business revision

8/3/2019 Business Revision

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First Steps Ltd;

Was established in 1986.

Have 241 nurseries in the south. Qualified and experienced staff therefore high prices.

9.9 million profit in 2009-2010.

Launched School clubs for 5-12s in the holidays.

Increasing

profits.


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Outside

Play area

Music

Equipment Indoor

Equipment


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Financial revenue, profits, breakeven, budgets and cashflows.

Human nursery staff, sales team (Ken & Angela), storemanagers.

Physical space to work such as the nursery building, fixed

assets such as equipment, buildings and computers, currentassets such as food.

Information employee details, supplier records, customerdetails, and sales and costs data.


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Firsts Steps Ltd will use both software packages; Databases for employee details, supplier records

and customer details.

Spreadsheets for all financial data for example,

budgets, cash flows and profits/(loss).


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First Steps Ltd is a Private Limited company.

They are looking to expand into a Public Limited

Company (plc).

Advantage of expanding to a plc is suppliers will getlonger credit.

Disadvantage of expanding is it is very expensive is Ken

and Angela have the finances to expand?


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Busy bees are First Steps main competitors butthere are also other smaller competitors as well.


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Budgeting and variancesare important because,

Controls finances thereforeno over spending.

Using variances toindentify averse financialareas and take correctiveaction.


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Make it easier to raise finance as a result of its stockmarket listing

The new company will be able to raise huge amounts of

finance from the sale of shares to the public to enable

First Steps Ltd to expand.

Becoming a Plc provides greater scope for new

investment.

First Steps can gain positive publicity as a result of trading

on the Stock Exchange.

Brand will be well known


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Suppliers tend to be more willing to offer

credit to public limited companies e.g. When

purchasing food for the nurseries

First Steps may be able to achieveeconomies of scale i.e. Cost savings as it

increases the scale of its activities.


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A new plc must publish a great deal of financialinformation about its performance. This could give its

competitors Busy Bees an advantage as they will know

considerable information about First Steps Ltd.

Its very expensive to convert the nursery to publicbecause they will need to raise a large amount of money

to be able to do this The case study states that First Steps

are having difficulties to do a further expansion.

The founders of the firm may lose control if their

shareholding falls below 51% this is because anyone canbuy the shares.


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A stock exchange listing means emphasis

may be placed on short-term financial

results, not long term performance.


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Angela and Ken should convert First Steps Ltd to a plc statusbecause this will enable them to raise the additional finance thatthey need for the expansion of the day nurseries in to North England.Without this additional finance it is unlikely that they will be able to

expand further as it appears that raising finance through other

sources, probably a loan is difficult at the present time. If6 they fail

to convert the business into plc then they will be unable to expandfurther and could lose market share to competitors such as Busy BeesChild Care.

Angela and Ken should not convert First Steps Ltd into a plc status

and seek finance from other sources to expand their business idea.

For Angela and Ken remaining as majority shareholders in the First

Steps Ltd is important to them if they convert the business thenthere is potential that an outside investor could buy up significant

shares to become the new majority shareholder and make changes to

their own idea.


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Sole Traders: A business owned by one person.The owner may operate on their own or employ.

Partnerships: This is a type of business in which

two or more people operate for the common

goal of making a profit. Private Limited Companies: A small medium

sized business that is usually run by the family or

the small group of individuals who own it.

Public Limited Companies: A business withlimited liability, a share capital of over 50000

and usually, a wide spread of shareholders.


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Sole Trader Easy and cheap to set up

Few legal formalities

Independence

Able to respond quickly to changes in circumstances.

Partnership Have a wide range of skills and knowledge

Able to raise greater amounts of capital than soletraders.

Dont have to share profits


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Private Limited Company More flexible than a plc

Control of business can not be lost to outside

investors.

Access to more capital than a registered company. More privacy than a plc

Public Limited Company Due to their size, PLCs can dominate the market. Greater scope for new investment

Easier to raise finance

Suppliers tend to be more willing to offer credit to public

limited companies.


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The process of estimating the expected cash

inflows and outflows over a period of time,

often 6 or 12 months.

Holding of cash in a

business

Use of factors of

production to make

goods/services

Outflow of

cash to pay for

factors of

productione.g. Materials,

wages

Inflow of cash in

return for sale ofgoods /services


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To identify potential cash-flow problems in

advance

To guide the firm towards appropriate action

To make sure that there is sufficient cash

available to pay suppliers and creditors andto make other payments.

To provide evidence in support of a request

for financial assistance.

To avoid company being forced out ofbusiness.


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Improved control of working capital

Negotiate improved terms for trade credit

Offer less trade credit

Debt Factoring

Improved cash flow in the short-term.

Lower administration costs-chasing up debts

Reduced risks of bad debts


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Short- used to pay for bills and keep

suppliers happy- less than 12 months.

Medium This is appropriate when funds are

required for between on and seven years. Long- Use to finance the purchase of major

assets for the business e.g. Land, buildings-

10+ years.


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Short Loan

Overdraft Trade Credit

Debt Factoring

Medium

Leasing Bank Loan

Venture Capital


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Long Term

Reinvesting profits

Mortgages

Share or equity capital

Government grunts


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Budgets are financial plans for the future

looking at revenue from sales and expectedcosts over some time period.

Purposes of a budget

To ensure business doesnt overspend

A budget is a plan for the future To encourage responsibility

To assign responsibility to an individual

To improve efficiency and company

performance

To all communicate plans to all staff.


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Budgets maybe imposed

Using planned figures may pose a problem as

estimates or forecasts can inaccurate.

Setting a budget can be time consuming The level of price rises is not easy to predict

Monitoring Budgets

The process of monitoring budgets is called

variance analysis. A variance occurs when an

actual figure differs from a budgeted figure.


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Fixed, variable and total costs

Fixed Costs..

These are costs that do NOT vary directly withoutput in the short-run.

business revision

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