XX.

ACHIEVING QUALITY PRODUCTION:

1. Quality and the importance of quality:
Quality – to produce a good or a service which meets customers’ expectations
Quality is important for businesses because: it helps business
- Establishes brand image o It builds brand loyalty
- Maintains a good reputation
- Increase sales
- Attracts more and new customers
If quality is not maintained, businesses will:
- Lose customers to other brands / competitors
- Have to replace faulty products or repeat poor service which raises costs for business
- Have a bad reputation because people who had bad experiences will tell other people, etc. Leads to
lower sales & revenue
2. Quality control:
Quality Control – checking for quality at the end of the production process, whether it is a product or a service.
- Quality control is a traditional way to make sure that products leave the factories with no defects
- The jobs of people in quality control departments are to take samples at regular intervals to check for errors.
- If errors are found, the whole batch of production might have to be redone.
- Their job is also to prevent any production errors before they happen during production, which will
lead to money loss
- Sometimes, businesses bring a mystery customer to test out the service to check if the quality is as
expected.
Advantages of Quality Control:
- Eliminates faults/errors before customer receives product or service
- Less training is required for the workers
Drawbacks of Quality Control:
- Expensive, as employees need to be paid to check the product or service
- Identifies the fault but not how and why it occurred so it is difficult to remove the problem
- Increased costs if products have to be scrapped or reworked or service repeated
3. Quality assurance:
Quality Assurance –checking for the quality standards throughout the production process (for products or service)
Advantages of Quality Assurance:
- Eliminates faults/errors before customer receives product or service
- Fewer customer complaints
- Reduced costs if products don’t have to be scrapped or reworked or service repeated
Drawbacks of Quality Assurance:
- Expensive to train employees to check products
- Relies on employees following instructions of the standards set by company
4. Total Quality Management
Total Quality Management (TQM) – the continuous improvement of products and processes by focusing on
quality at each stage of production
- Total quality management is used by many companies.
- It tries to “get it right the first time” and have no defects
- It focuses on ensuring 100% that the customer is always satisfied.
- Customer is not just the final user, it also includes other people and departments within the business
- This means that quality needs to be maintained throughout the business and no faults should occur.
Advantages of total quality management:
- Quality is built into each part of the production. It becomes a habit for the employees
- Eliminates virtually all faults/errors before the customers receives.
- No customer complaints so brand image is improved
- Waste is removed and efficiency increases which means less money is wasted (higher profits)
Drawbacks of total quality management
- Very expensive to train employees to check the product or service at every stage of production
- Relies on employees following the ideology of TQM

XXI. LOCATION DECISIONS:

1. Location of Industry: (When does a business need to make location decision?
- The business is first setting up
- The business is expanded, so the current location is no longer suitable
- The business expands globally
- Factors affection the location decisions may be different in difference sectors ( manufacturing, services, etc.)
2. Factors affecting the location of a manufacturing business:
- Production method – for examples Flow product – need space of infrastructure
- Market: Location suitable for transporting products to market
- Raw material component : sources of material or types of component are important factors to choose
location
- External economies of scales – firms support the business should be nearby
- Availability of labor
- Government influence – regulations/restrictions
- Transportation and communications:
- Power and water supply
- Climate
3. Factors affecting the location of a service business:
- Customer: locating a service business near its customers is very important
- Technology – allows some service locates away from customer
- Availability of labor
- Climate – especially links to Tourism
- Near to other businesses - support business
- Rent/taxes
- Personal reference of the owner
4. Factors affecting the location of a retailing business:
- Shoppers: Location where customers can come to buy easily
- Nearby shops: location next to popular shops can have more potential customers
- Customer parking
- Available of suitable vacant premises
- Rent/taxes
- Access for delivery vehicles
- Security – a shopping area, patrolled by guards, even expensive, is preferable
- Legislation: some particular areas, law is not allowed to have shops.
5. Factors that business consider when deciding another country to locate operations:
- New market overseas - when a business sees an increase in sales overseas, it may decide to
- move/relocate there, instead of transporting products there
- Cheaper Source of material – if the raw material runs out, the business must either bring in alternative
supplies from somewhere else or relocate to new country with these raw materials.
- Difficulties with the labor force and wage costs – if business is located in country where wages keep rising,
business may decide it is more profitable to relocate to country where wages are lower
- Rents/taxes considerations
- Availability of Government grants and other incentives – some government encourage foreign business – low
tax, low rent, etc. so Business move there to take advantages of that.
- Trade and Tariff barrier – some business move to a new country to avoid trade barriers like high import taxes, quota, …
6. The role of legal controls on location decisions:
Government influence location decision for 2 main reasons:
- To encourage business to set up and expand in high-unemployment or under development areas
- To discourage business from locating in overcrowded area or on site which are noted for their natural beauty.
Measures government often used to influence the business’s decision
- Planning regulations restrict the business activities in some areas
- Financial grants: low rental, low tax or free tax, …
SECTION 5 : FINANCIAL INFORMATION AND FINANCIAL DECISIONS
XXII. BUSINESS FINANCE: NEEDS AND SOURCES
1. What do Finance departments do?
Finance departments have following responsibilities:
- Recording all financial transactions: payments an revenues
- Preparing finance accounts
- Producing accounting information to managers
- Forecasting cash flows
- Making financial decisions: to decide which source of finances for which activity in business.
2. Why business need finance?
Finance = Capital = Money
Main reasons why businesses need finance:
- Starting up a business: the money needed by a new business to pay for the essential fixed (non-current)
assets (tài sản cố định) and current asset ( tài sản ngắn hạn) start trading.
- Expanding the business: Successful business will expand the business to increase profit, so they need
money to buy more nun-current fixed assets (for examples new, bigger manchines, new warehouse) or to
develop new products or to enter new markets.
- Additional working capital: to increase working capital
Working capital (Vốn lưu động): money needed by business go pay for day-to-day costs
- Difference between 2 main expenditures:
Capital expenditure(Chi phí tài sản cố định) : Money used spent on buying non-current (fixed assets), last
for one year. Needed when business starts up or expands.
Revenue expenditure ( Chi phí trong kỳ): Money spent on day-to-days expenses for examples: wages, rent.
3. Sources of Finance:
2 ways of classification sources of finances:
- Internal and external sources of finances
- Long-term and short-term sources of finance
a. Internal finance:
Internal finance is obtained from within the business
The most common examples of internal finance:
- Retained profit ( Lợi nhuận được giữ lại):
+ Advantages: This is not a loan so business does not have to repay or pay interest
+ Disadvantages: New business or small business does not have much profit to be retained; retaining
office means less profit for owner.
- Sale of existing assets: un-used assets like building, machine can be sold out.
+ Advantages: it makes better use of the capital in the business; it does not increase debt of the business.
+ Disadvantages: it takes time to sell the assets; this source is not available for new set up business.
- Sale of inventories to reduce inventory level:
+ Advantages: reduce opportunity cost and storage cost
+ Disadvantages: risk of too low inventory level causing disappointed customer if not having enough goods to sell.
- Owner’s saving: owner ( sole trader or partnerships) can put more of their money into their business.
+ Advantages: available quickly, no interest paid
+ Disadvantages: saving may be too low; the owner face of the risk of unlimited liability
b. External finance:
- Issue of shares(Phát hành cổ phiếu): this is only possible for limited companies
+ Advantages: permanent sources, no repaid, no interest
+ Disadvantages: business have to pay dividend; owner ship can be change if too many shares are sold
- Bank loans:
+ Advantages: Quick to arrange,
+ Disadvantages: Have to paid interest, have to repay and sometimes have to mortgage assets for the bank.
- Selling debentures: ( phát hành trái phiếu) – Debentures a long-term loan certificate issued by limited company
+ Advantages: Long term finance
+ Disadvantages: Business still have to repay and pay internet
- Factoring of debt (chiết khấu nợ): business can sell an undue debt with a smaller value ( 90% for
examples) to the debt factor to get the finance quickly, the debt factor then will collect the payment from
the debtor when it is due.
+ Advantages: get the money back quickly, and minimize the risk of bad debt
+ Disadvantages: cannot have 100% money back
- Grants and subsidies from outside agencies (Các khoản tài trợ và trợ cấp không hoàn lại) – not to be
prepaid but the business have to accept other conditions in combination
- Micro-finance- small loans to poor people not being served by traditional bank to help them start up the
business. This services provided by special institution. Micro-finance is very important in developing
country.
- Crowdfunding (huy động vốn từ cộng đồng) – funding a project or a venture by raising money from a
large number of people. Each contribution is relative small amount, typically via internet.
c. Short-terms finance:
Short-Term finance Sources – money that must be paid back in less than a year. This provide working
capital for day-to-day operations. There 2 3 main ways:
- Overdraft (Thấu chi) – when the bank allows a business to spend more money than they have in their
account (i.e. to pay employees)
- Trade credit (tín dụng thương mại) - delay paying suppliers to be in better cash position
- Factoring of debts (chiết khấu nợ)
d. Long-term finance sources - money that can be paid back in longer than one year. There are main sources:
- Banks loans
- Hire purchase(Trả góp) - When a business buys a fixed asset in monthly payments (which include interest)
- Leasing (Thuê tài chính)- allow business using the assets, not having to buy it, just pay the leasing fee monthly.
- Issue of shares
- Debentures
4. How business make the choice of sources of finance: The main factors considered in making financial choice:
- Purpose and time period
- Amount needed:
- Size of business & Legal Form (type of business): Public limited companies have larger choice of sources of
finance because they pay less interest (less risk)
- Control – facing the risk of losing control when asking more investment from outside to expand or keep it
controlled is more important
- Risk and gearing – how big of existing loans
XXIII. CASH FLOW FORECASTING AND WORKING CAPITAL:
1. Why cash is important to business:
- Cash is a Liquid Asset (Tài sản thanh khoản) – it can be immediately available to spend on goods & services
- If a business runs out of cash or has too little cash, they will face major problems:
 Being unable to pay salary, rental, tax
 Being unable to pay for material and service to continue the production
 Business may be forced into “ liquidation” (phát mãi) – selling up everything it owns to pay its debts.

2. Cash flows:
- Cash Flow – the cash inflows & outflows over a period of time
- Cash inflows – sums of money received by business over a period of time
Cash flow into business by 5 common ways: sales of product; debt payment; loans ( borrow money from
out sources); sales of assets; more money invested by owners.
- Cash outflows – sums of money paid by business over a period of time
Cash flows out of a business by 5 common ways: purchasing goods or materials, paying salary or expense,
purchasing non-current fixed assets; repaying loans; paying due debt
- Cash flow cycle – shows stages between paying out cash for labor, materials, … and receiving cash from
the sale of goods.

- Profit – surplus after total costs have been subtracted from revenue
Profit = Revenue – Cost
3. The importance of Cash flow forecast:
Cash-Flow Forecast – an estimate of future cash inflows and outflows of a business usually on month-by-
month basic. A cash-flow forecast shows the expected cash balance at the end of each month.
Cash flow forecasts are important because:
- They show how much cash is available to pay liabilities (bills, loans,…) of to buy assets
- They show how much money a business might need to borrow from a bank
- They show whether the business is holding too much cash which could be reinvested back into business.
Cash flow forecasts are useful in following situation
- Start up a business – The owner need to know in advance how much cash needed for the first months of
operation as this is the time costs a lot of money : rent, machinery, renovation, … cash flow forecast help
them to avoid of problem of not enough cash
- Keep the bank manager informed
- Managing an existing business
- Managing cash flow
Net cash flow = cash inflow – cash out flow
- Net cash flow – the difference between inflows and out flows each month
- Closing cash ( or bank) balance (Số dư cuối kỳ) – the amount of cash held by business at the end of each
month ( will become opening cash balance next month
- Opening cash (or bank) balance (Số dư đầu kỳ) - the amount of cash held by business at the start of the
month
Short-term cash flow can be overcome by several ways:

4. Working capital : Vốn lưu động

Working capital is the capital available to a business in the short-term to pay daily expense
Working capital = current assets – current liabilities
Current assets –tài sản lưu động
Current liabilities : Nợ ngắn hạn
The importance of working capital:
- A business cannot run without enough working capital
- You can measure the success of a business by seeing how much working capital it has
- Working capital should be handled properly because it shows investors & banks how efficient a business is
and its financial strength
Working capital is held in different form:
- Cash needed to pay daily cost and buy inventories
- Inventories
- Firm’s debt
- …