Ms. Marshall 6th year business
1. Finance (overlap chapter 13)
 2. Organisational Options (overlap with
chapter 19, this material will be covered
in more detail in Ch 19)
 3. Production Options
 4. Business Plan

Ms. Marshall 6th year business
Independence
 Profit
 Redundancy
 Spotting an Opportunity
 Ambition

Ms. Marshall 6th year business
Business


Sources
Bank overdraft
Creditors – trade credit
Accrued Expenses
Taxation
Factoring

Uses:
Purchase stock
Pay wages/expenses
Pay creditors
Bank overdraft:
A short term loan given to current
account holders designed to
meet short term expenditure
needs. The account holder is
given permission to withdraw
more than the amount in the
account, up to a specified
amount. Security is not usually
required. Interest is calculated on
a daily basis on the overdrawn
balance.
Creditors: Suppliers give an
agreed period of credit to their
customers, who then sell the
goods and services and have use
of the money until the invoice has
to be paid. No interest is charged
and no security is required.
However, if the invoice is not paid
on time discounts may be lost.
Short term finance is for less than one year and is used to finance
short term assets, such as stock and pay expenses.
Ms. Marshall 6th year business

Accrued Expenses: these are
expenses that do not have to
be paid until after the service
has been provided e.g. gas,
esb. By delaying the payment
of these bills, the business can
use the money as a short term
source of finance for other
purposes.

Taxation: the business collects
taxes on behalf of the
Revenue (e.g. VAT). These
taxes are held by the business
for a period of time before
being forwarded to the
Revenue.
Ms. Marshall 6th year business

Factoring: the business sells its
debtors to a bank for cash.
The business gets the money
up front from the bank. In
some cases, factoring with
recourse, the business must
reimburse the bank if any
debtors don’t pay up. This
gives businesses access to
cash immediately, no security
is required but the bank
charges a high fee.
Business

Sources
Hire Purchase
Leasing

Term Loan
Uses:
Computers
Office Equipment

Vehicles
Machinery
Medium term finance is for one to five years
and is used to finance office equipment,
vehicles and machinery.
Ms. Marshall 6th year business
Hire Purchase: purchasing assets and
paying by instalments over an agreed
period of time. Buyer obtains the item
immediately but does not become
legal owner until the last instalment is
paid. The rate of interest is high and is
charged on the initial sum borrowed.
Leasing: involves the renting of an asset
from a finance company. The leasee
has the possession and use of the asset
but does not own it. No cash lump sum
or security is needed. Lease payments
can be offset against profits to reduce
tax.
Medium-term loan: from the bank,
repaid in fixed instalments over an
agreed period. Borrower must
complete a loan application form and
the money is granted for a stated
reason. Banks may want security on the
loan in the event of non payment.
Interest on a business term loan can be
offset against tax in the profit and loss
account.
Business

Sources
Debenture

Share Capital
Grants

Uses
Purchase of land and
buildings
Debenture: a long term, fixed interest, loan for
a business. Usually used for expansion. The
loan is secured on the company’s assets.
Interest payments on loans are a tax
allowable expense in the profit and loss
account. The company pays the interest
every year and pays the loan back in one
lump sum.
Share/Equity Capital: the owners sell some of
their shares to investors in return for money.
Shareholders receive a say in the running of
the company and a dividend if the company
makes a profit. There are no interest
repayments and no security has to be
provided. It is a permanent source of finance
Grant: a sum of money given by the
government to a business, which does not
have to be paid back, providing that they
meet the conditions. E.g. a start up business
may be given a grant to help buy machinery.
Main providers of grants are Enterprise
Ireland, IDA Ireland and the county and city
enterprise boards.
Finance that will take more than five years to
repay
Ms. Marshall 6th year business
Cost
 Risk
 Security
 Control
 Purpose/Match
 Amount

Ms. Marshall 6th year business
You should be able to apply
these to the different short,
medium and long term
sources
Bank Overdraft
Trade Credit
Accrued
Expenses
Cost
Interest on
amount
overdrawn
Free source but
interest may be
charged if
overdue
Free source - no
interest
Risk
Full repayment
could be
demanded
Damage to
credit rating.
Damage to
credit rating.
Security
None
None
None
Control
Full
Full
Full
Ms. Marshall 6th year business
Medium Term
Loan
Leasing
Hire Purchase
Cost
Interest
Tax deductible
High interest
Risk
Damage to
Damage to
credit rating, loss credit rating,
of assets
repossession
Damage to
credit rating,
repossession
Security
May be required None
None
Control
Full
Full
Ms. Marshall 6th year business
Full
Equity Capital
Long term loans
Government
grants
Cost
Dividend paid to Interest
shareholders –
negotiable
Risk
Loss of capital if
business goes
bankrupt.
Damage to
Recalled if
credit rating, loss conditions not
of assets
met
Security
No
Yes
No
Control
Loss/dilution
Full
Full
Ms. Marshall 6th year business
None – as long
as conditions
are met
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Working capital is the finance used for the dayto-day running and payment of immediate
debts of the company(current assets minus
current liabilities).
If positive, the business is LIQUID
If negative, the business is NOT LIQUID, and is
said to be OVERTRADING
Overtrading occurs when a firm increases
production and sales too much and runs short
of cash.
To manage working capital a business must
exercise: credit control, stock control, Cashflow
management.
Ms. Marshall 6th year business
To start up you can be a:
 Sole Trader: a business set up, owned and run
by one person, e.g. a local hairdressers or
chemist.
 Partnership: a business set up, owned and run
by between two and twenty people with the
intention of making a profit. E.g. KPMG, PWC
accountants.
 Private Limited Company: a business which
may have between 1 and 99 shareholders,
who operate the business with the benefit of
limited liability e.g. Eason Ltd.

Ms. Marshall 6th year business
Sole Trader
Partner
LTD. Co
Formation & Dissolution
Easy to set up.
Register with Revenue for
tax.
Register name if
different.
No continuity
Easy to set up.
Register with Revenue for
tax.
Register name if
different.
Deed of Partnership –
contract drawn up
before setting up.
No continuity.
Register with Revenue.
Register with CRO.
Continuity.
LTD after name.
Ownership & Control
Owned & controlled by
one owner
Confidential business
Owned & controlled by
partners.
Confidential business.
Owned by shareholders.
Controlled by BOD.
Not confidential.
One share=one vote.
Management & Finance
Decisions made by one
owner.
Raising finance can be
difficult.
Often long hours & a lot
of stress.
Decisions made by
partners.
More partners = more
finance but dilution of
ownership.
Stress & hours shared.
Decisions made by BOD
with shareholder
approval.
Finance can be raised
by selling shares, but NOT
on stock exchange.
Profits & Risk
Keeps all profits.
Pays income tax.
Unlimited liability.
Share profits. Pay income
tax.
Unlimited liability.
Profits shared.
Corporation tax paid.
Limited liability.
Ms. Marshall 6th year business
Job
Batch
Mass
Specific Customer
Order
The production of
certain quantities of
identical products in
one production run
and then production
switches to a different
batch
Large numbers of
identical products
One -off
Skilled or semi skilled
labour
Continuous production
Not produced to be
held in stock
Flexible machines
Produced for stock
and sold
Highly skilled
Average price
Low labour costs –
high automation
Expensive
Held in stock
Unit cost decrease as
economies of scale
apply
Ms. Marshall 6th year business
Job
Batch
Mass
Wedding Dress
Clothes
Chocolate bars e.g.
Turkish Delight
Crystal
Textbooks
Toilet paper
Hand crafted furniture
Bakery – bread, cakes,
croissants
Pens
Ms. Marshall 6th year business
What is a Business Plan?
Explain its role in business start ups (2005 HL 20 marks)
A business plan is a document that sets out the objectives of a
business and the strategies by which these will be achieved. It is
like a map for the entrepreneur telling her what she has to
achieve to make her business a success and what steps she
must take to get there.
 It sets out details of the entrepreneur setting up the business, her
business idea and especially her unique selling point. It also
details how the entrepreneur is going to make and sell the
product and how she intends to finance the business.
 It is used to impress investors in order to attract investment to
start up the business. They will judge whether the business is
sound, e.g. by examining projected profit.
 It will help to anticipate problems, e.g. how to produce the
product. Solving problems in advance will reduce her risk of
failure.



Ms. Marshall 6th year business
See
P288
Description of the Business
 Market Analysis
 Marketing Plan
 Production Plan
A document that sets out the
 Finance Plan

objectives of a business and
the strategies by which these
will be achieved.
Ms. Marshall 6th year business
Description of the business: the people
starting the business, its products and long
term objectives.
 Market Analysis: show that there is a viable
market, how you intends to beat
competition. Describe target market,
market trends, competition, competitive
advantage.
 Marketing Plan: marketing strategy, how
she intends to increase consumer interest
and convince them to buy it.

Ms. Marshall 6th year business
Production Plan: describe how the
product will be made: Job, batch, mass?
The equipment, how to ensure quality.
 Finance Plan: How much it will cost, how
much you have, how much you need?
Set out collateral available. Projected
Profit &Loss Account, Balance Sheet and
Cash Flow Forecast.

Ms. Marshall 6th year business




A guide to future action: a plan provides focus for the
business and guides the actions of the individuals as it
sets the objectives and strategies.
Finance: needed if applying for finance from a
financial institution or the govt.
Assessing Performance: provides a benchmark to
measure your performance against. This will help
control the business as corrective action can be
taken.
Viability: A SWOT analysis is carried out, identifying
problem areas. Problems can be dealt with. This will
reduce the likelihood of failure.
Ms. Marshall 6th year business
2002
Ms. Marshall 6th year business
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



2013
SQ
Outline two characteristics of a private limited company.
2013
SQ. Write true or false after each of these statements.
Sentence
1
Batch Production is used when making a single, one off, unique
product.
2
In a Hire Purchase agreement legal ownership of the good transfers
when the first instalment is made.
3
A Cash Flow deficit can be addressed by negotiating a shorter
period of credit with debtors.
4
A sole trader is an ownership structure that benefits from limited
liability.
5
When a company’s equiity capital is greater than its debt capital it
has low gearing.
Ms. Marshall 6th year business
True or False



2013 Mock
SQ: Illustrate your understanding of the term limited liability.
SQ: Column 1 is a list of business terms. Column 2 is a list of explanations for these terms.
(One explanation does not refer to any of the terms.)
Terms
Explanation
1.
A. An asset that a lender has a claim to if the loan is not repaid.
Insolvent
2. Collateral
B. All finance belonging to ordinary shareholders in the business.
3. Factoring
C. Business is closed and all assets are sold off to clear debts that are owed.
4. Liquidation
D. The selling of the debt of a business at a discount in order to raise cash.
5. Equity Capital
E. The business is unable to pay its debts, total liabilities exceed total assets.
F. A medium term source of finance offered by financial institutions.
1
2
3
Ms. Marshall 6th year business
4
5
2012 Mock
 SQ Outline three features of a partnership as a form of business
ownership.
 2010 (Don’t do part A)

Ms. Marshall 6th year business
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2009 Q
Contrast job production and batch production, giving
one appropriate example in each case. (10 marks)
2008 SQ
Distinguish between working capital and equity capital
(10 marks)
2008 Q7
Outline the benefits for a new business of preparing a
Business Plan (15 marks)
2007 Mock
(A) Explain the benefits to a business of preparing a
marketing plan (20 marks).
Ms. Marshall 6th year business
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

2004 SQ
Name and illustrate three types of production (10 marks).
2005 SQ
The following table shows three types of production and four qualities. For
each quality, tick the type of production which is most likely to match that
quality.
Job
Batch
Unique Products
Groups of
products
Highly skilled
labour
Expensive
products.
Ms. Marshall 6th year business
Mass