R061 revision booklet 2017 - hvs R061 Business and Enterprise

Research brief Context: HVS is a small local company that offers car repairs, maintenance and MOTs. Its customers are both private individuals and local businesses.   Objective: The current objective of the business is to continue to increase its profit each year. Due to changes in the local market, the business has had to review its objectives. Following this review a future objective is to sell and maintain new electric cars, which are becoming more popular. Finance: The business needs to raise finance to invest in machinery and equipment, in order to maintain and repair these new electric cars. Marketing: The business must first make sure a large enough market exists for this new product and service. If the market is large enough, then the business must develop its marketing mix. This will support its new business of selling and maintaining electric cars. Production: The business must decide from where to acquire spare parts for these new vehicles. Some of these may need to be sourced from abroad. This may cause logistical problems. Human Resources: The existing employees have become very complacent and do not always get on with the jobs quickly. The owners know that they will need to recruit one new mechanic and another office assistant to deal with the new sales and maintenance work.

Lo1: business ownership

Types of ownership There are four different types of business ownership. Sole Trader Partnership Public Limited Company (plc) Private Limited Company (Ltd)  Sole traders are the most common type of business in the UK. They are owned and controlled by one person who is responsible for making all of the business decisions Partnership. A partnership is made up of between two and twenty partners who share the decision making in the business. All partners enter into a partnership agreement, signing a ‘Deed of Partnership’ to avoid any possible disputes in the future. A sleeping partner is a person who invests money in the business but has no active role in the day to day running of the business. They receive a share of the profits which is often smaller than that which a working partner receives. Both ownerships have unlimited liability. This means that if the business goes bankrupt the owner loses his/her personal possessions (car, house, savings) to cover the outstanding debts.

Types of ownership LTD – Private Limited Company  A limited company has to be owned by two or more shareholders. Shareholders are more often than not, friends and family. Shares can be sold if the existing shareholders agree. Each share sold provides the recipient with a vote on decisions made within the business. A Board of Directors is set up to make the decisions for the business, although the shareholders have the final say A Private Limited Company (LTD) would have the liability of Limited liability. This means that the shareholders would only lose the money that they had originally invested in the business. HVS is described as a SMALL COMPANY. This means that it is most likely going to be a SOLE TRADER OR PARTNERSHIP. However, the exam board might ask you to explain the benefits of them changing to a PRIVATE LIMTIED COMPANY

Lo2: business objectives

Business objectives There are different types of business objective that a business might wish to focus on. This will depend on the business. The objectives are: Profit Social benefit (e.g. Charities) Sales Market share (number of customers) To provide effective service to the public Survival Growth A business may change its objectives over time due to internal and external factors. Examples: Demand higher than expected, profit achieved Economic recession causing less disposable income

Lo2: functional areas

finance FINANCE: The business (HVS) needs to raise finance to invest in machinery and equipment in order to maintain and repair these new electric cars. Most likely to choose: Source Advantages Disadvantages Bank Loan: This is money borrowed at an agreed rate of interest over a set period of time. This is a medium or long-term source of finance. Set repayments are spread over a period of time which is good for budgeting   Can be expensive due to interest payments Bank may require security on the loan Bank Overdraft: This is where the business is allowed to be overdrawn on its account – able to still withdraw cash even if they do not have enough money. Short-term source of finance If used in the short-term it is usually cheaper than a bank loan Interest is repayable on the amount overdrawn Can be expensive if used over a long period of time Trade Credit: ‘Buy Now Pay Later’. Typical trade credit is 30 days. Short-term source of finance Business can sell the goods first and pay for them later No interest charged if money is paid within agreed time Businesses need to carefully manage their cash flow to ensure they will have money available when the debt is due to be paid Retained Profit: Only available if the business has been trading for more than 1 year. The profits made are put back into the business. Doesn’t have to be repaid No interest is payable Not available to a new business Business may not make enough profit to put back into the business Leasing: renting a piece of machinery, the business pays a regular amount for a period of time but the item belongs to the leasing company. Business can have the use of up to date equipment immediately Can be expensive The business will never own the machinery

Finance – cash flow Costs : the expenses paid out to run the business Revenue: the income earned by a business Profit the money the business are making Break even: the total costs are the same as the total revenue. There is no profit or loss made HVS: Fixed Costs Variable Costs Do not vary with output They have to be paid even if the business produces nothing Examples: Rent Salaries Insurance Will increase as the business expands output As more is produced or sold costs will rise Raw Materials Wages: if paid on what they produce Commission : sales people based on how much sold Total costs = fixed costs + variable costs Revenue = sales * price Profit = Revenue - Costs Fixed Costs: Salaries – managers Insurance Rent Marketing/advertising Loan repayments Variable Costs: Raw materials – parts for the cars Staff wages (including temp staff) Utilities – electric, gas

Marketing – market segmentation splitting the market up and only target specific people Why market segmentation? Enables the business to target specific groups of people which are most likely to buy from or visit the business Smaller sample to carry out the research on which means: Cuts costs and time on research – only carrying it out on groups of people More effective research - reduces the amount of research that needs to be carried out Marketing – market research

Marketing – marketing mix PRODUCT Currently maintain cars, services MOTs Expanding into selling electric cars New market – electric car Additional product – attracts a new audience Up to date with current trends PRICE

Marketing – marketing mix PLACE Modern distribution channel Producer makes the product, gets sent to the garage, they then sell it to consumer PROMOTION Factors affecting advertising: Cost – where are you advertising (abroad may be more expensive) Target market – some age groups/genders may not have access Competition – how can you stand out from others? Regulations – rules & regulations (abroad may be difficult)

What could the problems be if HVS need to order products from abroad? PRODUCTION Production is the way a business creates its product or service. There are three different types of production in the business world. This will depend on the type of business and how they want to produce their products. Growing businesses may need to increase their production to meet demand from their customers but at the same time staying efficient LOGISTICS What could the problems be if HVS need to order products from abroad? Have to wait for delivery of resources Export/import restrictions If exchange rates increase – high costs Regulations – products may be subject to UK or EU standards Cultural – negotiations fail or are delayed because of language and cultural barriers

MOTIVATION Motivation is about the ways a business can encourage staff to give their best. Motivated staff care about the success of the business and work better. A motivated workforce results in: increased output caused by extra effort from workers improved quality as staff take a greater pride in their work a higher level of staff retention - workers are keen to stay with the firm and also reluctant to take unnecessary days off work Non - Monetary: Job rotation – switch roles (MOT, service etc.) Job enrichment – staff are given more interesting & challenging tasks Monetary: Discounts on the cars the garage sell Bonuses – selling so many cars: THIS WILL HELP STAFF GET ON WITH JOBS QUICKER Staff appraisal could also help motivation – using praise and targets for them to work towards pay Time Rate: staff are paid for the number of hours worked. Piece rate: staff are paid for the number of items produced. Overtime: staff are paid extra for working beyond normal hours Salary: staff are paid monthly no matter how many hours they work. Commission: staff are paid for the number of items they sell. Fringe benefits: payments in kind, eg a company car or staff discounts.

HVS are going to have to train – why? training HVS are going to have to train – why? New product (electric cars) – likely to be off the job training if nobody knows about them as it is brand new to the company! Need to hire new staff externally so will need to train them up

Lo4: external factors

External factors Social Up to date with the latest trends – are people wanting electric cars? Wealthier older people with disposable income more likely to buy Technological More methods of advertising, some of them being free. Will cut cost of advertising New machinery – will this cut the number of jobs needed to fill? E-commerce: wider target market as people can buy online nationwide/worldwide Environmental/Ethical They are becoming more environmentally friendly through the introduction of electric cars Selling old parts that still work Political Income tax taken off an employee's salary. This results in less money to spend in the shops. Value added tax (VAT) added to goods and services. A rise in VAT increases prices. National Insurance contributions are payments made by both the employee and the employer. They pay for the cost of a state pension and the National Health Service. An increase in this tax raises a company's costs and could result in inflation.

External factors Legal Health and safety for workers – garage, working with machinery Economic