.
Pearson Edexcel Business IAS Complete Revision
. . . . .
Notes Unit 2: Managing Business Activities
. . . . . .
(Paper/Unit code: WBS12
. . . .
.
.
.
. . .
CHAPTE23 PLANNIN
I R Business
:planG
. . .
.
. .
A .plan .for .the .development .of .a .business, .giving such
.details
.as .the .products .to .
Businessplan is:
. . .
. . . . . . . .
be .made, .resources .needed forecasts
.& suchascosts, .revenues & cashflow.
.
o Mainly created
. . . . . . . . . . . . .
Initially,newbusinesses willcreatea planto followbutchanges .in .external .
by the owner
. . . . . .
factors .will .lead .to .changes business
.in plans. .
o For future use
. . . . . . . . . . . . . . . .
Business planis a writtendocument by thebusiness regarding itsoperations.
.
II. Relevance .of .a .Business .Plan .
.A .business .plan .is .needed .to .support .applications .for .finance, .both .at .the .start- .up .stage .& .in
.the .future. .Lenders .& .other .investors .are .not .likely .to .put .money .into .a .business .unless .the
.owners .can .provide .a .clear, .concise .vision .of .future .progress .& .profitability. .
.
. In .particular, .investors .will .want .to .know .how .their .money .is .going .to .be .spent .& .when .& .how
.they .are .going .to .benefit .from .their .investment. .
.
III. Uses .of .a .business .plan .
1. To .show .a .clear .direction .for .the .development .of .a .business. .
2. Help .show .lenders .& .investors .that .the .owner .is .cautious, .responsible, .serious .& .credible. .
3. To .flag .up .potential .problems .in .advance .so .that .investors .are .aware .& .solutions .can .be
.found. .
When .the .business .creates .a .business .plan, .they .can .see .the .potential .problem .in .advance .& .find
.solution. .
e.g., .If .the .business .decided .to .expand .in .the .future, .then .they .will .have .to .increase .their
.production. .The .problem .is .the .source .of .finance. .As .a .result, .they .can .think .of .in .advance
.where .they .will .get .the .finance. .
.
IV. Contents .of .a .Business .Plan .
1. An .executive .summary-usually .business .plan .is .very .lengthy. .So, .there .should .be .a
.summary .of .the .whole .business .plan .included .on .the .business .plan .itself. .
2. The .business .opportunity-a .description .of .the .product/ .range .of .products .to .be .made, .the
.quantity .to .be .sold .& .the .estimated .price. .
3. Financial .forecasts-It .must .be .written .in .the .business .plan .the .cash .outflows .& .inflows. .e.g.,
.sales .forecast, .cash .flow .forecast .
4. The .business .& .its .objectives-the .name .of .the .business, .its .address, .its .legal .structure .& .its
.aims .& .objectives. .
5. Personnel-who .will .run .the .business, .how .many .employees. .
,.
6. Finance-where .the .finance .to .start .up .& .run .the .business .will .come .from. .
7. Premises .& .equipment-premises .to .be .used, .equipment .which .needs .to .be .obtained .&
.financed. .
CHAPTER 24: INTERNAL FINANCE . . . .
.
Internal .Finance-money .generated .by .the .business/its .current .owners. .
I. The .need .for .finance .
.Firms .need .money .to .get .started. .They .might .need .to .buy .equipment, .raw .materials .& .obtain .premises. .
.
. However, .business .is .a .continuous .activity .& .money .flowing .in .may .use .to .buy .more .raw
.materials .& .settle .other .trading .debts. .If .the .owner .wants .to .expand,which . .means .larger
.premises, .more .equipment .& .extra .workers. .A .business .will .need .to .find .a .way .of .raising
.finance. .
.
II. Types .of .Internal .Finance .
1. Owner’s .Capital . Capital-the .money
In .most .cases, .a .business .cannot .start .unless .the .owners .provided .by .the
.
.provide .capital .of .their .own. .Providing .capital .is .part .of .the
.owners .in .a
.risk .taken .by .entrepreneurs .when .setting .up .a .business. .
.business. .
.Owners .provide .capital .from .their .own .personal .resources. .A
.common .source .is .personal .savings. .Some .entrepreneurs .have .deliberately .saved
.upover . .a .period .of .time .so .that .they .can .start .their .own .business. . .Personal .savings
.would .be .an .appropriate .source .of .finance .for .a .soletrader/partnership. . .
.
2. Retained .profit .
Retained .profit-is .the .profit .after .tax .(corporation .tax) .that
.is .put .back .into .business .& .not .returned .to .the .owners. .
. Retained .profit .is .when .dividends .(profit .of .shareholders) .are Shareholders-
.not .returned .to .shareholders .& .are .reinvested .into .the
owners .of .the
.business. .If .retained .profit .is .
.business. .
used .by .the .business, .shareholders .will .not .object .even .they
.will .not .be .receiving .their .dividends .because .if .it .is .reinvested .again .in .the
.business .then .they .will .be .receiving .higher .dividend/ .profit .in .the .future. .
.
. Retained .profit .is .a .flexible .source .of .finance. .It .does .not .have .to .be .used
.immediately. .It .can .be .accumulated .by .a .business .in .a .bank .account .where .it .will
.earn .interest. .A .business .can .then .use .the .retained .profit .at .a .later .date. .If .a
.business .does .not .make .a .profit, .retained .profit .is .not .possible .as .a .source .of
.finance. .
.
3. .Sale .of .assets .
. Asset .sales .can .be .used .by .all .businesses, .as .long .as .they .are .not .a .start-upbusiness .
.(since .the .business .will .have .no .assets.) .
. An .established .business .may .be .able .to .sell .some .unwanted .assets .to .raise
.finance. .
,.
e.g., .Machinery, .land .& .buildings .that .are .no .longer .required .could .be .sold .off .for
.cash. .
.
Pros .& .Cons .of .Internal .Finance .
Pros . Cons .
The .capital .is .available .immediately- .there .is .no Internal .finance .can .be .limited-a .business .may
.time .delay .between .identifying .a .need .for.not .be . .sufficiently .profitable .to .use .retained
.finance .& .obtaining .it. .For .example, .retained.profit .or .may .not .
.profit .will .be .in .a .bank .account .ready .& .waiting. have .unwanted .assets .to .sell. .Also,
.the .current .owners .may .not .have .any
.
.personal .resources .to .contribute. .
Internal .finance .is .cheap-there .is .no Internal .finance .can .be .inflexible .compared .to
.interest .payments .which .means .that .external .sources .of .finance. .There .are .a .wide
.costs .will .be .lower .& .profit .higher. . .variety .of .funding .options .for .external
.finance, .which .can .give .the .business
.flexibility. .
, .
CHAPTER 25: EXTERNAL FINANCE
. . . .
I. External .Finance .
.Money .raised .from .outside .the .business. .
.May .not .always .be .available .because .business .start-ups .have .no .trading .record .& .present .too
.much .risk .for .many .lenders. .However, .once .a .business .has .survived . the .initial .‘uncertain’
.stages .of .business .development, .external .sources .of .finance .can .be .an .option. .
.
II. External .Sources .of .Finance .
1. Family .& .friends .
.Common .source .of .finance .for .small .businesses. .
.Money .might .be .gifted .to .an .entrepreneur. .For .example, .a .parent .might .give .their .child
.a .sum .of .money .as .a .present .to .help .them .get .started. .
Pros: .Family .& .friends .may .not .want .a Cons: .If .the .terms .of .the .arrangement .lack
.share .in .the .business .& .will .not .be .able .to .clearness .this .could .lead .to .the .loss .of
.interfere .in .the .running .if .the .business. . .friendship/a .breakdown . in .family .relations. .
.
2. Banks .
.Some .businesses .can .borrow .their .desired .amount .of .money .from .bank. .This .borrowing .of
.money .from .the .bank .is .called .loan. .
. Banks .will .be .involved .in .a .business .start-up .because .businesses .need .a .bank .account .to
.facilitate .financial .transactions .with .customers .& .suppliers. .
. A .formal .application .is .required .to .get .finance .from .banks .& .it .will .probably .be .necessary .to
.provide .a .business .plan. .
. However, .borrowing .from .banks .means .the .business .will .have .to .pay .interest. .
.
3. Peer .to .Peer .Lending(P2PL) .
.Involves .people .lending .money .to .unrelated .individuals/’peers’ .& .therefore .avoiding .the
.use .of .a .bank. . .When .a .group .of .people .form .a .group .& .raise .fund .to .lend .to .other .people.
.
.All .transactions .take .place .online. .
.Lenders .may .choose .which .borrower .to .lend .to. .
Pros . Cons .
Interest .rates .are .better .for .both All .loans .are .unsecured .which .means
.borrowers .& .lenders .than .those .offered .there .is .no .protection .for .lenders. .
.by .a .bank. . Therefore, .lenders .might .lose
.their .money .if .a .borrower .neglect
.to .pay .back. .
.
Very .convenient .because .it .can .be
.completed .online .quickly. .
.
4. Business .angels .
. Business .angels .are .individuals .who .typically .may .invest .between
.£10,000 .& .£100,000+, .often .exchange .for .a .stake .in .a .business. .
. Most .investments .are .in .business .start-ups/ .in .early .stages .of .expansion. .
. People .become .business .angels .because .they .are .attracted .by .the .tax .relief .offered .by .the
.government .& .some .are .looking .for .investment .opportunities .for .their .unused .income. .
Pearson Edexcel Business IAS Complete Revision
. . . . .
Notes Unit 2: Managing Business Activities
. . . . . .
(Paper/Unit code: WBS12
. . . .
.
.
.
. . .
CHAPTE23 PLANNIN
I R Business
:planG
. . .
.
. .
A .plan .for .the .development .of .a .business, .giving such
.details
.as .the .products .to .
Businessplan is:
. . .
. . . . . . . .
be .made, .resources .needed forecasts
.& suchascosts, .revenues & cashflow.
.
o Mainly created
. . . . . . . . . . . . .
Initially,newbusinesses willcreatea planto followbutchanges .in .external .
by the owner
. . . . . .
factors .will .lead .to .changes business
.in plans. .
o For future use
. . . . . . . . . . . . . . . .
Business planis a writtendocument by thebusiness regarding itsoperations.
.
II. Relevance .of .a .Business .Plan .
.A .business .plan .is .needed .to .support .applications .for .finance, .both .at .the .start- .up .stage .& .in
.the .future. .Lenders .& .other .investors .are .not .likely .to .put .money .into .a .business .unless .the
.owners .can .provide .a .clear, .concise .vision .of .future .progress .& .profitability. .
.
. In .particular, .investors .will .want .to .know .how .their .money .is .going .to .be .spent .& .when .& .how
.they .are .going .to .benefit .from .their .investment. .
.
III. Uses .of .a .business .plan .
1. To .show .a .clear .direction .for .the .development .of .a .business. .
2. Help .show .lenders .& .investors .that .the .owner .is .cautious, .responsible, .serious .& .credible. .
3. To .flag .up .potential .problems .in .advance .so .that .investors .are .aware .& .solutions .can .be
.found. .
When .the .business .creates .a .business .plan, .they .can .see .the .potential .problem .in .advance .& .find
.solution. .
e.g., .If .the .business .decided .to .expand .in .the .future, .then .they .will .have .to .increase .their
.production. .The .problem .is .the .source .of .finance. .As .a .result, .they .can .think .of .in .advance
.where .they .will .get .the .finance. .
.
IV. Contents .of .a .Business .Plan .
1. An .executive .summary-usually .business .plan .is .very .lengthy. .So, .there .should .be .a
.summary .of .the .whole .business .plan .included .on .the .business .plan .itself. .
2. The .business .opportunity-a .description .of .the .product/ .range .of .products .to .be .made, .the
.quantity .to .be .sold .& .the .estimated .price. .
3. Financial .forecasts-It .must .be .written .in .the .business .plan .the .cash .outflows .& .inflows. .e.g.,
.sales .forecast, .cash .flow .forecast .
4. The .business .& .its .objectives-the .name .of .the .business, .its .address, .its .legal .structure .& .its
.aims .& .objectives. .
5. Personnel-who .will .run .the .business, .how .many .employees. .
,.
6. Finance-where .the .finance .to .start .up .& .run .the .business .will .come .from. .
7. Premises .& .equipment-premises .to .be .used, .equipment .which .needs .to .be .obtained .&
.financed. .
CHAPTER 24: INTERNAL FINANCE . . . .
.
Internal .Finance-money .generated .by .the .business/its .current .owners. .
I. The .need .for .finance .
.Firms .need .money .to .get .started. .They .might .need .to .buy .equipment, .raw .materials .& .obtain .premises. .
.
. However, .business .is .a .continuous .activity .& .money .flowing .in .may .use .to .buy .more .raw
.materials .& .settle .other .trading .debts. .If .the .owner .wants .to .expand,which . .means .larger
.premises, .more .equipment .& .extra .workers. .A .business .will .need .to .find .a .way .of .raising
.finance. .
.
II. Types .of .Internal .Finance .
1. Owner’s .Capital . Capital-the .money
In .most .cases, .a .business .cannot .start .unless .the .owners .provided .by .the
.
.provide .capital .of .their .own. .Providing .capital .is .part .of .the
.owners .in .a
.risk .taken .by .entrepreneurs .when .setting .up .a .business. .
.business. .
.Owners .provide .capital .from .their .own .personal .resources. .A
.common .source .is .personal .savings. .Some .entrepreneurs .have .deliberately .saved
.upover . .a .period .of .time .so .that .they .can .start .their .own .business. . .Personal .savings
.would .be .an .appropriate .source .of .finance .for .a .soletrader/partnership. . .
.
2. Retained .profit .
Retained .profit-is .the .profit .after .tax .(corporation .tax) .that
.is .put .back .into .business .& .not .returned .to .the .owners. .
. Retained .profit .is .when .dividends .(profit .of .shareholders) .are Shareholders-
.not .returned .to .shareholders .& .are .reinvested .into .the
owners .of .the
.business. .If .retained .profit .is .
.business. .
used .by .the .business, .shareholders .will .not .object .even .they
.will .not .be .receiving .their .dividends .because .if .it .is .reinvested .again .in .the
.business .then .they .will .be .receiving .higher .dividend/ .profit .in .the .future. .
.
. Retained .profit .is .a .flexible .source .of .finance. .It .does .not .have .to .be .used
.immediately. .It .can .be .accumulated .by .a .business .in .a .bank .account .where .it .will
.earn .interest. .A .business .can .then .use .the .retained .profit .at .a .later .date. .If .a
.business .does .not .make .a .profit, .retained .profit .is .not .possible .as .a .source .of
.finance. .
.
3. .Sale .of .assets .
. Asset .sales .can .be .used .by .all .businesses, .as .long .as .they .are .not .a .start-upbusiness .
.(since .the .business .will .have .no .assets.) .
. An .established .business .may .be .able .to .sell .some .unwanted .assets .to .raise
.finance. .
,.
e.g., .Machinery, .land .& .buildings .that .are .no .longer .required .could .be .sold .off .for
.cash. .
.
Pros .& .Cons .of .Internal .Finance .
Pros . Cons .
The .capital .is .available .immediately- .there .is .no Internal .finance .can .be .limited-a .business .may
.time .delay .between .identifying .a .need .for.not .be . .sufficiently .profitable .to .use .retained
.finance .& .obtaining .it. .For .example, .retained.profit .or .may .not .
.profit .will .be .in .a .bank .account .ready .& .waiting. have .unwanted .assets .to .sell. .Also,
.the .current .owners .may .not .have .any
.
.personal .resources .to .contribute. .
Internal .finance .is .cheap-there .is .no Internal .finance .can .be .inflexible .compared .to
.interest .payments .which .means .that .external .sources .of .finance. .There .are .a .wide
.costs .will .be .lower .& .profit .higher. . .variety .of .funding .options .for .external
.finance, .which .can .give .the .business
.flexibility. .
, .
CHAPTER 25: EXTERNAL FINANCE
. . . .
I. External .Finance .
.Money .raised .from .outside .the .business. .
.May .not .always .be .available .because .business .start-ups .have .no .trading .record .& .present .too
.much .risk .for .many .lenders. .However, .once .a .business .has .survived . the .initial .‘uncertain’
.stages .of .business .development, .external .sources .of .finance .can .be .an .option. .
.
II. External .Sources .of .Finance .
1. Family .& .friends .
.Common .source .of .finance .for .small .businesses. .
.Money .might .be .gifted .to .an .entrepreneur. .For .example, .a .parent .might .give .their .child
.a .sum .of .money .as .a .present .to .help .them .get .started. .
Pros: .Family .& .friends .may .not .want .a Cons: .If .the .terms .of .the .arrangement .lack
.share .in .the .business .& .will .not .be .able .to .clearness .this .could .lead .to .the .loss .of
.interfere .in .the .running .if .the .business. . .friendship/a .breakdown . in .family .relations. .
.
2. Banks .
.Some .businesses .can .borrow .their .desired .amount .of .money .from .bank. .This .borrowing .of
.money .from .the .bank .is .called .loan. .
. Banks .will .be .involved .in .a .business .start-up .because .businesses .need .a .bank .account .to
.facilitate .financial .transactions .with .customers .& .suppliers. .
. A .formal .application .is .required .to .get .finance .from .banks .& .it .will .probably .be .necessary .to
.provide .a .business .plan. .
. However, .borrowing .from .banks .means .the .business .will .have .to .pay .interest. .
.
3. Peer .to .Peer .Lending(P2PL) .
.Involves .people .lending .money .to .unrelated .individuals/’peers’ .& .therefore .avoiding .the
.use .of .a .bank. . .When .a .group .of .people .form .a .group .& .raise .fund .to .lend .to .other .people.
.
.All .transactions .take .place .online. .
.Lenders .may .choose .which .borrower .to .lend .to. .
Pros . Cons .
Interest .rates .are .better .for .both All .loans .are .unsecured .which .means
.borrowers .& .lenders .than .those .offered .there .is .no .protection .for .lenders. .
.by .a .bank. . Therefore, .lenders .might .lose
.their .money .if .a .borrower .neglect
.to .pay .back. .
.
Very .convenient .because .it .can .be
.completed .online .quickly. .
.
4. Business .angels .
. Business .angels .are .individuals .who .typically .may .invest .between
.£10,000 .& .£100,000+, .often .exchange .for .a .stake .in .a .business. .
. Most .investments .are .in .business .start-ups/ .in .early .stages .of .expansion. .
. People .become .business .angels .because .they .are .attracted .by .the .tax .relief .offered .by .the
.government .& .some .are .looking .for .investment .opportunities .for .their .unused .income. .
