Profit - The surplus remaining after total costs are deducted from total revenue.

Break even - Fixed costs / selling price - variable costs per unit

Inventory control - the optimum quantity of goods/components a business holds for

the purpose of resale/production

For giving two effects;

• Too much inventory – left with unsold goods
• Too little inventory – unable to meet demand
• Tharindu needs to have T-shirts available outside cricket stadiums in order to
make sales

Analysis:
• Tharindu may make a loss if he has too much money tied up in inventory
• Tharindu would miss the opportunity to make sales if he doesn’t have enough
T-shirts

Discuss the extent to which the actions of competitors may affect Tharindu’s sales
forecasts.

• Sales forecasting is where a business estimates its future sales so it can try
to be more effective in managing its resources

• Factors affecting sales forecasting may be consumer trends, economic

variables or actions of competitors

Sales volume is the quantity of units sold • An improved sales volume may lead to
increased profits
Assess whether this method of finance is the most suitable for Tharindu.

Tharindu is his own boss and is likely to be a sole trader

• A car would need a large amount of finance that may mean a loan is more
suitable than using personal savings or retained profit
• A loan has to be paid back, usually with interest and at regular intervals
• The benefit of a loan is that Tharindu can get sufficient finance to buy the car
straightaway and then pay it back with the potential profits he makes over
time
• Tharindu’s parents own the grocery shop and so may have the ability to loan
him some of the money towards buying a car
• If his parents cannot afford to help him, he could approach a bank to see if
they would give him a loan
• However, a bank is likely to want to see some business planning before it
provides any finance. This may be difficult for a small business such as
Tharindu’s
• If the loan comes from his family and the business is unsuccessful and
Tharindu cannot repay his parents it may cause conflicts with family
• If Tharindu is unable to keep up with the repayments to a bank he may need
to sell the car to pay off a loan. If there is not enough money from the sale of
the car he may also need to sell other personal possessions
• If the loan is too risky or unobtainable, Tharindu may have enough retained
profit from the sale of T-shirts to be able to finance the car if there is enough
• Therefore, a combination of finance from Tharindu and a bank may be the
most appropriate as a bank would see he was prepared to take the risk

Business plan - a document/plan for the development of the business giving details
such as the product, resources and cost/revenue/cash flow forecast

The capacity utilisation formula = (Current output / Maximum possible output ) x

100

Cash-flow forecasts - the predicted flow of cash into and out of a business over a
period of time

Application:
• George’s Tavern caters to tourists and it is likely that numbers will fluctuate
• Lamb is supplied from local farmers who will still need to be paid

The rate of inflation - the rate at which the general level of prices for goods and
services is rising and, consequently, the purchasing power of money is falling
Profitability is the degree to which a business makes a profit from its activities
• It is possible to improve profitability by reducing costs, increasing sales,
increasing productivity and/or increasing efficiency
• Cheaper ingredients may mean a reduction in the quality of the dishes
served which could lead to a lower number of diners, thus impacting on
profitability

Stock market flotation is the process of converting a business into a public limited
company by issuing shares to the public
• It allows businesses to obtain large amounts of finance externally instead of
using retained profits or other forms of finance to fund new projects or growth
• As a private limited company Solutions Accountancy will have restricted
potential for raising capital
• It is likely that Solutions Accountancy could find borrowing from banks and
other financial institutions cheaper and easier because banks are more likely
to take a risk on plcs as they already have the backing of public shareholders
• The additional finance would allow further growth and the purchase of the
necessary infrastructure such as software and to recruit more employees
• Becoming a public limited company would allow the opportunity for wider
marketing and operational skills to be brought in by new directors
• Flotation could lead to an enhanced reputation for Solutions Accountancy as
it could be recognised more easily by the plc status
• However, stock market flotation requires a great deal of administration and
costs to set up
• The demands placed on Solutions Accountancy may cause over-emphasis
on short-term objectives in order to maximise short-term profits to keep share
prices high which could be detrimental to the long-term success of Solutions
Accountancy
• There could be greater potential for takeover once the flotation has taken
place
• Changing from a private to a public limited company would mean the family
business would lose control over who owns shares. This is something very
important to all concerned with Solutions Accountancy
• Shareholders may have conflicting interests from the original four directors
and may wish to move away from the core values which Solutions
Accountancy is based on, such as fair pricing and excellent customer service
 • If Solutions Accountancy remains as a Ltd it could sell shares to additional
directors without floating the business. These could be employees or other
family members for example
• It depends whether Solutions Accountancy decides it actually does need to
increase its rate of growth in order to continue its success. It is still growing,
just not as much as in previous years
• Overall it may depend whether the directors believe that growth is more
important than the original core values

Statement of comprehensive income - a document to show income and expenditure

of a business over a financial year

An inventory control diagram shows details of inventory movements such as

minimum and maximum inventory levels, reorder level and quantity and lead times
• It shows the minimum inventory level, below which inventory should never
fall
• It shows how many items to order

Application .
• The minimum inventory level is 10 vegan rolls
• Greggs’ re-order quantity is 40 vegan rolls

Analysis
• This means the shop will never run out of vegan rolls to sell
• Therefore, Greggs can meet the expected customer demand for the next day

Variance analysis - difference between budgeted and actual figures and can be
calculated at the end of a financial period, once actual figures are known

Variances can be calculated for expenditure and income and can be used to
monitor the costs of a business

By using variance analysis, Greggs could try to identify reasons why the variances
occur, such as the publicity over the launch of the new vegan rolls

It can help be better prepared in the future • However, it is difficult to set budgets as
they are likely to be based on historical data

It takes time and money to prepare budgets, which could be better used in things
like the development of new products
Batch production is a method of manufacturing where a quantity of one product is
made, then a quantity of another item will be produced
• Benefit from lower unit costs of its vegan rolls compared to job production
• Because production is divided into a number of operations, it is more efficient
and so profitability can be increased
• Production of savoury products is flexible, meaning different customer orders
can be met more easily, increasing sales
• Bakery employees are likely to specialise in one process, therefore the
quality of different products may be improved
• However, forecasts have to be accurate or food may be wasted and thrown
away, leading to an increase in costs
• If batches are small, unit costs will still be high (relative to flow production)
• Less motivation because bakery employees specialise
• Time taken switching between different batches
• Overall, for a business such as Greggs that sells many different bakery
products, it has the advantage of meeting the differing quantity and quality
demanded by customers
• Whereas other products may be more suited to flow or job production

Bank loan - an external method of finance borrowed from a bank paid back, with
interest (over a period of time)

Sales volume = sales revenue / price

Sole trader - the simplest form of business with only one owner
• The owner has complete control
• The owner can adapt to change quickly
• Decision making can be very quick, allowing her to focus on sewing and
sales
• Gitte can easily switch to producing different bibs so customers are satisfied
when orders are met promptly, allowing Sew Sew to gain a positive
reputation

Business plan - a document to provide information about a new business and can
be used to persuade financial backers to invest
• Financial forecasts are often included. They may include sales forecasts,
break-even calculations, cash-flow forecast and details of costs, revenues
and profits
• Financial forecast may be the most important content because Gitte obtained
a bank loan when setting up Sew Sew and the bank would most likely have
 been more willing to loan her the money having seen financial forecasts in
the business plan
• Gitte could estimate how many items she needs to sell to break-even and/or
to make a profit
• She could also identify potential problems
• This means she could make plans to resolve such problems and ensure she
has enough cash available to buy material, as well as to live on
• However, other content of a business plan may be more important, such as
an executive summary. This is because it summarises the whole business
plan and is likely to be something a bank would look at before providing a
loan
• Overall, it is likely to have been important to include financial forecasts in the
business plan for Sew Sew but it may only be of equal importance as the
other elements because they collectively make up a successful plan for the
business

Market conditions - affected by consumer trends, which change over time. If

businesses do not adapt to these changes, they may risk failure

Quantitative data - information gathered that relates to numbers/amounts

A trade-off - occurs when two objectives cannot be fully achieved. Having more of
one may mean having less of the other

Ethics - about ‘doing the right thing’ and behaving morally and responsibly

Social trends - changes in the pattern of mass behaviour that impacts society and
businesses

Employee welfare - facilities and benefits provided by a business to meet the well-
being of the employee

Sponsorship - a form of marketing in which a payment is made by a business, or

goods supplied by a business to an individual or group of people. This is given in
return for the right to be associated with a person or event

Venture capital - a method/ source of finance to fund a business where the risk is
greater for the investor

Gross profit margin = Gross profit / Revenue x 100

Business plan – A document designed to provide information about a new business
to persuade financial backers to invest
• To gain finance
• To show how the business will be run

• As a result of producing a business plan, Zwift may have been able to obtain
enough finance to allow them to launch the program
• Potential problems could have been found and resolved by producing a
business plan, helping the business to be successful

Limited liability – the owner has a seperate legal identity from the business
• This means owners were able to take more risks without the worry they may
lose their personal possessions if the venture failed
• However, setting up Zwift so it has limited liability would have taken longer
and been more complicated than if Jon and Eric operated as a partnership
• With less concern over running up huge debts, if problems occur in the
future, Zwift may not be able to repay their creditors and could go into
liquidation

Competitor - a business in the same market that offers a similar product or service

Consumer trends - habits or behaviour of those involved in the use of goods and
services

Gross profit = Revenue – direct costs

Quality management - the process of a business maintaining a desired level of

excellence in a product/service by paying attention to each stage of the process
→ good reputation
→ customers spend more
Budgeting provides a target for costs or revenue that a business or department
must aim to reach over a given period of time

• It would allow each Starbucks coffee house to control its spending so it can
aim to keep costs down when buying coffee from suppliers
• It would help managers of each Starbucks coffee house to measure
performance and compare revenue to see how well they were performing,
for example month by month, or with Starbucks in other towns
• However, there is no guarantee these objectives will be met and Starbucks
may have wasted time (which they are likely to be short of during busy
periods) and money in preparing the budgets
• It may depend whether the budgets are prepared in conjunction with one
another. If sales revenue from selling the coffee exceeds expectation it may
be that costs have to be higher to cater for this extra demand
• There may be other influences which can lead to profit maximisation, such
as increased demand due to a successful marketing campaign or
environmentalists choosing Starbucks due to its stance on coffee cups

Legislation is the making of laws for people to follow

The exchange rate is the price of one currency in terms of another

• Depreciation of the pound sterling (£) means it can buy less of another currency
than previously; it has gone down in value
• Pound depreciating meant that overseas customers could buy more pounds (£)
with their own currencies, therefore making British goods cheaper to overseas
buyers
• When the currency is weaker, it can be easier to offer competitive prices to
overseas customers who might not be able to buy the same goods or services,
produced domestically, any cheaper
• If British products are cheaper to overseas buyers, they are likely to increase
demand for them
• However the nature of the specific product on offer is also a factor. A product or
service not commonly found in the target country’s market, a unique or high quality
product is more likely to attract custom regardless of price
We do not know if the British firms kept the prices constant following the
depreciation of the pound (£). If they imported raw materials they may have
increased prices to cover higher costs.
• Overall it is likely a combination of the pound (£) depreciating and factors such as
improved quality and the reputation of British brands led to the increase in demand
for the British products shown
Employee protection legislation - laws and procedures a business must follow in the
treatment of its workers
• It must keep up to date with changes to the legislation
• It might reduce the flexibility of existing employees

Motivation - a factor that encourages employees to be more interested and

committed to their work

Productivity - a measure of the efficiency with which labour or capital completes a

task

By empowering employees, BDVP helps its secretaries and administrative

assistants to take pride in their work and to feel a sense of responsibility
Improving motivation alone may not be very effective if the technology used is out-
of-date and slow. New technology could be more effective

• Many ways to improve productivity could increase motivation as well, thus

providing multiple benefits to BDVP
• A combination of ways to improve productivity, such as bonuses, introducing
flexible working practices and replacing old technology may be the best way to
increase productivity

Profit for the year (net profit) formula = operating profit – finance costs (interest)

Efficiency - making the best possible use of all a business’s resources (1) by
minimising average costs
• Efficiency could increase as it would be easier/quicker for customers to make
a booking
• Fewer employees would be needed to complete the booking process
because of the use of technology
Share capital is funding raised by a company in exchange for a share in the
business

Share capital could be an expensive way to fund the plan to grow because
shareholders would expect a higher return than they would get by putting money in
a bank, due to the higher risk

The business cycle measures economic activity over time and shows stages of
boom, downturn (where there is rising unemployment), recession and recovery

The business cycle could help Hostelworld to assess whether the predicted growth
in tourism is likely to be accurate for the years in the forecast

Although the business cycle may be useful, it should not be relied upon too heavily
and it is important to use other data available as well

Break-even point is the point where total revenue = total costs

Margin of safety is the difference between the break-even point and the current
level of sales

Taxation - how the government raise money to finance its expenditure

Why there may have been a decline in India’s

labour-intensive industries?

• Consumers are more likely to choose lower priced products which may mean
buying from producers in other countries rather than in India
Competitive market
• A large number of producers compete with one another to meet the needs
and wants of consumers
• Focus on a niche
• Provide excellent customer service

Analysis
• Consumers may be more attracted to jewellery they know is not going to be
sold in the mass market
• Consumers are more likely to buy expensive products like gems and
diamonds if they are given a high level of personal service because they
know the piece will be unique

Labour-intensive production - requires a high amount of human capital

• Lower costs and faster changes are often advantages of labour-intensive
production
• The textile sector may benefit from producing individual items which are
hand-crafted as they can be seen to have more value
• By using labour to produce textiles, garments can be tailored specifically to a
consumer’s requirements allowing a premium price to be charged
• However if capital-intensive production is used instead, the work can be done
faster and with greater efficiency
• Once up and running, capital-intensive production can be cheaper and
therefore better for long term production

Liquidity - how quickly a business can access cash in order to meet its short term
debts
• Current ratio and acid test ratio are measures of liquidity
• Current ratio gives an idea whether the business would be able to repay its
liabilities with its assets • Current ratio is calculated by current assets/current
liabilities

Acid Test ratio is calculated by = current assets – inventory/current liabilities

Sales revenue formula = Selling price x Quantity sold

Kaizen is a Japanese philosophy which places emphasis on making small
improvements in all business processes as it tries to achieve a culture of
continuous improvement; good processes bring good results
• Kaizen encourages quality and productivity improvement in organisations
through efficiency and making positive changes
• Zamtel will do this by encouraging team working, seeking new ideas from
employees and improving motivation, as well as helping employees to
develop their careers
• Kaizen would therefore help Zamtel to retain its employees so they can focus
on developing improved services to provide faster internet and
mobile/landline communication
• Zamtel intends to train its 700 employees as part of the continuous
improvement process. This is likely to help the introduction of Kaizen to be
successful and may motivate the employees if they feel involved
• However, individual employees also need to be committed for Kaizen to be
successful and they may not be happy with the proposed changes/training,
especially if they are used to doing things differently for a long time and are
already demotivated
• Kaizen is often used in manufacturing businesses and so may not work as
well for a service-based business such as Zamtel
• The changes won’t happen straightaway, and the high costs mean the
business may need to make sacrifices elsewhere in order for it to be
successful
• It may depend how well the changes are communicated to the employees so
that everyone can be encouraged to meet the same targets

Loans
• Tate & Lyle could expand by borrowing money from a bank or other financial
institution in order to expand its food laboratory facilities and launch the new
sweetener
• Loans are usually more easily available to large business such as Tate &
Lyle and at a lower interest rate maybe charged because they may be seen
as less risky than a small business, just starting out
• The 32% increase in foods with health and wellbeing claims in 2017 may
encourage financial providers to offer more favourable terms to Tate & Lyle
because the figures indicate the expansion proposal is in line with consumer
demand
• However, the process to obtain finance via a loan may take a long time. This
delay may be problematic to Tate & Lyle if they intend to put their expansion
plans into operation quickly
 • Not all businesses are able to obtain bank loans at favourable rates.
Although Tate & Lyle are a multinational business, no data is given to show
how credible they may be for a bank to provide loan funding and if it does,
the interest rate it will charge
• It will depend on the success of the expansion proposal and therefore the
revenue generated as to how long it will take Tate & Lyle to pay back the
loan

Leasing
• Leasing is where Tate & Lyle (the lessee) would pay to use assets owned by
a lessor.
• Quicker access to premises and equipment needed to expand and develop
its healthy food options without having to raise additional finance
• Access to a higher standard of equipment maybe possible through the use of
leasing than the business may have

Over-utilisation of capacity - using resources so close to 100% that they may be

over-stretched

• Cannot respond to an increase in demand

• Insufficient time to train new employees

Sales forecasts - carried out by a business to calculate the level of stock, finance
and employees needed
• Unemployment is one of the economic variables that could affect sales
forecasts and is the number of people unemployed but seeking employment

Share capital - a source of finance raised by selling shares in a company

• For a private limited company, such as Symington’s, shares can only be sold
privately to family, friends or employees
• As a private limited company Symington’s will have limited liability. This
means the owners can only lose the money they have invested in the
business and not their personal assets
• The sale of shares can raise a large amount of finance for the business
• This could have allowed Symington’s to grow to employ twice as many
people over the last five years and to operate from six sites across Yorkshire
• Share capital does not normally need to be paid back and no interest is
charged
• Therefore Symington’s can focus on production of its food products and
expanding
 • However, some control of the business may be lost by the original owners as
shareholders are able to have a say in how the company is run
• Although the shareholders may also be the original owners and/or
employees, reducing the possible problem of loss of control, it also means
there may be a limit on the amount of finance that can be raised
• Other methods of finance may be more appropriate, such as a bank loan
• This will depend on how much money is required and how Symington’s plans
to grow
• Overall, share capital can be the most appropriate method of finance but it
does have limitations and may be more appropriate if used alongside other
options

Productivity refers to the output per input over time

Although productivity may increase competitiveness, there may be other factors

which might reduce the impact it has, such as if a cheaper supplier can be found or
if the consumer wants to remain loyal to one particular shop

A cash-flow forecast is used to show the estimated cash inflows and outflows of a
business
• Even when sales appear successful, many businesses fail because they do
not have enough cash with which to operate
• A cash-flow forecast would help a business such as Jetty Service Centre to
predict the amount of cash coming into and going out of the business
• This could be particularly helpful because Jetty Service Centre operates a
scheme where customers pay a fee each month, meaning the business has
cash ahead of needing to carry out work and pay its mechanics
• It could be useful because the parts needed for repairs are expensive and
need to be transported to the island
• It would therefore allow the motorcycle repair shop to estimate how much
cash it had available to spend on parts and how much it had available to pay
employees, based on fees paid by customers
• It could be helpful should the business wish to apply for finance from a bank
or other financial institution
• However, the figures used in the forecast are based on estimates. As Jetty
Service Centre will have to use previous years’ data to prepare the forecast,
it may be unreliable and could lead to poor decision making
• Although inflation is currently low in the Maldives, this may not continue.
External influences such as this may affect the estimated figures used by the
motorcycle repair shop
 • As there is a high number of competitors operating in the motorcycle service
and repair market on Male, it would be difficult to predict actions they may
take which may affect the figures estimated on the cash-flow forecast
• Both time and money would be needed in order to prepare a cash-flow
forecast. These could be more effective if used to advertise the annual
scheme offered
• Overall, it may be useful to prepare a cash-flow forecast but it should be used
cautiously and only as a guide. It is also important to remember that sales,
costs and profits are other factors that can affect the success of a business

Quality assurance - a commitment to quality by a business whereby it will aim to

ensure problems are prevented at all stages of production. It focuses on preventing
faults with products during production. It is process orientated and proactive
• Quality control is where products are checked at the end of production to
ensure they are suitable for consumption. Faults are detected and corrected
if possible. It is therefore product orientated and reactive
• Quality assurance means waste is reduced because faults can be corrected
before the product has gone through the whole production process, unlike
quality control
• This would be particularly suitable for the advanced systems made by Lena
Lighting as there could be high cost and time saving advantages to correcting
any defects early in the process
• However, quality assurance can be expensive because it requires employees
to be trained to conduct checks. This would be more of a problem for a
business with a high staff turnover, such as CF Fashions
• Quality assurance also requires employees to contribute towards and be
responsible for quality. If employees are unhappy or feel undervalued, as
they do at CF Fashions, they may not perform quality assurance
appropriately
• This may also be true of older businesses if employees are used to quality
control methods being effective as they will be less likely to want to change to
new procedures
• Quality control does not interrupt the production process like quality
assurance does. This could be more of a benefit to a business using mass
production, such as Mugz, because it can produce a higher turnover. It has
less concern over defects because sales of rejects can still be made to
discount stores
• Therefore, quality control may be more effective for businesses like Mugz
and CF Fashions
• Overall, quality assurance may be more effective in the long term as it can
bring both cost and time savings to a business. However, in the short term it
may be more expensive to train staff and to implement
• It will depend on the nature of the business, the attitudes of employees and
the type of products produced