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AS Business Revision Notes

Home > Study Notes > AS Business Revision Notes
Published in: Business Studies
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Tips of Study for AS Business Studies

Tan C / Kuching

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  1. TIPS Cha ter 1. Market share 2. Flow Production 3. Marketing 4. Government 5. Interest rates 6. Sole trader, Partnership 7. Business activity 8. Balance Sheet, Chain of Command 9. Communication, organization structure 10. Delegation, recruitment of employees Details Calculation of market share Recession :offer product variety -People are losing jobs, less money spent Laws to protect employees Support to companies suffering during recession Advantages & Disadvantages Definition Definition & example Remark
  2. PRICING METHODS Method 1. Cost Plus pricing 2. Penetration pricing 3. Price Skimming 4. Competitive Pricing 5. Promotional Pricing Description Price is determined by adding production cost to a percentage mark-up for profit It is easy to apply However, the business is likely to lose sales if the sellin rice is a lot hi her than the com etitors' rice. Used when trying to enter a new market The price would be set lower than the competitors' prices It ensures that the sales are made and the new product enters the market However, since the product sold at a low price, the sales revenue ma low Used to launch a new invention, or a new development of an old product The product would sell at high price. The product will usually cost a lot in research and development, and these costs need to be recouped. It helps to establish the product as being of good quality However, it may put off some potential customers because of the high price. Involves putting prices in line with the competitors prices or just below their prices. The sales are likely to be high However, research costs incurred to know the com etitors' rices ma hi h. Involves setting the product price at a low price for a fixed period of time. It can help to get rid of unwanted stocks. However, the sales revenue will be lower because the unit price is low.
  3. SOURCES OF FINANCE Sources 1. Retained profit 2. Sale of existing assets 3.0wner's savings 4. Bank loans Ex lanation The profit is kept in the business after the owner have taken their share of profits No interest charges No need to repay However, a new business will not yet have any retained profit Small firms with low profits may not be able to finance usin retained rofit Existing assets that could be sold are those assets which are longer required by the business, for example, redundant buildings and surplus equipment. Carries no interest charge Better use of the capital tied up to the business However, it ma take some time to sell the assets A sole trader or a member of a partnership can put more of their savings into their business. It should be available to the firm quickly No interest charge However, savin sma be too low. Involves borrowing money from the bank Usually quick to arrange and large companies are often offered a low interest rates by bank if they borrow a large sums. However, a bank loan must be repaid eventually and interest must be aid BENEFITS OF FLOW PRODUCTION Benefit 1. Labour Costs reduced 2. Greater Production Efficiency Ex lanation Capital intensive production method can be used Under flow production Only less skilled workers needed, little training is needed, results in a low labour costs. Low production costs and therefore low prices usually mean high sales Large number of identical products can be produced quickly and cheaply There is no need to move goods from one part of the factory to another as with batch production, time is saved. Less wastage / fewer mistakes in the production process due to the specialisation of job tasks.
  4. Franchises A franchisee is a person or company who has paid to become part of an established franchise like McDonalds. A franchise enables you to run your own business whilst using a successful formula created by the franchisor. The Government suggests that 70% of new businesses fail before three years compared with 7% of franchises. This is usually because the idea for the business was not viable or because stronger competitors emerged. The franchisor usually controls the rules concerning the following... Décor Product range Staff uniforms However the franchisee is usually able to make their own decisions about the following... Staff recruitment and training Stock management Advantages It is a good way of starting a business without having to do it from scratch Customers will recognise the brand easily Due to the success of the franchise, banks can approve more loans and with less interest Legal Structures Disadvantages There is not much freedom in decision- making The franchisor takes a cut of the business income which can make it hard to make large profits Franchises may not be as good as they sound. It can be expensive to buy into with bad support The legal structure of a business is crucial in determining how seriously the owners will be financially impacted if things go wrong. It also has an effect on the taxation levels that the business and owners need to pay. In Unlimited Liability the owners of a business are fully responsible for any debts incurred, even if this requires them to sell their personal assets or possessions. There are two types of businesses that have unlimited liability... Sole traders Partnership
  5. A Sole Trader is someone who owns and operates their own business. A sole trader can have employees, but they must take all the final decisions about running the business. Advantages of Sole Traders They make all the decisions and keep all the profit There are no administrative costs to pay They are confidential as accounts aren't published Disadvantages of Sole Traders The owner is the only one responsible if it fails There are long hours of work involved Becoming ill causes problems running the business A Partnership is where 2-20 people start their own business with the goal of making profit. Trust is vital. Advantages of Partnerships There is additional skills and a shared workload There is more capital available to invest into There are no administrative costs to pay Disadvantages of Partnerships There is UL even when it is your partners fault There is a loss of control and profits are shared There may be business disagreements With Limited Liability, debts incurred by the business must stay within the business. The owner doesn't have any personal liability and doesn't need to sell personal possessions if the business fails. A business must go through a legal process to gain limited liability. This process is called incorporation. A small business can be started up as a sole trader, partnership or Private Limited Company (LTD). The start-up for an LTD can be as little as EIOO and the company can be fully owned by the entrepreneur. Shares cannot be floated on the Stock Market - this allows the owner to have full control over the business. Putting LTD after a company name is a legal requirement and says that a business is small with limited liability.
  6. Advantages of Limited liability It gives confidence to shareholders to invest There is wider access to finance opportunities Disadvantages of Limited liability More annual costs (eg: audited accounts) Businesses must publish financial information An LTD can become a Public Limited Company (PLC) when it has E50,000+ in share capital. The business may then be floated on the stock market where the public can buy shares. This provides finance for the business to expand. However, too much cash in a short amount of time can make a business grow too fast. There may also be some other problems with PLCs... It is hard to have any objectives other than profit A small group of control can be unlikely due to the availability of shares on the market There may be a lack of concern for the future of the business if the only goal is profit Some other forms of businesses include non-profit organisations which focus on the interests of the members and not shareholders, and Co-operatives which are worker- owned.
  7. Definition Advantage Disadvantage Sole Trader It is a business owned and operated by just one person 1. Keep all the profits. (Dilip can keep all the profits and no need to share the profits to anyone else. If he works hard and increases the farm's profit, he doesn't need to share the profits with anyone like a partner or shareholders.) 2. There are few legal regulations (This makes it easier to run the farm as Dilip won't have to pay high cost to accountant in order to comply with stricter legal rules and regulations as partnership.) 3. Secrecy in accounts (Dilip doesn't have to publish the farm accounts as he would have to do if the business was a public limited company.) 1. Dilip would have no one to discuss with the business matters. This could be a problem as constructive ideas and opinions from the partners are not available when making critical business decision. Dilip might find helpful to have a partner to discuss these issues with. 2. Dilip will have unlimited liability. This means the business accounts cannots be separated from Dilip's account. If the farm goes bankrupt, Dilip would most probably lose the farm and all his personal possessions. Partnershi It is a business set up by a group or association of between 2 and 20 people. 1.More capital invested to the business. The amount capital invested in the business will be relatively higher as if compare to sole trader. The additional capital can be used to expand the farm in order to increase the company's rofits. 2. Shared business responsinilities. Dilip would have less responsibilities or reduced workload as the responsibilities can be separated among the partners. 1. Inefficient decision making. Dilip would have to consult partners when making a particular business decision and it takes time to reach a consensus between the partners. 2. Dilip will have unlimited liability. This means the business accounts cannots be separated from Dilip's account. If the farm goes bankrupt, the creditors can force the partners to sell their own property to cover the farm's debts. *Application marks are allocated by applying relevant business terms to the explanation.
  8. It can be expressed in the form of : Comparison (Dilip won't have to pay high cost to accountant in order to comply with stricter legal rules and regulations as partnership) Examples (If he works hard and increases the farm's profit, he doesn't need to share the profits) (He would have to do if the business was a public limited company.)

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