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Why change Aims & Objectives
The aim of a business can
change over time
...
Domination of the market: fewer threats
from competitors and could eliminate rivals
Why Grow?
owners enjoy the power and status that
comes from owning a large business
more likely to get financial support from the
government as they employ lots of people
purchasing economies: buying its supplies
in bulk so cheap unit price
Economies of Scale
marketing economies: cost of advertising
campaign is a fixed cost so they will spend
less per unit advertising its products
technical economies: can afford to operate
more advanced machinery
easier to raise finance
economies of scale
Benefits of Internal Growth
more profit
inexpensive to achieve
less riskier than taking over other
businesses
takes a long time to achieve growth
Disadvantages of Internal
Growth
growth achieved can be dependant on the of
the overall market
hard to build market share if the business is
already the market leader
Takeover is when one business buys
another business
...
Franchising is selling the right to use your
business idea and brand name to other
business
...
rapid growth
higher revenue and profit
Adv
...
of Horizontal
Integration
dis-economies of scale
Forward Vertical integration is a
merger/takeover of a business which is at a
later stage of the chain of production so it’s
the businesses distributer/customer
...
reduces transportation costs
diversification into other markets
Adv
...
of Vertical Integration
dis-economies of scale
regulatory problems
increases brand awareness
royalty payments
Adv
...
of Franchising
can lose control
you don’t get the entire profits earned by
the franchisee
Mainly concerned with the operating costs of
the location, what is costs to produce or
provide goods and services
Supply Factors
costs of the operation
Mainly affect customer service and
revenues
...
of Overseas businesses
Off Shoring
low-wage economies into perspective, the
hourly cost of labour in India and China is
around 5% of the cost of equivalent labour
hours in economies like the UK
Off shoring is where work is
done for a business by others
based overseas, usually where
labour costs are cheaper
...
Minimal paperwork
Disadvantages: unlimited liability
Harder to raise finance
Advantages:Minimal paperwork once
Partnership Agreement set up
Partnerships Adv&Disadv
...
of Product Portfolio
selling a single product may not generate
enough revenue
range can be sold to different segments of
the market
advertising: gain or remind audience
price reduction
Extension Strategies
adding value: new features of product
new packaging
Boston Matrix
A product portfolio is the range
of items sold by a business
...
Price Skimming
Initially charging a high price
then lowering the price
Penetration Pricing
Starting with a low price to
achieve market share, then
raising the price later
Premium Pricing
High price to enhance a
products high quality, luxury
image
Cost Plus Pricing
Price is set by calculating the
full costs of a product and
adding a profit margin
Physiological Pricing
Charging at a price which ends
in 99p is a way of deceiving
people into believing that the
product is cheaper than it really
is
Loss Leader
A product which is sold at, or
below, cost price to attract
customers
...
Direct Marketing
The term that describes a
range of promotional activities
that are aimed directly at the
customer, so bringing the
promotional message straight
tot the target audience
...
g
...
Distribution Channel
Agents
includes retailers, wholesalers,
distributors/sales agents
Sell the products and services
of producers in return for a
commission, percentage of the
sales revenue
Wholesalers
Stock a range of products from
several producers, sell onto
retailers
...
They are the final
link in the chain of distribution
...
advantages:
Larger amounts can be borrowed
Bank Loan
Disadvantages
Less flexible than an overdraft
Have to pay back in stated time or risk
further financial problems
advantages:
Flexibility – can change the amount
borrowed within limits
Overdrafts
Disadvantages
Cannot be used for large borrowing
Rates of interest higher than loans
Profit & Loss Account?
Profit and loss account looks at
all of the things that you have
bought and sold across the
year and takes away all of the
costs you had to pay during
that year
...
Trading Account
Calculates the amount of gross
profit the business makes
2
...
This includes
electric/gas/telephone bills,
staff wages, rent for
warehouse, van hire
3
...
Gross Profit=Gross sales - cost
of goods sold
net profit = operating profit ‒
interest - taxes
operating profit = gross profit ‒
total expenses
cost of goods = opening stock
+ purchases ‒ closing stock
Assets
everything that is owned by a
business which has value
Balance sheet
shows financial position of
assets and liabilities of a
business at specific moment
Liabilities
debts sum of money that is
owed
Liquidity
how easy it is to turn current
asset into cash
Current Assets
cash, cash equivalents,
expected to be turned into cash
during the next year
Depreciation
The reduction in value of fixed
assets belonging to a firm
...
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