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8/7/2019 Bus Mgt FG Revision Booklet
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KNOX ACADEMY
STANDARD GRADE
BUSINESS
MANAGEMENT
SUMMARY NOTES
KEY WORDS
FOUNDATION/GENERAL
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Contents
Unit 1.1What do businesses do?.............................................3Unit 1.2Why do businesses exist?...........................................4Unit 1.3How are businesses organised? ..................................5Unit 2 Starting up in business/business plans........................6Unit 3 Location of businesses..................................................7Unit 4 Marketing.....................................................................8 Unit 5 Operations .................................................................11Unit 6 Human Resources ......................................................13Unit 7 Finance ......................................................................16Unit 8 Business Growth ........................................................18Unit 9 Business Information and Communications................21Unit 10 Management and Decision Making...........................23Unit 11 Business Challenges ................................................ 25Unit 12 Business Success and Failure.................................. 26
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Unit 1.1 What do businesses do?
Key Word Definition
Needs
Wants
Goods
Services
Durable
Non-durable
Size of business
Small
Medium
Large
Sector of Economy
Private
Public
Voluntary
Sector of Industry
Primary Secondary Tertiary
What people must have in order to
survive
Items people would like to have justbecause they are available
Tangible: can be seen/touched
Intangible: cannot be seen/touched
Long-lasting
Used up quite quickly (perishable)
Owned by one or 2 people, local, less
than 50 people
Owned by group of people, national, 50-
250 people
Owned by large number of people, multi-
national, over 250 people
Sole traders, partnerships, private
limited companies (Ltd), public limited
companies (plc)
Nationalised industries, local
authorities, schools and hospitals
Charities, youth clubs, golf clubs
Extracting raw materials eg oil, fishing
Manufactured goods eg cars
Service eg insurance, banking
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Unit 1.2 Why do businesses exist?
Key Word Definition
Types of business organisation
Sole Trader
Partnership
Private Limited Company Public Limited Company
Aims of organisations
Private sector
Public sector
Voluntary sector
Stakeholders
Owned by one person
Financed by capital invested by owner,and bank loans
Owned by 2-20 people
Financed by capital invested by each
partner, and bank loans
Have to be invited to purchase shares
Financed by share capital and loans
Ordinary shares more risky
Preference share less riskyDebentures form of loan
Dividend
Learn advantages and disadvantagesof each type
Maximising profit, growth, survival,
increasing market share, efficiency,
improving quality of products
To provide essential product/service, to
provide a consistent level of service
Charities fund-raising to support
causes, raising awareness, providing
information on how money is spent
People who have an interest in the
business eg
Employees job security, wage increases
Management profits, efficiencyOwners profits, costs
Shareholders profits, level of dividend
Customers prices, customer service
Suppliers prices, reliability, credit
terms
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Unit 1.3 How are businesses organised?
Key Word Definition
Organisation charts
Line relationships
Lateral relationships
Tall structure
Flat structure
Exist between managers and the staff
below them
Employees on the same level of
authority
Many layers of management
Advantages
More promotion opportunities Less stressfulDisadvantages
Communication is slower Decision-making takes longerFewer layers of management
Chain of command
Functional areas
Downsizing
Delayering
Outsourcing
How instructions are passed down
through the organisation
Marketing, Finance, Operations, Human
Resources
Reducing number of employees
Removing layers of management
Using external companies to provide
certain services eg canteen, cleaning, IT
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Unit 2 Starting up in business/business plans
Key Word Definition
Enterprise
Risk
Factors of Production
Land
Labour
Capital
Enterprise
External advice
Business Plan
Idea for a product/service Develop idea Taking risks No-one buys the product/service Lose all money invested Unable to pay expenses
Natural resources and the things
produced from them
Workers who are paid wages
Includes money, buildings and
machinery
The development of ideas and the drive
to put them into action. Brings the allthe Factors of Production together.
Government agencies, development
agencies eg Local Enterprise Company,
Business Gateway, business partners,
consultants, banks
General details about the business Human resources Product or service Market Premises and equipment Finance eg cash flow, profit
estimates
Capital
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Unit 3 Location of businesses
Key Word Definition
Reasons for locating
Reasons for not locating
Infrastructure
Sources of finance
Nearness to markets Away from the competition Reasonable costs Near to good infrastructure Car parking Skilled labour Remote areas Very near competition Expensive Far from good infrastructureRoads, railways, air travel facilities,
schools and colleges, hospitals
Owner/s capital Bank loan Mortgage EU funding Grants from government/local
authority
Bank overdraft Finance companies Shares Debentures Hire Purchase Trade Credit Leasing Factoring
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Unit 4 Marketing
Key Word Definition
Market Research
Types of Market Research
Desk
Field
The Marketing Mix The 4Ps
Product
Price
Pricing Strategies
Low Price; Market Price; HighPrice
In todays competitive market, research
is very important. It gives managers a
better idea of:
what customers want the price customers will pay is there a demand for the
product/service
Will they do it themselves or employ an
outside agency?
Information has been previouslycollected for one purpose and is used by
you for another secondary
information eg Government statistics or
Annual Company Reports
Information is gathered either by
yourself or a market research company
primary information eg questionnaire,
telephone survey, personal interviews,
consumer audits
Product, Price, Promotion, Place
The name, how it is packaged and the
products life-cycle
Stages of the product life-cycle:
1 introduction2 growth3 maturity4 declineHow much you charge for your
product/service.
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Pricing Tactics
Introductory pricing Penetration pricing
Competitive Pricing Skimming Destroyer
Promotion
Why should a product be promoted?
Types of advertising
Branding
low price when product first launched
initially set low and then raised as
loyalty increases
based on other sellers
price set high and then lowered
low price aimed at destroying the
competition
This includes advertising, money-off,
discount vouchers, free gifts,
competitions and tastings
Reasons include: making customer aware give information about the
product
try to persuade customers to buyit
to tell them why it is better than acompetitors products
TV, radio, cinema, magazines,
newspapers, posters and the internet
Certain brands are very well known and
the logo, colours, packaging design, have
an image, which attracts the customer.
Brand names can cover a wide variety of
products eg Virgin
Place
Channel of Distribution
The method will depend on the
product, type and size of the
market and the competition
How to get your product/service to the
customer.
Considerations are:
how to get the product to the rightplace at the right time
what is the best distributionmethod?
From retailer to customer To wholesaler to retailer to customer Manufacturer to customer Manufacturer to wholesaler to
customer
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Unit 5 Operations
Key Word Definition
Input
Process
Output
Production Processes
Job production
Batch production
Flow production
Capital Intensive
Labour Intensive
This includes the raw materials,
equipment, and labour which are
directly put into production of a product
or provision of a service
This involves using the raw materials,
equipment and labour to make the
product or provide the service
This is the final product or service
Involves a one-off project eg film, uniquehouse, designer dress
Is the process of making several
identical products at once eg casks of
whisky, trays of seedlings
This describes forms of production such
as assembly lines; often aided by CAD
and CAM eg car manufacturing
It is more of a non-stop process andinvolves larger numbers than batch
processing
Learn advantages and disadvantagesof each method
When manufacturers rely heavily on
machinery eg when labour supply is
scarce or consistency is required
When manufacturers rely heavily on
their workforce eg when craftsmanship
is required or labour supply is cheap
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Technology in Production
Advantages
Disadvantages
increases output 24hrs 7days workers can retrain for more skilled
work
increases quality may be redundancies initial outlay is expensive cost of retraining workers involved in repetitive tasks
in mechanisation, often become de-
motivated
Supplier
Stock control
Quality
Quality Assurance
Quality Circles
Benchmarking
Total Quality Management (TQM)
Customer service
Choice could depend on:
price discounts quality reliability distanceThis must be very accurate and closely
monitored:
security and record keeping accounting/cost length of storing period
This includes quality of products and
quality of customer service. Targetsshould be set and monitored.
How customers are treated when
buying, telephoning or sending a written
complaint. It involves after-sales service.
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Unit 6 Human Resources
Key Word Definition
Why work?
Types of job
Full-time
Part-time Job sharing
Permanent
Temporary
Casual
Flexitime
Home-working/tele-working
Make money Job satisfaction and security
Companionship and friendship Achieve potential
means working every weekday: usually
from 9 am 5 pm
means working for only part of the week
two or more workers split a job between
them eg one works mornings and the
other works afternoons
where the job lasts as long as the
company remains in business. If it
ceases, then redundancy money must be
paid
lasts for a limited time and can be full or
part-time
temporary staff who are only employed
when needed. No job security
when a person works core hours and
then selects when the remaining hours
will be worked
when a person works part of the time at
home/away from the office
Recruitment and Selection
Job description
Person specification
Job description and person specification
are used to draw up an advert
Job advertisement
Gives details about a job eg hoursworked, pay, holidays, duties involved
List of attributes expected by the person
who will fill the vacancy (essential and
desirable) eg qualifications, qualities
needed, experience, driving licence
usually gives applicants information
about job, company details and what todo to apply for the job eg send a CV
and/or a letter of application, along with
deadline
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External advertising
Internal advertising
Selection
Applications
Shortlists
Interviews
Final candidate is chosen
Contract of Employment
Training
Induction training
On-the- job training
Off-the-job training
Apprenticeship
Appraisal
Employment Legislation
post advertised on Internet websites,
newspapers, trade journals, Job Centre,
Employment Agencies
post advertised in memos, staff
bulletins, notice boards, e-mail and staff
announcements
are checked and considered
a list of candidates to be interviewed is
drawn up
are carried out. May also be other
selection methods eg aptitude tests,
successful candidate offered the job;may/may not be accepted
must be given within 13 weeks of
starting work. Includes job title, hours
of work, rate of pay, holiday
arrangements
Training which is given to every new
employee. Lets them know how the
business works and helps them to settlein
Takes place in the workplace
Takes place outside the workplace:
maybe at a local college or training
centre
Can include re-training or upgrading
training
Mostly in the workplace but can be some
external training eg training centre or
college
Evaluation of an employees performance
Equal Pay Act 1970 Health & Safety at Work Act 1974 Sex Discrimination Act 1985 Race Relations Act 1976
Disability Discrimination Act 1995 Minimum Wage Act 2006
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Industrial Action If relations between employers and
employees break down, employees may
decide to take part in industrial action.
It can take the form of
go-slow work-to-rule overtime ban strike
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Unit 7 Finance
Key word Definition
Sales (income)
Costs
Fixed Costs
Variable Costs
Covering costs
Break Even Point
Budgeting/Cash Flow
Final Accounts
Trading Account
Gross Profit
Profit & Loss Account
How much a company sells of their
produce/service
Money the business must pay formaterials, wages, electricity, insurance
etc
Costs which must be paid, regardless of
output eg rent, council tax, rates
Costs which vary according to output eg
materials, labour, electricity, gas
A new business may aim simply to cover
costs in the first few years
The point at which total sales revenue
equals total costs. At this point the
business is not making a profit or a loss.
A cash budget shows the money flowing
in and out of a business for a period of
time eg 6 months. Can help with
planning.
Surplus/in the black: cash in > cash
out could spend money on equipment
Deficit/in the red: cash in < cash out
may need to arrange an overdraft or cut
costs
Accounts produced at the end of a
trading period: usually every 12 months.
The main final accounts are Trading and
Profit and Loss Accounts and the
Balance Sheet
Shows the Gross Profit/Loss from the
buying and selling of goods/services
Profit made on the buying and selling of
goods/services
Sales Cost of Goods Sold
Shows the overall profit made by the
firm during an accounting period
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Overheads (expenses)
Net Profit
Balance Sheet
Fixed Assets
Current Assets
Current Liabilities
Working Capital
Capital Employed
Accounting Ratios
Gross profit-to-sales ratio
Net profit-to-sales ratio
Return on capital employed (ROCE)
Working capital ratio
Rate of stock turnover ratio
Formulae
These include wages, rent, rates and
utility charges
Overall profit made by the firm during
an accounting period
Gross Profit Expenses
This is a snapshot of a businessfinancial position at a certain point in
time
Are owned by the business for longer
than one year eg premises, equipment
Items owned by the business for a short
term eg cash, stock and debtors
Are amounts owed by a business and
include bank overdrafts and creditors
Current Assets Current Liabilities
This is the total capital invested in the
business once liabilities have been
deducted
These are used to make comparisons
between years and organisations
Profitability Liquidity EfficiencyThese help a business to know if a
business has improved its profitability
Is a profitability ratio which tells us how
much profit we make for every 1 we
invest in the business
This is a liquidity ratio and tells us if
there is a cash-flow crisis
This is an efficiency ratio and tells us
how much stock we have sold in a given
time
GP Percentage
Gross Profit x 100Net Sales 1
eg 20%
NP Percentage
Net Profit x 100Net Sales 1
eg 5%
Return on CapitalEmployed
Net Profit x 100Capital 1
eg 10%
Working Capital
Current AssetsCurrent Liabilities
eg 4:1
Rate of StockTurnover
Cost of Goods Sold
Average Stock
eg 5 times
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Unit 8 Business Growth
Key Word Definition
Internal expansion
External expansion
Merger/amalgamation
Takeover
Integration
Horizontal integration
Vertical Integration
Forwards vertical integration
Backwards vertical integration
Diversification
Innovation
This is when a business grows within
itself eg opening new branches,
employing more staff
When a business grows as a result of
external influences. eg mergers and
takeovers
When two or more businesses, usually
of the same size, join together to form a
larger business
This is when one business buys another
eg House of Fraser bought Jenners
This involves the creation of one
business out of two or more previously
separate businesses
This integration involves businesses at
the same stage of production, makingsimilar products/services
These businesses are in the same
industry, but at different stages of
production
This is when the business at the
beginning of the chain, takes over a
business which is later in the
production chain
This is when a business in the later
stages of production, take over a
business in an earlier stage of
production
This is when a business begins to
produce or sell different goods and
services eg in the 1990s garages began
to diversify when they started to sell
newspapers, milk, etc as well as petrol
This involves developing and creating anew product or service. It may also
include creating new solutions for old
problems.
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Unit 9 Business Information and Communications
Key Word Definition
Types of information
Importance of good information
Purpose of communication
Internal communication
External communication
Why communication fails?
verbal written eg on paper
electronic eg as text and imagesthrough technology: internet,
teletext, fax, spreadsheets, video-
conferencing etc
To enable a customer to contact a
business by letter, telephone or e-mail
needed to ensure the efficiency of the
business: eg
recruitment verbal and electronic information
to and from management
regular meetings memorandums handbooks
It is an important part of management
because clear leadership and direction
cannot be given unless informed
decisions have been made AND these
decisions are communicated effectively
Takes place within the business eg
memorandums, e-mail (intranet),internal telephone systems, pagers,
loudspeaker systems
Takes place between a business and the
outside world eg email, teletext, letters,
etc
Needed by a business to help with
decision making
skills of people involved too much jargon wrong method used
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Information Technology
E-commerce
Websites
The sale and purchase of goods or
services over the Internet.
Advantages
can be used 24 hours a day, 7 daysa week
can make purchases from homeMost companies now have their own
website. Must be kept up-to-date.
Features:
on-line purchasing use of hyperlinks, search engines customer feedback used for promotions/advertising
Hardware The physical parts of the computer
eg monitor, keyboard, mouse
Software The programmes running on the
computer eg Microsoft Office
WP - Word Processing Used to produce letters, reports, books.
It allows on-screen editing by inserting,
deleting, moving words, and checking
spelling before printing.
DTP Desk Top Publishing DTP allows users to design layout of text
and graphics for letter- headed paper,
menus, catalogues
SS Spreadsheets The program contains mathematical,
charting, statistical and financial
operations. The use of formulae is
particularly useful in the Wages section
of a business and for the presentation of
Accounts.
DB - Databases Used to collate information aboutemployees, suppliers and customers.
Allows you to sort information and
search for specific pieces of information.
Integrated package A piece of software made up of separate
parts, (WP, SS, DB, DTP), which can
share data. This is why we can copy and
paste and mail-merge, using our school
software.
Local Area Network Used to connect computers locally egwithin the school
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Unit 10 Management and Decision Making
Key Word DefinitionKey Decisions
Management styles
Autocratic
Democratic
Laissez-faire
What to produce? Price? Who will we employ?
Where will we produce the goods? Market research People versus machinery Grow or not?
when managers tell people what to do
and expect their orders to be followed.
Workers may feel frustrated, and unable
to use their initiative
managers consult others before making
decisions. This makes the workers feel
part of the decision making, increasing
motivation.
involves the minimum of direction by
management. It is best in creative
industries where results would be stifled
by strict control.
Aids to Decision Making
Decision Making Model
Information, graphs and charts
Identify the problem Identify the objectives Gather relevant information Analyse the information Develop alternative solutions Select the best solution Communicate the decision Implement the decision
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Evaluate the results
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Unit 11 Business Challenges
Key word Definition
Competition
Scarce Resources
Skilled labour
Land/premises
Specialist equipment
Money
Internal pressures
External pressures
This may be local, national,
international or e-commerce
Often difficult to find workers with the
appropriate skills which leads to a
demand for higher wages
In areas such as city centres, there is
often a shortage which increases rents
and prices
This is increasingly expensive as
technology progresses. eg hospital
equipment
This is a scarce commodity and small
businesses suffer most.
If the working atmosphere is not
pleasant with fair wages, promotion
prospects and good training schemes,
the results may be:
Industrial action Poor production because of
unmotivated staff
Political issues, when there is achange in government policy eg
legislation or tax
Economic issues eg wheneconomy is in recession (business
cycle) or interest rates change
Social pressures from actiongroups eg on behalf of Fair Trade
products Technological innovations which
can make production more
efficient or change the method of
contact with customer
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Unit 12 Business Success and Failure
Key word Definition
Reasons for failure
Competition is too fierce
Economy in recession
Business Cycle
Cash Flow problems
Not moving with the times
Measuring success
Competition is too fierce Economy in recession Cash flow problems Poor resource management No growth or innovation External factors eg bad weather,
strikes etc
Competitors have a better and cheaper
product and promote their product in
the right segment of the market
If customers cannot afford to buy theproduct, less is demanded, less is
produced, wages fall and unemployment
rises. The economy slows down.
The economy suffers from booms and
slumps. A recession is an example of a
slump. A boom is when production
increases rapidly over a period of time.
This regular pattern of boom and bust is
known as the Business Cycle.
There must always be ready cashavailable to pay day-to-day expenses.
This may because
product is obsolete equipment out-of-date marketing not effective lack of security, therefore pilfering
and theft
records not accurate, thereforeunable to make accurate
forecasts poor management staff not motivated Achieving good sales figures and
profits
Good relationship withstakeholders
Achieving growth and aims oforganisation
Gain customer loyalty with aquality product and service
Innovate. Grow and have a largemarket share