Pearson Edexcel A-level Business Unit 2 Revision Notes(WBS12)
Pearson Edexcel Business IAS Complete Revision Notes
Unit 2: Managing Business Activiti... [Show More] es (Paper/Unit code: WBS12)
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23- Planning 3
24- Internal Finance 4
25- External Finance 6
26- Forms of Business 10
27- Forms of Business: PLCs 14
28- Liability 16
29- Sales, Revenue & Costs 19
30- Sales Forecasting 21
31- Break-even 24
32- Cash-flow 27
33- Budgets 29
34- Profit 32
35- Liquidity 34
36- Business Failure 38
37- Production, Productivity & Efficiency 40
38- Capacity Utilisation 44
39- Inventory Control 46
40- Quality Management 49
41- Economic Influences 51
42- Legislation 55
43- The Competitive Environment 58
Business Terminologies 60
(These boxes may be seen throughout the revision notes.)
CHAPTER 23: PLANNING
I. Business plan
A plan for the development of a business, giving details such as the products to be made, resources needed & forecasts such as costs, revenues & cash flow.
Initially, new businesses will create a plan to follow but changes in external factors will lead to changes in business plans.
Business plan is a written document by the business regarding its operations.
II. Relevance of a Business Plan
A business plan is needed to support applications for finance, both at the start- up stage & in the future. Lenders & other investors are not likely to put money into a business unless the owners can provide a clear, concise vision of future progress & profitability.
In particular, investors will want to know how their money is going to be spent & when & how they are going to benefit from their investment.
III. Uses of a business plan
1. To show a clear direction for the development of a business.
2. Help show lenders & investors that the owner is cautious, responsible, serious & credible.
3. To flag up potential problems in advance so that investors are aware & solutions can be found.
When the business creates a business plan, they can see the potential problem in advance & find solution.
e.g., If the business decided to expand in the future, then they will have to increase their production. The problem is the source of finance. As a result, they can think of in advance where they will get the finance.
IV. Contents of a Business Plan
1. An executive summary-usually business plan is very lengthy. So, there should be a summary of the whole business plan included on the business plan itself.
2. The business opportunity-a description of the product/ range of products to be made, the quantity to be sold & the estimated price.
3. Financial forecasts-It must be written in the business plan the cash outflows & inflows.
e.g., sales forecast, cash flow forecast
4. The business & its objectives-the name of the business, its address, its legal structure & its aims & objectives.
5. Personnel-who will run the business, how many employees.
6. Finance-where the finance to start up & run the business will come from.
7. Premises & equipment-premises to be used, equipment which needs to be obtained & financed.
CHAPTER 24: INTERNAL FINANCE
I. The need for finance
Firms need money to get started. They might need to buy equipment, raw materials & obtain premises.
However, business is a continuous activity & money flowing in may use to buy more raw materials & settle other trading debts. If the owner wants to expand, which means larger premises, more equipment & extra workers. A business will need to find a way of raising finance.
II. Types of Internal Finance
1. Owner’s Capital
In most cases, a business cannot start unless the owners provide capital of their own. Providing capital is part of the risk taken by entrepreneurs when setting up a business.
Owners provide capital from their own personal resources. A common source is personal savings. Some entrepreneurs have deliberately saved up over a period of time so that they can start their own business.
Personal savings would be an appropriate source of finance for a sole trader/partnership.
2. Retained profit
Retained profit is when dividends (profit of shareholders) are not returned to shareholders & are reinvested into the business. If retained profit is
used by the business, shareholders will not object even they will not be receiving their dividends because if it is reinvested again in the business then they will be receiving higher dividend/ profit in the future.
Retained profit is a flexible source of finance. It does not have to be used immediately. It can be accumulated by a business in a bank account where it will earn interest. A business can then use the retained profit at a later date. If a business does not make a profit, retained profit is not possible as a source of finance.
3. Sale of assets
Asset sales can be used by all businesses, as long as they are not a start-up business (since the business will have no assets.)
An established business may be able to sell some unwanted assets to raise finance.
e.g., Machinery, land & buildings that are no longer required could be sold off for cash.
Pros & Cons of Internal Finance
The capital is available immediately- there is no time delay between identifying a need for finance & obtaining it. For example, retained profit will be in a bank account ready &
waiting. Internal finance can be limited-a business may not be sufficiently profitable to use retained profit or may not have unwanted assets to sell. Also, the current owners may not have any
personal resources to contribute.
Internal finance is cheap-there is no interest payments which means that costs will be lower & profit higher. Internal finance can be inflexible compared to external sources of finance. There are a wide variety of funding options for external finance,
which can give the business flexibility. [Show Less]