Theme 2 - Managing business activities

2.1 Raising finance

2.1.1 Internal finance

a) Owner's capital: personal savings

b) Retained profit

c) Sales of assets

2.1.2 External finance

a) Sources of finance

Family and friends

Banks

Peer-to-peer funding

Business angels

Crowdfunding

Other businesses

b) Methods of finance

Loans

Share capital

Venture capital

Overdrafts

Leasing

Trade credit

Grants

2.1.3 Liability

a) Implications of limited and unlimited liability

b) Finance appropriate for limited and unlimited liability businesses

2.1.4 Planning

a) Relevance of a business plan in obtaining finance

b) Interpretation of a simple cash-flow forecast and calculations based on changes in the cash-flow variables

c) Use and limitations of a cash-flow forecast
d) Cash flow problems 
e) Managing Debtors

2.2 Financial planning 

2.2.1 Sales forecasting

a) Purpose of sales forecasts

b) Factors affecting sales forecasts

c) Difficulties of sales forecasting

2.2.2 Sales, revenue and costs

a) Calculation of sales volume and sales revenue

b) Calculation of fixed and variable costs

2.2.3 Break-even

a) Contribution: selling - variable cost per unit

b) Break-even point: total fixed costs + total variable costs = total revenue

c) Using contribution to calculate the break-even point

d) Margin of safety

e) Interpretation of break-even charts

f) Limitations of break-even analysis

2.2.4 Budgets

a) Purpose budgets

b) Types of budget

Historical figures

Zero based

c) Variance analysis

d) Difficulties of budgeting

2.3 Managing finance

2.3.1 Profit

a) Gross profit

b) Operating profit

c) Profit for the year (net profit)

d) Statement of comprehensive income (profit and loss account)

Measuring profitability

Calculation of gross profit margin, operating profit margin, and profit for the year (net profit) margin

e) Ways to improve profitability

f) Distinction between profit and cash

2.3.2 Liquidity

a) Statement of financial position (balance sheet)

Measuring liquidity 

Calculating current ratio and acid test ratio

Ways to improve liquidity

b) Working capital and its management: the importance of cash

2.3.3 Business failure

a) Internal causes of business failure
b) External causes of business failure

2.4. Resource management

2.4.1 Production, productivity and efficiency

a) Methods of production

Job

Batch

Flow

Cell

b) Productivity

Output per unit of input per time period

Factors influencing productivity
Improving productivity

Link between productivity and competitiveness

c) Efficiency

Production at minimum average cost

Factors influencing efficiency

Distinction between labour and capital intensive production

2.4.2 Capacity utilisation

a) Capacity utilisation

Current output (divided by) maximum possible output (x100)

b) Implications of under and over-utilisation of capacity

c) Ways of improving capacity utilisation

2.4.3 Stock control

a) Interpretation of stock control diagram

b) Buffer stocks
c) Implications of poor stock control
d) Just in time (JIT) management of stock
e) Waste minimisation
f) Competitive advantage from lean production

2.4.4 Quality management 

a) Quality

Control

Assurance

Circles

Total Quality Management (TQM)
b) Continuous improvement (Kaizen)
c) Competitive advantage from quality management

2.5 External influences

2.5.1 Economic influences

a) The effect on businesses of changes in
Inflation (the rate of inflation, the Consumer Prices Index)
Exchange rates (appreciation, depreciation)
Interest rates
Taxation
Government spending
The business cycle
b) The effect of economic uncertainty on the business
environment

2.5.2 Legislation

a) The effects on businesses of:
Consumer protection
Employee protection
Environmental protection
Competition policy
Health and safety

2.5.3 The competitive environment

a) Competition and market size