Unit 1 - Business Activity
Resource = A necessity or a product that individuals use in everyday life. Business resources include:
➔ Land = Property that is owned by a business. I.e. Factories.
➔ Labor = People that work for a business. I.e. Employees.
➔ Capital = The sum of assets that are used in the making of a business. I.e. Finances.
➔ Enterprise = Organizational tools used by a business. I.e. Accounting.
Outsourcing = To obtain a good or service from an outside supplier.
Goods = A product that is tangible.
➔ Consumer goods = Goods that are purchased by the everyday customer. I.e. Groceries.
➔ Capital goods = When a business purchases goods from another business to produce other goods. I.e.
Classroom furniture purchased by a school.
Services = A product that is non-tangible.
Customer = Someone who buys the product.
Consumer = Someone who uses the product.
Scarcity = When there are unlimited needs and wants however limited resources.
Division of Labor = The delegation of tasks to different employees.
➔ Pros = Increases efficiency of production, more convenient as not all workers need to be taught all skills.
➔ Cons = Efficiency may fall due to workers becoming disengaged, production may be delayed if a worker is
absent from their job.
Primary Sector = Industries that harvest and extract raw materials to be used for products.
Secondary Sector = Industries that use raw materials produced by primary industries and manufactures them into
products and goods.
Tertiary Sector = Industries that provide services.
Quaternary Sector = Industries that provide informational services (I.e. consultancy).
Private Sector = Businesses that are run by individuals; serve the purpose of profit.
Public Sector = Businesses that are government-controlled; serve the purpose of social benefit.
Privatization = The transition of a business from the public to the private sector.
Methods for measuring business size…
Method
Number
people
employed
Limitation
of
May not be fully accurate at all times because some businesses utilize a low number of
employment yet produce high output levels. Whereas some businesses utilize more laborintensive methods.
Value of output
A business employing few people might produce several very expensive computers each year.
This might give higher output figures than a firm selling cheaper products but employing more
workers.
Value of sales
Can be misleading to use this measure when comparing the size of businesses that sell very
different products.
Value of capital
employed
A business employing many workers may use labor-intensive methods of production. These give
low output levels and use little capital equipment.
Who is involved in these measurements?
1. Investors = To decide whether or not they believe it would be a good idea to invest in the business.
2. Government = To ensure that there is no fraud or embezzlement of money as well as ensuring that taxes are
paid (depending on country).
3. Banks = To know whether or not it would be a wise choice to loan money to the business if asked.
4. Employees = To know whether or not it would be a good idea to work for the business.
5. Customers = To know whether or not the business is trust-worthy and reliable.
Business Acquisition = When a company purchases most or all of another company’s shares in order to gain power
and control.
Internal Growth = When a business grows using the same resources, usually under the same ownership, to grow itself.
External Growth = When a business takes over a small business (acquisition).
Royalty Fee = When a franchisee purchases part of a business to open a new branch of it, they are required to pay part
of their revenue to the original owner.
Merger = When two businesses combine equally (horizontal - same level of production. vertical - different levels of
production).
Production Level = How close the business is to the customer (primary is farthest from the customer, tertiary and
quaternary are closest to the customer).
Franchising = An internal growth strategy by which a company expands.
Joint Venture = When two or more businesses combine their resources and expertise to achieve a common goal.
Strategic Alliance = A contract between two companies in which they both work on a project reaching a mutually
beneficial outcome without the presence of a merger or acquisition.
Sponsorship = A form of marketing in which a company pays by another company to advertise their business in order
to accumulate exposure.
Conglomerate = A multi-industry company.
Conglomerate Integration = The process of a company developing their products and services in a vast array of
industries.
Conglomerate Merger = When two companies merge however their products/services are completely unrelated
(diversification).
Sole Trader = A business that is owned and run by a singular individual.
➔ Pros = Less conflict, more independence, more profit for the individual, more control, easily formed, more
flexibility and time-management.
➔ Cons = Entrepreneurial risk, unlimited financial liability, lack of varying perspectives, limited ideas, stress
and workload leading to lack of productive management, limited financial and business growth, lack of
longevity and continuity, limited capital.
Partnership = A business that is owned and run by two or more people; business partners.
➔ Pros = Shared responsibility, more capital invested, specialization, division of labor, more ideas, more funds.
➔ Cons = No limited liability, no separate legal identity (if one of the partners passess away, the business would
fall), dishonesty between partners resulting in financial issues.
Demand = The willingness and affordability of a customer or consumer.
Liability = Financial loans and responsibilities.
Limited Liability = When shareholders and investors are held legally responsible for the debts and financial costs of
a company and is limited to a fixed sum.
Incorporated Business = The process of a business being formally organized and officially brought into existence.
Unincorporated business = A business that is not legally registered as a business with the relevant state authorities.
Unique Selling Point = By means as such that the product/service being sold is better than its competitors.
Corporate Charter = A legal document that entails the legal information of a business.
Public Limited Company
Private Limited Company
A business in which investors/shareholders may
purchase shares from the stock market/exchange.
➔ Pros = Can achieve economies of scale,
shareholders have limited liability.
➔ Cons = Time-consuming, expensive, greater
risk of hostile takeover.
A business in which shares cannot be purchased from the
stock market.
➔ Pros = Owner can obtain control over their
business, separate legal identity.
➔ Cons = Cannot sell shares to the public,
difficult to transfer shares.
Shareholder = A person who owns a share or stock in a business.
Dividend = The distribution of profit to the investors and shareholders.
Limited Liability Company (LLC) = An incorporated business that limits the liabilities to the shareholders up until
how much they invested. I.e. if the shareholder invested $500, they will not be asked to pay over $500 at any time
(they will not have to pay with any personal property or assets).
Shares = The division of ownership of a business (sold on the stock market/stock exchange).
Dilution of Ownership = For a business owner to lose control over their business due to investors and shareholders
investing and buying into the company.
Financial Transparency = Making financial information about a business available to the public.
Hostile Takeover = In which the shareholders buy out the original business owner by purchasing shares and stocks.
Initial Public Offering (IPO) = The first time that shares are flowed into the shares and stocks market.
Objectives of a corporation…
➔ Survival = Common within new businesses or when there is an economic downturn. Focuses less on growth
and more on preservation.
➔ Profit = Supports businesses with investments and financial liabilities.
➔ Returns to shareholders = To pay back shareholders with their amount of money they invested; common in
public limited companies.
➔ Growth = To increase, profit, revenue, customers, prestige and recognition. Important for providing business
opportunities, increasing salary and securing employment.
➔ Market share = The portion of the market that is controlled by the business. Good for publicity and positive
influence over current and potential customers and suppliers.
◆ Formula: Market share (%) = (company sales/total market sales) x 100
➔ Social = To provide jobs and employment.
➔ Environmental or Service = To use the profited money to donate towards a cause.
Objectives of an employee…
➔ Owners = To share profits and gain shares; business growth in order to increase investment value; unique
selling point.
➔ Workers = Job employment and security; consistent salary.
➔ Managers = Job employment and security; consistent salary; business growth in order to obtain power and
control; unique selling point.
➔ Customers = Availability of reliable goods and services.
➔ Government = To obtain law and order; to ensure that the economy is in good condition.
➔ Community = Availability of jobs and employment for the population of working individuals; environmental
preservation; good quality goods and services.
➔ Banks and Suppliers = To ensure that all financial liabilities are paid back; to increase taxes.
Unit 2 - Human Resources Management
Herzberg
Hygiene Factors
Motivation Factors
Factors in a workplace that are a necessity to the function
of the workplace and the employees (I.e. fair salary,
security, company rules and regulations).
Factors in a workplace that are additional and not
imperative to the function of the workplace and the
employees, however are good for motivating the
workforce (I.e. recognition, fringe benefits, incentive).
Expectancy
Expectancy theory states that employees will be motivated provided that their efforts and the outcome of their work
will result in recognition and reward. There are different quantities involved in this theory which are known as
expectancy, instrumentality and valence. Expectancy is an employee’s belief that the effort will result in
performance. Instrumentality is an employee’s belief that the performance will result in outcomes. Valence is an
employee’s belief that those outcomes will be valuable.
Maslow
Flow
Flow theory states that a business will thrive when there is an equilibrium of skill utilization of employees in which
they are not overmatched nor underutilized. This balance between challenge and skill will allow a business to flow
and be successful.
Skilled and not challenged = Bored.
Challenged and not skilled = Anxious.
Not challenged and not skilled = Apathetic.
Challenged and skilled = Flow.
Salary = A consistent, fixed payment made by an employer to their employee.
Wage = A form of monetary compensation for employees made according to various measures of productivity.
Methods of measuring wages…
Time Rate
Piece Rate
A payment over a period of time.
➔ Pros = Security for the employee on what they
will be paid and when.
➔ Cons = All employees are paid the same
A payment based on the amount of goods that are
produced by the employee.
➔ Pros = Increases productivity and output rate.
➔ Cons = May cause a decrease in quality of
regardless of performance and efficiency.
goods or services.
Overtime
Bonus
An additional amount of money that is paid to an
employee if they work more than their contracted hours.
➔ Pros = Can motivate employees to work longer
therefore tasks will get done at a faster rate.
➔ Cons = May lead to employee exhaust.
An additional amount of money that is added to an
employee's wage as a reward for good performance.
➔ Pros = Increases productivity and efficiency of
an employee.
➔ Cons = May foster competition between
employees.
Commision
Fringe Benefits
A payment based on the number of sales made.
➔ Pros = Increases sales.
➔ Cons = Overly aggressive sales.
Non-monetary incentive provided by an employer.
➔ Pros = Establishes a sense of family and trust in
the business.
➔ Cons = Requires a budget.
The 4 functions of management:
1. Planning = To set aims, targets, goals and objectives.
2. Organizing = To delegate and distribute tasks that must be completed in order to meet the objectives.
3. Coordinating = To bring members of the business together and unite the workforce.
4. Commanding = To supervise and guide an individual or group of employees in a task if necessary.
Organizational Structure = Hierarchy of management within an organization.
Span of Control = Number of subordinates that a higherup is responsible for.
Subordinates = Employees that are lower in hierarchical rank.
Chain of Command = Organizational structure in which authority is widespread across different management levels.
Hierarchal
Flat
Matrix
In which there is a ranking of
importance of all members in the
organization.
➔ Pros = Clear lines of
communication and clear
line of authority.
➔ Cons = May lead to slower
communication
and
decision making.
In which there are less levels of
hierarchy and wider spans of control.
➔ Pros = More efficient
communication
and
workforce.
➔ Cons
=
Added
responsibility
for
employees.
In which there are multiple lines of
communication between employees
from different departments.
➔ Pros = Collaboration and
variety of perspectives.
➔ Cons = Deceleration in
decision making process.
Types of Leadership…
Democracy
To include the perspectives of employees in order for the bosses to use this input to make a final decision.
➔ Pros = Builds teamwork, increases creativity and originality of the business due to multiple perspectives.
➔ Cons = Risk of corruption, mainly focuses on the majority.
Laissez-Faire
To give the employees free-range on how they choose to complete their work.
➔ Pros = Motivates employees due to work efficiently, job satisfaction, sense of trust.
➔ Cons = Confusion about employee roles, technicalities in communication, lack of structure.
Autocracy
To hold extreme power and control over employees and make decisions without taking their input and heavily
supervising them in order to minimize their independence and freedom.
➔ Pros = Faster decision-making, crises are handled effectively, very organized in structure, roles of
employees are clear, minimal confusion about employee roles.
➔ Cons = Low workforce morale, job resentment, superiors are surrounded by ‘yes people’.
Trade Union = An association formed by employees in which they discuss their objectives as stakeholders such as
trade integrity and job security.
➔ Pros = Improved working conditions, increase in job satisfaction, establishes sense of trust, community and
family amongst employees.
➔ Cons = Costs money to become a member, may cause workforce retaliation and rebellion if the employees
are unhappy with their working conditions.
Methods of communication…
Internal
External
Communication between employees within a business.
I.e. Meetings, emails, etc.
➔ Pros = Quick and efficient.
➔ Cons = Limited range of perspectives.
Communication between different businesses.
I.e. Websites, social media platforms, etc.
➔ Pros = Wider range of perspectives.
➔ Cons = Time-consuming.
One-way
Two-way
In which only the sender is communicating and the
receiver does not respond or give feedback.
I.e. Noticeboards, announcements, etc.
➔ Pros = Quick and efficient.
➔ Cons = Does not allow for feedback to be
given.
In which both the sender and the receiver respond and
give feedback to one another.
I.e. Phone calls, emails, etc.
➔ Pros = Is responsive, allows for feedback to be
given on both ends.
➔ Cons = Is more time-consuming.
Verbal
Visual
Communication through speaking.
I.e. Phone calls, meetings, etc.
➔ Pros = Maintains privacy of the conversation,
information is communicated clearly.
➔ Cons = Is not always put on record.
Written
Communication that is written physically.
I.e. Letters, notes, etc.
➔ Pros = There is a record that
communication took place.
➔ Cons = Is not always quick or efficient.
Communication through visual mediums.
I.e. Graphs, presentations, etc.
➔ Pros = Is effective and engaging.
➔ Cons = May be misinterpreted,
communication of feedback.
slow
Electronic
the
Communication that is done digitally.
I.e. Emails, text messages, etc.
➔ Pros = There is record that the communication
took place, is quick and efficient.
➔ Cons = May be delayed due to technical errors.
Redundancy = When an employee is removed from their position when it is no longer required.
Dismissal = Aka termination, when an employee is dismissed from their position due to their lack of meeting the
expectations of their job description.
Vacancy = When there is an available job position.
Probation = A time period in which an employee is temporarily given a paid job position in order for the company to
evaluate the employee to determine whether or not they are suitable for the job.
Types of recruitment…
Internal
External
When the job vacancy is filled by a person who was already a
member of the company.
➔ Pros = Quicker, cheaper, pre-established relationship
with the rest of the company, the person has
experience specific to the company.
➔ Cons = No new ideas are brought in, quality of internal
candidates may be low, may cause rivalry and
jealousy amongst employees.
When the job vacancy is filled by a person who
was not formerly a member of the company.
➔ Pros = New ideas are brought in,
increased quality and more availability
of candidates.
➔ Cons = More time-consuming, costly,
lack of experience specific to the
company.
Training methods…
Induction
Training that introduces new employees to the different processes they must be able to do as an employee.
I.e. A newly hired lifeguard being given induction training on how to execute a rescue.
➔ Pros = Helps employees to become adapted to their jobs.
➔ Cons = Is time-consuming, causes delay.
On-the-job
Off-the-job
Training in which the newly hired employee will interact
with and observe a more experienced employee.
I.e. A doctor training a pre-med student.
➔ Pros = Is cheaper.
➔ Cons = Reduces efficiency of the trainer, bad
habits of the trainer may be passed down.
Training in which the employee is sent to a location
separate from the business to receive external training.
I.e. A teacher receiving training at a seminar.
➔ Pros = Is highly effective.
➔ Cons = Expensive, opens up job opportunities
for the employees thus decreasing the
workforce.
Types of employment…
Part-time
Full-time
An employee who does not meet the required working hours
that would be expected of a full-time employee.
➔ Pros = More flexibility with working hours, reduces
business costs for paying employees.
➔ Cons = Less commitment, communication barriers.
An employee who is fully-fledged to their position.
➔ Pros = Greater commitment, easier
communication.
➔ Cons = Increases business costs for paying
employees.
Waste = An aspect of a business that consumes its activity without having a beneficial outcome.
➔ Overproduction = When the rate of products produced is greater than the demand of that product.
➔ Waiting = When resources are not being used.
➔ Transportation = Unnecessary and excessive transport of products.
➔ Unnecessary inventory = When the inventory of a business is overstocked.
➔ Motion = Overworking employees.
➔ Over-processing = When complex machinery is used for simple tasks and not being used to its full capacity.
➔ Defects = Faults in a product that require time spent on fixing the issue.
Waste Minimization = To reduce the quantity of raw materials used in order to produce a finished product thus
resulting in lower cost and higher profits.
Inventory/stock = The summation of resources as well as in-progress and completed products that a business keeps in
storage to prevent being out of stock.
Stock Control Chart = A graphical representation that shows how a business manages their inventory.
Maximum Stock Level = The maximum capacity that the
inventory can hold.
Minimum Stock Level = The inventory is minimal and more
stock needs to be ordered.
Reorder Level = The stage where a business reorders more
stock to maintain sufficient inventory.
Lead Time = The time taken for a supplier to provide a business
with resources after they have been ordered.
Order Quantity = The quantity of stock that is to be ordered to
the inventory of a business after reaching the reorder level.
Buffer Stock = When the stock level is below the minimum.
‘Right first time’ approach = Ensuring that all processes are
done correctly the first time, every time.
Flexibility = The ability of a business to adapt and adjust to new
constantly changing circumstances and conditions.
Supply Chain Management = The management of the flow of
products across the sectors as well as the maintenance of a
relationship between a business and their supplier.
Methods of production…
Labor-intensive
Capital-intensive
Uses a high number of workers and a low number of
capital goods.
I.e. A production factory in China that employs
thousands of employees.
➔ Pros = Customized products are easier to
produce, cheaper.
➔ Cons = Quality of production may vary, timeconsuming to train employees.
Uses a high number of capital goods and a low number
of workers.
I.e. A factory that uses machinery and AI to carry out
mechanical processes and production.
➔ Pros = Consistent quality, machines do not
require salaries or time off.
➔ Cons = Difficult to customize products,
expensive, increased waste due to defects.
Lean
Kaizen
To eliminate waste as much as possible.
I.e. Pair programming = To combine the skills and
expertise of two developers instead of one.
➔ Pros = Increased efficiency and productivity,
waste minimization, increased product quality.
➔ Cons = Over-elimination of resources, lack of
strategic focus.
A form of lean production that aims to continuously
improve aspects of the business such as efficiency.
I.e. Stream mapping = To visually demonstrate business
procedures in order to identify weaknesses.
➔ Pros = Improves efficiency and productivity,
develops teamwork, waste minimization.
➔ Cons = Lack of resources, difficult to adapt and
be flexible, distorted management system.
Just-in-time inventory
Just-in-case inventory
A form of lean production that refrains from holding an
inventory and only produces products when demanded.
I.e. An office furniture manufacturing company does not
hold an inventory and only places an order when a
customer makes a purchase.
➔ Pros = Reduces costs, waste minimization.
➔ Cons = Risk of being out-of-stock, risk of
A form of production that maximizes the quantity of
products held in their inventory in order to prevent stock
scarcity.
I.e. An office furniture manufacturing company owns a
large storage facility that holds a large inventory.
➔ Pros = Eradicates storage scarcity dilema.
➔ Cons = Increases waste due to overproduction.
delaying product delivery to a customer.
Cell
Job
A form of lean production in which the production line
is divided amongst different stages of developing and
producing a product.
I.e. A piano manufacturing company has 6 different
cells; the employees in each cell manufacture different
parts of the piano.
➔ Pros = Employees are multi-skilled, builds
teamwork, increases efficiency.
➔ Cons = Does not allow for machinery to be
used to its maximum capacity.
To produce custom-made products that are specific to
each individual customer.
I.e. A small, sole-trader business that sells baked goods;
the sole trader does custom orders for their customers.
➔ Pros = Added value and unique selling point,
high quality products, can customized orders.
➔ Cons = Increased production costs, is not
suitable for large businesses, increased
production time.
Batch
Flow/mass
When products are made in batches.
I.e. A bakery produces a set number of batches for each
of their baked goods per day.
➔ Pros = Reduced costs, quality control, waste
minimization.
➔ Cons = Increased production time, increases
employee downtime, demand for a product
may be higher than what was produced.
When large quantities of a product are produced.
I.e. Production of mobile phones.
➔ Pros = Reduced labor costs, high efficiency,
sufficient production.
➔ Cons = High startup costs, demotivated
workforce, non flexible.
Factors affecting production methods…
1. Nature of the product = The production method used will partially depend on what the product is, what value
it holds and how it is made.
2. Market size = If there is a larger market size, the demand for the product will be higher therefore the
production method used will need to be efficient enough to satisfy the market.
3. Nature of the demand = The method of production used will further depend on the stability of the demand
for the product; whether it is steady or sporadic.
4. Business size = The size of the business will influence what production method is used due to factors such
as availability of resources.
Automation = When factory equipment is controlled by AI in order to carry out mechanical processes of production.
Computer-Aided Manufacture (CAM) = For computers to monitor and control mechanical processes of production.
Point of Scale (POS) = Where retail transactions are made.
Methods of contactless payment…
Credit card
Credit cards are used to pay for a product non-immediately. There is a set quantity of money that a bank will set for
an individual's credit card on a monthly basis (Equated monthly installment - EMI). When credit card transactions
are made, the money is not withdrawn from the individual's bank account until the end of that month. However,
they are not allowed to use their credit card to make any transactions once they have reached their monthly limit.
Credit cards are used when an individual is unable to immediately pay for a purchase for whatever reason however
will be able to pay off that liability by the end of the month.
➔ Pros = Improves credit score, allows individuals to keep track of their expenses.
➔ Cons = Fees are charged for late payments, limited EMI.
Debit card
Debit cards are used to pay for a product immediately. The bank does not set a monthly limit for a customer's debit
card and they are able to use it as they please. When debit card transactions are made, the money is withdrawn from
the individual's bank account immediately. Debit cards are used when an individual is able to pay for a purchase at
the exact moment in which the transaction is made or if they do not wish to spend their monthly credit.
➔ Pros = Prevent debt, convenient, reduced risk of bank fraud.
➔ Cons = Require a PIN number, limited funds, complicated for larger purchases.
Cheque
Cheques are written by an individual to the person they wish to pay. The receiver will take a cheque that has been
signed by their customer to the bank in order to cash in the cheque and receive their payment. Cheques are typically
used in the case that an individual is unable to use or access their credit or debit card for whatever reason when a
transaction must be made.
➔ Pros = Convenient, can be traced if lost, are negotiable.
➔ Cons = Not always accepted, not suitable for small payments, increased risk of bank fraud, time-consuming
to deposit.
Payment apps
Payment apps on devices are only used when a business offers online discounts or coupons that are accessed via
apps. This form of contactless payment is commonly used by retail outlets.
➔ Pros = Convenient, offer discounts for customers, cheaper than traditional POS for businesses.
➔ Cons = Security risks, constant upgrades required, too many alternatives apps to choose from.
Credit Score = A number lenders use that determines the likelihood of being repaid on time if they give a person a
loan or a credit card (mostly used by bankers).
Liquidity = The efficiency in which an asset can be converted into ready cash without affecting its market price.
Equated Monthly Installment (EMI) = The monthly credit card limit that a bank will set for an individual.
Efficiency/productivity = Maximizing output while minimizing input.
➔ Productivity of business = Output/input
➔ Productivity of workforce = Output/number of employees
Ways to increase productivity…
➔ Waste minimization
➔ Improve employee motivation
➔ Improve inventory control
➔ Train employees to be more efficient
➔ Automation
Unit 4 - Finance
Opportunity Cost = The loss of one opportunity due to the pursuit of another.
Financial Cost = A cost that has a financial or monetary value attached to it.
Added Value = When extra value is added to the original product in order to make profit.
Unique Selling Point (USP) = A factor in a product that makes it different and unique from its competitors.
Sales Revenue = The income that is made from product sales. Formula = selling price x quantity sold.
Total Revenue = The summation of sales revenue streams.
Profit = Sales revenue - cost.
Fixed Cost = A cost that does not change regardless of the level of production.
Variable Cost = A cost that changes in proportion to the level of production.
Overhead Cost = Costs that are not associated with the level of production.
Total Cost = The summation of fixed and variable costs. Formula = fixed costs + variable costs.
Average Cost = Cost per unit of production. Formula = total costs ÷ total output.
Economies of Scale = In which the average cost per unit of output decreases as the scale and magnitude of the output
being produced increases (inversely proportional on a graph).
➔ Purchasing = Companies purchasing materials in bulk causes the output to increase therefore the cost will
decrease.
➔ Marketing = The necessary financial input decreases due to the magnitude of the operation. Word of mouth
decreases the marketing budget as it is not as high in the ranking of priority.
➔ Financial = Capital is cheaper due to the magnitude of the operation.
➔ Managerial = Specialized workforce increases the financial efficiency of the operation, therefore decreasing
the costs.
➔ Technical = Using computer-aided manufacture will increase the efficiency of the operation therefore
reducing the costs.
Diseconomies of Scale = In which a business outgrows the economies of scale system. This can occur due to:
➔ Poor communication = When an organization is large, there are
more communication barriers which leads to decreased efficiency
and increased costs.
➔ Lack of employee motivation = When an organization is large, the
workforce will be large which does not permit close employee
relationships. This makes employees feel less valued therefore they
will be demotivated. This will decrease efficiency and increase
costs.
➔ Week coordination = Leads to slow decision-making therefore
decreasing efficiency and increasing costs.
Cost of Sales = The total costs required to produce a product. Formula =
(opening inventory + purchases) - closing inventory.
Contribution Margin = How much the revenue per unit contributes to the
total profits. Formula = selling price - variable cost.
Margin of Safety = Formula (sales) = sales revenue - breakeven (sales)
Formula (units) = sales revenue - breakeven (sales)/selling price
Break-Even = When the total revenue and total costs are equal (no profit or
loss). Formula (units) = fixed cost/contribution margin. Formula (sales) = selling price x breakeven (units)
Break-Even Charts = Graphical representations that forecast the loss and profit journey of a business as it makes its
way to break-even and eventually surpasses it.
➔ Pros = Financial forecasting, shows the margin of safety.
➔ Cons = Financial forecasting may not always be accurate, does not provide a full, conceptual analysis of
business activity as there are other contributing factors.
Working Capital = The finances that a business has in order to account for day-to-day liabilities.
➔ Revenue Expenditure = Finances that are allocated towards day-to-day expenses (short term) such as
employee wages.
➔ Capital Expenditure = Finances that are allocated towards non-current expenses (long term) such as office
equipment.
Sources of finance…
Internal
External
Retained profit = Profit that is kept in a business after
profit has been given to the owners.
➔ Pros = Is not a liability, has no interest pay.
➔ Cons = Cannot be used by new or small
businesses.
Shares = Usage of shares paid by investors.
➔ Pros = A permanent source that does not have
to be repaid, has no interest pay.
➔ Cons = Can only be done by public limited
companies, business will be liable to
shareholder dividends.
Sales of existing assets = To sell resources that are no
longer needed by the business.
➔ Pros = Better use of capital, waste
minimization.
➔ Cons = Cannot be used by new or small
businesses.
Bank loans = To obtain a sum of finance from a bank
which later has to be repaid.
➔ Pros = Easy to arrange, can be repaid over a
large period of time.
➔ Cons = Collateral is required (banks will sell
assets of the business if loans are not repaid).
Personal savings = Finance that has been personally
saved by the business owner and put into the business.
➔ Pros = Easy to establish, has no interest pay.
➔ Cons = Finances may not be sufficient,
unlimited liability.
Grants and subsidies = To obtain a sum of finance from
an external agency.
➔ Pros = Do not have to be repaid, tax reduction.
➔ Cons = May have limitations as per the requests
of the external agency, short-term.
Sales of inventory = To sell stock help in inventory that
is no longer needed.
➔ Pros = Reduces costs, waste minimization.
➔ Cons = Risk of being out-of-stock.
Factors affecting finance decisions…
1. Purpose = What is the money being spent on?
2. Time Period = Is it a capital or revenue expenditure?
3. Quantity = How much money is being spent?
4. Liabilities = Does the business have pre-existing liabilities that have yet to be paid?
5. Interest Rate = How much interest will have to be paid?
6. Collateral = Do you have sufficient assets to secure a loan?
7. Form of ownership = Is the business in the public or private sector?
8. Control = Are you willing to share ownerships as a result of sales of shares?
Cash = The immediate availability of finance in liquid form.
Cash Flow = The continuous transaction of cash and the flow of cash in and out of a business.
Cash Inflow
The flow of cash into a business.
➔ Product sales
➔ Payments made by debtors
➔ Loans
➔ Investors
➔ Sales of assets/inventory
Cash Outflow
The flow of cash out of a business.
➔ Purchasing resources
➔ Paying creditors
➔ Repaying loans
➔ Paying remuneration to employees
➔ Fixed costs
Cash Flow Forecast = A table that represents the cash flow of a business.
Net Cash Flow = The overall cash flow of a business. Formula = inflow - outflow.
Opening Bank Balance = The monthly starting amount of finance of a business (can be positive, $500, or negative,
($500)).
Closing Bank Balance = The monthly ending amount of finance of a business (can be positive, $500, or negative,
($500)). Formula = net cash flow + opening bank balance.
Gross Profit = sales revenue - cost of sales.
Net Profit = gross profit - overheads.
Interest Revenue = Revenue obtained from interest earnings.
Income Statement = A table that represents the revenues and expenses of a business.
Variable
Sales Revenue
Quantity
SP x QS
Cost of Sales
(Opening inventory + purchases) - closing inventory
Gross Profit
SR - COS
Overheads
x
Net Profit before Interest and Tax
GP - overheads
Interest
x
Tax
x
Net Profit after Interest and Tax
Net Profit before Interest and Tax + interest + tax
Dividends
x
Retained Profits
x
Current Assets = Assets that are owned for a short period of time (less than one year). I.e. Cash, debtors, stock.
Non-Current Assets = Assets that are owned for a long period of time (more than one year). I.e. Vehicles.
Current Liabilities = Liabilities that are credible for a short period of time (less than one year). I.e. Overdraft, creditors.
Long-Term Liabilities = Liabilities that are credible for a long period of time (more than one year). Mortgage.
Working Capital = total assets - total liabilities.
Equity = Internal sources of finance. I.e. Share capital, retained profit.
Depreciation = The decrease in value of an asset over time.
Appreciation = The increase in value of an asset over time.
Perishable Assets = Assets that depreciate over time.
Balance Sheet = A table representing the balance of financial distribution within a business.
Variable
Non-Current Assets (list all)
Raw Quantity
Quantities here
Net Non-Current Assets
Current Assets (list all - cash
always first!)
Processed Quantity
Calculation here (add all values)
Quantities here
Net Current Assets
Calculation here (add all values)
Total Assets
Calculation here (Net Non-Current
Assets + Net Current Assets)
Current Liabilities (list all)
Quantities here
Net Current Liabilities
Net Long-Term Liabilities (list all)
Calculation here (add all values)
Quantities here
Total Liabilities
Calculation here (Net Long-Term
Liabilities + Net Current Liabilities)
Net Assets
Calculation here (Total Assets Total Liabilities)
Equity (list all)
Quantities here
Total Equity
Calculation here (add all values)
Capital employed = The summation of finances used for the operation of a business.
Profitability ratios = Financial strategies used to evaluate the profitability of a business.
➔ Gross profit margin = (GP/SR) x 100%
➔ Net profit margin = (NP/SR) x 100%
➔ Return on capital employed = (Net assets/capital employed) x 100%
Unit 3 - Marketing
Marketing = A function of business in which the needs and demands of a target market are identified and applied in
the creation of a product, therefore attracting customers.
Importance of marketing…
➔ Customer needs = When customer needs are met, it is easier to effectively market a product as the needs and
wants of the customers have been identified and have been satisfied through the product.
➔ Customer loyalty = When a business has consistently loyal customers, marketing due to word-of-mouth will
allow the business to become more popular.
➔ Gain information = Developing strong customer relations will allow for a business to gain accurate
information about the ongoing changes in the needs and wants of customers.
➔ Anticipate trends = Due to strong customer relations, trends in the consumer market can be anticipated and
used to develop products that assimilate to the needs and wants of the customers.
➔ Market share = Successful marketing will improve the overall brand image of a business and increase its
activity, therefore causing a rise in market share.
What causes changes in customer spending patterns?
➔ Changes in customer interest = Customers may develop new styles therefore their preferences will change.
➔ Changes in technology = When technological advancements occur, the quality and precision of the product
will improve due to additional features. Therefore, customers will be more interested in more recent products
as opposed to less recent products.
➔ Changes in incomes = If there is an economic recession, the salary of average employees will decrease
therefore they will be attracted to cheaper prices. On the other hand, employees who are wealthy may have
higher expectations for products therefore will be attracted to more expensive prices.
➔ Aging populations = Changes in the distribution of ages in the human geography of a country will have an
impact on customer spending patterns due to differences in needs and wants.
How can businesses respond to competition and changes in customer spending patterns?
➔ Maintain good customer relationships = This will ensure customer loyalty therefore reducing the risk of
customer turnover. Therefore, competition can be beat out and anticipation of trends can be more accurate.
➔ Improvement of existing products = This will ensure customer satisfaction of the product therefore they will
continue to purchase it.
➔ Diversification of products = In order to assimilate to the demands in the customer market, businesses can
diversify their products in order to provide a wider variety for customers, therefore attracting customers.
➔ Reduce selling price = Maintaining low prices will attract more customers as it is more convenient for them.
Niche Marketing
Mass Marketing
A marketing strategy that is used for more specific and
customized products with narrow target audiences.
Pros = Reduced competition, good customer
relations/loyalty.
Cons = Limited sales potential, risk of fluctuation in
A marketing strategy that is used for generic products
with broad target audiences.
Pros = Higher sales, increased market share, economies
of scale, potential for growth.
Cons = Intense competition, expensive, no
demands, minimal potential for growth.
customization.
Market Segmentation = The breakdown of a market into subsections of customers who share similar characteristics.
Methods of market segmentation…
➔ By socioeconomic class.
➔ By age.
➔ By region.
➔ By gender.
➔ By lifestyle.
Product-Oriented
Market-Oriented
A business that develops products depending on its
strengths as opposed to customer demand.
Pros = Innovative products.
Cons = Does not allow for survival against competitors.
A business whose product development revolves around
customer demand.
Pros = Increased survival as they are able to assimilate
to market changes, improved customer service.
Cons = Is expensive.
Market Research = Analysis of consumer trends in the market in order to determine the best possible strategies to
maximize sales. Can be qualitative or quantitative and obtained through primary or secondary research.
Primary (Field)
Secondary (Desk)
Provides information that is collected by the researcher
therefore is directly obtained.
Pros = Is updated and relevant, can provide specific
information unique to a particular business.
Cons = Is expensive and time-consuming.
Provides information that has been collected by
others therefore is indirectly obtained.
Pros = Quicker and cheaper.
Cons = May be outdated, is generic therefore could
be irrelevant.
Examples
Questionnaire
Asking a series of questions in a face-to-face manner.
Pros = Provides detailed information, can be online.
Cons = May not be accurate, can be time-consuming.
Online Survey
Surveys that are conducted through the internet.
Pros = Quicker and cheaper.
Cons = Responses may be dishonest.
Interview
An interviewer asks questions to the interviewee.
Pros = Miscommunication is minimal.
Cons = Risk of bias due to leading questions.
Internal Sources
Research that is conducted based on information
and resources that exist within the business itself.
Pros = Convenient, quicker and cheaper,
miscommunication is minimal.
Cons = Risk of selective bias.
Examples:
➔ Sales reports
➔ Customer databases
➔ Budgeting reports
Focus Group
External Sources
A group discussion with volunteers and a researcher.
Pros = Quicker and cheaper, can allow for understanding of
varying perspectives.
Cons = Risk of bias, risk of conflict.
Research that is conducted based on information
and resources that exist outside of the business.
Pros = Access to a wider variety of perspectives.
Cons = No control over data quality, risk of
miscommunication.
Examples:
➔ Government sources
➔ Media outlets
➔ Journals
➔ Universities
and
other
academic
institutions
Test Market
When a business offers free samples of their product.
Pros = Guarantees distribution.
Cons = Additional costs due to additional inventory.
Sampling = A method used to determine which market research method will be used and who the subjects of the
research will be.
Random
Quota
In which every member of the target market has an equal
chance of being selected. An example of this is to select
every hundredth person.
Pros = Ensures that there is no bias.
Cons = Is time-consuming, is more expensive to execute.
In which members of the target market are selected as
per categorization of characteristics. An example of this
is to select people within a certain age range.
Pros = Ensures accurate representation of the target
market.
Cons = Risk of selection bias.
Factors affecting accuracy of market research…
➔ Execution = The accuracy of market research could be negatively impacted if there was any bias in the
process of data collection.
➔ Sampling method = The sampling method used as well as the size of the sample analyzed may have an effect
on the accuracy of the market research.
➔ Researcher bias = The accuracy and candor of the market research may be compromised if the person
conducting research has bias.
➔ Date of research = There is a statute of validity and accuracy for market research in terms of the time in
which it was conducted. If the research is outdated, it may be irrelevant or inaccurate.
Marketing Mix = All of the factors that are considered when marketing a product.
➔ Product = What are the features of the product? How does it compare to competing brands?
➔ Price = Is the pricing ideal for the business and the customer?
➔ Promotion = What type of advertising is used? How will potential customers become aware of the product?
➔ Placement = How and where will the product be sold to customers?
What makes a product successful?
➔ Customer satisfaction
➔ Affordability
➔ Unique selling point
➔ Consistency in brand image
Contributing factors of ergonomic packaging…
➔ Does it protect the product?
➔ Is it easy to transport?
➔ Is it easy to open?
➔ Does it promote brand image?
➔ Does it provide sufficient information about the product?
➔ Is it visually appealing?
Product development:
Product life cycle:
1. Development = Market research is conducted and analyzed; prototypes of a product are tested until the
product is finalized; sales do not occur at this stage.
2. Introduction = The product is introduced to the market; heavy marketing; minimal profits at this stage.
3. Growth = The demand and popularity of the product increases rapidly; a strong customer database is
established; moderate profits are made at this stage.
4. Maturity = Sales increase gradually; competition is at its highest; profits reach their climax at this stage.
5. Saturation = Sales stabilize at their highest point; competition is high and at its maximum capacity; profit
begins to reduce gradually at this stage.
6. Decline = Product loses its appeal therefore its demand decreases significantly, advertising is halted and the
product is eventually discontinued.
Extension Strategies = Methods used by a business to delay their decline in popularity and sales by extending their
saturation stage.
➔
➔
➔
➔
➔
Making improvements/adding more features to pre-existing products.
Implementing new marketing campaigns.
Diversification of product portfolio.
Conglomerate integration.
Business growth/expansion.
Product life cycle with extension strategy:
Pricing methods…
Penetration Pricing
Competitive Pricing
Setting the initial selling price significantly below that
of competitors.
Pros = Generates customer interest, quick boost in
market share.
Cons = The pricing may not match the true quality of the
product.
Setting the selling price of a product as the same selling
price of competitors or just below.
Pros = High sales, avoids intensive competition.
Cons = Product quality may vary therefore the pricing
may be too excessive or too minimal, loss will occur if
the selling price is lower than the production cost.
Cost-Plus Pricing
Promotional Pricing
Determining the production cost and adding a
percentage markup to the selling price.
Pros = Easy to apply, profit is easily estimated.
Cons = Decrease in sales if prices are too high.
To temporarily reduce prices.
Pros = Renews customer interest.
Cons = Decrease in revenue.
Price Skimming
Formula for calculating percentage markup:
To have a high initial selling price that reduces gradually
over time.
Pros = Easy to establish, boosts brand image.
Cons = Initial price may discourage customers, provokes
competition.
Psychological Pricing
Dynamic Pricing
Setting optimal prices for a product in a way that
manipulates consumer perception so they do not feel as
if they are being overcharged.
Pros = Easy to establish, increases sales.
Cons = Risk of conflict with customers who may think
the pricing is dishonest.
To adjust product pricing according to availability and
demand.
Pros = Increased flexibility, higher profits.
Cons = Is unethical as it may be harmful to consumers.
Price Elasticity of Demand = The ratio between changes in product demand to changes in selling price. Products with
price-elastic demand will decrease in demand when the price increases and will increase in demand when the price
decreases. Contrastingly, products with price-inelastic demand will maintain the same demand regardless of selling
price.
Intermediary = A party that acts as a connector between producers and their consumers.
Distribution Channels = The path of distributing a product so that it reaches the consumer.
➔ Channel 1 = Directly to consumers.
◆ Pros = Quick and simple process, reduces distribution costs.
◆ Cons = Is not suitable for all products, increases transportation costs.
➔ Channel 2 = One intermediary (retailers).
◆ Pros = Reduced distribution costs, able to sell large quantities to retailers.
◆ Cons = No direct contact with consumers.
➔ Channel 3 = Two intermediaries (retailers and wholesalers).
◆ Pros = Reduces storage costs, reduces transportation costs.
◆ Cons = Compromises freshness of product and overall quality, time-consuming.
➔ Channel 4 = More than two intermediaries (retailers, wholesalers and one or more external parties).
◆ Pros = External parties may have better marketing skills than manufacturers.
◆ Cons = Producers have less control over marketing decisions.
Contributing factors in determining the most ideal distribution channel…
➔ Is it a good or service? Is it targeted towards the capital or the consumer?
➔ How often is the product purchased?
➔ How expensive is the product?
➔ Where are the customers located?
➔ Where are competitors located?
➔ Is the product perishable?
Methods of distribution…
Department Stores
Chain Stores
Large stores that sell large quantities of goods; usually
found in busy areas such as city centers.
Pros = Can achieve economies of scale.
Cons = Weak customer service.
Stores that are spread across a region.
Pros = Lower operating costs, boosts brand image and
recognition.
Cons = Requires a lot of capital resources.
Discount Stores
Supermarkets
Retail stores that sell goods at discounted prices.
Pros = Attracts customers due to affordability.
Retail stores that sell food and beverage goods.
Pros = Lower operating costs, diversification of
Cons = Customers perceive the business as low-quality,
reduced profit margin.
products.
Cons = Requires a lot of capital resources.
E-commerce
Independent Retailers
Customers purchase products from an app or website
and they are delivered through post.
Pros = Eliminates operating costs, convenient for the
business and the consumer.
Cons = Technical difficulties may delay productivity.
Single shops that sell customized products.
Pros = Good customer relations, lower startup costs,
fewer STEEPLE risks.
Cons = Difficult to establish, high selling price may
discourage potential customers.
Direct Sales
Mail Order
Products are sold directly to the consumer in a
warehouse.
Pros = Strong customer relations due to proximity.
Cons = Higher distribution costs.
Customers purchase products from magazine catalogs
and they are delivered through post.
Pros = Convenient for customers.
Cons = Risk of fraud.
Advertising process…
Promotional strategies…
Above-the-line = Directed towards a broad target
audience.
I.e. Advertisement = When a business uses a public
medium to promote their product.
Pros = Boosts brand image and popularity.
Cons = Expensive, difficult to schedule.
Types of advertisement (ATL)...
Below-the-line = Directed towards a small target
audience.
I.e. Sales promotion = When a business employs
procedures to encourage customer loyalty.
Pros = Strengthens customer relations.
Cons = Requires more market research data.
Television
Short, promotional videos placed on a television
program.
Pros = Greater potential for outreach.
Cons = Is expensive.
Billboard
An eye-catching post is printed on a large scale and
placed on a billboard.
Pros = Greater potential for outreach.
Cons = Lack of detailed information.
Guerrilla
An eye-catching display that promotes the product is
placed in a public medium.
Pros = Are colorful and eye-catching.
Cons = Time-consuming process to establish.
Newspaper/magazine
Brief and intriguing description of the product placed in
a section of a newspaper or magazine.
Pros = Greater potential for outreach.
Cons = Is not suitable for younger audiences.
Radio
A brief voiceover of a person speaking about the
product is placed on a radio commercial.
Pros = Is relatively cheaper.
Cons = Lacks visual engagement, less outreach.
Social media
An eye-catching commercial placed on social media.
Pros = Quicker and cheaper, greater potential for
outreach.
Cons = Risk of technological issues.
Types of sales promotion (BTL)...
After-sales service
Support service that is provided after the product has
been sold.
I.e. Warranty service after a car purchase.
Pros = Improves customer satisfaction and word-ofmouth.
Cons = Is expensive due to more inventory.
Sales
Providing customers with an opportunity to get more
products for less money.
I.e. Buy one get one free, coupons.
Pros = Increases sales, generates customer interest.
Cons = Changes customer standard for what the regular
pricing should be.
Gifts
Products are placed into the packaging that have not
been purchased in addition to the main product.
I.e. Toys in cereal boxes.
Pros = Encourages consistent purchases of the product,
word-of-mouth.
Cons = Is expensive due to more inventory.
Competitions
Providing customers with an opportunity to win a free
prize if they purchase a product from the business.
I.e. A raffle to win a free concert ticket.
Pros = Encourages consistent purchases, increases
sales.
Cons = Is expensive due to more inventory.
POS displays and demonstrations
Free samples and trials
Physical or digital displays in a shop that showcase the
product in an eye-catching manner.
I.e. A winter-themed display to sell candy canes.
Pros = Generates customer interest, word-of-mouth.
Cons = Expensive, risk of technological issues if the
display is digital.
Offering customers samples of the product (if tangible)
or trials (if non-tangible) that they do not pay for.
I.e. Perfume swatches offered to customers for free.
Pros = Generates customer interest, boosts brand image
and popularity.
Cons = Is expensive due to more inventory.
Product placement
Sponsorships
The placement of the product in an external medium.
I.e. A product being strategically placed in a film.
For another business to promote the product.
I.e. A restaurant donates food to a charity event.
Pros = Greater potential for outreach, increases brand
awareness.
Cons = Is expensive and time-consuming, efficiency is
not guaranteed.
Pros = Boosts brand awareness, strengthens public
relations.
Cons = May backfire if the business sponsoring is
controversial, efficiency is not guaranteed.
Contributing factors in determining the most ideal promotional strategy…
➔ Finances = Does the business have a large or small marketing budget?
➔ Product life cycle = Is the business still new to the market? Has it already been popularized?
➔ Orientation of the product = Is it a good or service? Does it target the producer market or consumer market?
BCG matrix = A model used to analyze the product portfolio of a business in terms of market growth and market
share.