100% satisfaction guarantee Immediately available after payment Both online and in PDF No strings attached
logo-home
Previously searched by you
Previously searched by you
logo
Summary Edexcel A-level Business Theme 2: Managing Business activities £4.50
Add to cart
Quickly navigate to
Preview
  2.  
  3. PEARSON (PEARSON)
  4.  
  5. Business Studies
  6.  
  7. Theme 2: Managing business activities

Summary

Summary Edexcel A-level Business Theme 2: Managing Business activities

7 reviews
 8 purchases

Pearson Edexcel A-level Business studies notes that cover the whole of Theme 2 (Managing business activities) and are structured using the Edexcel specification.

Preview 2 out of 9  pages

Document information

  • September 6, 2022
  • 9
  • 2021/2022
  • Summary

Subjects

Written for

All documents for this subject (1)

7  reviews

review-writer-avatar

By: farzana24052007 • 8 months ago

review-writer-avatar

By: bayleeheath90 • 10 months ago

review-writer-avatar

By: rossiduncanson • 10 months ago

review-writer-avatar

By: charliecheekster • 10 months ago

review-writer-avatar

By: maisygrant12 • 1 year ago

review-writer-avatar

By: gavanguhunia • 1 year ago

review-writer-avatar

By: ayubah68 • 2 year ago

Seller

avatar-seller
renataa

Reviews received

Content preview

SECTION 2.1 Overdraft - excess of cash allowed by a bank to a business, permitting the withdrawal of more from a bank account than it holds
Why do business need finance:
+ Easy to arrange and flexible (tailored to the businesses needs) e.g. seasonal business
● To fund expansion e.g. buy fixed assets + Interest is only paid to the amount used
● To pay day to day costs e.g.wages + No control is given up
● To assist future forecasted cash-flow problems + Short term debt so not included in gearing ratio
● To survive in periods of seasonality - High interest rates = increased costs
● To fulfil demand - Increased risk as it’s payable to the bank at any time, the bank may cancel overdraft at any time
● To pay off debts - Persistent use of overdraft will lower credit rating

Sources of finance depend on: Peer to peer funding (P2P) - an online platform that enables individuals or businesses to obtain loans directly from other individuals

❏ Amount of finance required + Business pays less interest than at the bank
❏ Level of risk involved + Quick and easy to apply
❏ Business’s organisational structure - Application fee
❏ Cost of finance e.g. interest rates, share of the business or profits - Needs to pass a credit score and internal checks to secure the loan

Short term finance: usually repaid within a year Crowdfunding - raising capital via the internet from a large number of people who each contributes a small amount
Long term finance: repaid over a longer period usually 3 years or more
+ Can raise finance from a large group of investors
Internal sources of finance: raising capital from within the company’s resources + No interest rate/doesn’t need to be repaid = lower costs
+ Investors may require a lower level of reward than a bank allowing the business to maximise their returns
Owner's capital - the personal funds of the owner, which may be used to invest in the business e.g. by buying shares + Improves brand image as investors promote the business via word of mouth
+ Business raises awareness of its products or brand to people using the crowd funding website = increased sales
+ No financial cost - no interest, doesn’t need to be paid back, no loss of control + Gain good feedback enabling the business to make improvements
+ Easy and quick to access - Profits will be shared with investors therefore lower profits for founder
- Amount of finance is likely to be limited - it depends on the personal wealth of the owner - Investors may not be experts in the market so guidance may be limited if they contribute a small sum of money
- If business doesn’t initially make profit using savings it may lead to financial pressures - Failed projects risk damage to the reputation of the business and investors
- Unless the full amount is raised, the business will not receive any finance from the crowd funding
Retained profits - when a business uses historical profits from previous years to invest
Business angels - individuals who invest money into new or innovative businesses that they think have the potential to be successful
+ No financial cost - no interest, doesn’t need to be paid back in return for a share of the business
+ Flexible - management has complete control over how they’re reinvested
+ Doesn’t dilute the ownership of the company + Offer the business owners advice and guidance
- Retaining profit may cause the business to miss out on investment opportunities + A business angel might have lots of business knowledge and useful contacts
- May create conflict between shareholders due to low dividends - Difficult and time consuming to find a business angel willing to invest
- Usually limited therefore slow growth - A share of the business has to be given up, loss of control and decision making power
- No expertise added e.g. bank advisors, shareholders
Venture capitalist - finance offered by a venture capitalist fund to high risk; high reward firms in exchange for a share of the business -
Sale of assets - raising capital via the sale of surplus fixed assets e.g. machinery it can be provided by business angels or by venture capitalists

+ No financial cost - no interest + Does not need to be repaid and involves no payment of interest = lower fixed costs = ability to survive
+ Providing you can find a buyer it’s a quick form of cash + Can raise substantial amounts making expansion possible, due to the high risk involved banks may not be interested
+ No control given up + Reduces personal risk as venture capitalist fund has taken a % of risk
- Likely to be limited - businesses are likely to have few surplus assets + Venture capitalist could be a valuable source of advice due to their expertise and contacts in the industry
- Risk: - Share of the business is given up therefore profits have to be shared
➔ Can’t find buyer - Loss of control and decision making power if more than 50% of share is given up
➔ Don’t receive true value for the fixed asset - Venture capitalist may get involved in the day to day running of the company in return for the investment = conflict
➔ Very likely it had depreciated
Trade credit - when a business buys a good or service from suppliers but pays later within an agreed time limit
External sources of finance: raising capital from outside the resources of a business
+ Simple to arrange and maintain if credit terms are met
Family and friends - owners of small or new business may ask family and friends to help them out financially + Cheap form of short term finance
+ No control is given up
+ Family and friends may offer the money as a gift or be willing to to agree to a flexible repayment with little or no interest + Helps them avoid cash flow problems
- Amount of money available may be limited + Manufacturers cam ask to extend these periods at times of difficulty in order to help in the short term
- Risk of spoiling relationship with supplier if credit terms are not met - they’ll get a bad credit rating making it harder to get
Bank loan - when a business borrows a fixed amount of money and pays it back with interest over an agreed period of time credit from suppliers and finance providers in the future
- If the business fails to pay on time it will be charged interest on the credit by the supplier until it’s all paid and may also
+ Guaranteed money for a certain time be charged a fine
+ No control is lost - Business can miss out on discounts for paying up front
+ Interest rates may be fixed
+ Repayments are made in instalments Share capital - finance raised by selling shares to the public
- Strict lending criteria
- Increased costs as interest must be paid on the loan amount + Fast way of raising finance
- Loss of control as assets will be taken if you fail to repay + Doesn't need to be repaid
- Increases gearing of business + Easy to raise capital from loyal investors
+ New shareholders can bring additional expertise into the business
Calculating interest on a bank loan (%) = (total repayment - borrowed amount / borrowed amount) x 100 + Public limited companies can issue shares which can easily be bought and sold on the stock exchange
- Ownership of the company is diluted = risk of takeover
- Costly and time consuming process - legal and administrative costs of issuing new shares

, Grants - a fixed sum of capital provided to a business by the government or other organisations to fund specific projects Net cash flow = cash inflows - cash outflows for a given period

+ Non-repayable therefore no interest needs to be paid Opening balance = closing balance of the previous month
+ No share of the business has to be given up - no control given up therefore retains decision making
+ Application process forces a business to think thoroughly about the project and how the money will be spent Closing balance = net cash flow + opening balance
- Application process can be long + time consuming - risk of getting rejected
- Even if a firm is awarded a grant it often doesn't get the money until the of the project SECTION 2.2
- Grant tied to certain conditions - if not met any grant money the business was offered may be retracted
Sales forecasting: process of predicting future sales volume and sales revenue based on past sales data and market research
Leasing - a financial arrangement in which a company pays to use an asset for a particular time
+ Enables firms to make informed decisions + predict short term and long term performance
+ Helps businesses gain valuable insight to predict demand fluctuations
+ Helps spread cash-flow payments
+ Can lower costs - predicting demand will help tweak production process to increase efficiency
+ Asset leased is often up to date + so less likely to become faulty - sometimes maintenance + repair costs are included in
+ Helps to make decisions on marketing
the lease
+ Helps to make decisions on resources such as staff, stock - can identify seasonal peaks in sales
+ Flexible
+ Regular on-going market research can be used to help anticipate changes in customer tastes and preferences
- Can be more costly in the long run than buying an asset outright
- Never 100% accurate as consumer tastes, preferences, trends + economic variables can be volatile
- Limited control over the asset
- Tastes are difficult to predict as society and technology change
- Any improvements made to te asset are lost at the end of lease term
- Unreliable if there are significant fluctuations in historical data
- Time consuming and resource intensive
Limited liability: the amount of a company’s losses that a shareholder is liable for is limited to the amount they have invested in the
- Assumes past trend will continue into the future
company
- Unanticipated economic booms or recessions will affect consumer incomes and therefore affect demand
Unlimited liability: the business and the owner are seen as the same legal entity meaning the owner is responsible for all debts the
Factors affecting sales forecasts:
business incurs

● Consumer trends
Business plan: a document setting out a business’s future objectives and strategies for achieving them
● Actions of competitors
● Economic variables e.g. exchange rates, interest rates, taxation
Business plan consists of:

Circumstances where sales forecast are likely to be inaccurate:
❏ Business’s aims and objectives
❏ Plans to repay debts
● When a business is new so it’s difficult to interpret its sales data
❏ Cash flow forecast
● Demand is highly sensitive to changes in price and income elasticity
❏ Sales forecasts
● Significant changes in market share e.g. new market entrants
● Market subject to significant distribution from technological change.
+ Increases chances of obtaining external finance as a good plan proves the owners have done their research
+ Allows closer inspection of the various business area and identify any gaps in information
Sales volume = number of units sold in a given time period (sales revenue/selling price)
+ Reduces risk as it forces the entrepreneur to consider all factors that could cause the business idea to succeed or fail
+ Encourages analysis of the competitive position of the business and the market attractiveness
Sales revenue = amount of money coming into a business from the sale of goods or services (quantity sold x selling price)
+ Helps determine the amount and type of finance required
- Only a plan, reality likely to be different
Profit = sales revenue - total costs
- Dangers of becoming stuck on a plan
- Dangers of inflating revenue and deflating costs
Fixed costs: costs that do not vary directly with the level of output e.g. rent
Cashflow forecast: the flow of cash into and out of a business over a set period of time. A business will monitor cash flow to ensure it’s
Variable costs: costs which vary directly with the level of output e.g. raw materials
able to meet day to day expenses or put in place a provision such as an overdraft to allow for this

Total variable costs = quantity x variable cost per unit
+ Identifies potential shortfalls in advance
+ Makes sure that the business can afford to pay suppliers and employees
Total costs = fixed costs + variable costs
+ Heps to spot problems with customer payments
+ Provides reassurance to investors and lenders that the business is being managed properly
Break even point: point at which total revenue equals total costs meaning the business is neither making a profit or loss
- Poor cash flow forecast may lead to a usinees running out of and could become insolvent
- Difficult to create as businesses exist in dynamic markets where circumstances can change suddenly and frequently
Break even point (units) = total fixed costs/contribution per unit (selling price per unit - variable costs per unit)
- Lots of experience and research into the market is required to create an accurate forecast

Break even point (revenue) = break even point in units x price
Poor cash flows happen due to:

Total contribution = contribution per unit x quantity sold
● Sales prove lower than expected/costs prove higher than expected
● Customers don't pay up on time
Break even analysis:
● Over trading means there’s too much stock
● No cash flow forecasting therefore poor business management
+ Useful tool for management - influences decisions on whether new products are launched or not
+ Allows to predict future profit levels and set goals and targets accordingly = provides a target to work towards
Solutions to cash flow problems:
+ Can be used to set prices
+ Data generated can be used in business plan to obtain bank loans
1. Rescheduling payments
+ Simple planning tool which sets a target level of sales which must be reached in order for a firm to be profitable
+ Increase speed of receiving cash inflow = may lose sales
- Based on predicted data not actual data - information may be unreliable
+ Decrease speed of paying cash outflows = may damage relationship
- It’s a static model - it doesn’t take sales trends into account
2. Increase cash inflows: - Has limited use because of the many unrealistic assumptions made
+ Run a marketing campaign to increase sales = increased costs ➔ One same price used
+ Increase selling price = reduced sale ➔ No waste
➔ All units produced are sold
3. Sources of finance

The benefits of buying summaries with Stuvia:

Guaranteed quality through customer reviews

Guaranteed quality through customer reviews

Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.

Quick and easy check-out

Quick and easy check-out

You can quickly pay through credit card for the summaries. There is no membership needed.

Focus on what matters

Focus on what matters

Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!

Frequently asked questions

What do I get when I buy this document?

You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.

Satisfaction guarantee: how does it work?

Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.

Who am I buying these notes from?

Stuvia is a marketplace, so you are not buying this document from us, but from seller renataa. Stuvia facilitates payment to the seller.

Will I be stuck with a subscription?

No, you only buy these notes for £4.50. You're not tied to anything after your purchase.

Can Stuvia be trusted?

4.6 stars on Google & Trustpilot (+1000 reviews)

69052 documents were sold in the last 30 days

Founded in 2010, the go-to place to buy revision notes and other study material for 15 years now

Start selling
£4.50  8x  sold
  • (7)
Add to cart
Added