Unit 2

Unit 2

1. Growth of a Business

   • Reasons for growth- increase market share, be more trusted, benefit from economies of scale, increase revenue
     • Drawbacks of growth- risk, cost, poor customer service, time/effort
       • Types of Growth- Internal/Organic- growing from within the business e.g. opening new stores, adding more products. External Growth- growing from outside the business- e.g. takeovers or mergers- horizontal- taking over/merging with a similar business/same industry, Vertical- takeover/merger with a business in same industry but different stage of production. Diversification- takeover/merger with a business in different industry.
   • Changing aims/objectives- might change to focus on growth, ethical/environmental, profit maximisation. Might focus on reducing their social costs and increasing their social benefits.
   • Private Limited Company- privately owned company, owned by shareholders, shares can only be sold to family and friends. Limited liability. Public Limited Company- shares sold on stock market, easier to raise finance but have to publish accounts. Both types need to pay dividends to shareholders

2. Marketing

   • Price- price skimming- high initial price, then reduced. Penetration pricing- low initial price then increased. Cost-plus pricing- adding a profit mark up to the total cost of producing the product, Loss leader- selling product at a loss to hope to get other profitable sales.
   • Product- Product portfolio- range of products a business sells. Product Life Cycle- details the life span of a product from launch to being taken off market (introduction, growth, maturity, decline). In decline- can add an extension strategy e.g. new colours, new size.
   • Place- how product gets from producer to consumer (distribution channel)- wholesaler- buys in bulks- distributes to retailers, telesales- sales through telephone, mail order- sales through mail, Internet selling
   • Promotion- sales promotion- e.g. BOGOF, Sponsorship, advertising, Direct Marketing. Promotional Mix refers to combination of promotion methods used by a business.

3. Finance

   • Sources of finance- retained profit, sale and leaseback, mortgage, bank loan, share issue.
   • Profit and loss account- gross profit= revenue - cost of sales, net profit= gross profit - overheads. Gross profit margin- gross profit/sales revenue x 100, Net profit margin = net profit/sales revenue x 100
   • Balance sheet- snapshot of financial health of a business. Details the assets and liabilities of a business. Using balance sheet you can calculate the current ratio and acid test ratio to test the liquidity of the business- how easily the business can pay off its short term debts

4. People in Business

   • Types of training- induction, on the job, off the job. Employees have yearly appraisals to assess how they are working and identify their training needs
   • Organisational structure- details the different levels of management, lines of authority and responsibility, span of control.
   • A business can either be centralised or decentralised. If it is centralised, all decisions are made at head office by senior managers. Decentralised- decision making power is spread out to managers in branches and divisions of the business

5. Operations Management

   • Flow production- large scale, continuous. Allows for specialisation and division of labour
   • Lean production- minimising waste- Kaizen- continuous improvements, Just in Time production, Lean design.
   • Economies and diseconomies of scale, outsourcing, Total Quality Management