Recommended Revision Websites/Videos

1.

The first website I recommend is linked below and can be used for both AS and A2 Business Studies.

I love how all the chapters and units are organised into folders and in each chapter it provides:
- The specification of what you need to know
- Theory (in the form of a PDF which you can print)
- It has activities/worksheets with questions, so you can practice what you had learnt from the theory.
- It has additional reading on the topic which can help improve your understanding and knowledge of the theory.
- Finally, it has revision notes which you can add to your own class notes and print off.

Check this website out, it is a difficult one to find on the internet and is a real gem! :)

http://www.holyfamily.ngfl.ac.uk/minisites/a-levelbusiness/

2.

This is an excellent website which can be used for GCSE and A-level.

http://www.businessstudiesonline.co.uk/live/

3.

The Student Room is a forum for all students, which is open for you to read and you can join it if you want to participate and ask questions. I used this website a lot during my exams, and even after my exams to see what people thought of the test. If you also want to discuss careers in business or doing a degree in it, this site is great.

http://www.thestudentroom.co.uk/forumdisplay.php?f=111

4.

Want some model answers to questions? This is the place!! Print them off and learn how to get full marks in your AS Business Exam.

http://www.hodderplus.co.uk/ocrbusiness/

5.

If you want to revise critical path analysis or you need it to be explained to you again, you are sure to understand it after watching this video! I also recommend you check out more of this youtuber's videos as they are really helpful and good.

https://www.youtube.com/watch?v=-EqWGSdQSvI&list=PLBuW3SAj0djnHfFQG4m9VbN03mA_MMLlv

Chapter 17: Improving Cash Flow

Cash Flow

Cash flow is the amounts of money flowing into and out of a business over a period of time.

Too much cash = Firm will have less machinery and stock than it can afford and so make less profit.
Too little cash= Threaten survival if a bill cannot be paid.
To get the right balance= Plan its cash holdings --> By having a cash-flow forecast --> Firm can identify problems and take appropriate action (e.g. arranging a bank overdraft)

Causes of cash-flow problems

1. Seasonal Demand
Companies typically incur costs in producing in advance of the peak season for sales. However because the problem is predictable, it is easy to persuade suppliers to provide credit or to negotiate a bank overdraft.

2. Overtrading
Firms become too confident and expand rapidly, not organising sufficient long-term funds. Putting a strain on working capital. Businesses often give credit to customers. Rapid expansion = Businesses to buy more materials but lacks money, this is because customers are not paying for the goods as soon as they are sold. This leaves the business short of cash.

3. Over-investment in fixed assets
Firms invest in fixed assets to grow, but leaves them with inadequate cash for day-to-day payments. Could drain the business of finance and lead to cash-flow problems. Equipment and buildings cannot easily be turned back into cash. Extreme situations = Can't pay debts, even though the business has plenty of assets.

4. Credit sales
Marketing dep. would want to give credit to customers --> To encourage them to buy --> lead to lack of cash in the organisation if sales are not leading to immediate receipts of cash.

5. Poor stock management
Hold excessive stock levels, tying up cash that could be used for other purposes.
High level of stock= Danger --> Stock becomes worthless as it is --> out-of-date or unfashionable.
But Low stock levels= Limit sales --> esp. impulse buys
Buying large quantities of stock --> Business benefits from discounts. Can this offset the costs of carrying high stock levels?

6. Poor management of suppliers
A well managed business should be able to negotiate a credit period with suppliers so that payment from customers reaches the business at the same time the business needs to pay suppliers.
Good supply chain management also means negotiations on a reasonably low price so money won't be wasted. It also ensures prompt deliveries of materials so customers will not be lost.

7. Unforeseen changes
Internal changes --> e.g. machinery breakdown
External Factors --> e.g. a change in government legislation
Due to? Management errors? Poor planning? Bad luck?

8. Losses or low profit
Remember that cash flow and profit is different but linked.
Sales revenue less than expenditure --> Usually have less cash than one making a healthy profit.
Also creditors and investors would be less likely to put money into a business that is not expecting to make profit in the future.
Unless a loss-making business can prove it will be profitable in the future, it will be difficult to overcome cash-flow problems.

Methods of improving cash flow

1. Bank overdraft
An agreement whereby the holder of a current account at a bank is allowed to withdraw more money than there is in the account. The agreement specifies the maximum level of the overdraft.

Benefits of an overdraft:

• Administrative convenience - Easy to arrange, once agreed= Confirmation only needed on an annual basis
• Flexibility - Flexible because it can be used to pay for whatever the business requires at the time
• Interest is paid on the amount owed - Only pay interest on the amount of the overdraft that is actually used. Paid on a daily basis.
• No security necessary - Unlike a bank loan, no collateral needed.

Problems of an overdraft:

• Variable interest payments - Based on flexible interest rates. The interest paid will rise and fall with the Bank of England's base rate. Difficult to budget accurately, as the bank may change its rate of interest on a monthly basis.
• Higher interest rate - Higher than a short-term bank loan. Overdraft can prove to be more expensive than a loan.
• Immediate repayment - Agreement to an overdraft means bank can demand immediate repayment. Business with cash flow problems may be forced to pay back the money to the bank at exactly the same time the business is most vulnerable.

2. Short-term Loan
A sum of money provided to a firm or individual for a specific, agreed purpose. Repayment of the loan will take place within two years, and possibly much less.

Benefits of a bank loan:

• Fixed interest repayments - Fixed rate of interest. The interest and repayment schedule is calculated at the time of the loan, so it is easy for a business to know whether it can afford to repay the loan. Easy to budget the loan repayments, can pay the same amount each month over the duration of the loan.
• Lower interest rate - Less than the rate charged on an overdraft. A cheaper solution to a cash-flow problem.

Problems with a bank loan:

• Higher interest repayments - Interest is paid on the whole of the sum borrowed. If the business has a healthy balance in its current account, it will not help reduce the interest repayments on the bank loan. Such payments will be a fixed sum every month. Consequently, bank loans can be more expensive than an overdraft despite the overdrafts high interest rate.
• Security - Must provide ban with security (collateral). Difficulties paying back the loan --> Bank can claim the amount owed by forcing a sale of asset. Major difficulties if asset is a large part of the business' operations.

3. Factoring (Debt factoring)
Factoring is when a factoring company (usually a bank) buys the right to collect the money from the credit sales of an organisation.

- Factoring agent usually pays the firm about 75% of its sales immediately and approximately 15-20% on receipt of the debt.
- Firm therefore loses some revenue (about 5-10% depending on length of time and current interest rate), which is the factoring company's charge for its service.

Benefits of factoring:

• Improved cash flow in the short term - Save expenses like overdraft interest charges and in extreme cases the immediate receipt of cash may keep the business alive by allowing it to pay off debts on time. Businesses who offer long credit periods to their customers in order to boost sales revenue, the immediate receipt of cash may be essential as it would be impossible for the business to wait a year for payment.
• Lower administration costs - Collecting and chasing debts is time-consuming and costly. The factoring agent specialises in this and could possibly collect more than one debt from the same firm.
• Reduced risk of bad debts - Factoring agent takes the risk and not the original company. Factoring agent can refuse to factor a debt which is too risky. Some firms contact the factoring agent before giving credit to a customer. Factoring companies have lists of customers who may be a high risk.
•  Increased efficiency - Encourages companies to be more careful with their provision of credit. If the business has a reputation for having no customers with bad debts attached to them, the factoring company will reduce the cost of factoring to that business. This will give firms an incentive to be more efficient in their provision of credit.

Problems of factoring:

• Loss of revenue - Business using factoring will lose 5-10% of its revenues. Reducing profit. But is possible to increase price charged to customers where credit terms are being offered.
• High Cost - Business pays more for the factoring company's services than it would to pay a bank for a loan (as there are admin expenses involved in chasing up debts). But there are admin savings from the business not having to chase up debts itself....
• Customer relations problems - Customers may prefer to deal directly with the business that sold them the product. An aggressive factoring company could upset certain customers, who will blame their bad experience on the original seller of the product.

4. Sales of Assets:
When a business transfers ownership of an item that it owns to another business or individual, usually in return for cash.

- Sales of assets --> Most likely to be used to overcome cash flow problems --> when a business is changing direction or moving out of a particular market.
- Sales of assets could be used to: ~  Pay a debt or ~ Build up a bank balance.

2 main benefits of sales of assets:

1. Income - It can raise a considerable sum of money particularly in the case of a large asset such as a building.

2. Profitability - A particular asset may not be contributing towards the business's overall success. In this case, the sale of the asset may ease cash-flow problems and enhance its overall profitability (as it is just adding to costs unnecessarily)

Problems of sales of assets:

1. Receiving a low value for the asset - Assets such as buildings or machinery --> Difficult to sell quickly, the business is looking for a quick sale --> Must accept a much lower price than true value.
May not be a good strategy --> damaging effect on long-term profitability.

2. Reduced ability to make a profit - Fixed assets enable a firm to produce the goods and services that create its profit. Exceptions= When assets are no longer required or when the cash-flow situation threatens the survival of the organisation.


5. Sale and leaseback of assets:
When assets that are owned by a firm are sold to raise cash and then rented back so that the company can still use them for an agreed period of time.

 





Other ways of improving cash flow
 
1. Improving working capital control
Working Capital: The day-to-day finance used in a business, consisting of assets (e.g. cash, stock and debtors) minus liabilities (e.g. creditors and overdrafts)
- Must manage working capital to stay solvent (solvent means you are able to pay off your debts)
- Involves careful control of firm's main current assets (cash, stock and debtors) to ensure enough is there to pay creditors and make other immediate payments.
 
2. Cash Management
If a firm is short of cash it has 2 main options:
- Agree to an overdraft with the bank
 
- Set aside a contingency fund so firm can meet unexpected payments or cope with lost income. In industries subject to more rapid change, a higher contingency fund should be kept.
 
3. Debt Management
4. Stock Management
5. Other Methods

(See Below)

Chapter 16: Using Budgets

What is a budget?

An agreed plan establishing, in numerical or financial terms, the policy to be pursued and the anticipated outcomes of that policy.

Advantages and Disadvantages of using a Budget

Features of Good Budgeting

• Be consistent with the aims of the business - meaning managers cannot fund projects that will boost their own careers or interests, rather than meet the needs of the company.
• Be based on the opinions of as many people as possible - Different people can provide different ideas and expertise. Helps budget holder come up with a realistic set of targets.
• Set challenging but realistic targets - SMART (Specific, measurable, agreed/achievable, realistic, timed)
• Be monitored at regular intervals, allowing for changes in the business and its environment - Remedial action can be taken or reasons for beating a target can be looked at.
• Be flexible - Allows for changing circumstances. Adjusting a inadequate budget (due to unforeseen circumstances) to a more realistic level.

Budgetary Control

Budgetary control is the establishment of the budget and the continuous comparison of actual and budgeted results in order to ascertain variances from the plan and to provide a basis for revision of the objective or strategy.


Variance Analysis

Variance analysis is the process by which the outcomes of budgets are examined and then compared with the budgeted figures. The reasons for an differences (variances) are then found.

• Favourable Variance: When costs are lower than expected or revenue is higher than expected. More profit than expected. Shown by 'F'.
• Adverse (Unfavourable) Variance: When costs are higher then expected or revenue is lower than expected. Less profit than expected. Shown by 'A'.

Variance is calculated by this formula:

Variance = Budget figure - Actual figure


Important Points to remember:

• A negative variance for an expenditure budget is an adverse variance (as you have spend more than you budgeted), while a negative variance for a revenue budget is favourable (as you have gained more income than you expected)
• Similarly, a positive variance for an expenditure budget is a favourable variance, while a positive variance for a revenue budget is an adverse variance.
• Other names for income budgets: Revenue budget and sales budget
• Other names for the expenditure budget is a cost budget.

For an adverse variance, providing the factor that caused it is under the firm's control, alternative methods can be investigated.
Favourable variances can be used to identify efficient methods that can be adopted more widely in the company.


Causes of variances in costs

Practice questions on this chapter here - it is a fun multiple choice quiz:

http://www.tutor2u.net/business/quiz/usingbudgets/quiz.html

Chapter 14: Setting Budgets

Budget: An agreed plan establishing, in numerical or financial terms, the policy to be pursued and the anticipated outcomes of that policy.

Management Accounting: The production and use of financial and accounting information for internal purposes of planning, review and control. It is based on predictions of what will happen and analysis of the actual outcomes in comparison to the original plans.

Income Budgets

An income budget shows the agreed, planned income of a business (or division of a business) over a period of time. Also called revenue budget or sales budget.

This could includes income from sales, rent received or sponsorship (if financial payments are being made by another firm that is using the business' activities for publicity purposes.

Expenditure Budgets

An expenditure budget shows the agreed, planned expenditure of a business (or division of a business) over a period of time.

Costs that may be found in an expenditure budget: Raw materials/components, labour costs, marketing expenditure, administration costs, rent and capital costs.

Start-ups may make a spate expenditure budget to budget for the items they need to start the business. For example: premises, furniture and office equipment, vehicles, insurance, legal costs, salaries and payroll taxes (such as employers' NICs), cleaning and other services.

Profit Budgets

A profit budget shows the agreed, planned profit of a business (or division of a business) over a period of time.

- Result of taking the income budget and subtracting it from the expenditure budget.

Profit = Income - Expenditure

Setting Budgets

- Budgets are usually stated in terms of financial targets, related to money allocated to support the organisation of a particular function.

The eight stages of budget setting:

Step 1= Set objectives - What are each budget trying to achieve?

Step 2= Carry out market research - To discover the probable level of sales volume and the market price for the product/s.

Step 3= Carry out research into costs - Based on sales volume expected

Step 4= Complete the income budget - Will show HOW MUCH needs to be PRODUCED

Step 5= Construct the expenditure budget - To find costs that will be incurred in achieving the sales target

Step 6= Create an overall profit budget - By combining Stage 4 and 5.

Step 7= Draw up divisional or departmental budgets - Done by managers responsible for each area of the business

Step 8= Summarise the detailed budgets in the master budget


Methods of setting Budgets

1. According to company objectives =

• More ambitious --> á budget needed allocated
• E.g. 2007, Blackpool Pleasure Beach. Budgeted additional £8 million for new attraction (The Infusion Ride). Aim= Improve visitor numbers to over 6 million again.

2. According to competitors' spending=

• Stay competitive --> Match spending of rivals.
• 2007, Tesco made a campaign of price comparisons between leading supermarkets. Other supermarkets respond by changing their income & expenditure budgets throughout sector.
• Start-ups - budget according to competitors' spending --> More competitive. Start-ups do this because they may be relatively unaware of typical levels of spending and income in their market.

3. As a % of Sales Revenue=

• Less scientific but fair
• Used by organisations (e.g. supermarkets + banks) when allocating budgets to branches
• Used to allocate budget to product managers

4. Zero budgeting=

• Allocated on the strength of the case presented by the project manager.
• Managers must justify all of the money allocated to them
• This ensures allocations are not excessive
• Based on expected outcomes

 

 

 

 

 

 

 

 

 

 

 

5. Budgeting according last year's budget allocation=

• Logic is that if the budget was suitable last year, it will be suitable this year.
• Common practice in markets that experience little change
• Uses last year's budget plus an allowance for inflation
• Used widely in public services such as the health service and education.

 

Reasons for setting budgets:

 

Problems of setting Budgets

1. Managers may not know enough about the division or department
- Hard to plan a reasonable budget
- Problem particularly acute to new firms or ventures

2. There may be problems in gathering information
- Start-ups may find it hard to get info from other firms
- Consequently, initial budgets made from guesswork, leading to lack of accuracy

3. There may be unforeseen changes
- Difficult to predict future
- Unforeseen changes will undermine the budgeting process

4. The level of inflation (price rises) is not easy to predict
- Businesses usually use the average inflation rates
- Some prices can change by greater levels
- E.g. Property prices have gone up by more than most other prices

5. Budgets may be imposed
- Budget holder should be involved in setting the budget level
- Often set by senior managers who misunderstand the needs of a certain area
- Resulting budget= Unfair, causing resentment + reducing morale
- If a budget is set by only the manager responsible --> Ignore potential scope for efficiency gains, fails to take account of developments outside the area of business.
- Ideally both senior manager and budget holder should be involved in budget setting

6. Setting a budget can be time-consuming
- Not worth it if only marginal improvements are made.

Chapter 11: Calculating Costs, Revenues and Profits

Price
 
Definition: the amount paid by a consumer to purchase 1 unit of a product.
 
A business must set a price that is:
- High enough to cover the costs of making the product
- Low enough to attract customers

 
Total Revenue
 
Definition: A measure of the income received from an organisation's activities.
 
Total Revenue= Quantity of units sold  x  Price per unit
 
Also called: Income, revenue, sales revenue, sales turnover or turnover.
 

Profit
 
Definition: The difference between the income of a business and its total costs.
 
Profit= Total Revenue - Total Costs
 
Ways to improve profit:
- Increase sales revenue
- Decrease Costs
 

Costs
 
1. Total Costs Definition: The sum of fixed costs and variable costs
 
Total Costs= Fixed Costs +  Variable Costs
 

2. Fixed Costs Definition: Costs that DO NOT VARY directly with output in the short run (e.g. rent)
 
Fixed Costs: Machinery, Rent and rates, Salaries, Administration, Vehicles, Marketing, Lighting and heating

 
3. Variable Costs definition: Costs that DO VARY directly with output in the short run (e.g. raw materials)

Variable Costs: Raw materials, Wages of operatives/direct labour, Power

Wages and salaries?

Wages are paid to operatives who make the product - measured per hour - a variable cost

Salaries are paid to staff who are not directly involved in production - measured per annum - a fixed cost


Semi-variable costs

Semi-variable costs are costs that combine elements of fixed and variable costs.

Example: A worker may be paid a set wage plus a bonus for each extra item she produced.
The set wage is a fixed cost and the bonus is a variable cost.



Effect of changes in Output on Costs

The total costs are rising at a slower rate than output because only the variable costs are increasing as output increases.

When output changes by a certain %, the total variable costs will change by the same %.



Relationship between costs and price 

In lots of industries, increases in costs are 'passed on' to consumers in the form of higher prices. 
These costs could be raw materials for example.
Business theory says this would lead to a fall in demand (and possibly sales revenue).
But demand is less likely to fall if every business increases its prices. This is likely when all firms are affected in the same way.
All firms will want to try and maintain a PROFIT MARGIN.

Profit Margin is the difference between the selling price of the item and the cost of making/buying that item).

Chapter 5: Conducting Start-Up Market Research

Key Words:

Market Research- The systematic and objective collection, analysis and evaluation of information that is intended to assist the marketing process.

Marketing- The process of anticipating and satisfying customers' wants in a way that delights the customer and also meets the needs of the organisation.

Purposes of Market Research:

Sources of Market Research:

1. Primary Market Research

Definition: The collection of information FIRST-HAND and for a SPECIFIC PURPOSE

2. Secondary Market Research

Definition: The USE of information that has already been collected for a DIFFERENT PURPOSE

Examples of secondary market research:

1. Government publications
- Office of national statistics, economic and social trends

2. Newspapers
- Broadsheets contain articles on specific industries

3. Company records
- Sales Figures, Past Surveys, benefit from no cost

4. Magazines
- The Economist, trade specific magazines, articles and surveys

5. Competitors
- Company Reports, Investor information, marketing materials

6. Market research organisations
- They conduct research which can then be purchased by firms

7. Loyalty Cards
- Collecting data to identify consumer buying habits and some personal information
- e.g A clubcard
- Use information to target customers with promotion relevant to them

8. The internet
- Websites (Could be unreliable)

Benefits and Drawbacks of using Secondary Market Research:

Benefits:

• Quick - The Information is already available
• Cheaper than Primary Research
• Secondary surveys are usually done more frequently and so the information obtained is helpful for identifying trends over time.
• Can use more than one source to verify information
• It is easy to conduct

Drawbacks

• Data can be dated and so misleading
• May not be relevant to the project and so cannot meet the specific needs of the firm
• You may have to spend more time finding the information you need or piecing together a number of sources
• No advantages over competitors as it is available to other firms
• May not be reliable sources

Types of Market Research

Qualitative market research is: the collection of information about the market based on subjective factors such as opinions and reasons.

Quantitative market research is: the collection of information about the market based on numbers.

Sampling

Definition of a sample: A group of respondents or factors whose views or behaviour should be representative of the target market as a whole.

- Large Samples increase reliability but cost more
- Small Samples decrease costs but are less reliable.

Sample Size

- The number of people in a sample
- Number depends on: Amount of money available and the need for accuracy

Confidence Level

- The degree to which statistics are reliable
- e.g. A 94% confidence level means the prediction made as a result of research will be correct 94 out of 100 times

Sampling Methods

1. Random Sampling

Definition: A group of respondents in which each member of the target population has an equal chance of being chosen.

Example: Stopping every 5th person in the street

 

 

- May lead to unreliable results

- May Unexpectedly select similar people

- Cheap because it does not involve careful planning of the sample before the survey is conducted.

- Less useful if the product is targeted at a specific market segment.

- Unexpected bias. E.g. sample have the same thing in common like living on the same side of the street, affecting their views on having a conservatory.

- May have to pay to gain access to a database of the target population. Can a start-up afford this?

 

2. Quota Sampling

Definition: A group of respondents comprising several different segments, each sharing a common feature (e.g. age, gender). The number of interviewees in each classification is fixed to reflect their percentage in the total target population, but the interviewees are selected non-randomly by the interviewer.

Example: If your target population is Birmingham University students:
Each sub category would have an assigned required %=
10% of English students, 20% of Law students, 5% of Psychology students, 5% of Engineering students and 60% of Mathematics students.

- Takes account of the target market
-Takes longer than random sampling
- Most likely method to suffer from bias - because people selected are not done randomly in each target segment
- Should gain more reliable results than random sampling

Here is another example of Quota Sampling:

3. Stratified Sampling

Definition: A group of respondents selected according to particular features (e.g. age, gender). However, Unlike Quota Sampling, where the final selection is left to an interviewer, in stratified sampling the subgroups and their sizes are chosen specifically.

Example: If your target population is Birmingham University students:
Each sub category would include each University degree=
English students, Law students, Psychology students, Engineering students, Mathematics students etc...

- Uses the whole population to select from and is random - everyone has an equal chance of being chosen.
- It divides the population into subgroups of interest and samples are either sequentially or randomly selected within each subgroup.
- Population information is needed for this (e.g. from the Register of Electors)
- Subgroups may not match their size in the target market
- In order to gain reliable data some segments may need to be increased in number.
- Most time-consuming method 

Factors that influence sample selection methods

1. Cost/availability of finance
- Random Sampling is the cheapest.
- Quota Sampling is cheap if the target market is known
Start-ups most likely to use these two methods.

2. Time
- Quick results needed: Use Random Sampling
- Sometimes an immediate response is needed

3. The importance of market segments
- If buying habits are very different between different types of consumers, quota or stratified sampling is best.
- This is because it can examine the different patterns of behaviour of the different segments of the market.

4. Is the business targeting a specific group of customers?
-Opinions of that particular group would be needed, so quota or stratified would be best.

5. The firms understanding of its customer base
- if the firm is unaware of its type of consumers that it will attract, there is no point using quota or stratified sampling as they both depend on a prior understanding of the types of customer
- Random Sampling can help to find out this information.