Packaging & Marketing Strategies for Small Businesses

Packaging, Marketing, and Production Concepts for Small Businesses

Table of Contents

• Packaging
• Crowdfunding
• Distribution channels
• Environment and sustainable development
• Inventory
• Quality methods
• Production methods
• Business organisation and leadership
• Marketing and promotion
• Finance and cash flow
• External costs and market factors
• Product development and product strategy
• Paper 1 external costs

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Packaging

Importance if packaging:

• Protect the product and ensure its quality
• Promote brand image while differentiating it from other products
• Add value and a higher price
• Help advertise and attract customers, increasing sales
• Ease of storage and display
• Flexibility in transport
• Provide information about the product and meet legal requirements
• Make the product easy and convenient to open

Roles of packaging:

1 - Protecting the product:

• Product could break easily - delivered to customer in damaged state if packaging not suitable - which could reduce the reputation for high quality products - leading to lower sales
• Needs to ensure the product stays fresh and best quality - to be consumed in a good condition - not deteriorated in any way - keeps customers loyal to business and managing sales
• May prevent damage when being transported - may lead to increased costs as products have to be replaced - more customer complaints - decreased customer satisfaction

2 - Promoting the brand image:

• “Look for appendix with advert of showing product as high quality or a well recognized logo” - consumers will see the logo and associate the packaging with business’s products helping to advertise the product when they see the packaging
• Colour of packaging can be used to associate the logo with the product - make the product easily identifiable on places with competing products

3 - Providing information about the product:

• The ingredients can be listed on the packaging - in case customers need to know about allergies - prevents customers from falling ill when consuming the product - stops the business getting a bad reputation for selling products that can cause illness
• Information about fresh ingredients may be a legal requirement - stops the business from being persecuted and being fined

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Crowdfunding: (Knowledge and Analysis) - Crowdfunding is funding a project or venture by raising money from a large number of people who each contribute a relatively small amount, typically via the internet.

Adv:

• No interests need to be paid - Does not increase cash outflows
• Allows for the public reaction to be tested - which could lead to more customers
• No need of repayments - so does not add to the business’s liabilities/debts
• No collateral needed

Disad:

• No guarantee of raising the full amount required - having the need to find another source
• Competitors may learn more about the product before its launch - leading to less revenue
• Not a reliable/stable source of finance
• A lot of paperwork

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Distribution channels:

Wholesaler adv: (Advantages if a business uses wholesaler as its distribution channel)

• Likely to buy in large quantities - increasing sales
• Only deliver to one location - lowering transport costs
• Access to many retailers - wholesaler might have links to many countries - leading to more sales
• No need to deal with lots of retailers - able to focus on other tasks - saving time
• May receive cash more quickly - improving cash flow

Wholesaler disad:

• No direct contact/feedback with customer - so difficult to build customer relationship/loyalty
• Price may be higher - leading to fewer sales
• Lose some control over marketing/advertising - difficulty in building proper brand image
• Wholesaler takes part of the profit - which lowers profit margin

Online adv:

• Sell direct to customers/online/ecommerce - so has more control over its marketing

Retailers adv:

• Retailers have wider range of customers - increasing brand awareness - lowers marketing costs
• Sell in large quantities
• Reduced distribution costs
• No direct contact with customers
• Price often higher - retailer will add their mark up

Agents adv:

• Agents will have local knowledge - so higher sales

Direct to customers:

• Lower price of products than if sold through intermediaries - more number of sales as attract price sensitive customers - price may be lower than competitors
• Can use internet or mail order to sell products - reaching a greater number of customers
• Have direct control over marketing - establish proper brand image
• Develops direct relationship between the customer and producer - easier to follow up with direct marketing to customer - can develop customer relationship - customer loyalty
• May have increased distribution costs - selling to many customers than just few with other methods
• Higher costs of administration
• Not all customers feel confident or are able to order online

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Business activity impact on environment:

• Pollution/global warming/emission of greenhouse gases
• Energy use/use fossil fuels
• Congestion/transport of goods
• Land use/use up natural resources/deforestation
• Waste disposal/non renewable materials

Ways of business contribution to sustainable development:

• Reduce amount of resources used
• Reduce number of products made/level of output - could reduce potential sales
• Reduce waste
• Reuse products
• Recycle products - which helps reduce number of materials needed waste
• Use renewable energy - as this will conserve limited (finite) resources
• Develop environmentally friendly products
• Replant trees
• Use electric vehicles

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Inventory:

Problems of high inventory:

• Rent and storage space needed - which can increase fixed costs and expenses
• Ties up with working capital - which could lead to liquidity/cash flow problems/difficult to pay suppliers
• Increase costs - which can increase cash outflows
• Opportunity costs/funds could be used for other purpose - lack of capital to expand the business
• Risk of damage/theft/wastage - leading to higher costs

Reasons for high inventory:

• To maintain production
• To protect against delays from suppliers
• To benefit from economies of scale
• To benefit from special offers
• To reduce transport costs
• To meet unexpected changes in demand
• Gain economies of scale/bulk buy
• Production does not need to stop

Factors when increasing production levels:

• Enough workspace - so might have to relocate
• Access to sufficient suppliers - might not be able to meet orders
• Labour issues - need to train more workers - adding to business expenses
• Market demands - if tastes change again could be left with unwanted inventory
• Storage issues - may need to rent additional issues

Advantages of low inventory:

• Lower inventory holding cost - help reduce variable costs
• Lower security or rent costs - as less space is needed
• More flexible - to keep customers returning
• Help cash flow
• Less risk of waste or damage

Disadvantages of low inventory:

• Possible delays in production - leading to lower output
• No purchasing economies of scale
• Not able to meet orders - so could damage reputation

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Quality methods:

Quality Control Adv:

• Tries to eliminate faults before products reaches customers - helps maintain reputations and few customer complaints
• Does not stop production while checking - so some output is available - time is saved

Quality control Disadv:

• Need to recruit inspectors - which increases labour costs
• Spots errors at the end of the process - which could increase wastage

Quality assurance adv:

• Erros stopped before products checked throughout - so less funds/time spent on rework
• Increase employee motivation - leading to higher output

Quality assurance disadv:

• Need to train all employees - which increases fixed costs
• Not all workers interested/able to spot problems - increasing wastage
• Production checked after each process - takes time, can slow output produced

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Production methods:

Just in time:

1 - Advantages:

• Less inventory held - so less chance of wastage
• Lower storage costs - because there is less space needed
• Improve working capital/cash flow - as less money tied up as stock
• Less risk of inventory becoming damaged - which helps quality assurance

2 - Disadvantages:

• Parts might not arrive on time - limited inventory held - causing production delays
• No extra stock/materials available to meet unexpected orders - could lead to lower revenue/sales
• Little room for mistake in production - no inventory kept for rework
• May not have good relationships with suppliers. - a lot of planning to make sure goods delivered on time - if no, no output - delays
• No economies of scale possible - leading to higher average costs

Kaizen:

1 - Advantages:

• Increase productivity - which helps lower average costs - and improve its profit margin
• Work in progress is reduced - reducing inventory controls
• Can reduce amount of space needed for production - decreasing rent costs
• Improved layout/combining of jobs - can release some employees to do other jobs
• Help motivate employees - leading to less absenteeism and higher productivity

2 - Disadvantages:

• Only designed to produce small changes - no radical changes - not gain any significant increase in output
• Over time it is difficult to identify extra improvement - which can demotivate employees
• Workers may need training - which increases costs
• Not all employees may want to implement kaizen
• Meetings take time - delay production.

Is size of market most important factor when considering which production method:

• If high level of demand needs to be able to produce a lot - otherwise risk of losing sales

1 - Other factors:

• Capital available - as business might not be able to afford machinery
• Type of produce - as if the product is unique then do not need to produce on large scale
• Factory space
• Availability of suitable employees

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Types of business organisation in private sector:

• Soletrader
• Partnership
• Private limited company
• Public limited company
• Joint venture
• Franchise
• Social enterprise

Reasons for changes in importance of primary sector:

• Depletion of resources - so workers must find jobs in other sectors/may need to import resources
• Increased use of machinery/technology in primary sector - reduced the need for employees
• Industrialisation/setting up factories - which creates jobs in the secondary sector
• Better education - so workers seek higher paid jobs in other sectors
• Fewer grants/less government support OR more grants for secondary/tertiary sector of businesses
• Import cheaper raw materials

Multinationals company (pros and cons to countries)

Benefits:

• Increased availability of jobs - reduces unemployment
• Increase taxes - which can be used to improve public services
• Increased reputation of country - encourage other businesses to set up
• Increasing orders for local suppliers - increasing income for local businesses
• Wider choice/quality of goods
• Improve infrastructure/new investment/new technology
• Knowledge sharing/new ideas

Drawbacks:

• Increased competition- reducing sales for local businesses - which can force them out of business/reducing revenue
• Use up scarce resources - so less resources for other uses
• Repatriation of profits to home country - so country does not receive expected amount of tax revenue
• Often only unskilled jobs created/may offer low wages/poor working conditions
• Often try to avoid amount of tax paid in host country
• Owed to influence government decisions/local economy

Multinational business - Effect of businesses turning multinational to stakeholder groups:

Shareholders:

• Value of assets increases - as increased profit can be reinvested
• Increased dividends - profit increases from avoiding barriers to trade
• Lower dividends - if need to fund expansion into other countries
• Increased share price - become more well-known business
• Easier to seek shares - as company is known globally with higher revenue

Employees:

• May lose jobs - as business moves to produce in a country with lower production costs
• May gain control - from business expanding into different markets and employing new employees
• May have a more secure job - as business remains competitive if competitor companies are also expanding abroad
• Higher wages paid - as business is more successful and can afford to increase wages

Suppliers:

• May have increased sales - as output of multinational business increases
• May lose sales - multinational may purchase cheaper suppliers in other countries

Government:

• Higher tax revenue - higher profit repatriated
• May lose tax revenue if multinational locates head office in another country

Advantages of maintaining customer loyalty

• Maintain/increase sales from repeat customers
• Improve reputations/brand image
• Current customers recommend/less advertising needed/lower cost of marketing
• Easier to introduce new products
• Easier to gain feedback/learn about trends
• May be able to increase prices/become price inelastic

Importance of profit:

• Source of finance/reinvest in the business/pay back debts
• Measure success of business over the years
• Reward for risk-taking
• Provides a return to shareholders and helps attract new investors
• Support loan applications

Profit margin importance:

• Profit as a proportion of sales revenue, a higher margin would mean more profit
• Influence price charged - it could mean more people buy product
• Indicates efficiency
• Measure success
• Comparison with other business

Importance of finance:

• For the purchase of investment - buy equipment to replace worn out machinery - high amount of finance needed so may not all be from owner’s capital
• To finance the expansion/growth of the business
• To invest in the latest technology - remain competitive
• To provide working capital/pay expenses - payment of wages/raw materials - if not able to pay costs then output cannot be produced - prevents liquidity issues
• Development of new product - high costs of producing new product - outflow of cash with no inflow for a certain time.
• Start up another business - needs to purchase equipment/raw materials - may take time for sufficient cash to build up in the business to pay for assets

Wide span of control:

Advantages:

• Fewer supervisors needed - helping reduce labor costs
• Faster communication - leading to quicker/better decision-making
• Encourages delegation - which can increase motivation of employees

Disadvantages:

• Less control - so less work done/lower productivity
• Workers might not have skills to cope with extra responsibilities- leading to mistakes
• Effective communication may be difficult - as large number of subordinates are present
• Managers might not have the necessary skills - leading to poor management and reduced output of business

Training:

Off-the-job adv:

• Allows for mistakes to be made - lower risk of damaging reputation
• Up to date/new skills can be gained - greater output by worker and can solve harder tasks
• Skills might not be availability in the business - so benefit from new technique ideas

Off-the-job disadvantages:

• Use specialist trainers - which is expensive and increases costs
• Travel cost - increasing cash outflow
• Output might decrease - busy training away from workplace - wages are paid but no output from the trainee
• Additional qualifications may make it easier for trainee to leave for another job - increasing recruitment costs

On-the-job Advantages:

• Employee can carry on working so some work is done
• Control what is taught employees learn exact wat business wants things done - so workers only learn skills needed
• Cheaper - reducing training costs

On-the-job disadvantages:

• Reinforce errors/bad habits of trainers - reducing sales and damaging reputation
• Trainer is less productive when training others
• No qualifications may be gained by the trainee

Induction training:

• Helps employees settle into job quickly/familiarize with workers - so can help maintain standards
• Aware of health and safety/legal issues
• Know who to ask if there is a problem
• Opportunity to communicate culture
• Help keep productivity/efficiency high
• Less likely to make mistakes - can help protect business reputation
• Employees are not working but are still pared - which could increase costs
• Delays when employees start their job - so may have reduced output

Importance of training:

• Improve efficiency - increase output/faster production - which may help lower average costs - benefiting from economies of scale
• More skilled/flexible employees able to cover absence of others
• Fewer mistakes/better quality - which could lower costs - better customer satisfaction - fewer complaints - better brand image
• Increase motivation - which can help reduce labour turnover
• Fewer customer complaints - increasing customer loyalty
• Less supervision - so managers have time to focus on other activities

Added value

Increase price:

• Improving quality of product - so customers may be prepared to pay higher prices - better than competitors - but it depends on the prices charged by competitors - may lose sales
• Reduce material/variable costs
• Branding - improving brand image/change packaging - so customers think the product is worth more - more well known
• Excellent/better service - customers will be willing to pay a higher price if the product is made to appear more attractive
• Additional product features by improving designs - making the product more desirable than similar products so willing to pay more
• Convenience - customers may pay more of a product they can have straightaway - attractive to a wider range of customers

Lower costs:

• Buy cheaper raw materials - reduces input costs - widening the gap between cost and price - but customers may find products are of lower quality - unhappy customers lead to bad reputation - lower sales
• Reduce the number of material used

Franchise:

• Franchise fee must be paid/license has to be bought - providing funds for investments
• Can expand at a faster rate - which can help increase its market share
• Receives royalties/share of profit
• Franchisees responsible for day-to-day management - business can focus on other issues
• Increasing brand awareness - by increasing sales

Ethical business:

Advantages:

• Enhance reputation/brand image - helps attract customers - willing to pay higher prices
• Customers may pay higher prices - increasing revenue which could help cover costs
• Can help motivate employees - increasing production and reducing absenteeism
• Good relationships with customers - can develop customer loyalty
• Increase demand - increasing revenue
• Business more attractive to potential employees - they will want to be associated with an ethical company
• Keeps suppliers trusted - less likely to lose suppliers

Disadvantages:

• Can increase costs - leading to higher prices - which may lead to fewer customers/sales
• May not be sufficient/difficult to find ethical suppliers - reducing output
• Ethical suppliers may have higher prices
• May need to charge a fair price to customer - decreasing revenue

Ways to become ethical:

• Pay fair wages
• Ensure fair working conditions for employees
• Pay suppliers on time
• Pay fair price to suppliers
• Charge customers fair prices
• Source environmentally friendly materials

Importance of cash:

• Pay wages to employees
• Pay suppliers
• Pay expenses like advertising
• Repay debts
• For use in emergency

Reasons for demand of inelastic products

• Unique products - increase in price is likely to result in a lower percentage change in demand
• Consider a need for customers - so customers likely to remain brand loyal even if price increases
• Low proportion of income spent on product - so customers would still buy if the price increased

Advertising methods:

Advantages of specialist magazines:

• Attract specific customers/target market - increasing sales
• Able to use colour/pictures - which can help attract attention
• Can keep for future reference

Disadvantages of magazines:

• Magazines are often only listed once a week/month
• Not everyone reads/buys specialist magazines

Other methods:

• Social media - as large potential market - seen by many people
• Newspapers - not everyone reads them - so can retail target market - lead to fewer sales
• Leaflets - but people may throw them away - seen as litter

Promotion methods:

• Advertising - using leaflets/posters - which raise brand awareness
• Point of sales displays - as attracts attention of customers
• Samples - if liked more willing to buy
• Money off incentives - promotional pricing or buy one get one free - will encourage customers to buy the product - appeal to price sensitive customers
• Competitions - have a better chance of winning prices

Reasons for the need of finance:

Short-term:

• Pay day-to-day costs
• Pay wages/salary
• Purchase inventory
• To prevent cash flow problems

Long term:

• Purchase a non-current assets
• Fund expansion/growth
• Fund takeover of another business
• Develop new products/services

Reasons for working capital:

• Needed to pay for day-to-day costs - if lack then may not be able to pay wages
• Not able to buy supplies for products - not abet to satisfy customer needs - gain poor reputation with customers as being unreliable
• So the business does not lack liability - to avoid cash flow problems - so does not become insolvent
• Holding too high a level of inventories - not good use of cash if working capital is high

Effects of economic recession:

• Less/lower demand - reducing revenue
• Lower competition - which could increase potential customer base
• Widen pool of potential employee - which may lower recruitment costs
• Reduce number of employees - so does not need finance
• Material costs may be lower - which may increase profit margin
• May delay any expansion plans - so business must remain small
• May have cash problems - so need overdraft/loan

Increase in interest rate:

• Increased costs of finance/borrowing - so less cash to spend on other areas of the business
• Decreased demand/fewer sales - which could lower revenue
• More difficult to get loan - could delay investments - become less competitive

Economic recession:

• Recession could mean fall in disposable income - lower sales
• Higher unemployment - so fall in people's living standards

Increase in rate of inflation problems:

• Lower demand - fewer sales - reducing revenue
• Workers may demand more wages - increasing in labour costs - could cause the business to have cash flow problems
• May need to increase prices - could lose customers who are price elastic

Batch production

Advantages:

• Flexible - helping the business adapt to the new markets
• Production may not be affected to any great extent if machinery breaks down
• Range/variety of products - better motivation for the employees
• Can motivate workers
• Large quantity produced than job production - can keep restocking the shop with full variety of products
• Raw materials can be purchased in larger quantities than job production so gain economies of scale - lower unit cost of products

Disadvantages:

• Can be expensive - to move part-finished goods around the factory
• Machines have to be reset between batches - takes time - delays production
• One mistake in production may mean the whole batch is affected - needs to be thrown away - wast eraw materials
• Warehouse needed - for finished batches stored before being sold
• Size of batch may be too small - not enough products to meet demand

Flow production:

Advantages:

• High output/fast production - increase efficient - able to meet orders on time, will be able to cope up if increase in demand
• Benefit from economies of scale - leading to lower average unit costs
• Can produce 24 hours a day/ continuous production - so able to produce large output
• Allows for capital intensive methods/fewer employees - reducing labour costs

Disadvantages:

• Inflexible - which could lead to high level of wastage
• Lower motivation as work may be boring - so employee are less efficient/lower output/high labour turnover
• If one machine breaks down whole production will stop - fewer output - fewer sales
• High set up costs - leading to large cash outflows - requirement of source of finance

Joint venture:

Advantages:

• Increase capital - which can help the business reduce borrowing
• Access to shared knowledge- increasing productivity/efficiency
• Less need for market research - lowers marketing costs
• Avoided/reduce competition - increasing market share
• Share/lower financial risks - which reduces possible loses

Disadvantages:

• Possible management conflicts/disagreements - slow decision making
• Mistakes will reflect on all parties - which can damage reputation
• Must share profit - which may reduce motivation of each party
• Takes time to find the right partner - which may delay the expansion

Primary research:

Advantages:

• Up to date - which can help make better decisions to satisfy customer demand
• Business specific data can be gathered - so should help the business find out only what it needs to know - saving money
• Only available to own business/not available to competitors

Disadvantages:

• Expensive - as need to recruit experts to assist which increase cash outflows
• Time to collect - which could mean opportunities are missed

Recruitment:

Importance of recruitment stages:

Job analysis:

• helps work out whether need to recruit someone - duties can be given to someone else

Job description:

• Provides a clear idea of what job involves - so can help avoid applications from people who cannot do the job
• Provides basis for drawing up a contract
• Helps decide basis for pay
• Helps create person specification
• Helps resolve disputes

Job advertisements:

• Makes applicants aware of the job
• Helps attract a range of applicants

External recruitment:

• Wider pool of candidates - improving chances of finding the most appropriate person
• Bring new ideas/experience/skills - could help increase efficiency
• Avoids risk of upsetting other employees when someone who is internal promoted

Internal recruitment:

• Quicker and cheaper than external recruitment - which reduces expenses
• Acts as incentive/motivation for employees - so reducing labour turnover
• People know the business - so can start to work more quickly
• Company knows the people/employee

Job specification - identifies qualifications and skills that an employee requires

Diseconomies of scale:

• Less motivation - leading to higher labour turnover
• Poor communication - as more levels for messages to pass through
• Weak coordination - leading to wrong decisions
• Lack of control - which may lead to some employees working less efficiently

Leadership styles:

1 - Democratic leadership

Advantages:

• Gain more ideas - which may increase sales
• Can increase motivation - leading to less absenteeism - less likely to leave
• Better decisions could be made - as can use employees experience and skills

Disadvantages:

• Employees may not have the necessary experience - leading to mistakes
• Takes time to consult employees - which can slow decision-making
• Unpopular decisions may need to be made and employee ideas ignored

2 - Autocratic leadership

Advantages:

• Quicker/faster decision making - so can respond to opportunities sooner
• Do not need to consult employees - leader to quicker decision making - no conflicts between employees
• Decisions are made by experienced workers - so less chance of mistakes

Disadvantages:

• Demotivate employees - leading to higher labour turner because they have not input into decisions
• Supervisors have less time to focus on other tasks - leading to lower productivity as employees are closely monitored
• Lack of ideas from employees - communication is one way - workers might lack commitment

Laissez-faire:

• Main objectives of the business shared with employees but they they are left to organise their own work and take decisions without any interference which can be demotivating
• Communication can be difficult as the leader has little involvement in the decisions being made
• Employees can be motivated as are value and trusted in to making decisions
• Employees can be creative with fresh ideas
• Not suitable if a clear direction is needed and consistent approach to customers

Public limited company:

Advantages:

• Able to sell shares to the public - so additional capital can be raised to finance the business - no need to repay
• Rapid expansion possible by raising large sums of capital
• Limited liability would encourage more people to invest in the public limited company
• High status and easier to attract suppliers

Disadvantages:

• Accounts available to the public
• Pressure to pay large dividends to stakeholders - restricts the planned expansion
• Risk of takeover - no control over who buys the share
• More legal agreements - controls to follow - which increases costs/time consuming
• Complicated legal formalities - takes time and costs money - adding to cash outflows/costs for the business

Piece rate:

• Employees would receive payment for each product - encourage them to work harder - produce more output - possible increased sales
• Increased pay leads to employees being more motivated - rude the labour turnover
• Maybe unfair if some take longer than other - so some employees have higher payment - may demotivate employees
• If machinery breaks down - the employees will earn less - demotivated
• May work rapidly - increased risks and increased wastage costs

Teamworking:

• Production employees become more involved with decision making - makes them feel more valued, more responsibilities
• More control over tasks - less likely to leave so may reduce recruitment costs

Job rotation:

• Makes the employees’ job more interesting - more motivation to work
• Change tasks from one product to another - may need different skills to complete this work - increased training costs
• Quality can decrease - if employees are less specialized in different tasks

Short chain of command:

• Communication is more accurate - fewer people for messages to be passed through - less chance of errors
• Senior managers are less remote from lower levels - allows there’s managers to be more aware of views of employee - less likely to be disputes between employees and managers
• Decision making can be quicker - fewer levels to discuss issues and pass on decisions
• Managers have wider span of control - which may increase the opportunities for delegation - employees feel more trusted - increased job satisfaction
• Managers less control of subordinates - more likely to make mistakes - increased cost

Location/Markets

Why want to enter new markets

• different target market will see products - may be attracted to buy - increasing potential sales
• May have more customers wanting to buy this type of product - greater number of sales
• Home market has slow growth - so future growth in sales is limited - new markers provide opportunities for growth not available in current location
• Spread risk - less dependent on one location/factory
• Economies of scale
• Increase sales or market share
• Fast growing economy
• Greater recognition or brand awareness
• Access to cheaper labour/resources
• Fewer trade restriction

Deciding location (12 marker)

• Availability of raw materials - make it easier and qualifier to revive supplier - less need to import - can be cheaper - saving costs
• Many competitors - demand may be lower - reduce selling price to attract customers
• Spend more on marketing to enter the new market - increasing costs - possibly reducing profit
• Harder to recruit new workers - may have to offer more benefits to attract employees from other competitors
• Availability of skilled workers - can provide ideas in business - leading to more sales
• Communication issues - might not speak local language
• Closer to major market of the business - so could respond quicker to customers
• Changes in demand - market might change in further
• Lower distribution costs - could be more expensive to move
• Allowed tariffs or quotas - reducing costs
• Different legal restrictions - procedures may need changing
• Cost of setting up
• Demand from customers - so generate revenue
• Environmental considerations - must be away from housing
• Access to subsidies or grants - which could reduce costs

Television advertising:

• Wide range of people see it - greater brand awareness - higher sales
• Can be attractive and persuasive - developing brand image and attracting customers
• Can be made for targeted audience - increasing effectiveness of marketing budget - marketing economies of scale

Acid test ratio:

• High(more than 1) - can repay its current liabilities - good liquidity - current assets could be put to better use in the business to increase revenue
• Low(less than 1) -

Technology:

Effect on production method:

• Wide/variety of products can be designed - increasing potential sales
• High/faster output - improve efficiency
• Fewer mistakes/ better quality - improve its reputation
• Fewer employees/replace labour - reducing wage costs
• Automation/ become capital intensive
• Improved inventory control - as easier to keep track of raw materials

When to introduce new technology (factors to consider)

• Cost of technology - which may not be able to afford
• Cost of training/are workers willing to learn how to use it - increasing its expenses as training cost required
• Potential efficiency gains - to lower average costs
• Level of demand - so may not be buy to justify costs
• Sufficient space available - as if not the rent might increase
• Customer ability to operate the technology - as if cannot use could result to fewer sales/ less revenue

Tariffs, taxes and interest rates

Import tariffs - Impact on manufacturing business

• Higher costs of importing raw materials - could lead to higher prices/lower profit margin/so need to find new suppliers locally
• May increase price of imported finished goods - which may lead to fewer sales/less revenue/increase demand for locally made products
• Other countries may retaliate/introduce tariffs - making it more difficult to export

Decrease in interest rates:

• Decrease in interest costs for a new bank loan - may be more likely to invest in new operations using bank loan - or may buy new products - lower interest rates reduce expenses
• Reduces the costs of overdrafts - reduces interest payment for expenses - lower costs
• May lead to higher economic growth - lower unemployment higher incomes for consumers - increased demands for products
• Increases the available come consumers can spend
• If customers had a mortgage to repay - lower repayments - may increase demand for the business’s high-quality products

Increase in taxes:

• May reduce the businesses sales - as a result of less spending by consumers on products
• Less retained profit and less investment in product’s raw materials
• May lead to an increase in price of products - may lead to lower sales and revenue
• May allow an increase in government payments to people on a lower income - May increase the sales of the business

Cheap imports:

• Reduced demand - as its customers are able to buy from rivals
• May reduce prices - so revenue is reduced
• Labour costs of production - as raw materials may be cheaper
• Reduce market share

Stakeholders:

Use of financial statements for stakeholders:

1 - Employees

• To know if they have job security - ask may decide to look for job elsewhere
• To know if they will receive wage payments on time - if less - may not be able to cover their basic needs

2 - Suppliers

• To see current level of debt - to help decide whether to give trade credit
• To see level of cash/liquidity - know whether they will revive payments on time
• To know whether they will revive payments of time - if not, may stop supplying
• Asses level of sales - as high/low may lead to fewer orders

3 - Shareholders/Investors

• to know if they should invest in buying more shares - look at level of profit and/or compare profitability ratio - (dont want to invest in business with cash or liquidity problem)
• to know statement of financial position - to see if business was more worth at the end of the year than the beginning

Mass market:

• Potential for high sales - increased revenue
• Benefit from economies of scale - so lower average cost
• Spread risks - so falling sales in one area may be offset by sales elsewhere
• High levels of competition - may mean have lower prices

Nice market:

• May be possible to charge higher prices - which can increase profit margin
• Able to closely meet customers needs - could lead to high customer loyalty
• Opportunity to earn higher profits might attract new competitors - so prices may be reduced

Sources of finance:

Bank loan:

• Can receive all money at once
• Long time to repay - can be spread out over several years - does not affect cash flow
• Need to pay increase - which can increase costs
• Increases liabilities - must be repaid
• Banks may not be willing to lend the money

Retained profit:

• No repayments costs - no interest to pay - keeps expenses down
• May not be enough funds available

Sell shares:

• No need to repay/no interest - so fixed costs do not increase
• Access to greater amount of capital - as no restriction on shareholder numbers
• Permanent source of capital - so no need to repay
• Will dilute ownership - lead to loss of control - making it difficult to manage or take decisions
• Shareholder may expect dividends
• Cost or time to arrange - so not able to focus on other issues

Sales of existing non-current assets:

• These might be unused equipment and not affect existing production levels

Sale of intern tires to reduce inventory levels:

Grants and subsidies from the government:

• Funsa may be available from the government to support business
• Do not have to be repaid

Sole trader:

• Keeps all profit - so if successful will make more money/will encourage him to do better
• Own boss/has complete control - so make decisions more quickly
• Does not have to give information about his business to anyone else - reducing possible competing
• Has freedom to choose own holidays
• Has close contact with employees - so able to respond quickly to changes in demand - better customer relationship/loyalty
• Difficult to raise capital - which could restrict growth
• Unlimited liability - so his personal assets are at risks if he cannot pay off his debts
• Has all the responsibility/make decisions on own - so may lead to wrong decisions being made
• May have long hours to work - opportunity cost - otherwise may lose out on potential sales
• If not present - production will stop - no one else to do the work - decreased sales

Reasons for starting own business:

• Made redundant - need to provide an income as lost job
• To be own boss - independence from instruction from employer
• Able to decide how to spend time - flexible working hours/take time off
• To make a profit - as may revive a higher income than working for another business
• To gain recognition and status - to become well known and respected

Motivation and employees:

Methods of motivation

• Bonus - employees will try to achieve targets set
• Job rotation - can make work more interesting
• Job enrichment - as employees feel they are given more responsibility
• Training - so employees have a higher level of skills
• Increase wage rate - increases business costs
• Profit sharing - which only pay if a profit is made
• Commission - employees will have incentive to sell more

More motivated workforce:

• More output
• Workers more committed - work harder - which clears to an increase in productivity
• Lower wage costs - as might not need to employ many workers - saving on recruitment costs
• More flexible - workers will be able to respond to changing tastes
• Lower levels of absenteeism
• Lower training/recruitment costs - because lower level of staff turnover
• Loyal staff - reduce turnover
• Less mistakes - save money

Improve employee productivity:

• Switch to piece rate - as workers might produce more in order to gain more money
• Increase pay - which improves motivation - so workers produce more per hour
• Better working conditions to improve morale
• New and better machinery
• Training - improves motivation

Profit sharing:

• Employees now receive an additional payment to their wages. A share of the profits may increase motivation which may lead to increased productivity, and this may lead to lower costs per unit and possible higher profit
• However, existing shareholders may lose some control if profit sharing is from the issue of shares to employees
• Employees may see no link between their day-to-day effort and their contribution to profit which employees may have no influence over
• May lead to reduced dividends per saber or less retained profit
• Motivate workers/improve efficiency
• Creates team spirit - sense of belonging - common goal
• Improve employee loyalty - retention
• Helps attract new employees

Trade Union effect on business:

• Easier to negotiate with just one organisation representing all employees at the business
• May have to face increased wage costs if union successfully negotiates a pay rise
• Improve communication between managers and workers
• Improve relations between managers and workers
• May be affected by industrial action

Trade Union effect on employees:

• May be able to negotiate a wage increase
• May be able to improve working conditions
• Collective bargaining increases likelihood of success for workers demands
• Worker views are put forward to management
• Can seek advice about issues of pay, dismissal woker’s rights
• More aware of employee rights

Reasons for downsize of workforce:

• Need to reduce costs
• Economic crisis
• Merger or takeover
• Excess workforce
• Relocation
• Changes in management
• Automation

Motivation theories:

• Taylor - scientific management approach - money is main motivator
• Maslow - hierarchy of needs, satisfy physiological, safety, social, self-esteem, self-actualisation needs to increase motivation
• Herzberg - two factor theory - hygiene factors relate the working environment and motivating factors relate to improving job itself - work more meaningful and worker given more responsibility

Full-time and Part-time employees:

Part-time employees:

• More flexible hours of work - increase motivation of the part-time employees - willing to work more
• Easier to increase the employee hours during busy times - allows the business to meet customer demand effectively
• Easier to recruit part-time employees - because hours may be more flexible and fit in with family commitments
• May reduce labour costs compared to employing full-time employees - as may only employ workers when needed at busy times

Full-time:

• More likely to be trained - increasing productivity of employees
• Reduce labour turnover - more likely to see the job as a long-term rather than temporary
• lower recruitment costs
• More committed to the business - leases to more motivated workers which increases efficiency
• More likely to be suitable for promotion as gained more skills and experiences if the business expands in the further
• Easier to communicate with than part-time workers - as in work for more hours a day
• May be more motivated - so productivity would raise

Questionnaire:

Reason for Sampling for questionnaire:

• To reduce the time taken to carry out the questionnaire - takes a lot of time to ask whole population - sampling means reduced number of questionnaires have to be collected and analyzed
• To reduce the cost of carrying out the questionnaire - reduced number of questionnaires printed - reduced time taken by staff to carry out questionnaire
• More accurate/relevant information - as potential customers can be targeted - so answers only relate to potential customers and results are not influenced by answers from people not interested - able to work towards feedback of customer and increase customer satisfaction

Advantages:

• Large amounts of information can be collected in a short period of time
• Many people can be asked the same question - increase the sample size
• Respondent had time to consider question so more likely to come Oleg
• Relatively easy to analyze - so quickly able to do something to solve it

Disadvantages:

• questions may be poorly worded - so business makes the wrong decisions
• People may not tell the truth
• Customers may not return to fill in the questionnaire

Marketing:

Leaflets:

• Chepa method - low printing costs
• Handed out in the streets - wide range of people - wide distribution to potential customers
• Could contain promotion - increase the likelihood of attracting customers
• Can be kept for later use - provides remainder of contact details for customers
• Home owners may not read the leaflets or throw them away - waste of money and ineffective

Advertisements:

• Will reach the target market - targeted advertising - using marketing costs effectively
• Relatively cheap compared to national advertising- reducing advertising costs as only targeting targeted audience
• Information can be cut out and kept for later use - reminds potential customers of contact details
• A lot of information can be included - may encourage and persuade more customers
• Only black and white - so may not be attractive - reducing efficiency

Social media :

• Can be free with no costs - unless paid for advertising - seen by many young consumers
• Allows video and audio to be added - makes the advertisement more attractive - may be more likely to persuade consumers
• Can be seen everywhere - so more targeted on potential customers
• Customers may not trust posts on social media - may think they are fake

Newspaper:

• A large number of people see the advert
• A lot of information can be included
• Age profile/which people read newspapers - so costs more to advertise in a range of papers
• Restricts target market - bad use of marketing budget
• Day to miss/limited visual impact - if lots of other adverts - mailing in black and white - not stand out
• Additional costs of larger or colourful adverts - will increase expenses
• Many customers may not read newspapers - cannot attract potential customers - no increase in sells

E Commerce threats:

• More competitions - difficult to stand out - leading to less revenue
• No passing trade - so could mean lower sales
• Not everyone has access to internet - which reduces its target market
• Cost to design website - increasing cash outflow
• Lack of personal contact with customers - difficult to develop brand loyalty - which could damage reputation
• Risk of hackers and frauds

E commerce Opportunities:

• Increase potential number of customers/sales/can access customers around the world - increasing its market share
• Low costs - way to promote/advertising business - which can raise awareness
• Fewer employees needed - so lower labour costs

Roles of marketing for a business:

• Identifies customer needs - finds out exactly what goods or services consumers want before producing them
• Satisfies customer needs - so that the goods or services provided by the business will be sold at a profit
• Maintains customer loyalty - makes sure the business continues to meet any changing customer needs to ensure they keep coming back to buy from the business
• Builds customer relationships - over the long-term to keep a good relationship with customers to understand them and to understand any change in their needs

Methods of market research:

• Observation/ visiting competition
• Questionnaire
• Surveys
• Interviews
• Free samples
• Access government statistics
• Newspapers/magazines

Factors to consider when developing products in new markets:

• Size and nature of marts
• Legal requirements - meet safety requirements
• Language
• Competing - Need to develop a product with a USP that is different to competitor’s products
• GDP/income levels - may need to make a more affordable product
• Cultural differences

Communication:

Newsletter: (To communicate with employees)

• Contains a lot of information - can read when want
• Workers familiar with approach - can easily food out what they need
• Information may not be up-to-date - only published weekly
• Other alternatives/new technology available - which might be more suitable - quicker and easier
• No two-way communication - no was of knowing if message is acknowledged

Methods to communicate with employees:

• Memo - short written message that can be on paper or emailed
• Letter - when more of a formal document is required such as informing an employee of dismissal
• Report - a detailed document about a particular issue
• Notice/poster - put on a board so that all employees can read the detailed information on it
• Text message – can be quickly sent to employees’ mobile phones and can be reread if necessary
• PowerPoint presentation – can give a lot of visual information in a meeting with employees/managers
• Meeting with employees/briefing/video conferencing – can give information to many employees at once and feedback is not necessary
• Face-to-face conversation - where the manager can discuss an issue with an employee / can be two-way communication with an employee/ give instructions to an employee
• Telephone/mobile phone call – two-way communication which allows discussion/explanation
• Email - can send detailed information which the employees can refer back to in the future
• To annoy/public address (PA) system
• Newsletter
• Social media

Factors to consider when choosing communication for employees:

• How many employees need to be informed so a method such as notice board could be suitable if many employees
• If feedback is needed - if so then the manager could use telephone calls to discuss points
• How much information needs to be included in the message - if it is a lot of information written form of communication should be used
• If there is a need for written record - could use email
• Speed of communication - if an employee needs to be told quickly then face-to-face could be chosen
• Cost of communication methods chosen

Problems in communication:

1 - Different languages are spoken in markets in other countries:

• Harder to understand what is being said or asked
• Recruit managers with language skills
• May increase costs of employing an interpreter
• Customers may have difficulty reading labels/instructions

2 - Problems with medium + message lost/no feedback given, message not picked up

3 - Problems with receiver - not listening - may not trust sender - not understanding

4 - Problems with feedback - only-one-way communication - no feedback

Starting to use several new suppliers:

• No relations established
• May big know who to contact if there are queries
• Different suppliers to communicate with which takes time to know who to contact and some errors may be made
• Culture may be different if suppliers are in other countries meaning communication may be misunderstood

Meeting:

• No written record so message may be forgotten
• Meeting only once a week and there may be issues arising before the next meeting that needs attention
• Workers may be absent and miss the meeting and therefore not receive information

Communication methods when contacting suppliers about a late delivery:

1 - Email:

• can be set up quickly
• Can be sent to many people at once
• Hard copy if email printed out
• Can be saved for reference to later
• No guarantee it has been read by suppliers
• Could have gone into junk folder
• May not be secure
• If many emails are sent, then it could be lost amongst them
• Required an internet connection

2 - Mobile phone:

• Know the message has been received
• Caller can ask questions about the products
• Feedback can be given
• Receiver more likely to have mobile phone on them so easier to reach
• May take time to reach the correct person
• Time/language differences
• Can be expensive
• Time consuming if need to contact many different suppliers

3 - Letter:

• Hard copy
• More formal or legal documents
• A lot of detail can be included about the late delivery
• Slower than other two methods
• Can be more expensive than other 2 methods
• No guarantee the letter has been received by the supplier

Break even point:

Usefulness of break-even analysis:

• Predicts how many sales the business needs to make
• Predicts how many sales could fall by and still make a profit
• Shows potential profit/loss for the business at different levels of output
• Shows possible effect of change in price
• Shows possible effect of change in costs
• May be useful to show to the bank manager to indicate a profit is predicted and therefore, more likely to gain a bank loan

Advantages of break even analysis:

• Shows the expected level of profit/loss at different levels of output - could help motivate workers
• Shows the margin of safety
• Helps planning/decision making
• Can see what helps if costs/price changes
• Helps apply for finance - loans

Limitations:

• Assumes all output sold/sales not always the same as output
• Variable costs do not always stay the same
• Not easy to separate costs into fixed and variable
• Hard to calculate when to sell products
• Only focuses on break even when there are many other factors to consider when running a business
• Assumes single product
• Hard to split costs between fixed and variable

Promotion methods:

• Advertising by social media - which can attract large audience - more customer’s attention
• Public relations/sponsorship/celebrity
• Promotional pricing - product will become affordable
• Special offers
• Free gifts

Promotion or product? (Which is more important)

Promotion:

• Helps raise awareness/inform people - leading to more sales - increased revenue
• Can help attract/persuade potential customers
• Can help create brand image - increasing customer loyalty

Product:

• A poor bad quality product will not last long in Marley - no point in marketing/promotion

Using internet to improve promotion:

1 - Improve existing website:

• Makes the information more accessible to potential customers
• May look more attractive - so more potential customers, can bring new customers
• Have complete control over the way the brand is shown in adverts - proper brand image formed
• Can include interactive adverts, which are more attractive than static adverts in magazines - effective use of marketing budget
• Increased costs of paying for a specialists to carry out the website - increasing capital required
• On-going costs of maintenance of the website
• Search engines may not bring up the business first page of a search, unless paid for the advertising
• Relies on people finding the website

2 - Advertise using social media:

• Can target specific demographic groups
• Viral marketing - share information with family and friends enables recommendations to be spread quickly and to a large group
• Potential customers will see an advert for the business when they go to sites like Facebook - increased awareness of business
• Social media is widely used by consumers - large scale exposure
• Can easily be ignore - lot of adverts on social media
• Can be expensive for business to pay for pop-ups
• Potential customers may not use social media
• Bad reviews can lead to fewer sales - may be unfair if only small proportion are bad

Email special offers to existing employees:

• Cheap way to get information to a lot of customers
• Emails go directly to existing customers
• May reach customers that are difficult to reach in other ways
• Directs more traffic to the website
• Email may go into spam and so be ignored
• No guarantee the email is correct and therefore will not be seen
• Existing customers may see this as annoying and get a negative view about business
• Only sent to existing customers - some customers may not have new email - cannot target new potential customers

Sponsorship:

• Can target intended market - attracting more customers
• The business will be linked to the event sponsored
• Actions of the sponsored person or group could damage reputation - reducing sales

Newspaper:

• Can be seen by a lot of people
• Cheaper

Aims of promotion:

• Inform/ raise awareness of new products
• Create brand image
• Compete with competitors
• Persuade/increase sales
• Customer loyalty

Pricing methods:

Penetration pricing:

• Setting a lower price than competitors should attract customers - leading to higher number of sales
• Help build up market share quickly - brand recognition
• Customers may get used to low prices and may not buy if prices increase - leading to fewer sales/damaged reputation
• Might not be appropriate for a product which is being promoted as high quality - can damage image/reputation

Cost-plus:

• Easy to apply to product - as just add a percentage mark up costs
• Can have different markups in different markets - can gain more profit from markets where a higher price can be charged
• Each product makes a profit for the business
• Profit will only be made if business sells sufficient number of products to break even
• Time is taken to research costs of all the raw materials and difficult to calculate costs
• No incentives to reduce costs
• If costs are high then the selling price of the products with nice market may be too high to be competitive

Promotional:

• Low price attracts customers and increase sales of products - attracts attention to the products to encourage new customers to try them - establish regular sales
• It is useful to get rid of unwanted inventory that did not sell
• Can help to renew interstate in a product if sales are falling
• Low price will mean low profit per product
• Customers may expect prices to remain low and therefore not purchase products when the price is raised at a later date
• Consumers may think low price is due to low quality of the product
• May lead to price competition with competitors - so business may have to reduce prices again

Competitive pricing:

• Reduce profit margins - so need to sell more to make same level of profit
• Possible increase in sales - because prices could be lower - helping attract price sensitive customers
• Impact on image - as need to lower costs to managing competitive
• May lose suppliers
• High research costs to find out competitor’s prices - may increase overall costs
• Product may be of high quality - might need to be sold at a higher price to emphasize the higher quality image

Price skimming:

• Recover costs quicker - to pay for development
• Gives the image of a quality product - which can attract wealthy customers
• Higher revenue per item
• Break even at lower output - lower risk
• May put off some potential customers - leading to lower sales
• Only work in short term - as competitors could produce cheaper alternatives

Redundant and dismissal:

Factors when redundant:

• Identify which jobs are essential - so would not want to spend money recruiting them again
• Performance/experience - so will want to get rid of people who make mistakes
• Length of service - might be cheaper to let go
• Attitude/attendance - will want to lose poor/bad workers

Low labour turnover:

Advantages:

• Saves time - so managers can focus on other issues
• Better reputation - can help attract new workers
• Lower recruitment costs - do not need to advertise people
• Lower training costs - as workers already know what to do
• Keep expertise/knowledge - which may not be easy to replace

Stakeholder groups - how they are affected if business - success

• Managers - know performance improved
• Employees - pay increase - from a successful business
• Lenders/bank - so know if able to repay capital
• Suppliers - may be more risky to sell stock (current ratio fallen)
• Government - to see tax revenue paid

Takeover:

Would business benefit from takeover:

• Could lead to more sales - could mean higher dividend
• Increase in share price
• Larger company might mean more secure investment - more capital to invest
• ROCE increased - so profitability has improved
• Price offered is more than net assets - so shareholders receive more than value of business
• Depends on objectives
• Level of influence - as likely to have less say in larger company

Problems of takeovers:

1 - More difficult to control business:

• Increased number of employees - managers may not be in direct contact with employees
• Need to employ more supervisors to control workers - increases costs as more wages to pay
• May mean some workers are not supervised and may not work efficiently - less output generated from each worker
• Difficult communication with employees

2 - Lack of finance:

• Expansion costs high
• Take out loans to finance the takeovers - increased interest payments for loans - lower profits

3 - Clash of business cultures:

• if the new takeover businesses have different cultures and way of doing things - may have clashes between staff
• Employees not working effectively together - reduced efficiency as output per employee drops
• Resistance by workers to do things differently - reduces efficiency - workers demotivated after the takeover

Economies of scale:

• Technical - invest large amounts in business - can develop new products
• Managerial - can afford to hire specialists - better use of resources - raise ROCE
• Purchasing - bulk buying - lower average costs - increase profit/revenue
• Financial - banks more lemon to lend money
• Risk bearing - as spread risk of operating in different locations/markets/countries

Target different market segment:

• Different customers may have different needs - so have to adapt their services
• Wider market - so possibility of additional sales
• Need to advertise to potential customers - increase costs
• Cost of market research - a they will want to know more about customers
• Reaction of existing competitors - which could lead to a price war

Advantages of bank overdraft:

• Flexible form of borrowing
• Interest only paid on amount overdrawn
• Can be cheaper than loans
• Can be used for whatever purpose the customer requires
• Ease/speed of arrangement
• No security needed
• Help avoid cash flow problems

Profitability from opening a new shop?

• Sales revenue of the business should increase - customers attracted
• Extra costs - such as additional rent or may need to hire more workers - which will increase Lu’s expenses
• Is there sufficient demand - if not, might have loss

Why is net profit not the same as net cash flow?

• shares are on credit - money will not be received until later
• Purchase of stock is by cash - profit is not earned until it is sold
• Some costs may not be paid every week
• Buys the raw materials for cash - and so only makes profit when they are sold

Managers:

Delegation:

1 - Advantages:

• would allow managers to give more time to other tasks - more time to make decisions, not rushed - improved the success as less likely to make mistakes
• More aware of what is happening with employee - can help see if change is required - keep more control of whole business
• Employees could be more motivated - as feel trusted to do additional work - increases efficiency
• Employees may be more productive as their skills are developed

2 - Disadvantages:

• Could lose some control - as tasks are carried out by employees who may not know what to do - can make wrong decisions - wastage of time and money
• May need to train employees - so that they know how to carry out delegated tasks - which increase costs and takes time
• Mistakes may be made by subordinates - this may lead to customers complains - bad reputation for the business

Roles and the operations manager

• Planning the production such as setting a target of an increase in output if production
• Organizing the tasks done by the production line workers such as deciding which worker will do what task
• Coordinating different departments with the production department ensuring that for example the purchasing department orders the right quantity of components
• Commanding the supervisors on the production lines to ensure they all know what they should be doing to keep their target and meet deadlines
• Controlling the employees on the production line to make sure they are all meeting their targets and producing toys efficiently

Functions of a manager:

• Planning - setting aims and targets for the business - will give a sense of direction with common targets to work towards
• Organizing - arranges the tasks for the employees - as a manager could not do al the tasks and will need to delegate
• Coordinating - bringing tighter the different departments in the organisation - so tasks are carried out efficiently
• Commanding - instructs the employees on how to carry out their tasks - gives guidance as required
• Controlling - checking the employees work so that the expected output is produced each week - and that all aims are achieved

Partnership:

Advantages:

• able to raise more capital - so less need to borrow money
• Responsibilities/decisions are shared - less likely to make errors
• More ideas from new partners - could offer advice about new methods - could make business more competitive
• Partners can specialize in particular tasks
• Other partner can cover if one is absent or ill

Disadvantages:

• Different objectives - leading to disagreements
• Have unlimited liability - as personal belongings at risk if business fails
• Have to share product - so each person makes less than if it’s a sole trader - opportunity cost
• Slow decision making or risk of disagreements - as takes time to resolve differences

Private limited company:

• Can control who buys shares - so keep control in this competitive market
• Easier to raise finance - increasing market share rapidly
• Limited liability
• Incorporation - separate legal identity
• No need to publish accounts

Cash flow:

Increase cash flow:

1 - Arrange a bank loan:

• Provides cash injection into the business - provides working capital to enable the business to keep trading
• Provides a large cash inflow at one time - possible removing negative cash flow
• May be quick to arrange and receive cash inflow quite quickly
• Interest payable on bank loan
• Interest and repayment if the loan will be an outflow each month may make business cash flow worse in the long run
• May take time if ball reajests doumeng to support the application for the loan

2 - Ask deposit from customers:

• improved the cash inflows as deposits is revived when the customer decides to buy
• Helps to reduce the chance of customers canceling if deposit is non refundable￾improves cash inflow
• May lose some customers who prefer not to pay deposit
• Existing customers may not return as not happy about deposits being introduced

3 - Trade credits from suppliers

• Reduce the cash outflows
• Business may have received payment for products before payment to suppliers is given
• Some suppliers may be unwilling to offer trade credit, may have to find new suppliers
• Trade suppliers may offer lower discounts which would increase cash outflows in the longer term
• It takes time to arrange for trade credit and the business may not have time

Ways to improve cash flow:

• Delay payments to suppliers - which delays cash outflows
• Selling unwanted assets - reduces cash outflows

Ways to keep costs low:

• Choose low cost locations - leading to lower fixed costs
• Pay minimum wage - keep variable costs low
• Economies of scale - leading to lower average costs
• Set lower marketing budget
• Replace workers with machinery
• Set up online
• Buy direct from manufacturer - so lower cost than buying from an wholesaler

Business plan:

Advantages:

• Help get a bank loan/finance - as lender can see that the business is able to repay
• Provide targets/ sense of purpose/direction - as can see what the business needs to achieve
• Helps decision-making - so does not waste time/money on the wrong target market/products
• Act as checklist - way to monitor progress

Problems of selling at low prices:

• Seen as cheap/low quality - could lead to fewer sales
• Cash flow problems - so does not generate as much revenue per unit
• Low profit margin - harder to break even

Legal controls

Import controls affect on business:

• Increased import costs - more expensive to import
• Can export less products/fewer sales in other countries
• May not be able to obtain sufficient number/range of parts - so delay in production
• May have to spend time finding local suppliers - which could delay output
• Might have to charge higher prices - could decrease revenue/lose customers

Legal control of protecting environment effect:

• Change or stop using certain methods - changing production
• Increase costs - because they may have to pay more fines
• May need to change supplier - increasing variable costs
• Reduced demand - so lose revenue
• My have to change location - as not allowed to operate in certain places

Legal controls on marketing affect on businesses:

• Cannot make false claims about what the product will do
• Contents or product must be described accurately
• Products must be safe to use
• Mistakes could lead to fines or damaged reputation

Legal control of age limit for workers:

• May increase wage costs if cannot find workers - reduces profit
• May already employ skilled worker - no effect
• Efficiency might increase

Small businesses:

Why business might remain small:

• The product - not suitable for production on a large scale
• Market size - doesn’t have a large market
• Owners choice and preferences - to keep work life balance
• Easier to manage/control - owner makes decisions himself - may not have skills to manage a larger business
• Lack of finance - wishes to maintain customer loyalty
• Not willing to take additional risks - does not want more responsibility
• Market dominated by large business - restricting growth and sales

Government:

Government grant as a source of finance:

1 - Advantages:

• No need to repay
• No finance costs/interest to pay

2 - Disadvantages:

• May not provide full amount needed
• May have restrictions about how to use it
• Can take time to apply/obtain

Why government support business start-ups:

• To reduce unemployment - as new businesses will create jobs
• To increase completion - as new businesses will increase the number of competitors providing more choice of goods and services
• To increase output - as new businesses will provide more goods and services to buy
• To benefit society - as entrepreneurs may create social enterprises
• May grow in the future - as large businesses started small at the beginning and the new start-up may become a large important business in the future

Debts:

Problems of having debts:

• Difficult to arrange finance - may be difficult to expand
• High level of interest - increasing cash outflows
• Cannot meet repayments - leading to liquidity problems
• Increase financial risk - so bank may not be willing to lend extra funds

Brand image:

Changing brand image:

1 - Advantages

• Reflect new product range - can help attract a wider target market/range of people
• Image might be out of date - so need to change it to remain competitive
• Customers like something new - therefore they are more likely to try
• Attract new customers

2 - Disadvantages:

• Damage customer loyalty - as existing customers do not like the new logo created
• Customers might not reconsider the new logo - therefore reducing sales
• Time/cost - increasing expenses

Organisational structure:

1 - Advantages:

• Employees have a clearly defined role
• Clear chain of command
• Employees have a clear career structure
• Specialists can be employed

2 - Disadvantages:

• Slow communication
• Heavy workload
• Communication between departments can be difficult
• Can create rivalry between departments
• Workers can feel isolated

Globalization:

Opportunities:

• Lower variable costs
• Access to larger market
• Build reputation
• Easier to find suitable workers
• Access better or quicker distribution networks
• Able to spread risks
• Easier to import materials needed

Product:

Advantages of range of products

• spread risks
• Increase customers
• Able to increase prices
• Increase brand loyalty
• Improve brand image

Advantages of developing new products:

• Boost sales - as existing customers would buy a new product
• Increase market share - by attracting customers away from competitors
• Able to increase prices - can lead to greater customer interests
• Create additional consumer interest - as better range of products available
• Spreading risks - others can help make up the shortfall in sales
• Need to replace opd products - this could help business survival

Strategies for extension of products:

• Introduce new features
• Look for new target markets
• Rebrand to appeal to new market segments
• Re-packaging
• Create new uses

Disadvantages of developing new products:

• No guarantee customers will like the product
• Competitors might introduce rival products - reduce prices
• High costs
• Production issues
• Having access to suitable materials

Paper 1: (V2)

External costs question:

• Overproduction
• Deforestation - had factories in 6 countries
• Uses and extracts raw materials - Manufactured tyres which require rubber
• Pollution