- Import/Export - If the exchange rate goes up then a business may not be able to afford to import and export products.
- Exchange rates - when the exchange rates are high, customers and sales will decrease making the profit go down.
- Trends - Trends change within a society and businesses try to match their products to suit the trend
- Location - If it is a very populated location then it is likely to receive more customer attention than others.
Wednesday 28 March 2012
Economic factors and how theses affect businesses
Businesses can be affected by several aspects of the environment they are situated within. Some examples of this could include the recession, tax rates and the location of the business. Here are some economic factors and why the affect a business:
Sources of finance availiable
- Bank loans / Bank overdrafts
Bank loans are useful when a business is in need of a lot of money quickly, which they know they will be able to pay back. It is a quick source of finance. However, it has to be paid back of course and you can be at risk of unlimited liability which means you have to pay it back with your personal possessions.
- Owners investments
This is your own money and therefore you don't have to worry about paying someone back or becoming in debt. The only disadvantages is that if the money invested goes to waste and the business fails, then it is your own personal money which is at stake and goes to waste.
- Family and friends
This is good because your family and friends may not have as strict payment rules as a bank loan, for example the certain time it has to be paid for or the risk of unlimited liability. However this could lead you to argue with family/friends, especially if you struggle to pay them back.
- Government grants
This is good because you don't have to pay the government back, they give it to you for free courtesy. On the other hand, you may be expected to help the government out as a return, and usually through the advantages of your business. An example could be: If there is low employment in the area the government might encourage you to offer more jobs as you are doing them a favour in return for the grant.
- Retained profits
This is good because you do not have to worry about being in debt or paying back a loaner. However, this is your businesses profit that has been earned, and if the business fails then the profit money spent will have gone to waste. But this is overall good if you are investing it wisely because profit is the ADDITIONAL money earned after you have achieved all your expenses back.
Cash Flow
Cash Flow is the movement of money that goes in and out of a Business.
Cash Inflow is the money that goes in to a business, whereas Cash Outflow is money going out of a business.
You can predict your Cash Flow activities by making a Cash Flow Forecast, which is: something that enables you to predict peaks and troughs in your cash balance. It helps you to plan how much and when to borrow and how much available cash you're likely to have at a given time. Many banks require Cash Flow forecasts before considering a loan.
Business keep track of their Cash Flow by creating a Cash Flow Statement. A Cash Flow Statement is a historical record of the Cash Inflows and Outflows that have taken place over a period of time.
The difference between the two is that the Cash Flow Statement has actually happened and if a fact, whereas a Cash Flow Forecast has not actually happened, although it has a chance to happen; unlike the Statement, it has not happened, therefore not true.
Businesses use Cash Flow to know their financial activities and to be able to manage their incomes and outcomes which effectively allows them to determine whether their business is on a profit or a loss; for example: If the Cash Outflow are greater than the Inflows, then the business would be failing. On top of all this, they can also identify and predict
problems within their business.
Positive Cash Flow is a normal situation where the cash inflows during a period are higher than the cash outflows during the same period. Positive cash flow does not necessarily means profit and is usually due to a careful management of cash inflows and expenditure. Persistent and large positive cash flows may indicate the firm is not keeping enough stocks of raw materials or finished products, and might be losing sales due to shortages.
Negative Cash Flow is a situation where the cash outflows during a period are higher than the cash inflows during the same period. Negative cash flow does not necessarily means loss, and may be due only to a mismatch of expenditure and income. Chronic mismatch, however, may indicate ineffective credit management, leakage of funds through fraud, or actual loss. Temporary mismatch is covered usually by arranging an overdraft facility.
Cash Inflow is the money that goes in to a business, whereas Cash Outflow is money going out of a business.
You can predict your Cash Flow activities by making a Cash Flow Forecast, which is: something that enables you to predict peaks and troughs in your cash balance. It helps you to plan how much and when to borrow and how much available cash you're likely to have at a given time. Many banks require Cash Flow forecasts before considering a loan.
Business keep track of their Cash Flow by creating a Cash Flow Statement. A Cash Flow Statement is a historical record of the Cash Inflows and Outflows that have taken place over a period of time.
The difference between the two is that the Cash Flow Statement has actually happened and if a fact, whereas a Cash Flow Forecast has not actually happened, although it has a chance to happen; unlike the Statement, it has not happened, therefore not true.
Businesses use Cash Flow to know their financial activities and to be able to manage their incomes and outcomes which effectively allows them to determine whether their business is on a profit or a loss; for example: If the Cash Outflow are greater than the Inflows, then the business would be failing. On top of all this, they can also identify and predict
problems within their business.
Positive Cash Flow is a normal situation where the cash inflows during a period are higher than the cash outflows during the same period. Positive cash flow does not necessarily means profit and is usually due to a careful management of cash inflows and expenditure. Persistent and large positive cash flows may indicate the firm is not keeping enough stocks of raw materials or finished products, and might be losing sales due to shortages.
Negative Cash Flow is a situation where the cash outflows during a period are higher than the cash inflows during the same period. Negative cash flow does not necessarily means loss, and may be due only to a mismatch of expenditure and income. Chronic mismatch, however, may indicate ineffective credit management, leakage of funds through fraud, or actual loss. Temporary mismatch is covered usually by arranging an overdraft facility.
Batch Production
Batch Production is a method of production in which a group of similar products are made at the same time. In this process, products move down the production process together, and although they are in the same production line, they all may be slightly different.
Examples of Batch Production is: Bakeries, Wallpaper Manufacturers, Fast food joints and Pharmaceuticals.
This type of production is more likely to be used when businesses have factories to help them with the manufacturing. They us machinery to speed up and help with the production process.
Batch production where groups of items are made together. Each batch is finished before starting the next block of goods.
For example, a baker first produces a batch of 50 white loaves. Only after they are completed will he or she start baking 50 loaves of brown bread.
Examples of Batch Production is: Bakeries, Wallpaper Manufacturers, Fast food joints and Pharmaceuticals.
This type of production is more likely to be used when businesses have factories to help them with the manufacturing. They us machinery to speed up and help with the production process.
Batch production where groups of items are made together. Each batch is finished before starting the next block of goods.
For example, a baker first produces a batch of 50 white loaves. Only after they are completed will he or she start baking 50 loaves of brown bread.
Job Production
Job Method
With Job production, the complete task is handled by a single worker or group of workers. Jobs can be small-scale/low technology as well as complex/high technology. It meets the exact requirements of the customer rather than supplying standard products which customers can choose regularly.
- Low technology jobs: here the organisation of production is extremely simply, with the required skills and equipment easily obtainable. This method enables customer's specific requirements to be included, often as the job progresses.
- High technology jobs: high technology jobs involve much greater complexity - and therefore present greater management challenge. The important ingredient in high-technology job production isproject management, or project control.
Examples of high technology / complex jobs: film production; large construction projects (e.g. the Millennium Dome)
Examples of low technology jobs: Tailor, Restaurants and Gardening.
Sunday 15 January 2012
Levels of Distribution
Producers - A producer supplies goods and services. Secondary.
Wholesalers - They sell products in bulks and at smaller prices. Economies of sales to retailers. Can offer advice and transport to retailers. Sell in large quantities which reducers unit cost.
Retailers - Shops that sell goods and services to final customers. Tertiary.
Levels:
Zero Level - no intermediary between producer and the customer. Sells direct to final buyer.
One Level - only one intermediary between producer and customer. E.G. retailer.
Two Level - two intermediaries between producer and customer. E.G Producer -Wholesaler - Retailer - Customer.
Wholesalers - They sell products in bulks and at smaller prices. Economies of sales to retailers. Can offer advice and transport to retailers. Sell in large quantities which reducers unit cost.
Retailers - Shops that sell goods and services to final customers. Tertiary.
Levels:
Zero Level - no intermediary between producer and the customer. Sells direct to final buyer.
One Level - only one intermediary between producer and customer. E.G. retailer.
Two Level - two intermediaries between producer and customer. E.G Producer -Wholesaler - Retailer - Customer.
Wednesday 11 January 2012
Place
Distribution - It begins with the manufacturer (always the starting point), then to the retailer or wholesaler which are the distributors to the customers, and then finally to the customer where it always ends/
Place is the means by which products and services get from producer to consumer and where they can be assessed by a consumer.
E-commerce = Selling over the internet.
What affect does the internet have over business?
It has a positive affect on businesses as it allows them to promote and sell online, it has 24/7 avaliabilitiy, easier to access and direct postage to homes. However the internet can pose another rival/competitor to other stores.
Place is the means by which products and services get from producer to consumer and where they can be assessed by a consumer.
E-commerce = Selling over the internet.
What affect does the internet have over business?
It has a positive affect on businesses as it allows them to promote and sell online, it has 24/7 avaliabilitiy, easier to access and direct postage to homes. However the internet can pose another rival/competitor to other stores.
Competition
Competition is when you go against someone in order to come out on top of your opponent within a similar category. Businesses compete over customers, product or service, price, location, market share, advertisement, reputation. An example of this is McDonalds who rival against Burger King and KFC.
Tuesday 10 January 2012
Limited & Unlimited liability
Limited liability: When a partner or investor cannot lose more than the amount invested. Therefore the investor or partner is not personally responsible for the debts of the company.
Unlimited liability: This is the opposite of 'limited' liability. Therefore the business is at risk of loosing more than money being invested and their personal possessions can be taken.
Unlimited liability: This is the opposite of 'limited' liability. Therefore the business is at risk of loosing more than money being invested and their personal possessions can be taken.
Sole Trader: Someone who starts up a business on there own. Advantages of a sole trader is being able to be your own boss, make your own descisions and not adapt yourself to suit a partners needs. Disadvantages are it is more stressful with no help, you face unlimited liability and you can struggle with finance.
Partnership: 2 - 20 people running a business together. Advantages of a partnership are having a bigger contribution of skills, ideas and money/finance going into the business. The disadvantages of a partnership are disagreements and arguements, and you can face unlimited liability, as well as being held partly responsible for the partners actions
Public Limited companies: Sell shares to anyone on the stock exchange. Advantages of this is you are getting more investments, more media and more coverage of company. Disadvantages are media could go wrong, flotation is more common.
Private limited companies: Private limited companies only sell shares to friends and family and don't appear on the stock exchange. Advantages of this are you only loose the money you invested and the business continues after death of founder. Disadvantages of this is you have to register.
Franchise: Franchise occurs when a franchisor sells an existing business idea, name and rights to sell their products to franchisee. Advantages are it is already a successful business, you have less of a risk of becoming in debt and you do not have to do as much paperwork and thinking of ideas. Disadvantages of this include that when there is one problem with one franchise it can affect others, and there are many disputes between the franchisee and the franchisor over power. Also you must give a percentage of your profit to the franchisor.
Partnership: 2 - 20 people running a business together. Advantages of a partnership are having a bigger contribution of skills, ideas and money/finance going into the business. The disadvantages of a partnership are disagreements and arguements, and you can face unlimited liability, as well as being held partly responsible for the partners actions
Public Limited companies: Sell shares to anyone on the stock exchange. Advantages of this is you are getting more investments, more media and more coverage of company. Disadvantages are media could go wrong, flotation is more common.
Private limited companies: Private limited companies only sell shares to friends and family and don't appear on the stock exchange. Advantages of this are you only loose the money you invested and the business continues after death of founder. Disadvantages of this is you have to register.
Franchise: Franchise occurs when a franchisor sells an existing business idea, name and rights to sell their products to franchisee. Advantages are it is already a successful business, you have less of a risk of becoming in debt and you do not have to do as much paperwork and thinking of ideas. Disadvantages of this include that when there is one problem with one franchise it can affect others, and there are many disputes between the franchisee and the franchisor over power. Also you must give a percentage of your profit to the franchisor.
Pricing Strategies
Penetration pricing: Setting a low price initially, to attract customers.
Competitive pricing: Setting a price based on what the competitor is charging.
Loss leader: A prodcut sold at a low cost to encourage another products profitable sales.
Cost plus pricing: Calculating the price of producing the product and adding on a percentage of profit.
Price discrimination: Setting a different price for the same product in different areas of a market. A good example of this is cinema tickets for different ages.
Predatory pricing: Agressive pricing to drive out competitors from that market.
Market led pricing: Setting a price based on personal research put together, from the target market.
Price wars: Price reduction based upon competitive rivalry.
Competitive pricing: Setting a price based on what the competitor is charging.
Loss leader: A prodcut sold at a low cost to encourage another products profitable sales.
Cost plus pricing: Calculating the price of producing the product and adding on a percentage of profit.
Price discrimination: Setting a different price for the same product in different areas of a market. A good example of this is cinema tickets for different ages.
Predatory pricing: Agressive pricing to drive out competitors from that market.
Market led pricing: Setting a price based on personal research put together, from the target market.
Price wars: Price reduction based upon competitive rivalry.
Sunday 8 January 2012
4 P's of the Marketing Mix
The Marketing Mix refers to all the activities that can influence whether or not a customer buys a product. We refer to these as the 4 P's - Price, Product, Place, Promotion.
Price - How much the product costs to manufacture and how much the selling price is. A selling price will be higher than the manufacturing price in order to make a profit from the product. Price is also one of the main ways a business will compete with another. Prices are affected by some of the following aspect: demand, competition, buyers, manufacturing price, location, popularity, position in product lifestyle, packaging, quality, design features and more.
Product - The product refers to design the specification and the features of the product. Many business' have a range of products. This means that they manufacture a variety of different products for different purposes or customers.
Place - what is the value of the product to the buyer? What kind of store is the product or service sold in? Refers to how the product gets to the buyer; for instance, point-of-sale assignment or retailing. This third P has furthermore at times been called Place, referring to the channel by which a product or service is sold (e.g. online vs. retail), which geographic region or industry, to which division (young adults, families, business citizens), etc. also referring to how the surroundings in which the product is sold in can influence sales.
Promotion - This includes advertising, sales promotion, including promotional education, publicity, and individual selling. Branding refers to the assorted strategies of promoting the product, brand, or company.
Price - How much the product costs to manufacture and how much the selling price is. A selling price will be higher than the manufacturing price in order to make a profit from the product. Price is also one of the main ways a business will compete with another. Prices are affected by some of the following aspect: demand, competition, buyers, manufacturing price, location, popularity, position in product lifestyle, packaging, quality, design features and more.
Product - The product refers to design the specification and the features of the product. Many business' have a range of products. This means that they manufacture a variety of different products for different purposes or customers.
Place - what is the value of the product to the buyer? What kind of store is the product or service sold in? Refers to how the product gets to the buyer; for instance, point-of-sale assignment or retailing. This third P has furthermore at times been called Place, referring to the channel by which a product or service is sold (e.g. online vs. retail), which geographic region or industry, to which division (young adults, families, business citizens), etc. also referring to how the surroundings in which the product is sold in can influence sales.
Promotion - This includes advertising, sales promotion, including promotional education, publicity, and individual selling. Branding refers to the assorted strategies of promoting the product, brand, or company.
Boston Matrix
When products have sale, they are put into 4 categories called the Boston Matrix.
- Dogs
- Cash Cow
- Star
- Question Mark
Dogs- have a low share of a low growth market. Not doing well in a particular market. The product is not much use to the business so the business should either get rid of or improve it.
Cash Cow - Doing well in a market and have a high share of the market. However the market is not growing so fast. Cash Cows are good news for business'. Heavily produced in the past, firm earns revenue from it.
Star - Big share in fast selling market. Doing well in a attractive market; however the company will need too keep upgrading and promoting the star to help growth and sales with the aim to turn it into a cash cow.
Question Mark - a.k.a: oil rigs or problem child. These have a small share in a fast growing market. Firms will not know whether the product will fail or succeed; should spend money on promoting and upgrading.
Product Life Cycle; Product Extension Strategies and their importance.
Product Life Cycle is the stages a product will go through in its life time; from development to decline the product faces a lot of challenges in it's time to become of high demand for the very unsettled public.
Development:the idea of the product is firstly brought up and developed; in this stage a prototype is build to give a brief understanding of what the product id going to be like.
Introduction: when the product is foremost launched into the selling market. Business' need to convince distributors to sell their products.
Growth: where the products sales will start getting faster and the product will be sold in bigger quantities because it might have good feedback from launch and the advertisement may be successful.
Maturity: Sales slow down because the product could be getting old and outdated or a competitor could have launched a better product similar to yours forcing the public to turn to the new product.
Decline: Sales fall. Business need to decide whether to make a new product, upgrade the old one, product extension strategies or take the product fully of the market.
Product Extension Strategies: These are strategies that are introduced to extended the life time of the product, and to help the product from the decline stage.
Examples of these are: > Attempting to find new customers
> Encouraging people to buy the product more frequently.
> Increased funding for advertisement
> Cut price for product - better value for money.
Product extension strageties are important because it helps the product life cycle go on for longer, helping the business whom founded the product earn more money rom the product and in some cases - help the company not to go bust.
Development:the idea of the product is firstly brought up and developed; in this stage a prototype is build to give a brief understanding of what the product id going to be like.
Introduction: when the product is foremost launched into the selling market. Business' need to convince distributors to sell their products.
Growth: where the products sales will start getting faster and the product will be sold in bigger quantities because it might have good feedback from launch and the advertisement may be successful.
Maturity: Sales slow down because the product could be getting old and outdated or a competitor could have launched a better product similar to yours forcing the public to turn to the new product.
Decline: Sales fall. Business need to decide whether to make a new product, upgrade the old one, product extension strategies or take the product fully of the market.
Product Extension Strategies: These are strategies that are introduced to extended the life time of the product, and to help the product from the decline stage.
Examples of these are: > Attempting to find new customers
> Encouraging people to buy the product more frequently.
> Increased funding for advertisement
> Cut price for product - better value for money.
Product extension strageties are important because it helps the product life cycle go on for longer, helping the business whom founded the product earn more money rom the product and in some cases - help the company not to go bust.
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