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GCSE Business Studies Unit 2 Revision Notes
Growth objectives
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Provide a wider range of products
...

Employ more people
...

Make or increase profit
...


Benefits of expanding
Increase sales
...

Gain a higher market share
...
Methods of internal growth include:
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Opening new stores
...

Moving into new markets (Diversify)
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Operating as a franchise
...

Often slow but steady
...

Relatively low risk
...


A franchise is a company which gives businesses the right to trade under its name
...

Loss of control
...

Profits have to be shared
...

Risk to the brand’s image and reputation
...

The two methods of doing this are:
➢ Mergers
➢ Takeovers
A merger is when two businesses reach an agreement to operate as just one business
...
This is usually hostile
...

Vertical integration:
When two businesses at different production stages merge
...

Stakeholders:
Stakeholders are people with an interest in the business
...

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Employees want to protect their job
...

Groups like Greenpeace want the business to be eco-friendly
...

Customers want fair prices for the service/good
...

Consumer groups
...

Bank negotiations
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Media involvement
...

Limited liability whereby the company and owners are seen as separate
...

Shareholders can only lose money they have invested
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At least 25% (£12,500) of share have to be paid for
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PLC companies are listed on stock exchange
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Company gets exposure and more publicity
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Still limited liability
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➢ It is harder to manage
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➢ Expand internationally
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Bigger negotiating power
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Lack of competition can mean that the business can keep prices high
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2
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4
...


Research & Development – Money is spent by the business at this stage to research
Launch
Growth
Maturity – Extension strategies are brought in at this stage for the product to stay for longer
Decline

Wider range of customers
Bigger market share
Brand recognition

Expanding internationally
Harder to manage
High delivery costs
More competition
Risk of failure
Cultural risk / Offense

Effect of International expansion on :
Finance
Requires more capital
Higher costs
People
More people need to be employed
Bilingual people need to be employed
Marketing
More promotion needed to gain popularity and
recognition amongst consumers
Ops Management (Production)
More efficient methods have to be used
Increased production  More revenue
Social costs
Traffic / Congestion
Environment damaged
Air Pollution
Air noise
Social benefits
Employment
Educated workforce
Supporting local community
Created cleaner environment

Pricing strategies
Price skimming:
Price of product is set a high price during launch
...

E
...
Electrical items
Price penetration:
Price of product is kept low at the start but then gradually increased
...
This also is used to target a mass market
...
g
...

Loss leader:
Price of product is less than the cost of making the product
...

Attracts customers to other products in the shop
Cost plus:
This is when price of product is the cost of making the product + a set %
E
...
To make a bottle of milk, it costs Sainsbury’s £1, the profit mark-up is 65%, and therefore the
price of the milk bottle is increased to £1
...

Price leader strategy – This is when the business charges the highest price in the market
...

Nature of the market:
Who is the customer? How much are they willing to pay?
The degree of competition:
The less businesses there are, the less competition there is, therefore the business can set higher
prices
...
g
...
The main types of promotion for
this include: Radio, Newspapers, TV
➢ Business to Business (B2B)
This is when the business sells to another business
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This is promoted through industry magazines
...


Reasons why businesses need more finance as they grow:
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New machinery / Premises
Additional stock and supplies
Research and development of products
Recruitment and training
Takeovers

Sources of finance:
Retained Profit
This is when the business keeps the profit it makes
...

No repayments/interest
Loss of control
Lump sum
Bad publicity if there are few buyers of shares
Quick and easy
Less profit as SH get some money

Loans and mortgages
This is when the business borrows money from the bank
...

No repayments/interest
No longer have the asset
Quick to sell if buyers are available
May have to hire the equipment in the future

Profit and Loss Account and Balance Sheets (P&L A/C)
Financial statements:
➢ A business has to record all the transactions of money into and out of the business
➢ The transactions for a numerical history of the business
➢ They show either if the business has made a profit or loss and how much the business is
worth
Purpose:
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Keeps the business and other stakeholders informed on the performance of the business
Shows if there is a profit or a loss
Shows how much the business is worth
Tracks the flows of cash into and out of the business
Managers can see the payment of suppliers and receipts from customers
Helps in making future decisions

Profit and Loss Account:
This shows a summary of the firm’s income and expenses within a given period of time which is
usually 1 year or sometimes 6 months, this then allows the firm to see if they have made a profit or
loss
...
5:1
£200m

Debtors + Cash
Current Liabilities
Example
£109m+ £17m = 0
...
50 to pay
the debts from the current assets
...

This shows that liquidity is a poor, this it should
be of concern for the business

Stakeholders’ reasons for seeing financial documents of a business

Shareholders

P/L Account
Want higher profit to receive
better returns from their shares

Employees
Suppliers
Customers

Banks
The Government

Balance sheet

Would want to work for
renowned companies
See if the business will be able
to pay for the supplies
To see if the business has high
costs which may suggest that
the price of products may
increase
To see if the debts can be
repaid

Would want to buy from
renowned and well known
companies with high quality

To see how much tax they
should be paying

Organisational Structure

Marketing
Manager

Finance
Manager

Promotions
Manager

Overseas
Sales

1

Sales
Supervisor

2

3

Top of Hierarchy

Director

There are 3 Levels of
Management

3 assistants

6 assistants

Tall Organisational Structure
Many layers of management
Narrow span of control
Has a long communication flow

5 assistants

HR
Manager

Operations
Manager

Widest Span of Control

Wide Organisational Structure
Few layers of management
Wide span of control
Has a short communication flow

The organisational structure a business uses will affect how workers are treated including:
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Amount of responsibility
Level of supervision
Training
Motivation
Flow of communication
Opportunities

2 methods of decision making:
➢ Centralisation
When decisions are just made from the HQ
➢ Decentralisation
When decision are made by each branch of the organisation (Eg Different departments,
locations)

Management Control
Employee motivation
Speed of decision making
Flow of ideas
Quality of decisions

Centralisation
Maintain control over business
Told what to do – Not happy
Quick
Few people make choices
Slow – Many levels to flow down
Poor

Decentralisation
Lose control over business
Motivated – Make own decisions
Slow
Lots of people involved
Quick
Good
Caters to employees and
customers needs

Recruitment and Retention of Staff
Method of recruiting a person:
1
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Write a Job Description
Explanation of the job role, states: Pay, Duties, Hours, Location, Holiday length, Entitlements
3
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Publish the application form to the public
5
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Interviews and Aptitude Tests
Find out what the person is like and see whether or not they have the ability to do the job
7
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Sometimes, pay is determined by PRP which is Performance Related Pay
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Training
Induction
It occurs when a person begins the
job
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On-The-Job
Training inside of the workplace,
own employees train other

Off-The-Job
Training outside of the workplace

Advantages

Easy to monitor success of
employee
Business doesn’t have to pay
additional costs

Trainers are very skilled
Employees can get motivated
because they may learn new skills

Disadvantages

Lack of productivity as trainer is
giving up their time
Internal trainers may lack skills
and necessary training

Expensive
Lack of productivity as employee is
not working
Time consuming

Explanation

Motivation:
➢ Training
Employees will gain new skills-they will know what they are doing-they wouldn’t rely on others
➢ Remunerations
Wages/Salaries
Piece Rate – Payment for every unit of output
Commission – Earning a % of what you sell
Bonuses
PRP
Employee Share Ownership – Employees get dividends
Profit sharing – Employees get a % of the profits
➢ Style of Management :
Autocratic Management – Manager makes all the decision without consulting employees
Democratic Management – Employees are involved with the decision making

Flow production:
This is when items are created in a continuous production flow
...

Speciation is when an employee is highly skilled in doing a certain job; therefore they are usually
paid more
...

Advantages
Efficient process
Consistent quality
Low cost per unit

Disadvantages
High initial costs
➢ Training
➢ Machinery
➢ Computers
Mistakes could shutdown process
Repetitiveness could de-motivate employees

Lean Production Techniques
They are methods used to increase efficiency and reduce costs
➢ Just In Time
Reduces the amount of time stock is held, it is delivered exactly when it is required
➢ Kaizen
Small improvements are made along the way
Requires all the employees and staff to have an input and to work together
The effect of JIT and Kaizen:
On training
Build relationships with suppliers
Manage stock movement
identify areas of improvement

On motivation
Greater involvement from everyone
Team work
Better efficiency



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