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

8.1.1.1. Flat/wide span of control

8.1.1.1.1. Quicker communication

8.1.1.1.2. Messages don't get distorted through chinese whispers

8.1.1.1.3. More responsibility to workers

8.1.1.1.4. Workers may need more training in management

8.1.1.2. Tall/narrow span of control

8.1.1.2.1. Easier to control fewer staff

8.1.1.2.2. Responsibility kept in the hands of senior managers

8.1.1.2.3. Lower training costs

8.1.2. Shows the span of control

8.1.3. Location of Management

8.1.3.1. Centralisation

8.1.3.1.1. Senior managers have full control

8.1.3.1.2. In times of crisis, can be effective

8.1.3.1.3. Decisions benefit the whole business, and not just local stores

8.1.3.1.4. Make use of economies of scale in purchasing and advertising

8.1.3.2. Decentralisation

8.1.3.2.1. Gives power to junior managers

8.1.3.2.2. Local managers may have better knowledge of area specific trends that may benefit the business

8.1.3.2.3. Prepares junior managers for more senior roles within the company

8.2. Recruitment of Staff

8.2.1. Job analysis

8.2.1.1. Identifying tasks and skills needed to perform a job well

8.2.2. Job description

8.2.2.1. Detailed statement of the nature of job and tasks involved

8.2.3. Person Specification

8.2.3.1. A profile of the type of person likely to make a good applicant

8.2.4. Types of Recruitment

8.2.4.1. Internal

8.2.4.1.1. Gives existing workers a chance of promotion

8.2.4.1.2. Workers will not need induction training

8.2.4.1.3. Cheaper

8.2.4.1.4. Quicker

8.2.4.2. External

8.2.4.2.1. Wider choice of applicants

8.2.4.2.2. Options for new talent, better qualified

8.2.4.2.3. Prevents the breaking of pre-established teams

8.2.4.2.4. Avoids creating another vacancy that has to be filled

8.3. Training

8.3.1. Induction training

8.3.2. On the job training

8.3.2.1. Watching other workers perform similar tasks

8.3.2.2. Cheap

8.3.3. Off the job training

8.3.3.1. Specialist training facilty

8.3.3.2. 3rd party company

8.3.3.3. 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

8.5.1.1. Increased productivity

8.5.1.1.1. Leads to increased profit

8.5.1.2. Increased quality

8.5.1.2.1. Can charge more for products, as customers are willing to pay more

8.5.2. Styles of Management

8.5.2.1. Autocratic

8.5.2.1.1. May lead to reduced motivation as they have to respond to all orders

8.5.2.1.2. Feel that they are not involved in decisions and aren't trusted

8.5.2.2. Democratic

8.5.2.2.1. Able to contribute to decisions

8.5.2.2.2. Should motivate them to work hard for the businesss

8.5.3. Renumeration Methods

8.5.3.1. Piece rate

8.5.3.1.1. May lead to poor quality work

8.5.3.1.2. Should lead to higher production output

8.5.3.2. Hourly Wage

8.5.3.2.1. Doesn't provide incentive to put in extra effort

8.5.3.2.2. Employers have a more complicated tax system with PAYE as they have to report to HMRC more often

8.5.3.2.3. Workers can calculate how much they should earn

8.5.3.3. Salary

8.5.3.3.1. No direct link between daily effort and pay

8.5.3.3.2. Provides pay security

8.5.3.4. Profit Sharing

8.5.3.4.1. What happens when a loss is made? based upon profitability of the business

8.5.3.4.2. 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

9.2.1.1. Whether a profit or loss is being made

9.2.1.2. How much cash is going in and out of the business

9.2.1.3. Who needs to be paid for goods and tax

9.2.1.4. To get loans off banks

9.2.2. Includes

9.2.2.1. Products sold

9.2.2.1.1. Value

9.2.2.1.2. Which customers haven't paid - Debtors

9.2.2.2. Goods bought

9.2.2.2.1. Value

9.2.2.2.2. Who needs to be paid - Creditors

9.2.2.3. Equipment purchased

9.2.2.4. Wage and labour costs

9.2.3. Profit and Loss Accounts

9.2.3.1. Sales Revenue

9.2.3.2. Cost of Sales

9.2.3.3. Gross Profit

9.2.3.4. Overheads

9.2.3.5. Net Profit

9.2.4. Margins

9.2.4.1. Gross Profit Margin

9.2.4.2. Net Profit Margin

9.3. Balance Sheets

9.3.1. Shows the Value of a company

9.3.2. Ratios

9.3.2.1. Show Liquidity

9.3.2.1.1. Acid Test ratio

9.3.2.1.2. Current ratio

10. Marketing

10.1. Product

10.1.1. Product Portfolio

10.1.2. Product Life Cycle

10.1.2.1. Extension strategies

10.1.2.1.1. New designs

10.1.2.1.2. New brand image

10.1.2.1.3. Targeting new markets

10.1.2.1.4. New advertising campaign

10.2. Place

10.2.1. Chain of Distribution

10.2.1.1. The shorter the chain, the lower the cost

10.2.2. In Store

10.2.3. Electronic

10.2.3.1. Telesales

10.2.3.2. Mail Order

10.2.3.3. e-commerce

10.3. Promotion

10.3.1. Methods

10.3.1.1. Advertising

10.3.1.2. Sales Promotions

10.3.1.3. Direct Marketing

10.3.1.4. Sponsorship

10.3.2. Factors

10.3.2.1. Cost and affordabilty

10.3.2.2. Nature of product

10.3.2.3. Nature of market

10.3.2.4. Competitors promotions

10.4. Price

10.4.1. Degree of competition

10.4.1.1. Competitive pricing - Reduce prices below that of competitors

10.4.2. Nature of market

10.4.2.1. Price Skimming - Set a high price and lower gradually

10.4.2.2. Penetration Pricing - Low at first and then high

10.4.2.3. Penetration vs Skimming

10.4.3. Production costs

10.4.3.1. Cost Plus - Cost of production plus profit margin

10.4.4. Loss leader pricing

10.4.4.1. 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

11.1.1.1. To increase sales

11.1.1.2. To increase market share

11.1.1.3. Take advantage of economies of scale

11.1.1.4. Become secure through customers wanting to deal with large businesses

11.1.2. Reasons against expansion

11.1.2.1. Could loose control

11.1.2.2. Service no longer personal

11.1.2.3. Increased worry and workload

11.1.2.4. 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

11.3.1.1. Attracts private investors

11.3.1.2. Original owners remain to run the business

11.3.1.3. Limited liability for all shareholders

11.3.1.4. Can't go on the stock exchange

11.3.1.5. Scope for expansion is limited

11.3.1.6. Accounts available to general public

11.3.2. Public Limited Company

11.3.2.1. Able to raise capital by selling shares

11.3.2.2. Higher status attracts publicity

11.3.2.3. Share prices listed on stock exhnage

11.3.2.4. Limited Liability

11.3.2.5. Original owners loose control to shareholders

11.3.2.6. Must disclose all accounts to the public

11.3.2.7. 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

11.5.1.1. Can reduce profits from increased costs and wages

11.5.1.2. Improves public image

11.5.2. Environmental Objectives

11.5.2.1. Can increase long term profits through public image

11.6. Location

11.6.1. Minimise Cost

11.6.1.1. Cost of site

11.6.1.2. Labour costs

11.6.1.3. Transport costs

11.6.1.4. Proximity to suppliers

11.6.1.5. Sales potential

11.6.1.6. 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

11.8.1.1. Opening branches

11.8.1.1.1. Slow and steady

11.8.1.1.2. Paid for from profits

11.8.1.1.3. Easy to manage and control

11.8.1.1.4. Slow

11.8.1.1.5. Market share could fall

11.8.1.1.6. No integration gain

11.8.1.2. Offer franchises

11.8.1.2.1. Franchisee

11.8.1.2.2. Franchisor

11.8.1.3. Internet Selling

11.8.2. Inorganic Growth

11.8.2.1. Horizontal

11.8.2.1.1. Joining two similar business through a takeover or merger

11.8.2.2. Verticle

11.8.2.2.1. Joining similar firms in different stages of production - eg - builders taking over a bricklayers

11.8.2.3. Diversification

11.8.2.3.1. Conglomerate integration - spreads risk over more than one industry