theme 2

Job production

Unique bespoke products

Focused on customers requirements

Specialist, long process

Huge profit margins

working capital

the difference between a company's current assets and current liabilities, representing the funds available for day-to-day operation

capacity utalisation

how much of the potential output is actually being produced. A higher capacity utilisation rate suggests a business is operating closer to its maximum potential, while a lower rate indicates underutilization of resources. 

efficiency

how effectively a business utilises its resources (like labour, materials, and capital) to produce goods or service

productivity

a measure of how efficiently a company converts inputs (like labor, materials, and capital) into outputs (goods or services)

Batch products

Produces more, different flavours

Some automation

Decreased productivity when switching batches

Flow production

a manufacturing process where identical products are made in a continuous sequence on an assembly line

High productivity, low margins

Standard production in all products

Low skilled or automative workers

Expensive start up

Cell production

Teams of workers work together to produce an entire product or part of a product

Productivity

Output per unit per time period

Factors improving productivity

Specialisation

Motivation

More capital intensive

Training

But can lead to burnout and stress

Link between productivity and competitiveness

Increase in productivity implies the improvement of competitiveness

Efficiency

Total costs/ total output

Factors influencing effiecncy

Outsourcing

Relocating

Investing in new technology

Lean production

Difference between labour and capital intensive production

Capital intensive business requires a large amount of capital to operate

Labour intensive business needs a significant amount of labour to operate

Capacity utilisation

Current output/ maximum possible output x 100

Wats to improve capacity utilisation

Reduce capacity: sell of fixed assets, relocate, make staff redundant

Increase usage: discount, promotions

Outsourcing

Redeployment: work in other departments

types of stock

Raw materials

Work in progress

Finished goods

Stock control diagrams

Buffer- minimum stock levels that’s kept

Reorder level- when stock is reorder

Lead time- time it takes for stock to arrive

Problems with High stock

Stock can be bought wasted or perished

High cost to store

Extra stock is a cost if sales are low and not used

Stock can go out of date

Problems with low stock

Difficult to meet demand

Loss of repeat purchases

Loss of business as customers buy form someone else

Have to wait for it to arrive

Just in time

Pros:

Cash not tied up in stock

Stick will be fresh

Cons:

Unforeseen circumstances can cause late deliveries

Inital teething problem may drive away customers

Just in case

Pros:

Never run out of stock

Can meet surges in demand

Cons:

Tied up in cash which could be used elsewhere

Higher storage costs

Stock can perish/ go out of date

Lean production/ waste minimisation

Refers to using as few recourses as possible in production

Less storage, space, materials, stock, crime

Quality control

Refers to checking a product at the end of the process

Pros:

Greater efficiency and less waste

Consistent control of major business processes

Increased costumer satisfaction

Cons:

Too late to correct errors after products been made

Products have to be destroyed

Waste funds

Quality

Product or service which meets standards set by customers

Can charge premium prices, strengthens brand, USP

Quality assurance

Product checked at each step for quality and if standard it would be thrown away

Pros:

Leads to zero defects

Customers assured of quality encourages loyalty and repeat purchases

Total quality management

Puts quality at the heart of everything in the business

Pros:

Not paying for inspectors

Empowered employees are motivated

Zero defect

Cons:

Takes time to introduce

High cost to train staff

Employees may not want extra responsibility

Quality circles

Getting feedback from employees to improve quality and use information to make the product better

Kaizen

Continuous improvement, Japanese, day to day gradually improve

Part of the Toyota production system

Gross profit

Revenue- cost of sales

Operating profit

Gross profit- expenses (cost of running business)

Net profit

Operating profit- financial costs (tax/inerest)

Profit margin

Profit/ revenue x 100

Difference between profit and cash

Cash refers to teh money that flows in and out the business within a specific time frame (day to day spending), profit is what’s left of your revenue once you’ve deducted your levels of cost

Measuring liquidity- current ratio

Current ratio: identifies wether a business can pay back short term debts- current assets/ current liabilities

Ideal ratio is 2.0 (£2 assets to £1 debt)

Measuring liquidity: acid test

More accurate measure of liquidity, takes out stock involves cash and debtors

Current assets-stock/ current liabilities

Ideal ratio is 1.4 (1.1-1.5)

Ways to improve liquidity

Encourage cash sales

destocking

Negotiate longer credit terms with suppliers

Delay payements

Use overdraft

Working capital

Day to day running Costs

Current assets- current liabilities

Internal reasons for failure

Lack of planning

Lack of funds

Poor leadership

Cash-flow problems

Marketing problems

External reasons for business failure

Change’s in legislation

Economic climate

Competition

Change’s in market prices

sales forecast

involves predicting future sales volume/ values to inform key decisions

factors affecting sales forecast

• consumer trends

• actions of competitiors (releasing products, marketing)

• economic variables (interest rate, economic growth, infaltion)

pros/ cons of sales forecasts

pros- helps to make key decisions

cons- may not be accurate, consumer trends can be volatile, econima variables can be volatile

contribution

selling price- variable costs

break even point

fixed costs/ contribution

margin of safety

actual sales- break even point

break even pros/ cons

pros- allows a business to plan the stock leevels for profit, helps make adjustments about prices and costs

cons- assume all products are the same price, model assume costs increase constantly (bulk buying)

budgets

a finiancial plan for the future: for control and monitoring, motivation

zero based budgets

• involves creating a budget with all spending justified to ensure value for money

  pros: can help minimise cots

  cons: time consuming

historical based budgets

• involves creating budgtes based on historical data

  pros- quick to assume using prior dtaat

  cons- lacks reliability and could become out of date

variance analysis

compares budgeted figure with actual figures

pros and cons of budgeting

pros- can help maange money, monitor performance, and allocate resources effectively. cons- can be inflexible, time-consuming, and may lead to conflicts over resource allocation.

Sources of internal Finance

Personal savings

Retained profit

Sale of assets

Advantages of internal finance

Available immediately

No interest payments

No credit checks

Disadvantage of internal finance

Might not be enough

Not as flexible (less sources)

Sources of external finance

Family and friends, banks, peer-to-peer funding, business angels, crowd funding, other buisnesses

Methods of finance

Loans, share capital, venture capital, overdraft, leasing, trade credit, grants

Limited liability

Owner and business have separate legal identities. The owner only looses the amount invested, can use share capital

Unlimited liability

Owner and business are seen as the same, if the business has debts the owners responsible and may lose pedonql possessions

how can a business plan help gain finance

Sells the opportunity to invest in business to funders, lays out cash flow forecast to prevent insolvency, money for suppliers overheads and employees, gives focus and direction

Cash flow forecasts pros and cons

Pros: can predict surges in demand to help stock up, can identify negative cash-flow months and inject a source of finance, to apply for a loan

Cons: based on estimated, doesn’t take into account external factors that could affect cash-flow e.g. recession, biased figures for loans

the effect on a business in a change in inflation rates

• general rise in prices in an economy over time

  • The Consumer Price Index measures monthly changes in the prices of goods and services

  • bank of england tries to maintain 2%

problems of inflayion rates:

• increased costs

• higher repayment on loans

• change in spending habits

• international competition

• uncertainity

the effect in a business in a change in exchange rates

value of one currency expressed in terms of another

• important economic influence for businesses that import raw materials and components and for businesses that export their products

• fluctuate from:

  • Changing demand for a currency

  • Economic growth

  • Changes to interest rates

An increase in the value of the £: sales fall and may need to lower prices for exporting business, cost fall and may lead to expansion from importing businesses

decrease in the value of the £: sales rise and increased selling price for exporting businesses, costs rise and business may seek domestic sellers fro importing bsuinesse

effect on a business in a chnage in interest rates

reward for savig and teh cost of broorwing

If interest rates rise businesses will have to pay more on new or variable rate borrowing, which will increase their costs

• less willing to make capital investments, profit invested into savings schemes

• Customers are less likely to purchase goods on credit, leading to a fall in sales 

• Exporting businesses may see demand for their products overseas fall as higher interest rates usually strengthen the value of the domestic currency and make their products comparably more expensive abroad

effect on a business in a change in taxation and government spending

• Direct taxes are levied on income, e.g. Income tax/ Corporation Tax

• Indirect taxes are levied on spending, e.g. Value added tax

  impact:

• revenue may fall

• opertaing costs may rise

• operational decision dn businesses spending changed

• business may risk not paying teh extra costs

effect on a business in a change in the business cycle

• upturns and downturns in the level of a country’s economic activity (GDP) over time

  • A recession occurs when an economy experiences two consecutive 6 months of negative growth

  • A boom is defined as a period of time where an economy experiences increasing/high rates of economic growth

recessions: less disposable income, easier hiring, delay spending, production levels reduced, stockpile, increased spending on welfare benfefits.

boom: higher sales revenue, staff retention more challegning, expand and maximise profits, prodcution levels increase, interest rates rise, lower spending,

effect of economic uncertainity on the business environment

• occurs when it is difficult to forecast the level of supply and demand in an economy

• planning difficult, reluctant to make significant decisions, with capital expenditure

• Economic uncertainty from:

  • Fluctuating exchange rate

  • Economic growth uncertainty

  • Turbulence in the price of key commodities

• Businesses must always be prepared by

  • Building up cash reserves

  • informed about the economic climate

  • Being ready to take advantage of opportunities when they arise

the effect on a business of consumer protection

consumer protections- right to return or reject goods, all info disclosed, standard of quality

pros: no fines, better relationship with stakeholders, strong brand

cons: costly, bad publicity if not complying, sued.

the effect on a business of employee protections

no discrimination, minimum wage, health and safety

pros better reputation by prospective employees, lower cost from less staff leaving, motivated workers

cons: expensive to meet health and safety recruitment and minimum wages, not complying leads to unmotivated workers

the effect on a business of environemntal protection

environmental act 1995

aims to make business repsonsible for thei impact on the envonmnet- pollution/ recycling

• increased costs: swicthing suppliers, more recycling

• time consuming

• potential for innacurate claims of being eco friendly

the effect on a business of competition policiy

enterprise act 2013

restricts anti competitive practices; cartell activity, unfair condiitons on small suppliers

promoting fair markets, fostering innovation, and influencing pricing and quality.

businesses compete effectively, lower prices, greater choice, and improved product quality.

However, places businesses under scrutiny for anti-competitive practices, potentially leading to penalties and reputational damage if violations occur. 

the effect on a business of health and saefty laws

ensures a safe workplace for workers and customers; temperature, break, preventing stress, disability, wage

pros: reduced injuries and accidnegts, improved productivity, enhanced image, attract workers, reduced absences

cons: icerased costs, operational distruptions, legal consequences, lower productvity

competitve environemnt

number and strength of cmpeitors in teh same amount as a bsuiness

outside factors that determine competitveness

• no. of competitors

• bargaining power of suppliers

• extent in which products are diffrentiated

• knowlegde of buyers and sellers

• amount of regulation

ways to gain competitve advanateg

• wider product range

• better after sales service

• stronger brand image

• better features

• higher quality

impact of competiton

pros: increased innovation/ efficeny

wider product range

cons: lower prices, increased romtion costs, unethical behaviour

small competiton

pro: less competiton, easier to build relationships

cons: low barriers to entry, less economies of scale

large competition

pros: more potential customers

cons: more regulations, internal level of competiton