Key Terms/Ideas Business Paper 1

Freelancer

Freelancer

A self employedindividual who provides services to their clients.

Adv.

• Flexibility in resource allocation – BON can reduce staffing levels (mainly temporary staff and freelancers)

• Cost Saving: flexible scheduling according to demand

  • Part time employees do not require benefits

• specialization - temporary workers and freelancers offer skills and expertise to contribute to BON’s workforce, enhances productivity of BON’s operations

Disadv.

• lack of employee engagement - temporary workers/freelancers have higher labour turnover, this can pose a challenge for BON to maintain a motivated and ensure tasks are completed

• temporary workers/freelancers are not familiar with BON’s orgnanizational culture and objectives (due to lack of extensive training) which can lead to reduced performance

• higher costs of recriutment - may require specialized training which contributes to BON’s HR costs, the consistent hiring of temporary workers can be costly

Contracts

Legally binding agreements between two parties such as employer and employees

Permanant employees have an employment contract on a continual basis with no expiration date (subject to redundancies or dismissals)

Temporary works are hired for a limited period of time or until completion of project is over

Environmental Sustainability

is the ability of a business to maintain the use of its renewable and renewable sources for future generations (production does not jeopardize the resources for the future)

BON

Private Limited Company

Is an incorporated business owned by shareholders who have limited liability. The shares of a private limited company cannot be bought or sold to the public.

Public Limited Company

Is an incorporated business owned by shareholders who have limited liability but with the shares available on public stock exchange

through an IPO, a company becomes a PLC…

+greater access to capital

-dilution of control

-publish their financial accounts (made available to competitors)

Credit Card

This is a card payment system that allows qualifying customers to borrow funds from a financial service provider. Credit card cans charge interest charges if there are late payments. Credit card payment allows attendees at Bon’s event to pay without using cash.

Greenwashing

Is a misleading marketing tactic that falsely portrays sustainable practices however there are not as environmentally friendly in reality.

Initial Public Offering (IPO)

Businesses converting its legal status to a publicly traded company by selling its shares on a stock exchange for the first time

+Raise further finance by selling more shares on stock exchange

-Ownership and control of company becomes diluted

-threat of being taken over

Line Manager

A manager who is directly responsible for the work of a team of employees. - The person is an employee on the next hierarchical level in an organizational structure. Line managers supervise their subordinates on a day-to-day basis.

Capital Employed

Is the value of all long term sources of finance for a business

= noncurrent liabilities plus equity

Gross Profit

Represents the revenue remaining after deducting the direct costs associated with producing or delivering goods and services.

Gross Profit = sales revenue - COGS (purchase + open - close)

Gross Profit Margin (GPM)

• Is a profitability ratio that shows the value of a firm’s gross profit expressed as a percentage of its sales revenue

• reflects the efficiency of production and pricing strategy

• higher GPM indicates effective cost management pricing

Gross Profit/Sales Revenue x 100%

Profit Margin (PM)

• Shows the percentage of sales turnover that is turned into overall profit after costs of sales (direct costs) and expenses (indirect costs)

• Provides an overall view of a firm's profitability after considering all expenses.

• Higher PM signifies better overall financial health —> profits for investment in the company (retained profits) or dividends

  = profit before interest and tax/sales revenue x 100%

Limitations of GPM and PM

• profit on final accounts is static, indication of financial health but does not tell its efficiency compared to size of business

• apply to profit orientated businesses only

• Changes in the external business environment can cause a change in the financial ratios without there being any underlying change in performance of a business (ex. Higher tax rates decrease profitability although sales revenue has increased)

• No universal way to report final accounts so this means that businesses may use slightly different account procedures. This makes inter-firm comparisons difficult.

• Qualitative factors that affect performance of a business are ignored (ex. Customer satisfaction, staff motivation)

Uses of Ratio Analysis

• Managers and directors can assess the likelihood of getting management bonuses for reaching profitability, liquidity and efficiency targets. Financial ratios identify areas for improvement

• Employees and trade unions can use financial ratios to assess the likelihood of pay rises and the level of job security (revealed by profitability and liquidity ratios)

• Trade creditors look at short term liquidity to ensure that their customers have sufficient working capital to repay them

• Shareholders use financial ratios to assess return on investment compared to other investments (ex. Saving in a commercial bank account instead)

• Financiers use ratios to consider if the business has sufficient funds and profitability to repay any loans that may be approved

How to Improve GPM

1. Raise Sales Revenue

   • Increasing the selling price for products with few substitutes

   • Decrease the selling price for products with many substitutes

   • Use marketing strategies to raise sales revenue

   • Seek alternative revnue streams

2. Reduce Direct Costs

   • reduce direct material costs by sourcing cheaper suppliers/raw materials

   • reduce direct labour costs (reduces gross profit deduction of expenses)

Return on Capital Employed (ROCE)

Profitability ratio that measures the financial performance of a firm based on the amount of capital invested

• profit before tax/interest is used because it allows historical comparisons of fluctuations before interest/tax (that are beyond control of business)

• ROCE should exceed interest rates on loan capital = more beneficial investment in business

ROCE = net profit before interest and tax/ capital employed x 100

Liquidity Ratios

Calculates how easily an organization can pay its short term financial obligations from its current assets

• shareholders (loan capital) assess the likelihood of getting back the money owed

Current Ratio

Reveals whether a firm is able to use its liquid assets to cover its short term debts within the next twelve months of the balance sheet date

• 1.5 - 2.0 is desirable

• Lower than 1 means low/negative working capital (more liabilities than current assets

• Higher than 2 can mean too much cash/stock which increases storage and insurance costs, could mean too many debtors which can increase likelihood of bad debts

  =Current Assets/Current Liabilities

Acid Test Ratio

Is a liquidity ratio that measures a firm’s ability to meet its short-term debts. It ignores stock because not all inventories can be easily turned into cash in a short time frame

• high quick ratio can suggest firm is holding on too much cash rather than use it to generate more trade

=Current Assets-Stock/Current Liabilities

Advantages of Cash Flow Forecasts

• lenders require cash flow forecast to help assess financial health of a business

• help managers predict potential liquidity problems and plan accordingly (adjust cash flow to avoid cash deficiency)

• facilitate business planning to compare cash flows to improve future predictions

Cash Flow Problems

• Overtrading - situation occurs when a business attempts to expand to quickly without sufficient resources

• Overborrowing - the larger the proportion of capital raised through external sources of finance

• Poor Credit Control - cash flow problems can arise when a firm offers customers a prolonged credit period leading the business to trade extended periods without cash inflows

Capital Expenditure

investement spending on fixed assets (long term) to sustain business operations

ex. machinery, equipment, land

• increase productive capacity as business grows

• improve efficency (using latest tech.)

• replace worn out capital equipment and machinery

• comply with changing legislation and regulations

• HIGH COST, limited finance

Revenue Expenditure

spending on day-to-day business operations incurred by producing products

ex. wages, utility, insurance, advertising

External Sources of Finance

Share Capital: money raised from selling shares of a limited liability company (main finance)
+productive way to raise finance

-time consuming, no guarentees of investors

Crowdfunding

Is the practice of raising finance for a business venture or project by getting small amounts of money from a large number of people, usually through online platforms

- loss of ownership and control by investors

STEEPLE Analysis

Social

• changing consumer preferences (towards more eco-friendly practices)

• COVID-19, heightened awareness of health and safety (influence attendee expectations and safety measures)

• changing music preference, BON tailors to music genres to accomadate diverse tastes (poses planning and financial implications)

Technological

• evolution of virtual experiences, increased use for ticketing, marketing and virtual concert experiences, disrupts business model (live events), BON must adapt to change

• renewable energy technologies, solar power offers opportunties for BON to reduce its environmental impact (fixed investment for long term)

Economic

• inflation, affects consumer spending and may result in higher prices of musical festival tickets (affecting revenues for BON) as well as higher operational costs

Environmental/Ethical

• climate change increases the likelihood of extreme weather events, neccesitate sustainability practices (affects schedule, risk to outdoor festival, damaging infrastructure)

• waste management, society pressures environmental measures (littering, waste water, reusable water

Political /Legal

• regulatory compliance, adherence to government regulations and permits (capacity, venue operations, environmental standards)

• health and safety regulations (security, emergency response)

Explain significance of eco-friendly alternatives (bamboo plates and cutlery)

• Implementing eco-friendly alternatives at music festivals demonstrate BON’s commitment to ecological sustainability

  • enhance its brand image and corporate reputation.

  • attract environmentally conscious music concert and festival goers

  • adhere to environmental regulations

• costly, may not have significant environmental impact

Discuss the seasonality of BON’s business operations

Adv.

• Flexibility in resource allocation – BON can reduce staffing levels (mainly temporary staff and freelancers)

  • part time employees do not require benefits

  • flexible scheduling according to demand

• Ability to plan

  • focus on marketing, HR, operations to allow for a success seasonal events

• Higher demand during peak seasons

Disadv.

• limited sources of finance during off-season

  • large fluctuations in sales revenue and cash flow

  • irregular sales can pose problems in BON’s budgeting, financing

• vulnerability to weather

  • impacts attendance and revenue

Discuss the importance of corporate social responsibility (CSR) for BON (10)

Corporate social responsibility (CSR) is the conscience of a business with consideration of the

organization’s actions on its various stakeholder groups (consumers, suppliers, employees,

and local communities) and the natural environment.

• Enhanced corporate reputation and improved brand Image, increased customer loyalty,

  positive word-of-mouth, and a stronger competitive advantage for BON in the music

  festivals industry.

  • Risk Mitigation: prevents risk of negative publicity, boycotts

• Improved stakeholder relations- build stronger relationships with customers and trust (remains competitive in the long run and sustainable), temporary and permanent employees (by ensuring ethical labour practices)

However,

• Greenwashing, some may perceive BON’s CSR intiatives as a unethical marketing tactic

• high costs (green technology)

• Divergance from core business objectives - weaken profit (stakeholder), reduce competitveness

***** LIMITATIONS OF CASE STUDY

Overall, the increasing emphasis of sustainability and ethical considerations is important for BON. It contributes to BON’s trust with stakeholders, most importantly customers and long-term sustainability

Recommend BON’s financial strategies (10)

diversify revenue streams - merchandise sales, VIP experiences

reduce costs - negotiate with farmers land use fee, staffing, vendor costs

marketing - it can target market segments through social media to attract younger festival goers (form of through the line promotion)

—> address sustainability practices as a marketing tactic (USP and competitive advantage)

HOWEVER

fluctuating market - changing customer music preferences, economic conditions, BON’s financial stability may be impacted by external influences outside its control

competition - music industry is highly competitive, competitors can implement sustainability practice (USP), reducing their competitive advantage

financial constraints - marketing can be costly and investments which can strain BON’s financial resources, affecting short-term profitability

***** LIMITATIONS OF CASE STUDY

Overall, BON can imrpove its financial stability, enhancing their competitveness by raising revenue and optimizing costs. However financial stability can be negatively impacted by the relevant external environment (post-COVID, economic crisis)

Expansion

The growth of business due to an increase in the size of an organization. Expansion can be measured in market share or sales revenue.

Average Cost

The average cost of production is the cost per unit of output

AC=TC/Q

Describe components of BON’s marketing plan (4)

market research- conduct primary and secondary research of target market (age groups, music preference *specific to the location)

• social media marketing - target audience more effectively, increase ticket sales

• offer discounts, loyalty programs and perks to incentivize ticket purchases

segment and target - plan marketing to target audience of a simialr characteristics because it is more likely to be more successful

• BON can also understand the needs and wants of customers

• Differentiate their services (USP)

Explain BON’s use of renewable energy sources in relation to environmental sustainability (4)

Environmental Sustainability: refers to the efforts of a business to preserve finite resources, using renewable sources without jeopardising future generations

• renewable source that can be replenished, the sunlight is in unlimited quantity

• replaced source of energy, no need for fossil fuels which significanyly contribute to greenhouse gas emmisions, increases longevity of energy

• minimize BON’s carbon footprint to mitigate climate change and aligning its values with reducing environmental impact

Revenue Streams

Different sources of income into the business (ex. ticket sales, merchandise)

Importance:

• revenue streams are important to support BON’s financial stability, less influence of external environment

• without sufficient revenue, BON would struggle to continue business operations, may lead to bankruptcy

Recommend whether BON should invest in sustainabiltiy

Ansoff Matrix

1. Market Penetration: existing markets, existing product

   1. increase promotional activities, offer loyalty programs, collaborate with popular artists to expand attendees

2. Product Development: existing market, new product

   1. diversify music genres, introducing new food vendors and entertainment

3. Market Development: new market, existing product

   1. expand geographical location, customize festivals to regional preference

4. Diversification: new market, new product

   1. use capital for other events (concerts), merchandise, consulting to entertainment industry

Why is it teritiary sector?

• intangible product (service in form of entertainment, security, infrastructure)

• BON PLC adds value to music festival industry by creating memorable and unique experiences for attendees