Growing a Business

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Growing a Business by Mind Map: Growing a Business

1. Current ratio = Current Assets / Current Liabilities

2. GPM (%) = (gross profit / sales revenue) x 100

3. NPM (%) = (net profit / sales revenue) x 100

4. Sales Revenue = No. of units x price

5. Gross Profit = Sales Revenue - Cost of Sales

6. Net profit = Gross Profit - Overheads

7. Operations Management

7.1. Production Methods

7.2. Challenges of Growth

7.3. Quality assurance

8. People in Business

8.1. Organisational structure

8.1.1. Outlines the layers of management Flat/wide span of control Quicker communication Messages don't get distorted through chinese whispers More responsibility to workers Workers may need more training in management Tall/narrow span of control Easier to control fewer staff Responsibility kept in the hands of senior managers Lower training costs

8.1.2. Shows the span of control

8.1.3. Location of Management Centralisation Senior managers have full control In times of crisis, can be effective Decisions benefit the whole business, and not just local stores Make use of economies of scale in purchasing and advertising Decentralisation Gives power to junior managers Local managers may have better knowledge of area specific trends that may benefit the business Prepares junior managers for more senior roles within the company

8.2. Recruitment of Staff

8.2.1. Job analysis Identifying tasks and skills needed to perform a job well

8.2.2. Job description Detailed statement of the nature of job and tasks involved

8.2.3. Person Specification A profile of the type of person likely to make a good applicant

8.2.4. Types of Recruitment Internal Gives existing workers a chance of promotion Workers will not need induction training Cheaper Quicker External Wider choice of applicants Options for new talent, better qualified Prevents the breaking of pre-established teams Avoids creating another vacancy that has to be filled

8.3. Training

8.3.1. Induction training

8.3.2. On the job training Watching other workers perform similar tasks Cheap

8.3.3. Off the job training Specialist training facilty 3rd party company Expensive

8.4. Appraisal

8.4.1. Provide feedback to the worker

8.4.2. Make suggestions for improvement

8.4.3. Increase motivation

8.4.4. Set workers objectives for the future

8.4.5. Identify training and promotion needs

8.4.6. Provide a basis for pay increases or decreases

8.4.7. Time consuming

8.5. Motivating and retaining staff

8.5.1. Benefits Increased productivity Leads to increased profit Increased quality Can charge more for products, as customers are willing to pay more

8.5.2. Styles of Management Autocratic May lead to reduced motivation as they have to respond to all orders Feel that they are not involved in decisions and aren't trusted Democratic Able to contribute to decisions Should motivate them to work hard for the businesss

8.5.3. Renumeration Methods Piece rate May lead to poor quality work Should lead to higher production output Hourly Wage Doesn't provide incentive to put in extra effort Employers have a more complicated tax system with PAYE as they have to report to HMRC more often Workers can calculate how much they should earn Salary No direct link between daily effort and pay Provides pay security Profit Sharing What happens when a loss is made? based upon profitability of the business Makes workers feel responsible for how much they earn

9. Finance

9.1. Finance for large businesses

9.1.1. Retained profit

9.1.2. Selling unwanted assets

9.1.3. New share issue

9.1.4. Loan

9.1.5. Mortgage

9.2. Profit and loss accounts

9.2.1. Purpose Whether a profit or loss is being made How much cash is going in and out of the business Who needs to be paid for goods and tax To get loans off banks

9.2.2. Includes Products sold Value Which customers haven't paid - Debtors Goods bought Value Who needs to be paid - Creditors Equipment purchased Wage and labour costs

9.2.3. Profit and Loss Accounts Sales Revenue Cost of Sales Gross Profit Overheads Net Profit

9.2.4. Margins Gross Profit Margin Net Profit Margin

9.3. Balance Sheets

9.3.1. Shows the Value of a company

9.3.2. Ratios Show Liquidity Acid Test ratio Current ratio

10. Marketing

10.1. Product

10.1.1. Product Portfolio

10.1.2. Product Life Cycle Extension strategies New designs New brand image Targeting new markets New advertising campaign

10.2. Place

10.2.1. Chain of Distribution The shorter the chain, the lower the cost

10.2.2. In Store

10.2.3. Electronic Telesales Mail Order e-commerce

10.3. Promotion

10.3.1. Methods Advertising Sales Promotions Direct Marketing Sponsorship

10.3.2. Factors Cost and affordabilty Nature of product Nature of market Competitors promotions

10.4. Price

10.4.1. Degree of competition Competitive pricing - Reduce prices below that of competitors

10.4.2. Nature of market Price Skimming - Set a high price and lower gradually Penetration Pricing - Low at first and then high Penetration vs Skimming

10.4.3. Production costs Cost Plus - Cost of production plus profit margin

10.4.4. Loss leader pricing Making a loss on one product to get a profit on others

11. Business Organsiation

11.1. Expanding a Business

11.1.1. Reasons for expansion To increase sales To increase market share Take advantage of economies of scale Become secure through customers wanting to deal with large businesses

11.1.2. Reasons against expansion Could loose control Service no longer personal Increased worry and workload Increase risk of too high expenditure

11.2. Conflict between stakeholders

11.2.1. Owners

11.2.2. Workers

11.2.3. Customers

11.2.4. Suppliers

11.2.5. Bank

11.2.6. Government

11.3. Choosing the right legal sturcture

11.3.1. Private Limited Company Attracts private investors Original owners remain to run the business Limited liability for all shareholders Can't go on the stock exchange Scope for expansion is limited Accounts available to general public

11.3.2. Public Limited Company Able to raise capital by selling shares Higher status attracts publicity Share prices listed on stock exhnage Limited Liability Original owners loose control to shareholders Must disclose all accounts to the public Company can be taken over by shareholders

11.4. Changing aims and objectives

11.4.1. Profit growth

11.4.2. Increase market share

11.4.3. Increase shareholder value

11.4.4. Managerial objectives

11.5. Social costs and benefits

11.5.1. Ethical Objectives Can reduce profits from increased costs and wages Improves public image

11.5.2. Environmental Objectives Can increase long term profits through public image

11.6. Location

11.6.1. Minimise Cost Cost of site Labour costs Transport costs Proximity to suppliers Sales potential Managers preference

11.6.2. Maximise Revenue

11.7. Globalisation

11.7.1. Lower site or land prices

11.7.2. Lower labour costs

11.7.3. Closer to suppliers

11.7.4. Take advantage of growing economies

11.7.5. Language barrier

11.7.6. Transport costs increased

11.7.7. Bad publicity

11.7.8. Unethical

11.8. Methods of Expansion

11.8.1. Organic Growth Opening branches Slow and steady Paid for from profits Easy to manage and control Slow Market share could fall No integration gain Offer franchises Franchisee Franchisor Internet Selling

11.8.2. Inorganic Growth Horizontal Joining two similar business through a takeover or merger Verticle Joining similar firms in different stages of production - eg - builders taking over a bricklayers Diversification Conglomerate integration - spreads risk over more than one industry