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LO 1.1 - Identifying internal and external stakeholders in a small business

STAKEHOLDERS

Definition

“A person or group of people who have an interest in a business or organisation and in the way in which it is managed and run.”

Think about your school. There are many people that have a ‘stake’ in it and have a genuine concern with how well it is performing. Quite clearly, there are many people or stakeholders that are concerned with the welfare of your school.

Similarly, in every business organisation, from large companies like British Airways to your local corner shop, there will be a number of people or stakeholders that will look for that business to produce results which suit their own personal needs.

Some stakeholders are actually in the business, e.g., staff (Internal Stakeholders) others are outwith the business, e.g., customers (External Stakeholders).

Internal Stakeholders

➢ Managers

➢ Employees

➢ Owner

External Stakeholders

➢ Banks

➢ Suppliers

➢ Customers

➢ UK Government

For stakeholders to have power and influence, their desire to exert influence must be combined with their ability to exert influence on the business. The power a stakeholder can exert will reflect the extent to which:

➢ the stakeholder can disrupt the business’ plans

➢ the stakeholder causes uncertainty in the plans

➢ the business needs and relies on the stakeholder

LO 1.2 - Describing the influences stakeholders can have on a small business

Stakeholders can influence the business in many ways

• Employees can take industrial action (go on strike).

• Owners invest money in the business

• Managers decide how hard they work for the business and make important decisions

• Banks can give or refuse loans to the business and decide how much interest to charge on loans

• Suppliers will provide goods on time and decide how much discount to offer.

• Customers can choose whether or not to buy the organisations products.

• The government could provide a grant and decide the rate of tax the business has to pay.

FINANCE

The Finance Department deals with all the money coming into and going out of the organisation. They also pay staff wages and try to ensure that there is enough cash coming in to pay all the bills.

The main responsibilities of business finance are:

➢ dealing with all the money that comes into and leaves the organisation

➢ paying staff wages

➢ financial planning and forecasting

➢ monitoring and controlling cash flow and preparing cash budgets

➢ preparing the final accounts ie the trading, profit and loss account and balance sheet

➢ calculating breaking even points

➢ working out the cost of a job

Activities undertaken in the Finance Department

The Finance Department will be responsible for the preparation of internal information to enable the business to make decisions. We will now consider 3 of these areas of work:

➢ Job Costing

➢ Budgeting

➢ Break Even

LO 2.2 - Interpreting a simple job costing statement from data provided in order to reach a decision

JOB COSTING

Job Costing is simply the process of calculating the cost of completing a job in order to determine a price that the customer will be happy to pay and will also enable the business to make a PROFIT.

Example

Moben Kitchens installs kitchens in people’s homes, designed to customer’s specific requirements. In order to quote a price the Finance Manager will prepare a Job Costing Statement. This is shown below.

Job Cost Statement 1 – Mr and Mrs Johnstone

Prepared on 12 December 20..

£

Direct Materials 6,000

Cost of Wages 4,500

Overheads 2,000

______

TOTAL COST 12,500

Add Profit Margin (20%) 2,500

_______

Price quoted to customer 15,000

______

TASK 57

Study the Job Cost Statement and then answer the questions below:

What is the problem if the company quotes a price which is too high?

___________________________________________________________

___________________________________________________________

What is the problem if the company quotes a price which is too low?

___________________________________________________________

___________________________________________________________

TASK 58

Moben Kitchens have now asked you to prepare Job Cost Statements, using today’s date for the following Jobs. For each job, you are required to calculate the total cost for each job, the profit, and the price to be quoted to the customer.

Prepare your Job Cost Statements on a sheet of A4 paper.

Job 1 – Mr A Brown

Direct materials - £3,500

Wages - £1,500

Overheads - £800

Profit Margin 15%

Price quoted to customer?

Job 2 – Mr and Mrs McKenna

Direct materials - £6,000

Wages - £2,000

Overheads £3,000

Profit Margin 50%

Price quoted to customer?

Job 3 – Miss Silver

Direct Materials - £5,500

Wages - £3,400

Overheads - £4,000

Profit Margin – 5%

Price quoted to customer?

Job 4 – Mr and Mrs Anderson

Direct Materials - £2,100

Wages - £5,000

Overheads - £2,000

Profit Margin – 6%

Price quoted to customer?

TASK 59

Answer the following questions in the spaces provided. You will have to refer to the Job Cost Statements that you prepared in Task 58.

Mr and Mrs McKenna (JOB 2) are very unhappy with the price that you have quoted them for fitting their new kitchen. They are thinking about going to another company. What do you think Moben Kitchens should do?

Answer

The Finance Manager discovers that the price quoted to Miss Silver (JOB 3) is £2,000 lower than the price she has been quoted by 5 other companies. What should the Finance Manager do?

Answer

LO 2.1 - Interpreting a simple cash budget or breakeven chart in order to reach a decision

BREAK EVEN

Break-even Chart for Fashion Show

The chart shows that they would need to sell 40 tickets to break even. If they sold less than this the income would be less than the costs. If they sold more than 40 tickets the income would be greater than the costs and they would make a profit.

LO 2.1 - Interpreting a simple cash budget or breakeven chart in order to reach a decision

BUDGETING

A cash budget is a forecast of cash coming into the business and cash going out of the business. A cash budget can be prepared for a few months, for example, for January-April, or it can be prepared for a full year – January-December.

Study the cash budget shown below.

Cash Budget for June and July

June July

Opening Bank/Cash Balance 1,000 2,950

Receipts

Cash Sales 2,000 3,000

Credit Sales 3,000 1,000

______ ______

5,000 4,000

______ ______

Payments

Wages 400 600

Advertising 450 2,000

Petrol 200 150

Purchases 2,000 2,500

______ ______

3,050 5,250

______ _____

Closing Bank/Cash Balance 2950 1700

______ _____

Question

What 2 factors may have caused the closing bank/cash balance to reduce between June and July?

_____________________________________________________________________

_____________________________________________________________________

TASK 60

Complete the Cash Budget below for Brown plc and calculate the closing balance for each month.

Cash Budget for January and February

January February

Opening Bank/Cash Balance 5,000

Receipts

Cash Sales 10,000 16,000

Credit Sales 25,000 6,000

______ ______

______ ______

Payments

Wages 800 1,600

Purchase of new van 15,000

Insurance 500 260

Purchases 5,200 3,100

______ ______

______ _____

Closing Bank/Cash Balance

______ _____

Question 1

What has caused the closing balance to be dramatically reduced in February?

_____________________________________________________________________

TASK 61

Complete the Cash Budget below for Kelly & Templeton who are partners and calculate the closing balance for each month.

Cash Budget for March and April

March April

Opening Bank/Cash Balance 12,000

Receipts

Cash Sales 4,000 6,100

Credit Sales 3,500 2,250

______ ______

______ ______

Payments

Wages 1,500 5,000

Advertising 400 600

Insurance 240 240

Purchases 6,200 5,200

______ ______

______ _____

Closing Bank/Cash Balance

______ _____

Question 1

What payment has dramatically increased between March and April?

Answer

________________________________________________________________

HUMAN RESOURCES

The main focus of this functional area is the management and support of the workforce of a business. The human resource function includes a number of areas of responsibility. These include;

➢ Recruiting staff

➢ Training staff

➢ Looking after staff welfare

➢ Ensuring the organisation complies with employment legislation

➢ Motivating staff

LO 2.3 - Outlining the purpose of training employees

Training

There are many methods of training staff and it is very important to ensure the continued success of the organisation. Staff can be trained whilst doing the job by being shown what to do or they could be taken to a training centre or local college for training.

Training should be on-going, with employees being taught new skills. The benefits of training are:

➢ allowing the business to keep good staff

➢ staff motivation increases

➢ quality can improve and a better product/service can be offered to the customer

➢ the reputation of the organisation will be better

➢ staff become more flexible, i.e. they can do a variety of jobs

LO 2.4 - Describing methods of motivating staff

Motivating Staff

The Human Resources Department need to ensure that all employees in the organisation are motivated and giving their very best effort. In order to motivate staff the following may be used:

➢ issue bonuses

➢ company perks, for example, private health care or company car

➢ Involve staff in profit sharing or share ownership schemes

➢ organise team-building and social events

➢ organise staff training

➢ Offer flexible working such as job share or flexitime.

LO 3.1 - Identifying the influences

EXTERNAL INFLUENCES ON A BUSINESS

External Environment

There are a number of key factors in the external environment of a business. All businesses must react efficiently to changes in its external environment – failure to do so could be fatal for the future of the business. External factors (PESTEC) can be summarised as follows:

LO 3.2 - Outlining the impact of influences on a small business

LO 3.3 - Describing a response to the influences by a small business

PESTEC

Political

The government can introduce laws which can affect every business in the UK. For example the government have set laws which ban advertising tobacco on television. Business must comply with laws or face heavy legal penalties. The government can also affect businesses by changing the amount of corporation tax charged on business profits. They have also introduced a minimum wage which employers must pay – this will affect their costs and profits.

Economic

If there is a recession and unemployment is high, consumers will have less income, which will result in a loss of sales for businesses. In order to survive and encourage consumers to buy from them, businesses may have to ‘slash’ prices and accept a cut in profits just to survive.

Social

In the UK there have been changes in the structure of the UK. More people are living longer and so the elderly are now making up a larger percentage of the total population. Business must take note of this and produce goods and services relevant to the needs of the population.

Technological

Put simply, businesses must keep up with changes in technology. For example they must get involved in e-commerce, i.e., selling goods and services using the Internet. They must also use technology and robots in production lines when making their products. Failure to keep up with technology could lead to a fall in sales and profits.

Environmental

There is now increasing pressure for firms to be environmentally friendly, e.g., bags for life and to minimise pollution.

Business can also be seriously disrupted with extreme weather conditions like storms, floods and snow and may have to make alternative arrangements for deliveries in bad weather.

Competitive

All businesses face competition from other firms both in the UK and from foreign firms. For example, when the National Lottery was launched, Littlewoods Pools had to change the way they advertised to compete with the Lottery.

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P

Political Factors

E

Economic Factors

S

Social Factors

T

Technological Factors

E

Environmental Factors

C

Competitive Factors