TOPIC: LEGAL STRUCTURE

1. Franchise
● Definition
- A business based upon the use of the brand names, promotional logos
and trading methods of an existing successful business.
- The franchisee buys the licence to operate this business from the
franchisor
● Application
- When people want to use the company’s name to another place (type of
expanding its operations)
- Internal Growth
● Pros/Cons:
- Pros:
1. To Franchisee
❖ Chances of survival is high due to a well know brand
image
❖ Franchisor pays for advertising
❖ All supplies obtain by franchisor
❖ All price, layout and products have been laid out by the
franchisor
❖ Training will be provided by franchisor
❖ Banks are more willing to lend (Financial Economies of
Scale
2. To Franchisor
❖ Franchisee buys a licence from the franchisor to use brand
name
❖ Expansion is much faster this way rather than the
franchisor having to finance new outlets
❖ Management of the outlets are shared with franchisee
❖ All products sold must be obtained from franchisor
- Cons
1. To Franchisee
❖ Less independence
❖ May be unable to make decisions that would suit the local
area (New products that are not part of the range offered
by the franchisor)
❖ Licence fee must be paid and possibility a percentage of
the annual turnover
2. To Franchisor
❖ Poor management of one outlet will lead to a bad
reputation for the entire business
❖ Franchisee keeps profits from outlet

2. Public Limited Company

 ● Definition
- Businesses owned by shareholders but they can sell shares to the public
and their shares are tradable on the Stock Exchange
● Application
- Anyone can buy shares
- Private sector business
-
● Pros and cons:

1. Pros
- Limited liability
- Incorporated business and has a separate legal identity to
the owners
- Continuity is assured
- Can easily raise very large capital sums
- No restriction on buying, selling or transfer of shares
- Usually has high status and should find it easier to attract
suppliers
- Banks are more willing to lend money
2. Cons
- A lot of legal paperwork (Time consuming and
complicated)
- More regulations and controls to product the interest of the
shareholders
- Selling shares is expensive (Many steps in it)
- Owners may lose control of profit
- An Annual General Meeting must be made (Costly)

3. Contract of Employment:
❖ Definition:
- legally binding agreement between an employer and an employee that outlines
the terms and conditions of the employment relationship.
❖ Application:
- This contract typically includes details such as the job responsibilities, work
hours, compensation, benefits, termination procedures, and any other relevant
provisions governing the employment arrangement.

TOPIC: CASH FLOW

Points in the test:
1. Computing for unknown
- Formula:
❖ To find net cash flow, Total cash inflows - Total cash outflows
❖ To find Closing bank balance, Opening bank balance + Net cash flow
 ❖ To find Total cash outflows, Materials and wages + Rent and other
expenses
2. How to improve cash flow
- Increasing bank loans
● Advantages
❖ Bank loans inject more cash into business
● Limitations
❖ Interest must be paid, reducing profits
❖ Loans will have to eventually be repaid (cash outflow)

- Delaying payments to suppliers

● Advantages
❖ Cash outflows will decrease in the short run
● Disadvantages
❖ Suppliers could refuse to supply
❖ Suppliers could offer lower discounts for late payments

- Asking debtors to pay more quickly or insisting on only ‘cash sales’

● Advantages
❖ Cash inflows will increase in the short term
● Disadvantages
❖ Customers may purchase from another business that still offers
them time to pay (trade credit)

- Delay or cancel purchases of capital equipment

● Advantages
❖ Cash outflows for equipment purchases will decrease
● Disadvantages
❖ Efficiency of the business could decrease without up-to-date
equipment

3. Business performance
- Just determine the business performance through cash flow analysis
4. Importance of profits
- Acts as a reward to entrepreneurs
- Acts as reward to shareholders for their investment (High dividend)
- Profitable businesses allows banks to easily lend money
- Profitable businesses allows the company to be competitive
- Profitable businesses can sustain operations for a long period of time
- Able to make changes with consumer demands

● Definition: Cash flow - cash inflows and outflows over a period of time
Cash inflows - sums of money received during a period of time
Cash outflows - sums of money paid out by a business during a period of time
TOPIC: Methods of Production and Quality
1. Flow production
● Definition
- Is where a single product is made at a time
● Application
- Suitable for personal services or ‘one-off’ products
- Often used for high quality goods and services
● Pros/Cons
❖ Advantages:
- The product meets the exact requirements of the customer
- Workers often have more varied job (No monotony)
- Flexible and may charge a high price for custom

❖ Disadvantages:
- High cost of production (Labour intensive and using skilled labour,
good quality materials)
- Time lengthy
- Specially made to order (any corrections is expensive to correct)

2. Lean production
● Definition
- Lean production: Term for those techniques used by businesses to cut
down on waste and therefore increase efficiency
- Kaizen: Japanese term meaning ‘continuous improvement’ through the
elimination of waste
- Just-in-time inventory control: production method that involves
reducing or virtually eliminating the need to hold inventories of raw
materials or unsold inventories of the finished product
- Cell production: the production line is divided into separate,
self-contained units (cells), each making a part of a product.
● Application
- 7 Types of waste that occur in production
-
1. Overproduction: producing goods before customers’ orders
(Results in high storage costs and damage due to long storage)
2. Waiting: waste produced when products are not moving
3. Transportation: unnecessary movement of goods causes waste
and does not add value to the product (Goods can get damaged
when moved around)
4. Unnecessary inventory: Too much inventory and takes up space
(May affect production and cost money)
 5. Motion: any actions pertaining to humans that wastes time such as
stretching (may be a health risk)
6. Over-processing: if machines are used for simple tasks
(unnecessary and may be because the design)
7. Defects - any faults may require goods to be fixed and time is
wasted from inspection
- Methods:
1. Kaizen
2. Just-in-time inventory control
3. Cell production
❖ Kaizen: Unnecessary inventory and movement of workers during
production are removed (This can be done through organising and
repositioning machines, thus flow of production improves)
● Pros
❖ Lean production
- Cost are saved
- Less storage
- Quicker production
- Less repairs of defects
- Better use of equipment
- Cutting out processes
- Improved health and safety
❖ Kaizen
- Increased productivity
- Less space needed for production
- Less ongoing work
- Improved layout allows workers to be combined
❖ Just-in-time inventory control
- Reduces inventory
- Less costs
- Product can be sold quickly (profit earned quickly)
3. Quality:
● Definition
- Quality: to product a good or service which meets customer expectations
- Quality Control: the checking for quality at the end of production of a good
or service.
- Quality assurance: the checking for quality standards throughout
production of a product/service by employees
- Total Quality Management - the continuous improvement of products and
processes by focusing on the quality of each and every stage of
production
● Application
● Pros/cons
❖ Quality control
 ➢ Pros
- Tries to eliminate errors before customer receives
- Less training needed for workers
➢ Cons
- Expensive (inspectors need to be paid)
- Identifies faulty products but doesn’t find the root cause
- High costs if products are scrapped and services reworked

❖ Quality assurance
➢ Pros
- Tries to eliminate errors at all stages of production
- Fewer customer complaints
- Reduced costs if products are not scrapped
➢ Cons
- Expensive to train employees (they check their own work)
- Relies on commitment of employees to standards
❖ Total Quality Management
➢ Pros
- Quality is built into every part of production and becomes
central to the ethos of all employees
- Eliminates all errors before receiving by customers
- No customer complaints (Brand image improves and thus
increases sales)
- Reduced costs as no products have to be scrapped
- Less wastage -> Efficiency
➢ Cons
- Expensive to train all employees to check
- Relies on employees following TQM ideology and
accepting responsibility for quality

4. Quality Standards
● To make sure goods/services meet quality standards, a quality mark associated
with the good/service can be examined
● Quality mark means it abides rules and good inspections. (Some customers only
buy when this mark is present)
● Examples:
- ISO (International Organization for Standardization) grants business the
right to use an ISo number in literature and advertising
● Good customer service allows the business to have a good reputation and
recommendations from customers. (Use TripAdvisor as example)

TOPIC: MARKETS
1. Market Share
● Definition:
- the percentage of total market sales held by one brand or business in an
industry
● Increased market share
- Good publicity (could say it is becoming “the most popular”)
- Increased influence over suppliers (more keen to sell)
- Increased influence over customers (setting price)
-

2. Brand image
● Definition:
- An identity given to a product which gives it a personality on its own and
distinguishes it from its competitors’ brands
● Application
- When companies undergo careful use of promotion and public relations, a
business will try to create a complete image for the product.
- Ex: Coca cola has an image of being a superior quality cola drink which
tastes better than its competitors. Advertising also shows that people are
having fun when they drink it. This shows that it’s a trending item for a
younger audience.

3. Market segment
● Definition
- Market segment: An identifiable subgroup of a whole market in which
consumers have similar characteristics or preferences
- Market segmentation: occurs when a market is broken down into
subgroups which share similar characteristics
● Application
- Different products will appeal to different groups of consumers.
- Marketing Departments knows the best places to advertise and the most
likely place where the market segment will see the advertisement
- Ways of segmenting a market:
1. By socio-economic group (Products are priced to different
income groups)
2. By age (Products bought by young people will be different than
elderly people)
3. By region/location (People buy umbrellas in dry and wet parts of
the country and people by winter clothes when it’s snowing)
4. By gender (Shaving razor for men and perfume for women)
5. By use of the product (Cars for business and cars for domestic
use can be advertised differently)
6. By lifestyle (A single person earning the same income as a
married couple with children will spend the income differently)
 ● Pros/cons
- PROS (Segmenting a market):
1. Make marketing expenditure cost effective through producing
products to consumer demands of the segment
2. Enjoy high sales and profits for the business from cost effective
marketing
3. Identify a market segment which does not have its needs fulfilled,
and offer opportunities to increase sales
4. Price skimming
● Definition
- Occurs when a high price is set for a new product on the market
● Application
- For new products ONLY (New invention or new development of an old
product)
- High price indicates the product is of high quality
- Product will often have high research and development cost
● Pros/cons
❖ PROS
1. Can help establish the product of being good quality
2. High research and development costs can be recouped from the
profit earned
3. If unique, high price will lead to profits before competitors’
products release then it will have to reduce
❖ CONS
1. High price may decrease demand from customers
2. High price and profitability may encourage competitors to enter the
market
5. Niche marketing
● Definition
- A small, usually specialised, segment of a much larger market
● Application
- Products sold to very small no. of customers
- Products are specialised
- Luxury products are aimed at a small section of much larger markets
● Pros/cons
❖ PROS
- Small businesses may be able to sell successfully as larger ones
may have not identified them but concentrated on the mass
market instead (Will reduce competition from the larger
businesses in niche markets)
- Needs of consumers can be more closely focused (Lead to high
levels of consumer loyalty and good customer relations)
❖ CONS
 - Niche markets have limited sales potential. If growth is one of their
objective, businesses needs to look beyond niche market to
produce for mass markets (It’s small)
- Niche markets specialise in one product or service. (If one item
loses demand, it is risky and businesses may fail to survive)

TOPIC:
1. Centralised Organisation
● Definition
- where business decisions are made at the top of the business or in a
head office and distributed down the chain of command
● Application
- Often used in retail chains
- Can be slow
● Pros/cons
1. Advantages
- consistency across the business
- the business has a clear direction
- operations and decisions are closely controlled and managed
- the chain of command and accountability are clear
2. Disadvantages
- it can demotivate employees
- a standardised approach may not work in all business locations
- it may lower productivity
2. Effective communication
● Definition
- the transferring of information from the sender to the receiver, who
understands the message
- Internal communication: between members of the same organisation
- External communication: between the organisation and other
organisations or individuals
● Application
- Types of communication:
1. Internal
2. External

- Process of effective communication

1. Transmitter/sender
2. Medium of communication
3. Receiver
4. Feedback
Contract of Employment
A contract of employment is a legal agreement between an employer and employee, listing the
rights and responsibilities of workers.
It will usually be set out in writing and include:
» name of the employer and name of the employee
» job title
» date when employment is to begin
» hours to be worked
» rate of pay and any other benefits such as bonus, sick pay, pension
» when payment will be made
» holiday entitlement
» amount of notice that the employer or the employee must give to end the
employment.
Impact of employment contracts on employers and employees
» Both employers and employees know what is expected of them.
» It provides some security of employment to the employee.
» If the employee does not meet the conditions of the contract then legal
dismissal is allowed.
» If the employer fails to meet the conditions of the contract, for example, does
not offer the holidays the worker is entitled to, then the employee can seek legally binding
compensation.

3. Full-time vs part-time
● Definition
- Full-time: employees will usually work 35 hours or more a week
- Part-time: employment is often considered to be between 1 and 30-35
hours a week
● Application
- The contract of employment will show a different number of hours
spending on the job status
● Pros/cons:
- PART-TIME
❖ Benefits
- More flexible
- Easier to ask employees to just work at busy times
- Easier to extend business opening/operating hours by
working evenings or at weekends
- Fits in with looking after children and employee is willing to
accept lower pay
- In some countries, it is easier to make part-time workers
redundant
❖ Limitations
- Less likely to seek training since job is temporary
- Takes longer to recruit two part-time workers than one-full
time worker
- Less committed and may be more likely to leave
- Less likely to be promoted ( no skills and experience
gained as compared to full-time employees)
- More difficult to communicate with part-time workers (when
are not working)
-