Download - 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.