Lecture notes
Lecture notes The Businesss Environment Cambridge Technicals Level 3 Business, ISBN: 9781471874796
This document talks about why businesses plan, why they fail, sources of finance, their advantages, and disadvantages.
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Elements of a business plan● Executive Summary
● Business description and background
● Product or service(including USP)
● Aims and objectives
● Market Research(including competitor analysis)
● Financial Plan(Cashflow forecast, sources of finance, break-even)
● Resource requirements(employees, premises, equipment)
Why do businesses plan?
● To survive and avoid business failure
● To develop business ideas
● To avoid unnecessary risk
● To meet key objectives
What could planning include(Detailed)?
● Setting objectives for managers
● Explaining business objectives to management and employees
● Sharing a business strategy, priorities and specific action points with other
people
● Deciding whether to buy/rent extra space
● Ascertaining personnel requirements
● Developing new business alliances
● Supporting an application for finance for business growth
Things that can make a business fail
● Flawed business plan
● Poor financial management
● Lack of knowledge of the market and competition
● Concentration risk
● Lack of a clear and unique selling point
Sources of Finance
1. Savings(Internal)- This is when an owner of the business may provide their
own money as part of the start-up capital when a business is being set up.
Savings can also be used as a form of additional capital, e.g for expansion.
This is normally a long-term source of finance.
, Advantages
a. Retain all control: Most common for startups
b. Does not have to be repaid
Disadvantages
a. There is a limit to the amount of money an owner can afford to invest
2. Reserves(Internal)- Reserves are generated when profits are ploughed back
into the business.
Advantages
a. Doesn’t have to be repaid
b. No interest is payable
Disadvantages
a. Lack of dividends for shareholders
b. New businesses will not have built up reserves yet
c. Businesses may not have made sufficient profit to reinvest in the business
3. Overdraft(Short-term)- This is where a business is allowed to overdraw a
current bank account, i.e, withdraw money even if it does not have enough
money in the account, up to the overdraft limit.
Advantages
a. Can be used for day-to-day running costs, and to cover the period
between money going out of and into a business.
b. It is usually cheaper than a bank loan.
c. Flexible
Disadvantages
a. Interest is payable on the amount overdrawn
b. It can be expensive if used over a long period of time
4. Mortgage- This is a long-term loan secured on a property; it is repaid in
instalments over a period of time, typically 25 years.
Advantages
a. Throughout the mortgage period, the business will have the use of
the property
b. Payments are spread over a long period of time
c. Able to borrow more than standard loans at lower rates of interest
Disadvantages
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