Business plan (21)

Business plan

It is a formal documentation which details finance,HR and other strategies of the organization and financial implication of them.

• Uses of the business plan (Objectives)

*It is essential while obtaining bank loan or venture capital.
*It guides and direct the organization.

Advantages

*It helps to allocate resources between department efficiently.
*It facilitate as a measurement of the organization performances.

Disadvantages

*Time waste.

Break even Analysts; break even point (20)

Break even Analysts

Break even analysts means it is an analysts which helps the firm to identify the output level ,they should produce to start earning profits and stop earning losses.

Break even point shows the output level where Total Revenue = Total Cost.

In other words it shows the output level at which the firm stop earning losses and start earning profits.
This can be calculated by formula as:

Break even point = Fixed cost / contribution (SP-VC)


It can be shown graphically as follows,

Advantages of calculating break even point

1. It shows the number of units the firm should sell to start earning profits.
2. It shows the margin of safety,the output level which a business should produce to maintain current profit level.

• margin of safety = actual output - B.E level

3. It is essential while obtaining an external source of finance.
4. It helps the firm to determine the different pricing strategies.

Disadvantages

1.When it calculate they will not take into account market changes.
2.BEP prepared based on assumption which might not be accurate.
3.Preparing a plan doesn't ensure the success of the business it might be a time and cost waste.

Gross profit margin Vs Net profit margin (19)

                    Gross profit margin Vs Net profit margin






Gross profit margin

This is a ratio which shows how much of gross profit is included in every pound of sale. Gross profit can be calculated as:

Net profit margin

Net profit margin shows how much of net profit is included in every pound of sale.

Profit; Gross profit; Net profit (18)

Profit

The difference between the income and cost of the firm is called as profit. It can be calculated as:

Profit = Income - Cost

There are two types of profits,

1. Gross profit
2. Net profit

Gross profit

The profit earn by the firm before meeting the operating expenditure is called as gross profit.

Gross profit = Sales - Cost of sales

Net profit

The profit earn by the firm after meeting operating expenses are net profit.
Net profit can be calculated as:

Net profit = Gross profit - Operating expenses

Revenue; Cost; Fixed cost; Variable cost (17)

Evaluating the business Idea

Revenue - It is the total income earn by the firm by selling their goods and services. It can be calculated as;

Cost

It is the total expenditure incurred by the firm to do their business activities. There are two types of cost;

1. Fixed cost - the cost which does not change with the level of output.
Ex:rent,insurance,salary,advertising

2. Variable cost - the cost which changes with the level of output.
ex:utility bills,wages,raw materials

Leasing; Hire purchases; Overdraft (16)

Leasing
Renting or hiring a machinery or any other asset by paying a monthly rental is called as leasing.
The ownership will never be transferred the user, however maintenance and repairs should be done by the lessee.

Hire purchases

It is where high value assets will be purchased by an agreement between two party's,  here the firm will ask another business to buy the assets on behalf of them and will pay the amount monthly over a period of time, at the end of payment the ownership will be transferred back to the firm.

Overdraft

It is a term loan provided by banks to the current account holders where they will be allowed to withdraw more money than they have in the account using cheques.

Advantages of external sources of finance

1. Hard to obtain finance because high documentation.
2. Interest had to be paid.
3. High Liabilities.

Disadvantages

1. Low opportunity cost.
2. Low interference.

Bank loan (Mortgage Loan); Venture Capital; Share (15)

External Sources of Finance

When the firm obtain finance from sources which are external to the firm.

Bank loan (Mortgage Loan) - When a firm obtain a loan from a bank keeping an asset as the security or collateral it is called as mortgage loan.

 Venture Capital - It is a financial aid provided by an investor to an entrepreneur who has a business an business idea, after identifying the potential success of the business idea the risk will be bourn by the venture capitalist and they will share the profit when the business is success.

Share -  is the share of share capital. Shares can only be issue by limited company.
This is suitable for firms which needs a huge amount of finance.

Sources of Finance; Start-up Capital; Internal sources (14)

Sources of Finance

Start-up Capital

The finance needed to meet all the expenditure to start the business is called as start-up capital. A business may meet start-up capital from two main sources;

1.Internal sources
2.External sources

Internal sources

When the firm use its own finance to start the business it is;

1. Retain profits-When the owner use his own money which is called as retain profits.
2. Sale of assets-owner can sell his assets and obtain finance.
3. Family and friends-the owner can obtain finance from his own family members.

Advantages

1. Easy to obtain finance because less documentation.
2. No interest had to be paid.
3. Less Liabilities.

Disadvantages

1. High opportunity cost.
2. Doesn't focus on the success of business.
3. High interference.

Fiscal Policy; Taxes; Subsidize (13)

Fiscal Policy
It is the government policy which deals with the government income and the expenditure to control same ares
in the economy.

Taxes

Tax is a compulsory payment a firm has to pay to the government when taxes increase cost of production will increase.Therefore
disadvantages to the business as demand will fall for the goods due to high prices.

Subsidize

Subsidize are grant given to producers to encourage production by reducing the total cost of the business.

Exchange rate; Inflation (12)

Exchange rate
Expressing the value of one currency in terms of another.The business which are involved in international trade will be affected by exchange rate.

Inflation

A continues increasement at the general price level of an economy is called as inflation.
Inflation will be measured by different indexes.Inflation will affect the business in different ways.

Advantages

*With the price increasement the business will be able to increase the prices therefore business can get profitsby selling different products.

Disadvantages

*Demand for luxury products will falls.
*Cost of production will increase as they have to provide highier prices for factors of productions.

Unemployment rate (11)

Unemployment rate

The number of people in the economy who are willing and actively seeking for employment but do not receive an opportunity are called as unemployed.





Unemployment rate has advantages and disadvantages to the business.

Advantages

1.Firm can obtain a labor for cheap prices.
2.Firm can have more options while recruiting employees.

Disadvantages

1.Population income level will be low when unemployment rate is high therefore firm will lose demand luxury goods.

2.due to unemployment crime rate in a country will become high.

External Economic Consideration; Interest rates (10)

A small business is affected by different area, among them economic factors are most important.
Economic factors are:
           
             1. Interest rates
             2. Fiscal policy
             3. Exchange rate
             4. Unemployment rate
             5. Inflation rate

Interest rates

Interest rate is the cost of borrowing and return for saving.
A business will be affected by interest rates in two ways.

1.When interest rates increase the borrowings will be low therefore investment level of the country will be low.
Another negative affect is that when the interest rates are high people will save more rather than spending on
consumption.This will reduce the demand for the product.

2.On the other hand when the business interest rates are low people will borrow from banks and invest in the
business,it is favorable to the business.Another advantage is that when the inrest rates are low people will not
save as return will be low.They will spend more on goods and services which increase the consumer demand for products.

Trade off and opportunity cost (09)

Trade off and opportunity cost

Act of selecting one option over other options is called as trade off.

Ex:

1. education Vs job
2. one business idea over another

When trade off is done the firm will consider the cost of next alternative forgone.
This is called as opportunity cost.

Positioning the Business Ideas (08)

Positioning the Business Ideas

Positioning the business idea is identifying correct place in the market segment comparing yo the rival firm
so that the firm can gain a competitive advantage.This include,
1.number of competitors
2.strength of competitors
3.competitive advantage
4.market mapping


Market Mapping
Market mapping is plotting down different terms in the industry on a diagram based on two key variables
to identify the exact strategy position of the firm in the market segment.It helps the firm to identify the market
gaps in the segment and also it show where exactly the product stand in the market in the market segment.
Ex:(image)

Competitive Advantage

A strategic advantages a firm has over the rival can be called as competitive advantage.
Ex:quality of the products
   brand name
   cheaper prices
   consumer satisfactions

Adding value

Adding value is the different between the cost of input and the price.It simply can be defined as the process
of increasing the value of the products by adding additional features ti the product.

•    Adding Sofa's to the waiting areas
•    beautiful receptions
•    Air conditioning the shop

Stake holder

Any party who has interest about the business activities because they affect and get affected
by the business activity.
Ex:owners,managers,employees
   government,pressure groups,inverters
   consumers,suppliers,local community,competitors

Market research; Product trial; Sampling; Sampling Errors (07)

Market research

Gathering , Analyzing and Evaluating market data in order to find out consumer needs and wants is called as
market research.There are two types of market research

1.Primary research
2.Secondary research

* Primary research -  is where the researcher himself involve in gathering first hand data, in order to identify the consumer needs and wants.
Ex:questions,surveys,product,trial,interviews,test market,observations.

* Secondary research -  is the research where the researcher gather data from different sources which has already been collected by another researcher.

Product trial

Product trial is a primary research technique.In product trial the firm will issue a product sample to a few
number of responders in order to find out the potential demand for it before issuing it to the mass market.

Objectives of product trial

01.To identify potential demand for a product before issuing it the mass market.
02.To identify the necessary changes which has to be done in the product.
03.To determine the pricing strategies, market strategies and market segment of the product.


Sampling

Selecting a group of responders who will represent the total population while doing a research is
called as sampling.

Sampling Errors

Sample Size - Sample that are too large may waste cost and time samples that are too
small may lead to inaccurate results.

Sample method - The way the sample is selected should be appropriate otherwise the results will not be accurate.

Potential Bias - The personal ideas of the researcher or responders may the effectiveness of the research.Therefore minimum or no bias should be included in sampling.

Market segmentation; Market Orientation (06)

Market Segmentation

The process of dividing the market into small segments based on similar characteristics of consumers.
Market segmentation will be done based on several criteria.

1. Geographical segmentation.(Based on area the consumers live)
2. Demo-graphical segmentation.(Based on consumer characteristic such as: age,gender,life style,etc)

Market Orientation

When the producer give priority to the market needs and wants while producing the product is called as
market orientation.This means they will find the market and produce the product.

Advantages

* Low risk.
* Demand will be high.(because they satisfy consumer needs)
* Less promotion cost.

Disadvantages

* Market research cost is high.
* Producer will not be creative.
* High competition will exist.

Mass Market Vs Niche Market (05)

Mass Market

Mass market is where a large number of consumers are present.When the business cater the product
to mass market they will not focus on one costumer group but the total group.

Advantages

* Large number of consumers,therefore high demand.
* The market will be already tested,therefore very low risk.
* Easy to enter the market.
* Economy of scale due to mass production.

Disadvantages

* High competition.



Niche Market

It is a highly profitable small market segment with few number of suppliers and consumers with
distinctive needs.
Ex. Foreign food items
      Luxuries, fast cars

Advantages

* Price is inelastic therefore can charge  higher prices.
* Few number of suppliers therefore few competition.
* Permanent set of consumers will be created.

Disadvantages

* High risk in the market
* If a permanent customer is lost the firm will be in danger.
* If too successful big companies may enter and profit will be lost.
* Economies of scale can not be gain.

Supply; Technology; Government Policies; Cost of Production (04)

1.Supply

The amount of goods the seller willing to supply at a given price over a given period of time.
Supply is determined by several factors

However when supply increases price will decrease and vice versa.

2.Technology

Improved technology will increase supply and vice versa.


3.Government Policies (tax and subsidize)

Taxes are compulsory payments which should be pay to the government. It is a cost for the organization.When taxes increase supply will decrease because total cost of production increase.
Subsidize are grants given by the government.When subsidize increase cost of product decrease, therefore when subsidize are given suppliers are ready to supply more.

4.Cost of production

This includes rent,wages and salary's, invest, etc. Increasement of cost of production will decrease the production.

Market, Demand (03)

What is market?

A market is situated where sellers and buyers meet in order to exchange the goods and services.

Demand

Demand is the desire to buy a product which is backed up by purchasing power.


Factors affect Demand




1. Price of the product

Price and Demand have negative relationships which price increase the demand decrease.
On the other hand when demand increase price tends to increase and when demand increases the price will go down.

2. Price of substitutes

Substitutes is a product which can be used instead of another product.
When the substitute price increase the demand for the product will increase and vice versa.

3. Price of complementary goods

Complementary is a product which has to be simultaneously use in order to use it.Price of complimentary increases
demand for product will decrease and vice versa.

4. Fashion based and references

Consumer Income,weather conditions,Government...

Leadership Styles (02)

There are three types of leaders.

• Autocratic Leader
• Democratic Leader
• Laissez faire Leader

Autocratic Leader

Autocratic Leader is a restrict and absolute leader who take decisions all by himself, without considering subordinates opinions. He closely supervises the tasks of subordinates until the task is accomplished.

Democratic Leader

A leader who consider the opinions of subordinates while making decisions but who keeps the final decision making power to himself. He observe and guide the subordinates rather than closely supervising them.

There are two types of subordinates

• Paternalistic Leader

He is like a father to subordinates, he is caring and thinks that he knows the best for his subordinates

• Consultative leader

They consult the subordinates before taking a decision, they usually consider subordinate opinions while making decisions.

Laissez Faire Leader

Laisses faire leader is a leader who allows his subordinates to take decisions, he doesn't supervise the subordinates, just give them the ultimate objectives and expects them to decide what to do, and how to do the task.
   

Entrepreneurship (01)

An entrepreneur  is the person who bends all the factors of production to do a business while taking its risk.

•   What motivates an entrepreneur? 

1. To earn more
2. To be independent
3. To be his/her own boss.
4. To do what  he/she likes to do.
5. To provide service to the society.
6. To use their skill in a better way.

Characteristics of an entrepreneur  

E - Enthusiastic visiom

N - Novelty / Creativity

T - Total committment

R - Risk taking (calculated risk taking)

E - Energy

P - Passion

R - Resourceful

E - Exerienced

N - Need to achieve

E - Empathy (use others emotions)

U - Undertaking

R - Resilience ( ability to spring back from difficulties)

S - Self confidence

H - Hard working

I - Initiative

P - Persistant