| e-commerce | it is the online buying and selling of a good or services |
| advantages to the business of e-commerce | cheaper, wider options for customers, brand image & loyalty |
| disadvantages to the business of e-commerce | website must be maintained, no direct contact, returns - higher cost, a stock system will be needed |
| advantages to the consumer of e-commerce | no need to go out, larger selection, easy to compare, low prices |
| disadvantages to the consumer of e-commerce | no direct contact, can’t see the product, high chances of fraud and theft, internet needed |
| social media marketing | involves creating & sharing content on social media to achieve marketing goals |
| viral marketing | when consumers are encouraged to post online about the product |
| product | may change to respond to new technology |
| promotion | social media marketing and viral marketing can be used to promote |
| price | the internet allows businesses to gather information about customers purchasing habitat |
| place | the widespread spread of online purchasing & e-commerce, can create new opportunities |
| advantages of using social media for promotion | targets specific demographic groups, guarantee it reaches customers, cheap, it reaches groups that are difficult to reach |
| disadvantages of using social media for promotion | lack of control of advertising if used by others, businesses have to pay for advertising if using pop-ups |
| advantages of creating a website for promotion | no extra cost after setting up a website, control of advertising as the website is owned, can provide more information in adverts and link to other pages |
| disadvantages of creating a website for promotion | customers need to find the website, customers may not see the website, it would need to be constantly updated |
| dynamic pricing | when businesses change product prices, usually when selling online depending on the level of demand |
| marketing strategy | a plan to combine the right combination of the four elements of the marketing mix for a product or service to achieve a particular marketing objective |
| the marketing strategy developed depends on | size of marketing, number and size of competitors, marketing objectives, target market, finance available |
| market objectives may include | increasing sales, improve the existing product, increasing sales of a new product, maintaining/ increasing market share, increasing sales in a niche market |
| important points to include when recommending and justifying a marketing strategy in a given circumstance | marketing objective, marketing budget, target market, balanced marketing mix |
| legal controls in marketing | there are laws in different countries to protect consumers from business taking advantage of their lack of knowledge or lack of product information |
| legal controls include | weights and measurements, sale of goods, supply of goods and services act, consumer contracts regulation, trade descriptions |
| complying with all legal controls can raise the total cost of business by | goods and services may have to be redesigned, ads may have to be changed, some promotion techniques may have to be changed |
| advantages of globalisation of businesses | growth potential in other countries, can produce products overseas, trade barriers are lowered |
| disadvantages of globalisation of businesses | exchange rates, cultural differences, lack of knowledge of competitors |
| methods to overcome the problem of lack of knowledge when entering a new market + disadvantage of this method | joint venture & franchising, management conflict between the 2 businesses & profit is shared, quality problems or poor service offered by franchisees could damage the brand image |
| methods to overcome the problem of transport costs when entering a new market + disadvantage of this method | licensing, quality problems caused by an inexperienced licensee could damage the brand's reputation |
| methods to overcome the problem of cultural differences when entering a new market + disadvantage of this method | localizing existing brands |
| production | provision of a product or a service to satisfy consumer wants and need |
| factors of production | land, labour, capital, enterprise |
| production process | production process |
| typical manufacturing business has | factory manager, purchasing manager, research and development manager |
| factory manager responsibilities | quantity and quality of products coming off a production line, includes maintenance of the production line and other necessary repairs |
| purchasing manager responsibilities | providing materials, components and equipment required for the production |
| research and development manager responsibilities | the design and testing of new production processes and products |
| productivity | output measured against the inputs used to create it |
| productivity equation | productivity = output/quantity of input |
| labour productivity equation | labour productivity = output (over a given period of time)/number of employees |
| how to increase productivity and efficiency | introduce new technology, use more automation, motivate employees more effectively, improve training |
| benefits of increasing productivity and efficiency | reduced inputs needed for the same output level, lower cost per unit (average cost), fewer workers needed potentially leading to lower wage costs, higher wages might be paid to workers which increases motivation |
| buffer inventory level | inventory held to deal with uncertainty in customer demand and deliveries of supplies |
| seven types of waste that can occur in production | overproduction, waiting, transportation, unnecessary inventory, motion, over processing, defects |
| lean production | used by businesses to cut down on waste and increase efficiency, by reducing the time it takes for a product to be developed and become available for sale |
| benefits of lean production | less storage of raw materials or components, improved health and safety leading to less time off work due to injuries, cutting out some processes which speeds up production |
| lean production methods | kaizen, JIT, cell production |
| kaizen | continuous improvement through the elimination of waste (making things easy to access and in order to improve flow) |
| advantages of kaizen | increased productivity, reduced amount of space needed for production process, work-in-progress is reduced |
| JIT | involves reducing or virtually eliminating the need to hold inventories or raw materials or unsold inventories of the finished product |
| advantages of JIT | reduces inventory costs, warehouse space is not needed, finished product is sold quickly increasing cash flow |
| cell production | the production line is divided into separate self-contained units (cells). each making an identifiable part of the finished product instead of having a flow production line |
| cell production advantages | improves workers morale which improved efficiency, feel more valued so are less likely to strike or cause disruption |
| methods of production | job, batch, flow |
| job production | a single product is made at a time |
| advantages of job production | suitable for one-off products, meets exact customer requirements, workers often have more varied jobs which can increase employee motivation and give greater job satisfaction |
| disadvantages of job production | skilled labour is often used and raises costs, takes a long time, materials have to be specially purchased, any errors can be expensive to correct |
| batch production | a quantity of one product is made then a quantity of another item will be produced |
| advantages of batch production | still gives some variety to workers' jobs, allows more variety to products, production may not be affected to a great extent if machinery breaks down |
| disadvantages of batch production | warehouse space is needed for inventories of raw materials, machines have to be reset between production batches leading to a delay in production, semi-finished products need to be moved to the next production stage which can be expensive |
| flow production | large quantities of a product are produced in a continuous process (flowing down a production line) |
| advantages of flow production | high output of a standardized product, can benefit from economies of scale in purchasing, automated production lines can operate 24 hours a day |
| disadvantages of flow production | boring system for workers so lack job satisfaction so lack of motivation, significant storage requirements, capital costs of setting up the production line can be high, one machine breaks the whole production line has to stop |
| production in action | a business may use a combination of all three types of production at different times depending on product or customer needs |
| factors affecting which method of production to use | size of the market, size of the business, nature of demand |
| size of market factors | demand is higher more products can be sold but in smaller quantities so batch production is used, niche markets will be served by businesses using job or batch production, international markets are served by businesses using flow production |
| size of business factors | if the business is small and does not have the access to large amounts of capital, then it will not produce on a large scale using automated production lines, small businesses are more likely to use job or batch production methods |
| nature of demand | if there is a large and steady demand it becomes economical to use flow production, if demand is less frequent then production may be more likely to be job or batch production |
| automation | where the equipment used in the factory is controlled by a computer to carry out mechanical processes |
| mechanization | is where the production is done by machines but operated by people, like a robot which is a machine that is programmed to do tasks |
| CAD | (computer-aided design) is computer software that draws items being designed more quickly and allows them to be rotated to see the item from all sides instead of having to draw it several times. (theatre) |
| CAM | (computer-aided manufacture) is where computers monitor the production process and control machines or robots on the factory floor |
| CIM | (computer-integrated manufacturing) is the total integration of computer aided design (CAD) and computer-aided manufacturing (CAM) |
| EPOS | (electronic point of sale), this is used at checkouts where the operator scans the barcode of each item individually |
| EFTPOS | (electronic funds transfer at point of sale), this is where the electronic cash register is connected to the retailer’s main computer and also to banks over a wide area computer network. |
| contactless payment | it is a fast, easy and secure way to pay for purchases that are less than a small amount |
| advantages of new technology | productivity is greater because better production methods are used, boring jobs are now done by machines leading to greater job satisfaction, better quality products are produced because of more accurate production methods |
| disadvantages of new technology | unemployment rises because machines replace people, expensive to buy new tech and machinery, technology can become outdated quickly leading it to need to be replaced frequently |
| why businesses hold inventories (stock) | allows a business to maintain production and satisfy customer demand quickly, to know when a business gets to its re-order point, economies of scale |
| why businesses hold inventories (stock) can be bad | costs a lot to store, reduces cash flow as money is tied up in inventory |
| fixed costs | costs, which do not vary in the short run with the number of items sold or produced, they have to be paid whether the business is making sales or not |
| variable costs | costs, which vary directly with the number of items sold or produced |
| why costs are important | compare revenue from one business to another, calculate profit and loss, helps managers make decisions, determine selling price |
| total costs | fixed costs and variable costs combined |
| average cost per unit | total cost of production/total output |
| use of cost data | setting prices, decide wheather to stop production or continue, decide on the best location |
| economies of scale | factors that lead to a reduction in average costs as a business increases in size |
| 5 types of economies of scale | purchasing, marketing, financial, managerial, technical |
| purchasing economies of scale | business is able to buy large number of components and get it cheaper, reduces unit cost |
| marketing economies of scale | transport costs are reduced by using larger vehicles, might be able to afford it's own vehicles to distribute goods |
| financial economies of scale | larger businesses can often raise capital cheaper than smaller ones, bank managers often consider that lending to larger businesses as they are less risky |
| managerial economies of scale | small businesses can't usually afford to pay for a specialist manager (marketing manager), tends to reduce their efficiency, larger companies can afford this which increases efficiency |
| technical economies of scale | small businesses cant afford the equipment that large businesses can, the use of flow production and latest equipment will reduce average costs |
| dis-economies of scale | factors that lead to an increase in average costs as a business grows beyond a certain size |
| 3 types of dis-economies of scale | poor communication, lack of commitment from employees, weak coordination |
| poor communication dis-economies of scale | can become more difficult to send and receive messages, mistakes can occur if there is slow/inaccurate communication leading to lower efficiency and higher average costs |
| lack of commitment | workers may feel not important, leading to lack of commitment and low efficiency |
| weak coordination | takes longer for decisions to be expressed, leading to different worker objectives |
| break even level of output/point | quantity that must be produced/sold for total revenue to equal total costs |
| uses for a break even chart | show break-even output, show margin of safety, helps in decision-making, show area of profit or loss, show how costs and revenue change with sales, show level of sales needed to break even |
| revenue | income during a period of time from the sale of goods or services |
| total revenue formula | quantity sold x price |
| break even point | level of sales at which total costs = total revenue |
| margin of safety | amount by which sales exceed the break-even point |
| limitations of break even graphs | doesn't show possibility of inventories not being sold, only concentrates on break-even point, fixed costs only remain constant if the scale of product doesn't change |
| contribution formula | selling price - variable costs |
| quality | produce a good or service which meets customer expectations |
| importance of quality | establish brand image, build brand loyalty, increase sales |
| if quality isn't maintained | lose customers to other brands, replace faulty products raising costs, creates a bad reputation through word of mouth |
| quality control | checking for quality at the end of the process wheather it's the production of a product or a service, uses quality inspectors as a way of finding faults |
| advantages of quality control | tries to eliminate faults or errors before the customer receives the product, less training required as inspectors are employed to check quality |
| disadvantages of quality control | expensive to pay for inspectors, doesn't find why the fault occurred, higher costs if the products have to be scrapped |
| quality assurance | checking for quality standards throughout the production process by employees |
| advantages of quality assurance | fewer customer complaints, tries to eliminate errors before passing onto next production stage, reduced costs if products don't need to be re made |
| disadvantages of quality assurance | expensive to train employees, relies on employees being committed to maintaining the standards set |
| total quality management | continuous improvement of products and processes by focusing on quality at each and every stage of production |
| advantages of total quality management | waste is removed and efficiency increases, reduced costs as products don't have to be reworked, no customer complaints so brand image is improved |
| disadvantages of total quality management | expensive to train employees, relies on employees following TQM ideology and accepting responsibility for quality |
| factors affecting location of manufacturing business | production methods, markets, raw materials, external economies of scale, availability of labour, government influence, transport and communications, climate |
| factors affecting location of a service sector business | customers, personal preference of the owners, technology, availability of labour, climate, near to other businesses, rent/taxes |
| factors affecting location of a retailing business | shoppers, nearby shops, customer parking, availability of suitable vacant premises, rent/taxes, access for delivery vehicles, security, legislation |
| factors that a business should consider when deciding in which country to locate operations | new markets overseas, cheaper or new sources of materials, difficulties with the labour force and wage costs, rent/taxes, availability of government grants, trade and tariff barriers |
| start up capital | finance needed by a new business to pay for essential fixed and current assets before it can begin trading |
| working capital | is the finance needed by the business to pay its day to day costs |
| capital expenditure | money spent of fixed assets which will last more than one year |
| revenue expenditure | money spent on day-to-day expenses which do not involve the purchase of a long-term asset like wages |
| internal finance | obtained from within the business itself |
| external finance | obtained from sources outside of and separate from the business |
| retained profit - internal | profit kept in the business after the owners have taken their share of the profits |
| retained profits advantages | doesn't have to be repaid, no interest needs to be paid |
| retained profits disadvantages | new businesses will not have this, small businesses might be too low to finance the expansion, keeping more profits might turn away shareholders |
| sale of existing assets - internal | assets that could be sold which have value but not required by the business |
| sale of existing assets advantages | better use of capital tied up in the business, does not increase the debts of the business |
| sale of existing assets disadvantages | might take a while to sell, not available to new businesses as they have no surplus assets to sell |
| sale of inventories to reduce inventory levels advantages - internal | reduces the opportunity cost and storage cost of high inventory levels |
| sale of inventories to reduce inventory levels disadvantages - internal | must be done carefully to avoid disappointing customers if not enough goods are kept as inventory |
| owners savings - internal | a sole trader or members of a partnership can put more of their savings into their unincorporated business |
| owners savings advantages | should be available to the firm quickly, no interest is paid |
| owners savings disadvantages | savings may be low, increases the risk taken by the owners as they have unlimited liability |
| issue of shares advantages - external | permanent source of capital which would not have to be repaid to shareholders, no interest has to be paid |
| issue of shares disadvantages - external | dividends will be expected from shareholders, ownership of the company would change which the owners might not like |
| bank loans advantages - external | usually quick to arrange, can be for varying lengths of time |
| bank loans disadvantages - external | will have to be repaid eventually and interest has to be paid, collateral is required |
| selling debentures - external | long-term, loan certificates issued by limited companies |
| selling debentures advantages | can be used to raise very long term finance |
| selling debentures disadvantages | must be repaid with interest |
| factoring of debts - external | debt factors and specialist agencies that "buy" the claims on debtors of a business for immediate cash |
| factoring of debts advantages | immediate cash is made available to the business, risk of collecting debt is not the business's problem any longer |
| factoring of debts disadvantages | business doesn't receive all of its debts |
| grants and subsidies advantages - external | usually don't have to be repaid |
| grants and subsidies disadvantages - external | often have "strings attached" like the firm must locate in a specific area |
| microfinance - alternative | in developing countries, traditional commercial banks are unwilling to lend to poor people even if they wanted the finance to set up an enterprise |
| microfinance | providing financial services including small loans to poor people not served by traditional banks |
| crowd funding advantages - alternative | can be a fast way to raise money, no initial fees paid to the crowd funding platform, often used by investors when other methods aren't available |
| crowd funding disadvantages - alternative | media interest needs to be generates, crowd funding platforms might reject the proposal |
| short-term finance | provides the working capital needed by businesses from day-to-day operations |
| overdrafts advantages - short-term | can be cheaper than short term loans, interest is only paid on the amount overdrawn |
| overdrafts disadvantages - short-term | the bank can ask for the overdraft to be paid at a very short notice, interest rates are variable unlike loans which have a fixed interest rate |
| trade credit - short-term | when a business delays paying it's suppliers, which leaves the business in a better cash position |
| trade credit advantages - short-term | almost an interest free loan to the business for the length of time that payment is delayed for |
| trade credit disadvantages - short-term | the supplier may refuse to give discounts or refuse to supply more goods |
| long-term finance | usually available for more than a year and sometimes many years usually to buy fixed assets |
| bank loans - long-term (same as external finance ones) | same as external finance |
| hire-purchase - long-term | allows a business to buy a fixed asset over a long period of time with monthly repayments |
| hire-purchase advantages - long-term | the business does not have to find a large cash sum to buy the next asset |
| hire-purchase disadvantages - long-term | a cash deposit is paid at the start of the period, interest payments can be quite high |
| leasing - long-term | leasing an asset allowed the business to use the asset without having to purchase it |
| leasing advantages - long-term | the care and maintenance of the asset are carried out by the leasing company, the business doesn't have to find a large cash sum to buy the asset with |
| leasing disadvantages - long-term | the total cost of the leasing charges will be higher than purchasing the asset |
| issue of shares - long-term (same as external) | same as external finance |
| loans difference from share capital | loans must be repaid, loans are often secured against particular assets |
| factors that affect which source of finance to choose | purpose and time period, amount needed, legal form and size, control, risk and gearing |
| banks are more likely to lend money when they have access to | a cash flow forecast which shows why the finance is needed and how it will be used, collateral is available, details of existing loans and sources of finance being used |
| shareholders are more likely to buy shares when | the company's share price has been increasing, dividends are high, other companies don't seem to have such a good investment, the company has a good reputation and plans for future growth |
| cash flow | is the cash inflows and outflows of a period of time |
| cash inflows | sums of money received by a business during a period of time |
| how cash can flow into the business | sale of products, payments made by debtors, borrowing money from an external source, sale of assets, investors investing more |
| cash outflows | sums of money paid out by a business during a period of time |
| how cash flows out of the business | purchasing good or materials for cash, paying wages salaries and other expenses in cash, purchasing fixed assets, repaying loans, paying creditors of the business |
| cash flow cycle definition | shows the stages between paying out cash for labour, materials and so on and receiving cash from the sale of goods |
| cash flow cycle diagram | 1 - cash needed to pay for, 2 - materials, wages, rent etc, 3 - goods produced, 4 - goods sold, 5 - cash payment received for goods sold |
| profit | surplus after total costs have been subtracted from the revenue |
| cash flow forecast | estimate of future cash inflows and outflows of a business |
| a cash flow forecast can be used to show a manager | how much cash is available for paying bills repaying loans or for buying fixed assets, wheather the business is holding too much money that could be put towards a profitable cause |
| uses of cash flow forecasts | starting up a business, running an existing business, keeping the bank manager informed, managing cash flow |
| net cash flow | difference between inflows and outflows |
| closing cash balance | amount of cash held by the business at the end of each month |
| opening cash balance | amount of cash held by the business at the start of each month |
| ways to overcome short term cash problems | increasing bank loans, delaying payments to suppliers, insisting on only cash sales, delaying or cancelling purchases of capital equipment |
| disadvantages of increasing bank loans | interest must be paid |
| disadvantages of delaying payments to suppliers | suppliers could refuse supply, offer less discounts |
| disadvantages of insisting on only cash sales | customers may purchase from another business that still offers them time to pay (trade credit) |
| disadvantages of delaying or cancelling purchases of capital equipment | the long term efficiency of the business could decrease without up-to-date equipment |
| working capital formula | working capital = current assets - current liabilities |
| accounts | the financial records of a firm's transactions |
| accountants | professionally qualified people who have responsibility for keeping accurate accounts and for producing the final accounts |
| final accounts | produced at the end of the financial year and give details of the profit or loss made over the year and the worth of the business |
| how to die | take business |
