouse

Software The programmes running on the

computer eg Microsoft Office

WP - Word Processing Used to produce letters, reports, books.

It allows on-screen editing by inserting,

deleting, moving words, and checking

spelling before printing.

DTP Desk Top Publishing DTP allows users to design layout of text

and graphics for letter- headed paper,

menus, catalogues

SS Spreadsheets The program contains mathematical,

charting, statistical and financial

operations. The use of formulae is

particularly useful in the Wages section

of a business and for the presentation of

Accounts.

DB - Databases Used to collate information aboutemployees, suppliers and customers.

Allows you to sort information and

search for specific pieces of information.

Integrated package A piece of software made up of separate

parts, (WP, SS, DB, DTP), which can

share data. This is why we can copy and

paste and mail-merge, using our school

software.

Local Area Network Used to connect computers locally egwithin the school


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Unit 10 Management and Decision Making

Key Word DefinitionKey Decisions

Management styles

Autocratic

Democratic

Laissez-faire

What to produce? Price? Who will we employ?

Where will we produce the goods? Market research People versus machinery Grow or not?

when managers tell people what to do

and expect their orders to be followed.

Workers may feel frustrated, and unable

to use their initiative

managers consult others before making

decisions. This makes the workers feel

part of the decision making, increasing

motivation.

involves the minimum of direction by

management. It is best in creative

industries where results would be stifled

by strict control.

Aids to Decision Making

Decision Making Model

Information, graphs and charts

Identify the problem Identify the objectives Gather relevant information Analyse the information Develop alternative solutions Select the best solution Communicate the decision Implement the decision


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Evaluate the results


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Unit 11 Business Challenges

Key word Definition

Competition

Scarce Resources

Skilled labour

Land/premises

Specialist equipment

Money

Internal pressures

External pressures

This may be local, national,

international or e-commerce

Often difficult to find workers with the

appropriate skills which leads to a

demand for higher wages

In areas such as city centres, there is

often a shortage which increases rents

and prices

This is increasingly expensive as

technology progresses. eg hospital

equipment

This is a scarce commodity and small

businesses suffer most.

If the working atmosphere is not

pleasant with fair wages, promotion

prospects and good training schemes,

the results may be:

Industrial action Poor production because of

unmotivated staff

Political issues, when there is achange in government policy eg

legislation or tax

Economic issues eg wheneconomy is in recession (business

cycle) or interest rates change

Social pressures from actiongroups eg on behalf of Fair Trade

products Technological innovations which

can make production more

efficient or change the method of

contact with customer


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Unit 12 Business Success and Failure

Key word Definition

Reasons for failure

Competition is too fierce

Economy in recession

Business Cycle

Cash Flow problems

Not moving with the times

Measuring success

Competition is too fierce Economy in recession Cash flow problems Poor resource management No growth or innovation External factors eg bad weather,

strikes etc

Competitors have a better and cheaper

product and promote their product in

the right segment of the market

If customers cannot afford to buy theproduct, less is demanded, less is

produced, wages fall and unemployment

rises. The economy slows down.

The economy suffers from booms and

slumps. A recession is an example of a

slump. A boom is when production

increases rapidly over a period of time.

This regular pattern of boom and bust is

known as the Business Cycle.

There must always be ready cashavailable to pay day-to-day expenses.

This may because

product is obsolete equipment out-of-date marketing not effective lack of security, therefore pilfering

and theft

records not accurate, thereforeunable to make accurate

forecasts poor management staff not motivated Achieving good sales figures and

profits

Good relationship withstakeholders

Achieving growth and aims oforganisation

Gain customer loyalty with aquality product and service

Innovate. Grow and have a largemarket share

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