KNOX ACADEMY

STANDARD GRADE

BUSINESS
MANAGEMENT

SUMMARY NOTES

KEY WORDS
FOUNDATION/GENERAL
Contents

Unit 1.1 What do businesses do?.............................................3

Unit 1.2 Why do businesses exist?...........................................4

Unit 1.3 How are businesses organised? ..................................5

Unit 2 Starting up in business/business plans........................6

Unit 3 Location of businesses ..................................................7

Unit 4 Marketing.....................................................................8

Unit 5 Operations ................................................................. 11

Unit 6 Human Resources ...................................................... 13

Unit 7 Finance ...................................................................... 16

Unit 8 Business Growth ........................................................ 18

Unit 9 Business Information and Communications ................ 21

Unit 10 Management and Decision Making ........................... 23

Unit 11 Business Challenges ................................................ 25

Unit 12 Business Success and Failure .................................. 26

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Unit 1.1 What do businesses do?

Key Word Definition

Needs What people must have in order to

survive

Wants Items people would like to have just

because they are available

Goods Tangible: can be seen/touched

Services Intangible: cannot be seen/touched

Durable Long-lasting

Non-durable Used up quite quickly (perishable)

Size of business

• Small Owned by one or 2 people, local, less

than 50 people

• Medium Owned by group of people, national, 50-

250 people

• Large Owned by large number of people, multi-

national, over 250 people

Sector of Economy

• Private Sole traders, partnerships, private

limited companies (Ltd), public limited
companies (plc)

• Public Nationalised industries, local

authorities, schools and hospitals

• Voluntary Charities, youth clubs, golf clubs

Sector of Industry

• Primary Extracting raw materials eg oil, fishing

• Secondary Manufactured goods eg cars

• Tertiary Service eg insurance, banking

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Unit 1.2 Why do businesses exist?

Key Word Definition

Types of business organisation

• Sole Trader Owned by one person

Financed by capital invested by owner,
and bank loans

• Partnership Owned by 2-20 people

Financed by capital invested by each
partner, and bank loans

• Private Limited Company Have to be invited to purchase shares

• Public Limited Company Financed by share capital and loans

Ordinary shares – more risky
Preference share – less risky
Debentures – form of loan
Dividend

Learn advantages and disadvantages

of each type
Aims of organisations

• Private sector Maximising profit, growth, survival,

increasing market share, efficiency,
improving quality of products

• Public sector To provide essential product/service, to

provide a consistent level of service

• Voluntary sector Charities – fund-raising to support

causes, raising awareness, providing
information on how money is spent

Stakeholders People who have an interest in the

business eg

Employees – job security, wage increases

Management – profits, efficiency
Owners – profits, costs
Shareholders – profits, level of dividend
Customers – prices, customer service
Suppliers – prices, reliability, credit
terms

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Unit 1.3 How are businesses organised?

Key Word Definition

Organisation charts

• Line relationships Exist between managers and the staff

below them

• Lateral relationships Employees on the same level of

authority

• Tall structure Many layers of management

Advantages
• More promotion opportunities
• Less stressful

Disadvantages
• Communication is slower
• Decision-making takes longer

• Flat structure Fewer layers of management

• Chain of command How instructions are passed down

through the organisation

Functional areas Marketing, Finance, Operations, Human

Resources

Downsizing Reducing number of employees

Delayering Removing layers of management

Outsourcing Using external companies to provide

certain services eg canteen, cleaning, IT

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Unit 2 Starting up in business/business plans

Key Word Definition

Enterprise • Idea for a product/service

• Develop idea
• Taking risks

Risk • No-one buys the product/service

• Lose all money invested
• Unable to pay expenses

Factors of Production

• Land Natural resources and the things

produced from them

• Labour Workers who are paid wages

• Capital Includes money, buildings and

machinery

• Enterprise The development of ideas and the drive

to put them into action. Brings the all
the Factors of Production together.

External advice Government agencies, development

agencies eg Local Enterprise Company,
Business Gateway, business partners,
consultants, banks
Business Plan
• General details about the business
• Human resources
• Product or service
• Market
• Premises and equipment
• Finance eg cash flow, profit
estimates
• Capital

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Unit 3 Location of businesses

Key Word Definition

Reasons for locating • Nearness to markets

• Away from the competition
• Reasonable costs
• Near to good infrastructure
• Car parking
• Skilled labour

Reasons for not locating • Remote areas

• Very near competition
• Expensive
• Far from good infrastructure
Infrastructure Roads, railways, air travel facilities,
schools and colleges, hospitals

Sources of finance • Owner/s capital

• Bank loan
• Mortgage
• EU funding
• Grants from government/local
authority
• Bank overdraft
• Finance companies
• Shares
• Debentures
• Hire Purchase
• Trade Credit
• Leasing
• Factoring

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Unit 4 Marketing

Key Word Definition

Market Research In today’s competitive market, research

is very important. It gives managers a
better idea of:
• what customers want
• the price customers will pay
• is there a demand for the
product/service

Will they do it themselves or employ an

outside agency?

Types of Market Research

• Desk Information has been previously

collected for one purpose and is used by
you for another – secondary
information eg Government statistics or
Annual Company Reports

• Field Information is gathered either by

yourself or a market research company –
primary information eg questionnaire,
telephone survey, personal interviews,
consumer audits

The Marketing Mix – The 4Ps Product, Price, Promotion, Place

Product The name, how it is packaged and the

product’s life-cycle

Stages of the product life-cycle:

1 introduction
2 growth
3 maturity
4 decline

Price How much you charge for your

product/service.

Pricing Strategies

• Low Price; Market Price; High

Price

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Pricing Tactics

• Introductory pricing low price when product first launched

• Penetration pricing initially set low and then raised as

loyalty increases

• Competitive Pricing based on other sellers

• Skimming price set high and then lowered

• Destroyer low price aimed at destroying the

competition

Promotion This includes advertising, money-off,

discount vouchers, free gifts,
competitions and tastings

Why should a product be promoted? Reasons include:

• making customer aware
• give information about the
product
• try to persuade customers to buy
it
• to tell them why it is better than a
competitors’ products

Types of advertising TV, radio, cinema, magazines,

newspapers, posters and the internet

Branding Certain brands are very well known and

the logo, colours, packaging design, have
an image, which attracts the customer.
Brand names can cover a wide variety of
products eg Virgin

Place How to get your product/service to the

customer.

Considerations are:

• how to get the product to the right

place at the right time
• what is the best distribution
method?

Channel of Distribution • From retailer to customer

• To wholesaler to retailer to customer
The method will depend on the • Manufacturer to customer
product, type and size of the • Manufacturer to wholesaler to
market and the competition customer

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Unit 5 Operations

Key Word Definition

Input This includes the raw materials,

equipment, and labour which are
directly put into production of a product
or provision of a service

Process This involves using the raw materials,

equipment and labour to make the
product or provide the service

Output This is the final product or service

Production Processes

• Job production Involves a one-off project eg film, unique

house, designer dress

• Batch production Is the process of making several

identical products at once eg casks of
whisky, trays of seedlings

• Flow production This describes forms of production such

as assembly lines; often aided by CAD
and CAM eg car manufacturing

It is more of a non-stop process and

involves larger numbers than batch
processing

Learn advantages and disadvantages

of each method

Capital Intensive When manufacturers rely heavily on

machinery eg when labour supply is
scarce or consistency is required

Labour Intensive When manufacturers rely heavily on

their workforce eg when craftsmanship
is required or labour supply is cheap

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Technology in Production

• Advantages • increases output

• 24hrs – 7days
• workers can retrain for more skilled
work
• increases quality

• Disadvantages • may be redundancies

• initial outlay is expensive
• cost of retraining
• workers involved in repetitive tasks
in mechanisation, often become de-
motivated

Supplier Choice could depend on:

• price
• discounts
• quality
• reliability
• distance

Stock control This must be very accurate and closely

monitored:
• security and record keeping
• accounting/cost
• length of storing period

Quality This includes quality of products and

quality of customer service. Targets
should be set and monitored.

Quality Assurance
Quality Circles
Benchmarking
Total Quality Management (TQM)

Customer service How customers are treated when

buying, telephoning or sending a written
complaint. It involves after-sales service.

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Unit 6 Human Resources

Key Word Definition

Why work? • Make money

• Job satisfaction and security
• Companionship and friendship
• Achieve potential

Types of job

• Full-time means working every weekday: usually

from 9 am – 5 pm

• Part-time means working for only part of the week

• Job sharing two or more workers split a job between

them eg one works mornings and the
other works afternoons

• Permanent where the job lasts as long as the

company remains in business. If it
ceases, then redundancy money must be
paid

• Temporary lasts for a limited time and can be full or

part-time

• Casual temporary staff who are only employed

when needed. No job security

• Flexitime when a person works core hours and

then selects when the remaining hours
will be worked

• Home-working/tele-working when a person works part of the time at

home/away from the office

Recruitment and Selection

Job description Gives details about a job eg hours

worked, pay, holidays, duties involved

Person specification List of attributes expected by the person

who will fill the vacancy (essential and
desirable) eg qualifications, qualities
needed, experience, driving licence

Job description and person specification

are used to draw up an advert

Job advertisement usually gives applicants information

about job, company details and what to
do to apply for the job eg send a CV
and/or a letter of application, along with
deadline
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External advertising post advertised on Internet websites,
newspapers, trade journals, Job Centre,
Employment Agencies

Internal advertising post advertised in memos, staff

bulletins, notice boards, e-mail and staff
announcements

Selection

Applications are checked and considered

Shortlists a list of candidates to be interviewed is

drawn up

Interviews are carried out. May also be other

selection methods eg aptitude tests,

Final candidate is chosen successful candidate offered the job;

may/may not be accepted

Contract of Employment must be given within 13 weeks of

starting work. Includes job title, hours
of work, rate of pay, holiday
arrangements

Training

Induction training Training which is given to every new

employee. Lets them know how the
business works and helps them to settle
in

On-the- job training Takes place in the workplace

Off-the-job training Takes place outside the workplace:

maybe at a local college or training
centre

Can include re-training or upgrading

training

Apprenticeship Mostly in the workplace but can be some

external training eg training centre or
college

Appraisal Evaluation of an employee’s performance

• Equal Pay Act 1970

Employment Legislation • Health & Safety at Work Act 1974
• Sex Discrimination Act 1985
• Race Relations Act 1976
• Disability Discrimination Act 1995
• Minimum Wage Act 2006

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Industrial Action If relations between employers and
employees break down, employees may
decide to take part in industrial action.
It can take the form of
• go-slow
• work-to-rule
• overtime ban
• strike

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Unit 7 Finance

Key word Definition

Sales (income) How much a company sells of their

produce/service

Costs Money the business must pay for

materials, wages, electricity, insurance
etc

Fixed Costs Costs which must be paid, regardless of

output eg rent, council tax, rates

Variable Costs Costs which vary according to output eg

materials, labour, electricity, gas

Covering costs A new business may aim simply to cover

costs in the first few years

Break Even Point The point at which total sales revenue

equals total costs. At this point the
business is not making a profit or a loss.

Budgeting/Cash Flow A cash budget shows the money flowing

in and out of a business for a period of
time eg 6 months. Can help with
planning.

Surplus/in the black: cash in > cash

out – could spend money on equipment

Deficit/in the red: cash in < cash out –

may need to arrange an overdraft or cut
costs

Final Accounts Accounts produced at the end of a

trading period: usually every 12 months.
The main final accounts are Trading and
Profit and Loss Accounts and the
Balance Sheet

Trading Account Shows the Gross Profit/Loss from the

buying and selling of goods/services

Gross Profit Profit made on the buying and selling of

goods/services
Sales – Cost of Goods Sold

Profit & Loss Account Shows the overall profit made by the
firm during an accounting period

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Overheads (expenses) These include wages, rent, rates and
utility charges

Net Profit Overall profit made by the firm during

an accounting period
Gross Profit – Expenses

Balance Sheet This is a snapshot of a business’

financial position at a certain point in
time

Fixed Assets Are owned by the business for longer

than one year eg premises, equipment

Current Assets Items owned by the business for a short

term eg cash, stock and debtors

Current Liabilities Are amounts owed by a business and

include bank overdrafts and creditors

Working Capital Current Assets – Current Liabilities

Capital Employed This is the total capital invested in the

business once liabilities have been
deducted

Accounting Ratios These are used to make comparisons

between years and organisations
• Profitability
• Liquidity
• Efficiency

Gross profit-to-sales ratio These help a business to know if a

Net profit-to-sales ratio business has improved its profitability

Return on capital employed (ROCE) Is a profitability ratio which tells us how

much profit we make for every £1 we
invest in the business

Working capital ratio This is a liquidity ratio and tells us if

there is a cash-flow crisis

Rate of stock turnover ratio This is an efficiency ratio and tells us

how much stock we have sold in a given
time

Formulae

GP Percentage NP Percentage Return on Capital Working Capital Rate of Stock

Employed Turnover

Gross Profit x 100 Net Profit x 100 Net Profit x 100 Current Assets Cost of Goods Sold
Net Sales 1 Net Sales 1 Capital 1 Current Liabilities Average Stock

eg 20% eg 5% eg 10% eg 4:1 eg 5 times

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Unit 8 Business Growth

Key Word Definition

Internal expansion This is when a business grows within

itself eg opening new branches,
employing more staff

External expansion When a business grows as a result of

external influences. eg mergers and
takeovers

Merger/amalgamation When two or more businesses, usually

of the same size, join together to form a
larger business

Takeover This is when one business buys another

eg House of Fraser bought Jenners

Integration This involves the creation of one

business out of two or more previously
separate businesses

Horizontal integration This integration involves businesses at

the same stage of production, making
similar products/services

Vertical Integration These businesses are in the same

industry, but at different stages of
production

Forwards vertical integration This is when the business at the

beginning of the chain, takes over a
business which is later in the
production chain

Backwards vertical integration This is when a business in the later

stages of production, take over a
business in an earlier stage of
production

Diversification This is when a business begins to

produce or sell different goods and
services eg in the 1990’s garages began
to diversify when they started to sell
newspapers, milk, etc as well as petrol

Innovation This involves developing and creating a

new product or service. It may also
include creating new solutions for old
problems.
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19
Product research Involves experiments with materials, size
and prototypes.

Reasons for growth • To increase profit

• Gain market control
• Control raw materials
• Gain economies of scale
• To diversify

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Unit 9 Business Information and Communications

Key Word Definition

Types of information • verbal

• written eg on paper
• electronic eg as text and images
through technology: internet,
teletext, fax, spreadsheets, video-
conferencing etc

Importance of good information To enable a customer to contact a

business by letter, telephone or e-mail
needed to ensure the efficiency of the
business: eg
• recruitment
• verbal and electronic information
to and from management
• regular meetings
• memorandums
• handbooks

Purpose of communication It is an important part of management

because clear leadership and direction
cannot be given unless informed
decisions have been made AND these
decisions are communicated effectively

Internal communication Takes place within the business eg

memorandums, e-mail (intranet),
internal telephone systems, pagers,
loudspeaker systems

External communication Takes place between a business and the

outside world eg email, teletext, letters,
etc

Needed by a business to help with

decision making

• skills of people involved

Why communication fails? • too much jargon
• wrong method used

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Information Technology

E-commerce The sale and purchase of goods or

services over the Internet.

Advantages
• can be used 24 hours a day, 7 days
a week
• can make purchases from home

Websites Most companies now have their own

website. Must be kept up-to-date.

Features:

• on-line purchasing
• use of hyperlinks, search engines
• customer feedback
• used for promotions/advertising

Hardware The physical parts of the computer

eg monitor, keyboard, mouse

Software The programmes running on the

computer eg Microsoft Office

WP - Word Processing Used to produce letters, reports, books.

It allows on-screen editing by inserting,
deleting, moving words, and checking
spelling before printing.

DTP – Desk Top Publishing DTP allows users to design layout of text
and graphics for letter- headed paper,
menus, catalogues

SS – Spreadsheets The program contains mathematical,

charting, statistical and financial
operations. The use of formulae is
particularly useful in the Wages section
of a business and for the presentation of
Accounts.

DB - Databases Used to collate information about

employees, suppliers and customers.
Allows you to sort information and
search for specific pieces of information.

Integrated package A piece of software made up of separate

parts, (WP, SS, DB, DTP), which can
share data. This is why we can copy and
paste and mail-merge, using our school
software.

Local Area Network Used to connect computers locally eg

within the school

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Unit 10 Management and Decision Making

Key Word Definition

Key Decisions • What to produce?
• Price?
• Who will we employ?
• Where will we produce the goods?
• Market research
• People versus machinery
• Grow or not?
Management styles

• Autocratic when managers tell people what to do

and expect their orders to be followed.
Workers may feel frustrated, and unable
to use their initiative

• Democratic managers consult others before making

decisions. This makes the workers feel
part of the decision making, increasing
motivation.

• Laissez-faire involves the minimum of direction by

management. It is best in creative
industries where results would be stifled
by strict control.

Aids to Decision Making Information, graphs and charts

Decision Making Model • Identify the problem

• Identify the objectives
• Gather relevant information
• Analyse the information
• Develop alternative solutions
• Select the best solution
• Communicate the decision
• Implement the decision

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 • Evaluate the results

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Unit 11 Business Challenges

Key word Definition

Competition This may be local, national,

international or e-commerce
Scarce Resources

• Skilled labour Often difficult to find workers with the

appropriate skills which leads to a
demand for higher wages

• Land/premises In areas such as city centres, there is

often a shortage which increases rents
and prices

• Specialist equipment This is increasingly expensive as

technology progresses. eg hospital
equipment

• Money This is a scarce commodity and small

businesses suffer most.

Internal pressures If the working atmosphere is not

pleasant with fair wages, promotion
prospects and good training schemes,
the results may be:
• Industrial action
• Poor production because of
unmotivated staff

External pressures • Political issues, when there is a

change in government policy eg
legislation or tax
• Economic issues eg when
economy is in recession (business
cycle) or interest rates change
• Social pressures from action
groups eg on behalf of Fair Trade
products
• Technological – innovations which
can make production more
efficient or change the method of
contact with customer

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Unit 12 Business Success and Failure

Key word Definition

Reasons for failure • Competition is too fierce

• Economy in recession
• Cash flow problems
• Poor resource management
• No growth or innovation
• External factors eg bad weather,
strikes etc

Competition is too fierce Competitors have a better and cheaper

product and promote their product in
the right segment of the market

Economy in recession If customers cannot afford to buy the

product, less is demanded, less is
produced, wages fall and unemployment
rises. The economy slows down.

Business Cycle The economy suffers from booms and

slumps. A recession is an example of a
slump. A boom is when production
increases rapidly over a period of time.
This regular pattern of boom and bust is
known as the Business Cycle.

Cash Flow problems There must always be ready cash

available to pay day-to-day expenses.

Not moving with the times This may because

• product is obsolete
• equipment out-of-date
• marketing not effective
• lack of security, therefore pilfering
and theft
• records not accurate, therefore
unable to make accurate
forecasts
• poor management
• staff not motivated

• Achieving good sales figures and

Measuring success
profits
• Good relationship with
stakeholders
• Achieving growth and aims of
organisation
• Gain customer loyalty with a
quality product and service
• Innovate. Grow and have a large
market share

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