WebDesPix
AN OVERVIEW OF ISSUES
TO DO WITH WEBDESPIX (WDP)
This is only a start look at your booklets and notes!
CONTEXT – WebDesPix Ltd (WDP)
In 1999, three students (Tom, Dee and Ali) in the final year of their Computer Studies degrees at Bristol University decided to start
a business designing websites. The business was called WebDesPix (WDP). On the advice of Tom’s father, John, WDP was a
private limited company. John is still involved with the company as non-executive Chair and attends a monthly board meeting,
travelling from Suffolk to Bristol. The company has always been located in Bristol. Tom says, “We could have run the company
from anywhere in England but, as we were all from different parts of the country, it was easier to locate where we had studied”.
The initial capital of £8 000 was raised from the three families. Ali left the company after two years and was bought out by Tom and
Dee, who each now own 50% of the shares. They are planning to give John shares in the company. It is company policy to reinvest profits. The company has never had a bank loan but uses an overdraft facility.
The objectives of WDP for 2009 were to:
• consolidate following two years of sustained growth (15% on turnover per annum)
• market all products on-line
• increase use of e-commerce in its own website and those it designs for other companies
• continue trading in a competitive market where anybody can set up as a web designer.
Web design is still the core business of the company but new services include electronic newsletters, domain registrations, hosting
and search engine optimisation. The company offers three standard web design packages: Budget at £800, Professional at £1 000
and Executive at £1 500. Each package provides a number of web pages, e-mail facilities and the costs of hosting the site. WDP
will give a quotation to clients who require non-standard packages. The majority of clients are in the South West of England but
25% of the company’s income is from clients in the South East. WDP uses branding, shown below, with the tag line, ‘Like ducks to
water’.
The company is labour-intensive with relatively small overheads. WDP builds and upgrades its own computers. Tom is responsible
for sales and finance, and Dee for design and health & safety. All other areas of the business are shared between them. There are
seven full-time employees: two sales assistants, two computer coders, two search engine optimisers and a design assistant. All of
these salaried positions require highly-qualified (a degree in IT) and skilled people who train new employees as required.
Vacancies are advertised on the company website and at regular networking meetings with other businesses in the Bristol area.
Tom and Dee interview all applicants personally. There is a three-month probationary period for all new employees.
There are two part-time employees: a Personal Assistant (PA) for Tom and a bookkeeper. The part-time employees present
monthly invoices for their services. Full-time employees receive a monthly bonus based on turnover; free health insurance after six
months’ employment; a free lunch each Friday and the use of a Wii during their breaks. Office hours are five days a week from
0900 to 1730. The two sales assistants receive, in addition to their salary, a commission of 12½% on their sales. No employee
works from home.
The main form of communication is by e-mail. Fax is now rarely used. There is occasional use of video-conferencing. The
company website displays examples of its web design work. Tom says, “Networking meetings and word-of-mouth are very
important and bring us most of our clients”. All financial documents are raised by the Sage Accounting package and the PA uses
Word, Excel, PowerPoint, Access and Outlook.
WebDesPix
TYPES OF BUSINESS
Private Limited Company
Definition of a (LTD)
WDP is a private limited company that is run
by its shareholders, but these
shareholders are made up of only family
and friends (Tom, Dee and John). Shares
for WDP are not available to the general
public and are not sold on the stock
exchange.
How WDP was set up
• Step 1 – A memorandum of association
and articles of association was prepared.
• Step 2 – These documents were sent to
the registrar of companies
• Step 3 – The registrar of companies
issued a certificate of incorporation which
allowed WDP to start trading.
What type of Business is WDP?
LTD
Private Limited Company
What are the advantages of staying an Ltd?
They have limited liability, can’t be taken over –
stays in Family. Have total control.
Why did they become an LTD?
• Have limited liability – rather than unlimited can’t take
PW
• Can raise/get capital into the business
by selling Shares to family/friends,
Directors control who they sell to.
• Easier to get better loan deals (cheaper)
– better risk for Banks
• Better credit facilities from suppliers
How is it formed?
Memorandum of Association
Articles of Association
Registrar of Companies
Certificate of Incorporation
Advantages and Disadvantages of WDP’s
type of ownership.
• It can raise capital by issuing (selling) shares,
but not to the general public.
• The owners have limited liability.
• WDP has its own legal identity
• Money can be raised by selling shares to their
friends and family.
• WDP cannot sell shares on the stock market.
• Annual reports have to be produced by law.
Reasons why WDP might
change ownership
1. Growth of the business
2. To raise extra capital
Growth/decline of the
business
• As WDP grows it will need new sources of
capital and it may need to change its legal
structure.
Obtaining finance
– As a public limited company (Plc) WDP will be able to raise
considerably more capital than a private limited company
(Ltd).
– But remember, we are in a recession difficult to launch on the
stock market and it would be very expensive. Not a realistic
option for WDP.
Changing to a Public Limited
Company
Definition of a (PLC):
A public limited company is a business that is run by
shareholders, the shares can be bought by any one, and
its shares can be bought on the stock exchange.
What sector does WDP operate
in?
WDP provides web design, electronic
newsletters, domain registration, hosting
and engine search optimisation services.
They therefore operate within the tertiary
sector.
This is where finished product can be sold.
This sector provides both goods and
services.
Main Roles and
responsibilities of those
involved in LTD’s
WILF:
The meaning and responsibilities of:
1. CEO
2. Board of directors
3. Chief executive chair
Activity:
Use the case study to answer the following
questions:
1. Who are the owners of WDP?
2. Who are the directors of WDP?
3. Who the non-executive chief of WDP
is?
4. Who the board of directors of WDP
might be?
Who are the owners of WDP?
WDP is owned by its shareholders which
are currently Tom, Dee and members of
their families (including Ali’s as they all
invested capital into the business).
Who are the directors of
WDP?
The Directors of WDP are Tom and Dee.
Roles and responsibilities of Tom and Dee:
1. Act on behalf of the shareholders
2. Run the day to day affairs of WDP
3. Provide reports to shareholders about WDP
performance, future plans and strategies.
4. Prepare the articles and memorandum of
association. The objectives of the company are
defined in the Memorandum of Association and
regulations are laid out in the Articles of
Association.
5. Hold yearly board meetings
What is John’s position with
WDP?
Johns position within WDP is that of nonexecutive chair. His main roles and
responsibilities are to:
1. Work with Tom and Dee to develop an
appropriate schedule and agendas for
board meetings.
2. Chairing all meetings of the Board
3. Address all issues relating to the
performance of individual directors Tom and
Dee.
Who are the board of
directors?
The board of directors of WDP will be made
up of Tom, Dee, John and shareholders.
The members of the board (other than
Tom, Dee and John) will be decided by
the shareholders voting.
Communication between the
board of directors and
shareholders
1. Communication between the board
and shareholders happens mainly
through yearly meeting called annual
general meetings.
2. The board meet monthly to discuss
WDP performance.
WDP may look to see if they can use any Economies of Scale
• Buying – buy in bulk cheaper
prices
What are they, give
me (4)?
• Marketing – cost of advertising
per item cheaper
• Financial – Easier to borrow
money at better rates, issue shares
• Administrative – can afford
specialist managers
Diseconomies of Scale Sometimes can be a
problem – How?
• Decisions take longer
• Communication poor with staff
• Employees feel demotivated
• May lead to trade union problems
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LOCATION
•
•
•
•
Factors which may influence a
business’s choice of location
include:
Close to customers
Availability of skilled labour
Transport links for suppliers and distribution
Financial help available from the
government
• History and tradition
• Wage levels
Close to Customers
• These businesses depend on customers
passing through their doors and spending
money. Locating near their customer base
increases their chances of making sales.
Availability and Cost of Skilled
Labour
• The cost of labour varies in different parts
of the UK, because of levels of
unemployment and differences in living
costs. Wages in London are usually higher
than in the rest of the UK.
• Businesses need people to work for them.
Consequently, businesses often set up in
populated areas.
Transport Links for
Suppliers and Distribution
• Most businesses need to be easily
accessible to their suppliers and
distributors.
• Businesses that distribute their products
within the UK or overseas will have to
think about access to the transport
infrastructure.
Financial help available from the
government
• The government can give grants, tax relief
and subsidies to businesses that set-up in
areas of high unemployment. The aim is
to try and create new jobs.
Benefits:
These incentives can drastically cut a
business costs.
History and tradition
• Sometimes businesses will locate in a
certain area because there is a history of
that type of business in the area.
Benefits of this will be:
- People in the area have the skills that are
needed.
- Local colleges provide special training for
the type of work required.
Wage levels
• The average wage offered by businesses
varies in different parts of the UK.
• So business need to think about the wage
or salary that people in that area will
expect as this can raise their costs.
Think about this. Do you feel that WDP should stay in Bristol or maybe move to
the South East where 25% of their customers are. Be able to answer reasons
for and against moving location.
WebDesPix
HUMAN RESOURCES
External Recruitment
1. Methods used by WDP to recruit
and select staff
2. How their recruitment and selection
process can differ
Starter
1. Use the case study to identify what
methods of recruitment and section WDP
use to recruit staff.
2. List one advantage and drawback for
WDP using these methods for both
recruitment and selection.
What methods do WDP use at
the moment to recruit staff?
Vacancies at WDP are advertised via:
• the company website
• Networking meetings
What selection methods do WDP
use to recruit staff?
Selection at WDP takes the form of:
• Interview (Tom and Dee carry these out
personally).
• All applicants have a 3 month
probationary period.
The stages in recruitment that WDP
will need to go through to recruit staff
In order to externally recruit staff WDP will go through the
following stages:
1. Write a job description
2. Write a person specification
3. Advertise job via their website or at networking
meetings
4. Receive applications
5. Shortlist
6. Interview
7. Appoint successful applicant (subject to references)
8. Check references
Other methods of recruitment
that WDP could use to
advertise/recruit staff
Other external methods of recruitment that could be used
by WDP:
• Bristol local newspaper
• ICT related professional journal/magazines
• Job Centre
• Recruitment agency
• Careers Service
• Head hunting
• Local radio
• University Career Fairs
• Competitors staff!
Things that WDP will need to
consider when deciding to
recruit staff
• How quickly vacancy needs to be filled
• Pay
• Skills, qualifications and experience
needed
• Local supply and demand for jobs
• Importance of job to organisation
• Size of organisation
Method
Advantage
Disadvantage
Job centres
It’s a free service.
Not all the people that attend my have
the skills WDP are looking for.
Local newspaper
Jobs advertised will be specific to that
area. So WDP may be able to recruit a
local worker.
Usually only advertise jobs one day a
week.
National newspaper
Has the potential to reach a large
amount of people.
WDP will have to abide by strict laws
concerning discrimination. Usually only
used to recruit managers and specialist
staff.
Specialist magazines
WDP can target specialist staff i.e.
dentists.
Can be very expensive.
Employment agencies
WDP can send details of vacancies to
the employment agency who will match
up any potential employees from their
records of people who have registered
on their books.
WDP has to pay for the service to find
the right candidate.
Local radio
A useful opportunity for WDP to
advertise their business. WDP can
reach a large number of people at one
time.
WDP adverts will only come on at
certain time slots, people may not be
listening.
Networking meetings
Can save WDP a great amount of time
and money.
Word-of-mouth recommendation does
not always mean the person can do the
job.
Selection stages that WDP
will need to go through
1. Receive application forms or CVs – to find out
qualifications and experience
2. Shortlist - by comparing applications with person
specification
3. Interview – to judge qualities not possible to judge from
written applications
-
also to give applicants a chance to find out about the WDP.
Could also include a test to find out whether candidate has key
skills needed for the post
4. Call for references – to check performance in a
previous job or to check character
Method
Advantage
Disadvantage
Curriculum Vitaes
WDP can quickly get brief history of the
applicants career, qualifications,
experience and interests. They can
quickly establish if they match her
person specification.
Sometime they are not honest and
reliable.
Application form
WDP is able to collect the information
that they want by designing the
application form.
They involve printing and posting costs
for WDP.
Interviews
It’s can be a good way of finding out
the persons reasons for applying for
the job. John and Dee can ask
questions regarding information to do
with the job face-to-face. They can see
their personality.
Not always the most reliable method, it
is difficult to check what the applicant is
actually like or whether they are
capable of doing the job.
Aptitude Tests
WDP can test the applicants skills in
carrying out specific duties to do with
the job.
Involves a lot of time and preparation to
set-up the newsletter or web page etc
that they want the applicant to adapt or
build.
Letters of application
WDP may get an idea of the applicants
personality and written communication
skills.
Sometime they are not honest and
reliable. Takes time to read.
References
WDP will get a written account of the
applicants personality, time-keeping,
honesty, reliability and work.
Reference may not be always totally be
honest and reliable.
Why is it Important to Have a Good
Recruitment and Selection Process?
It is important for WDP to have a good
recruitment process for the following
reasons:
• John and Dee can make sure that she
employ’s the best person for the job. This
person should in-turn bring new ideas into
the practice, and help them towards
achieving their overall business aims and
objectives.
Exam Question 1
WDP are growing. As a result John and
Dee decide to recruit new members of
staff.
Explain the stages they will go through in
recruiting and selecting new employees
(4 marks)
Exam question 2
WDP need to recruit a new sales team.
Identify and evaluate suitable methods
of:
• recruiting and selecting
• Training
• Motivating
The new team (12 marks)
Exam question 3
WDP has to advertise for a new member of staff to work at
the business. They must choose one of the following to
advertise for the new member of staff:
• A free weekly paper that serves the local town.
• Local radio
• ICT related professional journal/magazines
• Job Centre
1. From the list choose a suitable source to advertise for the
new member of staff. Give one reason for your choice
(2 marks).
2. Suggest one disadvantage to WDP of using the source
you have chosen (1 mark).
WebDesPix
Employment Legislation
How the law will affects the way
WDP recruits and selects staff
Keywords:
• Discrimination – When you don’t give
someone a job or treat them differently
because of their colour, sex, or race.
Sex Discrimination Act
What the Act says: It is illegal to discriminate
against anyone because of their sex or marital
status.
How this will affect WDP: When advertising a
vacancy John and Dee must be careful with the
language and wording used in the advert. When
selecting the best candidate for the job they
cannot be seen to be choosing the candidate
based on their sex or martial status. They
should also not promote, train, or dismiss any of
their staff on these grounds.
Race Relations Act
What the Act says: It is illegal to discriminate
against someone on the basis of race, ethnic
group or colour.
How this will affect WDP: When advertising a
vacancy WDP must be careful with the language
and wording used in the advert and must not
show preference to a particular ethnic group.
When selecting the best candidate for the job
John and Dee cannot be seen to be choosing
the candidate based on their ethnic group.
They should also not promote, train, or dismiss
any of their staff on these grounds.
Equal Pay Act
What the Act says: An employee who does
similar work as someone else of the
opposite sex is entitled to equal rates of
pay and conditions. Men and women
should be given equal pay.
How this will affect WDP: WDP must pay
all their staff that do the same job i.e. the 2
sales assistants, the same amount of pay
regardless of their gender.
Disability Discrimination Act
What the Act says: It is unlawful to discriminate
against a person on the grounds of disability.
How this will affect WDP: When advertising a
vacancy WDP must be careful with the language
and wording used in the advert. When selecting
the best candidate for the job John and Dee
cannot be seen to be choosing the candidate
based on a disability they may have, as long as
the disability will not affect them from carrying
out the job. WDP should also not promote, train,
or dismiss any of their staff on these grounds.
Exam question 1
Advise how the following acts will influence how
John and Dee writes the job advertisement and
carries out the selection process:
• Race relations
• Sex discriminations
• Disability discrimination
• Equal pay
(8 marks)
Benefits and drawbacks of
WDP using probationary
periods as part of the
recruitment process
What is a probationary
period?
A trial period for new employees, prior to
their employment becoming permanent.
Up to a maximum of 90 days.
Advantages and disadvantages of
WDP using probationary periods
• Evaluation – WDP can evaluate the employee
performance before making them permanent.
Less risk.
• Termination – WDP can terminate the employee
without repercussion.
• Resignation - On the flip side, a disadvantage
of probation period is that an employee can
resign at will, leaving the WDP with an
unexpected vacancy.
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QUALITY OF SERVICE /
CUSTOMER CARE
IN BUSINESS?
WDP want to make sure their staff provide a quality service
What quality programmes could they put in to do this?
• Set up their own training prog at work – to set basic
standards – diplomas for staff gaining levels + bonus
• TQM – Total quality Management, everyone involved
in keeping an eye on quality
• Quality Circles – groups of employees looking after
different sections and making sure quality is good
• Kaizen – (Japanese concept) continuous improvement
on a day to day basis
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MARKETING
THE BUSINESS?
WDP say
they are
market
orientated
what does
this mean?
WDP
• Market Research :
Primary – questionnaires
Secondary – using reports
How then can they make sure that they
provide what their customers want? Give
ways of doing this
• Focus groups
• Telephone surveys / questionnaires from
customer data base
• Check out what their competitors are
doing
• Going to exhibitions for web design companies
WebDesPix
USE OF TECHNOLOGY
IN BUSINESS
Websites
What can WDP use the Web for:
1. Marketing all their products – creating
awareness of their services.
2. Advertising their services
3. Emailing - communicating with its
customers.
E-commerce
What is e-commerce?
E-commerce means to sell products or services
over the internet.
What can WDP use e-commerce for:
1. Customers can order WDP products online
and pay for then using their credit or debit
card. Once paid for WDP will forward them
their design package e.g. web page, e-mail
facilities etc.
Benefits of WDP using ecommerce
Advantages:
1. WDP can sell products anywhere in the
world, thus increasing their market share.
2. WDP can reduce costs as the cost of
downloading information on their
services is paid for by the internet user
not WDP.
3. There is no need for WDP to hire a large
sales team as most of the sales take
place over the net.
Exam Question
What are the advantages to WDP of
communicating electronically via the
website, email and e-commerce? 6 marks
Sources of finance that
WDP can use to help
achieve their objectives
Objectives:
• Market all products on line.
• Increase the use of e-commerce
• Survive within a competitive market
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USE OF E COMMERCE
IN BUSINESS
E-commerce
What is it?
Using E-commerce gives businesses access to
customers all over the word.
This is known as ‘The global market’ which is
reached by means of a website.
Think of examples of websites you or your family
frequently use to make purchases.
What do you think are the
advantages for businesses of
using e-commerce?
Advantages of e-commerce for
a business
• Access to the global market means the
business will be better known
• A business using e-commerce can get ahead
of its rivals
• Increased sales, leading to increased profit
• Savings on expensive showrooms
• Reduced advertising costs
• Increased sales leads to ‘economies of scale’
• Business is open 24/7
What do you think are the
advantages for customers of
using e-commerce?
Advantages of e-commerce for
customers
• Customers have a huge range of goods to
choose from
• They can ‘shop around’ the ‘web’ for the best
bargain
• Internet prices are often lower than in shops
• Customers can shop from the comfort of
their own home ’24/7’
What do you think are the
disadvantages for businesses
of using e-commerce?
Disadvantages of e-commerce
for a business
• Being part of the global market means the
business is in competition with lots of others
• Designing and keeping the website up-todate is expensive and requires specialists
• Market research needs to be very detailed to
meet the needs of customers in such a wide
market
• Packing and distribution of products can be
very costly and involve long distances
• Not all the businesses target customers have
access to the internet.
What do you think are the
disadvantages for customers of
using e-commerce?
Disadvantages of e-commerce
for customers
• Customers need to own or have access to a
computer and be on-line and know how to use
the Internet.
• It is not easy to assess the quality and
suitability of many products on the screen.
• Inconvenience of returning unwanted goods.
• Customers usually have to have a credit card
to make Internet purchases
• Security risks of buying on-line
Things to think
about!
One of WDP’s objectives is to
expand the use of e-commerce on its own
website.
Evaluate this decision. (12 marks)
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HOW CAN WDP
RAISE FINANCE?
Why does WDP need to raise
finance?
In order to raise finance to achieve their
objectives for 2009 WDP will need to raise
finance. This can come from both internal
and external sources.
• Internal sources = re-invested profits,
share capital.
• Short-term external sources = overdraft
and loans.
What is an overdraft?
An overdraft is when a business draws more
money from its bank account than it currently
has in its account through an agreement with
the Bank.
Advantages of use:
1. WDP can borrow money when needed.
2. Interest is only paid when the money is taken
out.
Disadvantages:
1. Banks can insist that It can be repaid
immediately.
What are loans?
A loan is a sum of money borrowed from a bank.
The loan has to be re-paid in fixed monthly
instalments.
Disadvantages of use:
1. Interest is payable on the loan.
2. Banks may require WDP to provide security or
collateral against the loan. Which means the
bank will sell some of WDPs assets (things
which it owns) if it fails to make the payments.
3. Can be affected by a raise in interest rates.
How could a change in
interest rates affect WDPs
loan or overdraft repayments?
What are interest rates?
Is the percentage that is charged for borrowing.
High interest rates: Will mean that the charge for
borrowing money will be high. WDP will have to
pay a lot of interest on top of its borrowing.
Low interest rates: Will mean that the charge for
borrowing will be low. WDP will have to pay
back less interest on their borrowing.
Illustration of interest rates
If WDP borrowed £8000 from the bank in the
form of a short-term loan, in order to
increase the use of e-commerce, with an
interest rate of 5%.
1. How much would WDP need to pay back
to the bank in total? £8400
2. If interest rates increased to 9%. How
much in total would they need to
payback to the bank. £8720
Exam question
1. WDP are considering approaching the bank for
a bank loan as additional finance to help them
achieve their objectives.
Discuss the advantages and disadvantages of this
decision. 6 marks.
2. Outline the affects on WDP if interest rates
increase during the year they have taken out
the bank loan. 4 marks
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MOTIVATION
ISSUES?
Motivation
•
Motivation in practice is all about, how firms get the most out of their
employees at work. The terms explained below are just some of ways
in which business motivates 'in practice'
•
Job enlargement - means increasing the scope of the job. Could be
increasing the workload (job loading) more of the same or giving
people more responsibility (job enrichment).
•
Job enrichment - increasing the amount of responsibilities workers
have. Giving workers a range of responsibilities and tasks, a complete
unit of work, responsibility for quality and self-checking and
opportunity to show their responsibility.
•
Job rotation - proving a range of activities to decrease the boredom.
Motivation in practice – cont..
Team working - the attempt to maximise
worker satisfaction by organising
employees into teams. Characteristics of
teams might include multi-skilling, selfchecking, autonomous worker groups
(Kaizen, quality).
Empowerment - gives workers the authority to
carry out the task, how the want to carry
that task out and what the task should be.
By empowering workers they are given
more control over their working lives and
greater responsibility. This method
involves delegating power away, it is
therefore not such a good idea if control is
important.
Motivation: Financial and non-financial incentives
Financial Incentives
•
Piecework
Workers paid per unit. Piecework encourages
workers to produce more to meet targets and
therefore might result in poor quality products.
This form of payment might therefore not suit
everyone and is not conducive to teamwork.
•
Performance-related pay
People's pay is related to how well they
perform in their jobs. Often this is related to
appraisal system. People might be awarded
anywhere between 0-7% depending on how
well they've performed and met their targets.
This method of pay could be open to abuse by
managers and how can you measure the
performance of some workers e.g. teachers,
policemen, nurses etc.?
To make sure B&R’s staff provide a quality service/product they’ve got to be
motivated! Draw a diagram of Maslow’s & Herzberg’s theories + what are they
called?
SELF ACTUALISATION
STATUS
SOCIAL
SECURITY
SURVIVAL
MASLOW
PAY
CONDITIONS
PRAISE
RECOGNITION
PROMOTION
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EXTRA INCENTIVES – BONUS/
COMMISSION ISSUES?
How does WDP use
Commission?
Commission jobs pay you on the amount of sales
you create. WDP pay part commission and part
wage to two of their sales staff. The commission
is paid on the amount of sales made for WDP
services/products. The more the sales assistants
sell, the more money they will get as
"commission“. Therefore there is no end to how
much they can earn in a commission job.
Advantages and disadvantages
of WDP using commission as a
method of payment
• It’s a form of motivation for their employees to
really try and sell WDP’s services/products.
• Is a strong indicator of employee productivity.
• Can also act as a de-motivator if no sales are
made.
• Sales people may cut corners to make sales
(e.g. not explain WDPs products or services in
enough detail to potential customers).
To keep the Staff motivated WDP
need to have different incentive
packages
Benefits?
MANAGERS MAY GET
EXTRAS SUCH AS:
- HEALTH INSURANCE
- COMPANY CAR
- SHARE OPTIONS
Non Financial package (fringe
benefits)?
• PENSION SCHEMES
• DISCOUNT ON USE OF LEISURE
FACILITIES
• FREE BUS SERVICE TO WORK
• FREE CAR PARKING
• SUBSIDISED CANTEEN MEALS
• FREE UNIFORM
WebDesPix
HOW CAN THE GOVERNMENT
AFFECT THE ACTIVITIES OF WDP?
Change exchange rates
As WDP are an internet company they have a
potentially national (if not global) market. If
WDP sell their products/services abroad they will
need to consider the affect that a change in
exchange rates will have on their business:
• A fall in value of the £ – will mean that WDP
products/services will seem more attractive to
overseas customers as they will be cheaper.
More sales.
• A rise in value of the £ - will have the opposite
effect on WDP.
Change in interest rates
• Cost of borrowing: if WDP decided to take out
a loan the interest charged on the sum borrowed
will affect their costs. A rise in rates will mean
that WDP costs will rise as they have to pay
back more interest on their loan and visa versa.
• Consumer spending: A rise in rates will cause
consumers to cut back spending on ‘nonessential’ items such WDP products/services
and vice versa.
WebDesPix
METHODS OF COMMUNICATION
The effects of good and poor
communication on WDP
What methods of communication
do WDP use to communicate?
Starter question:
1. Identify which methods of communication
WDP use to communicate. Separate
these into Oral, written and electronic
methods.
2. List the advantages and disadvantages
of WDP using each of these methods to
communicate.
Benefits and drawbacks of using
Email
1.
2.
3.
4.
5.
6.
Benefits
Messages can be keyed
in and stored until
needed.
People can keep in
touch easily.
One message can be
sent to a number of
different people at the
same time.
Can be printed out
Attachments.
Messages can be
saved.
1.
2.
3.
4.
5.
6.
Drawbacks
Users need a modem
and computer and
provider.
Connections can be
lost.
Users have to check
their mail regularly.
Server problems will
affect communication.
Easy to delete
messages.
Messages can be
intercepted – not good
for confidentiality.
Benefits and drawbacks of WDP
using video conferencing
Benefits
1. Save people
travelling to
meetings (John).
2. Face to face
communication.
3. Saving cost and
time.
Drawbacks
1. Links may not be
good.
2. Hardware is
expensive.
3. Everyone needs to
be available at the
same time.
Benefits and drawbacks of WDP
meetings
1.
2.
3.
4.
Benefits
Everyone gets the same
information.
Issues can be
discussed freely.
Feedback can be given
and received,
immediately.
Problems can be sorted
quickly
1.
2.
3.
4.
Drawbacks
In large meetings there
is no way of checking
that everyone is
listening, or understood.
Not everyone is always
available.
Not everyone has
confidence to talk at
meetings.
Cost of travelling to
meetings.
Benefits and drawbacks of
WDP using a computerised
system to manage their
Benefits finances. Drawbacks
1. Speed – Can be used
to create invoices,
prepare budgets,
produce quotations,
keep track of travel
expenses.
2. Time saving –
calculations can be
made in a fraction of a
second.
3. Accuracy
4. Adaptability
1. Complexity – Use of
Formulas
2. Set-up cost – Buying
hardware and software,
cost of training, and
updates.
Benefits of WDP having good
communication
• Ensures that action is consistent and coordinated.
• Encourages motivation – as employees feel they have a
say.
• Jobs can be completed correctly and on time.
• Provides shareholders, directors and managers with
information on which to base decisions.
• Provides feedback.
• -----------------------------------• Communicating with Staff? Daily morning meeting to
discuss issues
• Notice board/ newsletter
• Updated via emails
• Social events (use of informal communication)
Drawbacks of WDP having poor
communication
•
•
•
•
Orders can be lost.
Poor motivation
Loss of shareholders
Increased workload – trying to mend
errors.
• Poor business image.
EXAM QUESTION
1. The directors of WDP plan to use the internet to
advertise their new product range. Discuss
whether this is an appropriate method. (4 marks)
2. WDP also communicates with interested people
through its website, which has an e-mail facility.
What are the advantages, to WDP, of communicating
electronically via the website and e-mail.
WebDesPix
CASHFLOW FORECASTS
Cash Flow
• Cash flow is the relationship between the
money coming into a business and the
money going out.
Sales revenue
Own capital
Loans
Rent
Materials
Wages
Utility Bills
Advertising
Cash versus Profit
• Good cash flow does not mean profit!
• You may have enough money to pay the
bills but if it is taken from loans or your
own pocket it is not profit.
• Equally you can make a profit over a year
but have times when there is a cash flow
crisis.
Cash Flow Forecast
• A cash flow forecast is a prediction of
future cash inflows and outflows.
• Firms carry out cash flow forecasting to
help them plan and manage their shortterm finances.
Uses of Cash Flow Forecasting
• Helps a business to plan ahead for future
finances.
• Helps to identify potential problems and
months when the business will have a
cash shortfall. Firms can then make
changes to improve cash flow
• A cash flow forecast will be needed to
obtain finance such as a bank loan
Managing Cash Flow
• A business needs to:
• Forecast cash flow
• Identify any future cash flow problems
such as a deficit
• Analyse the cause
• Take action to prevent a cash flow crisis
What are the causes of cash flow
problems?
•
•
•
•
A fall in the number of customers (low sales)
Giving customers too long a credit period
Bad debts (customers not paying)
Paying out for supplies, salaries etc before
receiving revenue from customers
• Large payments for bills e.g. electricity bills
paid quarterly
• Purchasing large pieces of equipment
without sufficient funds.
• Seasonal demand
Exam Focus:
What cash flow problems is WDP likely
to face?
• Paying out for staffing, supplies & overheads
before receiving revenue from customers as it is
likely to give customers a credit period.
• Bad debts – a possibility in the current economic
climate.
• Purchasing pieces of equipment e.g replacing
computers without having sufficient funds
arranged
How can cash flow be
improved?
• Promote or attract new customers to get
revenue
• Obtain trade credit from suppliers
• Reduce credit periods for customers or obtain
deposits/part payments
• Actively chase debts
• Put off purchases of equipment or lease them
• Spread payments of bills
• Arrange an overdraft facility.
CASH FLOW
Jan
Feb
March
April
May
Income
2000
1500
2000
2500
4000
Expenditure
1500
2500
3000
2000
3000
Opening
balance
1000
1500
500
(500)
000
Closing
balance
1500
500
(500)
000
1000
WDP’s bank account has a closing balance of 1000 in December
Work out the cashflow figures
Are there any problems, what do you suggest WDP does?
Practice Question
• Tom is responsible for dealing with the
financial management of WDP. One of the
ways he does this is by managing the
cash flow.
• (a) Using examples of cash flow problems,
explain how Tom could limit their
impact.(8)
WebDesPix
FINANCE – FINAL ACCOUNTS
Company Accounts
At the end of each year every company must
complete its final accounts. These must by law
include 2 accounts.
The Profit and Loss
Account
The Balance Sheet
This shows the sales
revenue, costs and profit
of the business over a
one year period
This shows what the
business owns (assets)
and what it owes
(liabilities).
Who is interested in the accounts?
• The government – for tax purposes
• Shareholders – to check investment
• Banks & creditors – to check the business is
safe
• Managers – to help improve the performance of
the company
• Competitors – to see how they compare
What is profit?
• The business makes a profit if the income from
selling goods & services is more than the costs
paid out in running the business. If the business
cannot cover its costs it will make a loss
Profit = Sales Turnover – Total Costs
The Profit and Loss Account
• This shows how the revenues, costs and
profits are recorded by the business.
The Trading Account
• This shows how gross profit is calculated:
Gross Profit = Sales Turnover – Cost of Sales
Gross Profit
• Gross profit just shows how much profit is
left after the variable costs have been
paid. E.g. How much its making on its
sales.
• The higher the gross profit the better the
business is doing and the more money
they have to pay off their expenses.
The Profit and Loss Account
• This shows how net profit is calculated.
Net Profit = Gross Profit – Expenses
Net Profit
• The net profit is the real profit of the
business it is what is left after the running
costs/expenses/overheads for the
company have been paid.
• The higher the net profit the more
successful the business.
The Appropriation Account
• This shows what happens to the net profit
and how much profit is retained by the
business for future use.
Retained Profit =
Net Profit – Taxation - Dividends
Can you fill out the Full Profit & Loss account?
Sales
600
Cost of Sales 200
----------------------------? GROSS
PROFIT
?
400
-----------------------------
Overheads
150
---------------------------? NET
?
PROFIT
250
----------------------------
Dividends
50
Tax
75
---------------------------? RETAINED
PROFIT
?
125
----------------------------
Extract from WDP’s financial
statement for 2006
Turnover
2 121 920
Expenses
1 878 924
Fixed Assets
275 833
Current Assets
902 440
Current Liabilities
366 413
Capital & Reserves 811 860
Another name for
Turnover?
Which item would
show WDP’s
debtors?
List 3 expenses?
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RATIO ANALYSIS
Ratio Analysis
• We can use ratios to judge the profitability
of the business.
• Gross Profit Margin
• Net Profit Margin
• Return on Capital Employed (ROCE)
The Directors of WDP, have asked their Accountant to work out some
Ratios for them. Calculate the results
2006
£
Sales
Cost of Sales
Gross Profit
2 636 248
1 907 787
2005
£
2 686 140
1 904 417
?
728 461
?
781 723
Gross Profit ratio = Gross Profit x 100 = %
Sales
What is the Gross Profit for both Years?
Calculate the Gross Profit ratio for both
years
What action should the Directors look
to take?
2006
728 461 x 100 = 27.63%
2636248
2005
781 723 x 100 = 29.10%
2686140
WebDesPix
USES OF RETAINED PROFIT
What is retained profits?
• When a business makes a profit and it
does not spend it, it keeps it - and
accountants call profits that are kept and
not spent retained profits.
What can WDP use retained
profits for?
Retained profit is available to use within the
WDP to help them to pay for:
1. Marketing all products on line,
2. Paying for e-commerce technology
3. Paying other costs that will allow them to
survive.
4. Retained profits are also kept for when
WDP may have difficulties in the future,
so they save them for a rainy day!
5. Pay shareholder dividends
Where can retained profits be
seen ?
• WDP calculates its retained profit on their
appropriation account. It is then shown on their
balance sheet.
• WDP’s amount of retained profits can be seen
on its balance sheet. This will be called
shareholder equity. It is called shareholder
equity (money) because retained profits belong
to the shareholders and should have been paid
to them in dividends.
Benefits of WDP using retained
profits to achieve their objectives
rather than using other sources
of finance.
1. The use of retained profits avoids the
possibility of a change in control resulting
from an issue of new shares.
2. Interest is not charged like on an
overdraft or loan.
3. WDP does not increase their amont of
liabilities.
Disadvantages of using retained
profits
1. Shareholder do not receive a dividend
payment as they agree for dividends to
be retained and ploughed back into the
business.
Exam Question
WebDesPix Ltd have never used a bank
loan and it is company policy to re-invest
profit.
•
Analyse the benefits to WebDesPix Ltd
of taking this approach to expanding
their business. (8 marks)