Edexcel Business A Level Revision

Budgets - are forecasts or plans for the future finances of a business. It sets out targets to be met, the costs of achieving them and how that spending might be financed. Income budget - A target set for the amount of revenue to be achieved in a set period of time. Expenditure budget -  A limit placed on the amount to be spent in a given period of time Profit budget -  A target set for the surplus between income and expenditure in a given period of time Budgets can be: Income Expenditure Profit (Income - Expenditure) The purpose of setting budgets... Provides a quantifiable target, that can be communicated to interested parties, against which actual outcomes can be measured. For example, are sales targets being achieved? Are managers keeping expenditure under control? Is the business operating efficiently to achieve profit targets?  Helps with planning and forecasting to inform decision making. For example, what are this years' priorities? Where were b...

Franchise - is when one business, the franchisor, gives another business, the franchisee, permission to trade using the franchisors name and selling the franchisors goods. Can be seen as less risky option for business start-ups, but can mean additional costs and loss of independence. Franchisee - is a business that is given permission from another business to trade using its name or goods/services in return for a fee and share of the profits. They will also be given support by the franchisor but will have less autonomy in decision making. Franchisor -  is a business that sells a license giving permission to another business to trade using its name and goods/services. This allows the franchisor to grow more rapidly but may damage its reputation if standards are not maintained. Franchising is a two way relationship; The FRANCHISEE pays an initial fee to the franchisor The FRANCHISEE pays an annual fee to the franchisor The FRANCHISEE often has to buy supplies from the franc...

Private limited company - (Incorporated) A business that is owned by its shareholders known to the company, often family and friends, run by directors and where the liability of shareholders for the debts of the company is limited. Shares cannot be sold openly on the stock exchange, only to other shareholders, or people known to the business. This means that shares are often sold at a discount to the real value of the shares because the shareholders are "locked in" and either sell at the price that they are offered, or do not sell at all. ADVANTAGES Limited liability Separate legal identity More flexible than a Plc Financial records remain relatively private More capital can be raised through the sale of shares DISADVANTAGES More complex to set up due to increased legal requirements Some loss of control as shareholders have voting rights Unable to sell shares to the public

Public limited company - (INCORPORATED) A public limited company ('PLC') is a company that is able to offer its shares to the public . They don't have to offer those shares to the public, but they can. When shares are publicly traded on the public stock market, Plc companies have substantially more shareholders. Public companies are subject to significantly greater regulation in terms of public disclosure of financial records and other information ADVANTAGES Have limited liability Can easily raise capital by selling shares on the stock exchange, more people to buy them. The increased capital allows company to grow and diversify. The status of company increased, banks more willing to lend. DISADVANTAGES The shareholders own company but directors control it, ‘divorce of ownership and control’ – the directors may make decisions that don’t directly benefit the shareholders, this can create disagreements. There is always threat that someone will buy enough shares...

Partnership -  (Unincorporated) where two or more people share the costs, risks and responsibilities or being in a business together. The partners between them own all of the businesses assets and owe all business liabilities, therefore have unlimited liability. The legal partnership agreement sets out how the partnership is run, covering areas such as; How profits are to be shared What the partners have to invest into the business How decisions are taken What happens if the partner dies or wishes to leave You can also have "sleeping partners" who invest, BUT do not manage the business. ADVANTAGES Business benefits from the expertise and efforts of more than one owner. Partners can provide specialist skills Greater potential to raise finance - partners each provide investment Risks, costs and responsibilities shared Financial records remain private DISADVANTAGES Full personal liability - "unlimited liability" A poor decision by one partner dam...

Sole traders - (Unincorporated) An individual owning the business on his/her own. Registered as self-employed and has unlimited liability. The sole trader owns all the businesses assets personally and is personally liable for the business debts. Therefore, their home and all of their assets may be used to pay off any debts that may incur and are unable to pay ADVANTAGES Quick and easy to set up (they can always be transferred to a limited company once launched) Simple to run - owner has complete control over decision making Minimal paperwork Easy to close/shut down All profits go to the shareholder Financial records remain private Motivation is high as the success of the individual and the business are one and the same DISADVANTAGES Full personal liability - "unlimited liability" Harder to raise finance - sole traders often have limited funds of their own and security against which to raise loans The business is the owner - the business suffers if the owner b...

Unincorporated - A business that does not possess a separate legal identity from its owner(s). The owner(s) bear full liability for any action or inaction of the business : they may sue and be sued for business activity or inactivity. The owner is the business. Most unincorporated businesses operate as sole traders. Incorporated - means owners have their own legal identity and have limited liability. Most incorporated businesses operate as Ltd. Unlimited Liability - business owners are personally liable for all business debts if the business can't pay its liabilities . Only unincorporated businesses have unlimited liability. If the unincorporated business fails, the owners are liable for the amounts owed.   Limited Liability - the condition by which shareholders are not liable for any debts owed by the company. They only lose the money that they have invested in the business in the form of shares. Can own things itself (assets), can sue and be sued. Companies are owned ...

Maximum capacity - the maximum amount of output achievable if all resources are fully utilised. Capacity Utilisation - measures what proportion or percentage of the theoretical maximum possible outcome is actually produced. Under - utilization of capacity - means that some resources are not being used and production is not as high as it could be Over - Utilisation - means that the business is trying to produce more than its capital equipment was design for Unit costs - TOTAL COSTS (FC + VC) / CURRENT OUTPUT Within an individual business, capacity utilisation shows how much of the company's resources are actually in use. If all available resources, all labour, machinery and space are in use at any one time, the business cannot produce any more output and is said to be at 100% capacity utilisation. In the long run capacity CAN BE INCREASED by acquiring more resources e.g. bigger premises, more machinery, introducing a 3rd shift In the long run capacity CAN BE REDUCED...