Presentation on theme: "AN OVERVIEW OF ISSUES TO DO WITH WEBDESPIX (WDP)"— Presentation transcript:
1AN OVERVIEW OF ISSUES TO DO WITH WEBDESPIX (WDP) This is only a start look at your booklets and notes!
2CONTEXT – WebDesPix Ltd (WDP) In 1999, three students (Tom, Dee and Ali) in the final year of their Computer Studies degrees at Bristol University decided to start a business designing websites. The business was called WebDesPix (WDP). On the advice of Tom’s father, John, WDP was a private limited company. John is still involved with the company as non-executive Chair and attends a monthly board meeting, travelling from Suffolk to Bristol. The company has always been located in Bristol. Tom says, “We could have run the company from anywhere in England but, as we were all from different parts of the country, it was easier to locate where we had studied”.The initial capital of £8 000 was raised from the three families. Ali left the company after two years and was bought out by Tom and Dee, who each now own 50% of the shares. They are planning to give John shares in the company. It is company policy to re-invest profits. The company has never had a bank loan but uses an overdraft facility.The objectives of WDP for 2009 were to:• consolidate following two years of sustained growth (15% on turnover per annum)• market all products on-line• increase use of e-commerce in its own website and those it designs for other companies• continue trading in a competitive market where anybody can set up as a web designer.Web design is still the core business of the company but new services include electronic newsletters, domain registrations, hosting and search engine optimisation. The company offers three standard web design packages: Budget at £800, Professional at £1 000 and Executive at £ Each package provides a number of web pages, facilities and the costs of hosting the site. WDP will give a quotation to clients who require non-standard packages. The majority of clients are in the South West of England but 25% of the company’s income is from clients in the South East. WDP uses branding, shown below, with the tag line, ‘Like ducks to water’.The company is labour-intensive with relatively small overheads. WDP builds and upgrades its own computers. Tom is responsible for sales and finance, and Dee for design and health & safety. All other areas of the business are shared between them. There are seven full-time employees: two sales assistants, two computer coders, two search engine optimisers and a design assistant. All of these salaried positions require highly-qualified (a degree in IT) and skilled people who train new employees as required. Vacancies are advertised on the company website and at regular networking meetings with other businesses in the Bristol area. Tom and Dee interview all applicants personally. There is a three-month probationary period for all new employees.There are two part-time employees: a Personal Assistant (PA) for Tom and a bookkeeper. The part-time employees present monthly invoices for their services. Full-time employees receive a monthly bonus based on turnover; free health insurance after six months’ employment; a free lunch each Friday and the use of a Wii during their breaks. Office hours are five days a week from 0900 to The two sales assistants receive, in addition to their salary, a commission of 12½% on their sales. No employee works from home.The main form of communication is by . Fax is now rarely used. There is occasional use of video-conferencing. The company website displays examples of its web design work. Tom says, “Networking meetings and word-of-mouth are very important and bring us most of our clients”. All financial documents are raised by the Sage Accounting package and the PA uses Word, Excel, PowerPoint, Access and Outlook.
4Private Limited Company Definition of a (LTD)WDP is a private limited company that is run by its shareholders, but these shareholders are made up of only family and friends (Tom, Dee and John). Shares for WDP are not available to the general public and are not sold on the stock exchange.
5How WDP was set upStep 1 – A memorandum of association and articles of association was prepared.Step 2 – These documents were sent to the registrar of companiesStep 3 – The registrar of companies issued a certificate of incorporation which allowed WDP to start trading.
6What type of Business is WDP? LTDPrivate Limited CompanyWhat are the advantages of staying an Ltd?They have limited liability, can’t be taken over – stays in Family. Have total control.Why did they become an LTD?Have limited liability – rather than unlimited can’t take PWCan raise/get capital into the business by selling Shares to family/friends, Directors control who they sell to.Easier to get better loan deals (cheaper) – better risk for BanksBetter credit facilities from suppliersHow is it formed?Memorandum of Association Articles of Association Registrar of Companies Certificate of Incorporation
7Advantages and Disadvantages of WDP’s type of ownership. It can raise capital by issuing (selling) shares, but not to the general public.The owners have limited liability.WDP has its own legal identityMoney can be raised by selling shares to their friends and family.WDP cannot sell shares on the stock market.Annual reports have to be produced by law.
8Reasons why WDP might change ownership Growth of the businessTo raise extra capitalGrowth/decline of the businessAs WDP grows it will need new sources of capital and it may need to change its legal structure.
9Changing to a Public Limited Company Obtaining financeAs a public limited company (Plc) WDP will be able to raise considerably more capital than a private limited company (Ltd).But remember, we are in a recession difficult to launch on the stock market and it would be very expensive. Not a realistic option for WDP.Changing to a Public Limited CompanyOne reason for a change in the legal structure of a business is to raise finance.Definition of a (PLC):A public limited company is a business that is run by shareholders, the shares can be bought by any one, and its shares can be bought on the stock exchange.9
10What sector does WDP operate in? WDP provides web design, electronic newsletters, domain registration, hosting and engine search optimisation services. They therefore operate within the tertiary sector.This is where finished product can be sold. This sector provides both goods and services.
11Main Roles and responsibilities of those involved in LTD’s WILF:The meaning and responsibilities of:CEOBoard of directorsChief executive chair
12Activity: Use the case study to answer the following questions: Who are the owners of WDP?Who are the directors of WDP?Who the non-executive chief of WDP is?Who the board of directors of WDP might be?
13Who are the owners of WDP? WDP is owned by its shareholders which are currently Tom, Dee and members of their families (including Ali’s as they all invested capital into the business).
14Who are the directors of WDP? The Directors of WDP are Tom and Dee.Roles and responsibilities of Tom and Dee:Act on behalf of the shareholdersRun the day to day affairs of WDPProvide reports to shareholders about WDP performance, future plans and strategies.Prepare the articles and memorandum of association. The objectives of the company are defined in the Memorandum of Association and regulations are laid out in the Articles of Association.Hold yearly board meetings
15What is John’s position with WDP? Johns position within WDP is that of non-executive chair. His main roles and responsibilities are to:Work with Tom and Dee to develop an appropriate schedule and agendas for board meetings.Chairing all meetings of the BoardAddress all issues relating to the performance of individual directors Tom and Dee.
16Who are the board of directors? The board of directors of WDP will be made up of Tom, Dee, John and shareholders. The members of the board (other than Tom, Dee and John) will be decided by the shareholders voting.
17Communication between the board of directors and shareholders Communication between the board and shareholders happens mainly through yearly meeting called annual general meetings.2. The board meet monthly to discuss WDP performance.
18Buying – buy in bulk cheaper prices WDP may look to see if they can use any Economies of ScaleBuying – buy in bulk cheaper pricesMarketing – cost of advertising per item cheaperFinancial – Easier to borrow money at better rates, issue sharesAdministrative – can afford specialist managersWhat are they, give me (4)?Diseconomies of Scale Sometimes can be a problem – How?Decisions take longerCommunication poor with staffEmployees feel demotivatedMay lead to trade union problems
20Factors which may influence a business’s choice of location include: Close to customersAvailability of skilled labourTransport links for suppliers and distributionFinancial help available from the governmentHistory and traditionWage levels
21Close to CustomersThese businesses depend on customers passing through their doors and spending money. Locating near their customer base increases their chances of making sales.
22Availability and Cost of Skilled Labour The cost of labour varies in different parts of the UK, because of levels of unemployment and differences in living costs. Wages in London are usually higher than in the rest of the UK.Businesses need people to work for them. Consequently, businesses often set up in populated areas.
23Transport Links for Suppliers and Distribution Most businesses need to be easily accessible to their suppliers and distributors.Businesses that distribute their products within the UK or overseas will have to think about access to the transport infrastructure.
24Financial help available from the government The government can give grants, tax relief and subsidies to businesses that set-up in areas of high unemployment. The aim is to try and create new jobs.Benefits:These incentives can drastically cut a business costs.
25History and traditionSometimes businesses will locate in a certain area because there is a history of that type of business in the area.Benefits of this will be:- People in the area have the skills that are needed.- Local colleges provide special training for the type of work required.
26Wage levelsThe average wage offered by businesses varies in different parts of the UK.So business need to think about the wage or salary that people in that area will expect as this can raise their costs.Think about this. Do you feel that WDP should stay in Bristol or maybe move to the South East where 25% of their customers are. Be able to answer reasons for and against moving location.
28External Recruitment Methods used by WDP to recruit and select staff How their recruitment and selection process can differ
29StarterUse the case study to identify what methods of recruitment and section WDP use to recruit staff.List one advantage and drawback for WDP using these methods for both recruitment and selection.
30What methods do WDP use at the moment to recruit staff? Vacancies at WDP are advertised via:the company websiteNetworking meetings
31What selection methods do WDP use to recruit staff? Selection at WDP takes the form of:Interview (Tom and Dee carry these out personally).All applicants have a 3 month probationary period.
32The stages in recruitment that WDP will need to go through to recruit staff In order to externally recruit staff WDP will go through the following stages:Write a job descriptionWrite a person specificationAdvertise job via their website or at networking meetingsReceive applicationsShortlistInterviewAppoint successful applicant (subject to references)Check references
33Other methods of recruitment that WDP could use to advertise/recruit staff Other external methods of recruitment that could be used by WDP:Bristol local newspaperICT related professional journal/magazinesJob CentreRecruitment agencyCareers ServiceHead huntingLocal radioUniversity Career FairsCompetitors staff!
34Things that WDP will need to consider when deciding to recruit staff How quickly vacancy needs to be filledPaySkills, qualifications and experience neededLocal supply and demand for jobsImportance of job to organisationSize of organisation
35MethodAdvantageDisadvantageJob centresIt’s a free service.Not all the people that attend my have the skills WDP are looking for.Local newspaperJobs advertised will be specific to that area. So WDP may be able to recruit a local worker.Usually only advertise jobs one day a week.National newspaperHas the potential to reach a large amount of people.WDP will have to abide by strict laws concerning discrimination. Usually only used to recruit managers and specialist staff.Specialist magazinesWDP can target specialist staff i.e. dentists.Can be very expensive.Employment agenciesWDP can send details of vacancies to the employment agency who will match up any potential employees from their records of people who have registered on their books.WDP has to pay for the service to find the right candidate.Local radioA useful opportunity for WDP to advertise their business. WDP can reach a large number of people at one time.WDP adverts will only come on at certain time slots, people may not be listening.Networking meetingsCan save WDP a great amount of time and money.Word-of-mouth recommendation does not always mean the person can do the job.
36Selection stages that WDP will need to go through Receive application forms or CVs – to find out qualifications and experienceShortlist - by comparing applications with person specificationInterview – to judge qualities not possible to judge from written applicationsalso to give applicants a chance to find out about the WDP.- Could also include a test to find out whether candidate has key skills needed for the postCall for references – to check performance in a previous job or to check character
37MethodAdvantageDisadvantageCurriculum VitaesWDP can quickly get brief history of the applicants career, qualifications, experience and interests. They can quickly establish if they match her person specification.Sometime they are not honest and reliable.Application formWDP is able to collect the information that they want by designing the application form.They involve printing and posting costs for WDP.InterviewsIt’s can be a good way of finding out the persons reasons for applying for the job. John and Dee can ask questions regarding information to do with the job face-to-face. They can see their personality.Not always the most reliable method, it is difficult to check what the applicant is actually like or whether they are capable of doing the job.Aptitude TestsWDP can test the applicants skills in carrying out specific duties to do with the job.Involves a lot of time and preparation to set-up the newsletter or web page etc that they want the applicant to adapt or build.Letters of applicationWDP may get an idea of the applicants personality and written communication skills.Sometime they are not honest and reliable. Takes time to read.ReferencesWDP will get a written account of the applicants personality, time-keeping, honesty, reliability and work.Reference may not be always totally be honest and reliable.
38Why is it Important to Have a Good Recruitment and Selection Process? It is important for WDP to have a good recruitment process for the following reasons:John and Dee can make sure that she employ’s the best person for the job. This person should in-turn bring new ideas into the practice, and help them towards achieving their overall business aims and objectives.
39Exam Question 1WDP are growing. As a result John and Dee decide to recruit new members of staff.Explain the stages they will go through in recruiting and selecting new employees (4 marks)
40Exam question 2WDP need to recruit a new sales team. Identify and evaluate suitable methods of:recruiting and selectingTrainingMotivatingThe new team (12 marks)
41Exam question 3WDP has to advertise for a new member of staff to work at the business. They must choose one of the following to advertise for the new member of staff:A free weekly paper that serves the local town.Local radioICT related professional journal/magazinesJob Centre1. From the list choose a suitable source to advertise for the new member of staff. Give one reason for your choice (2 marks).2. Suggest one disadvantage to WDP of using the source you have chosen (1 mark).
42Employment Legislation WebDesPixEmployment LegislationHow the law will affects the way WDP recruits and selects staff
43Keywords:Discrimination – When you don’t give someone a job or treat them differently because of their colour, sex, or race.
44Sex Discrimination Act What the Act says: It is illegal to discriminate against anyone because of their sex or marital status.How this will affect WDP: When advertising a vacancy John and Dee must be careful with the language and wording used in the advert. When selecting the best candidate for the job they cannot be seen to be choosing the candidate based on their sex or martial status. They should also not promote, train, or dismiss any of their staff on these grounds.
45Race Relations ActWhat the Act says: It is illegal to discriminate against someone on the basis of race, ethnic group or colour.How this will affect WDP: When advertising a vacancy WDP must be careful with the language and wording used in the advert and must not show preference to a particular ethnic group. When selecting the best candidate for the job John and Dee cannot be seen to be choosing the candidate based on their ethnic group. They should also not promote, train, or dismiss any of their staff on these grounds.
46Equal Pay ActWhat the Act says: An employee who does similar work as someone else of the opposite sex is entitled to equal rates of pay and conditions. Men and women should be given equal pay.How this will affect WDP: WDP must pay all their staff that do the same job i.e. the 2 sales assistants, the same amount of pay regardless of their gender.
47Disability Discrimination Act What the Act says: It is unlawful to discriminate against a person on the grounds of disability.How this will affect WDP: When advertising a vacancy WDP must be careful with the language and wording used in the advert. When selecting the best candidate for the job John and Dee cannot be seen to be choosing the candidate based on a disability they may have, as long as the disability will not affect them from carrying out the job. WDP should also not promote, train, or dismiss any of their staff on these grounds.
48Exam question 1Advise how the following acts will influence how John and Dee writes the job advertisement and carries out the selection process:Race relationsSex discriminationsDisability discriminationEqual pay(8 marks)
49Benefits and drawbacks of WDP using probationary periods as part of the recruitment process
50What is a probationary period? A trial period for new employees, prior to their employment becoming permanent. Up to a maximum of 90 days.
51Advantages and disadvantages of WDP using probationary periods Evaluation – WDP can evaluate the employee performance before making them permanent. Less risk.Termination – WDP can terminate the employee without repercussion.Resignation - On the flip side, a disadvantage of probation period is that an employee can resign at will, leaving the WDP with an unexpected vacancy.
52QUALITY OF SERVICE / CUSTOMER CARE IN BUSINESS? WebDesPixQUALITY OF SERVICE / CUSTOMER CARE IN BUSINESS?
53WDP want to make sure their staff provide a quality service What quality programmes could they put in to do this?Set up their own training prog at work – to set basic standards – diplomas for staff gaining levels + bonusTQM – Total quality Management, everyone involved in keeping an eye on qualityQuality Circles – groups of employees looking after different sections and making sure quality is goodKaizen – (Japanese concept) continuous improvement on a day to day basis
54MARKETING THE BUSINESS? WebDesPixMARKETING THE BUSINESS?
55WDP say they are market orientated what does this mean? Market Research : Primary – questionnaires Secondary – using reportsFocus groupsTelephone surveys / questionnaires from customer data baseCheck out what their competitors are doingGoing to exhibitions for web design companiesHow then can they make sure that they provide what their customers want? Give ways of doing this
56USE OF TECHNOLOGY IN BUSINESS WebDesPixUSE OF TECHNOLOGY IN BUSINESS
57Websites What can WDP use the Web for: Marketing all their products – creating awareness of their services.Advertising their servicesing - communicating with its customers.
58E-commerce What is e-commerce? E-commerce means to sell products or services over the internet.What can WDP use e-commerce for:Customers can order WDP products online and pay for then using their credit or debit card. Once paid for WDP will forward them their design package e.g. web page, facilities etc.
59Benefits of WDP using e-commerce Advantages:WDP can sell products anywhere in the world, thus increasing their market share.WDP can reduce costs as the cost of downloading information on their services is paid for by the internet user not WDP.There is no need for WDP to hire a large sales team as most of the sales take place over the net.
60Exam QuestionWhat are the advantages to WDP of communicating electronically via the website, and e-commerce? 6 marks
61Sources of finance that WDP can use to help achieve their objectives Market all products on line.Increase the use of e-commerceSurvive within a competitive market
62USE OF E COMMERCE IN BUSINESS WebDesPixUSE OF E COMMERCE IN BUSINESSE-commerce What is it?
63Using E-commerce gives businesses access to customers all over the word. This is known as ‘The global market’ which is reached by means of a website.Think of examples of websites you or your family frequently use to make purchases.
65What do you think are the advantages for businesses of using e-commerce?
66Advantages of e-commerce for a business Access to the global market means the business will be better knownA business using e-commerce can get ahead of its rivalsIncreased sales, leading to increased profitSavings on expensive showroomsReduced advertising costsIncreased sales leads to ‘economies of scale’Business is open 24/7
67What do you think are the advantages for customers of using e-commerce?
68Advantages of e-commerce for customers Customers have a huge range of goods to choose fromThey can ‘shop around’ the ‘web’ for the best bargainInternet prices are often lower than in shopsCustomers can shop from the comfort of their own home ’24/7’
69What do you think are the disadvantages for businesses of using e-commerce?
70Disadvantages of e-commerce for a business Being part of the global market means the business is in competition with lots of othersDesigning and keeping the website up-to-date is expensive and requires specialistsMarket research needs to be very detailed to meet the needs of customers in such a wide marketPacking and distribution of products can be very costly and involve long distancesNot all the businesses target customers have access to the internet.
71What do you think are the disadvantages for customers of using e-commerce?
72Disadvantages of e-commerce for customers Customers need to own or have access to a computer and be on-line and know how to use the Internet.It is not easy to assess the quality and suitability of many products on the screen.Inconvenience of returning unwanted goods.Customers usually have to have a credit card to make Internet purchasesSecurity risks of buying on-line
73Things to think about! One of WDP’s objectives is to expand the use of e-commerce on its ownwebsite.Evaluate this decision. (12 marks)
74HOW CAN WDP RAISE FINANCE? WebDesPixHOW CAN WDP RAISE FINANCE?
75Why does WDP need to raise finance? In order to raise finance to achieve their objectives for 2009 WDP will need to raise finance. This can come from both internal and external sources.Internal sources = re-invested profits, share capital.Short-term external sources = overdraft and loans.
76What is an overdraft?An overdraft is when a business draws more money from its bank account than it currently has in its account through an agreement with the Bank.Advantages of use:WDP can borrow money when needed.Interest is only paid when the money is taken out.Disadvantages:Banks can insist that It can be repaid immediately.
77What are loans?A loan is a sum of money borrowed from a bank. The loan has to be re-paid in fixed monthly instalments.Disadvantages of use:Interest is payable on the loan.Banks may require WDP to provide security or collateral against the loan. Which means the bank will sell some of WDPs assets (things which it owns) if it fails to make the payments.Can be affected by a raise in interest rates.
78How could a change in interest rates affect WDPs loan or overdraft repayments? What are interest rates?Is the percentage that is charged for borrowing.High interest rates: Will mean that the charge for borrowing money will be high. WDP will have to pay a lot of interest on top of its borrowing.Low interest rates: Will mean that the charge for borrowing will be low. WDP will have to pay back less interest on their borrowing.
79Illustration of interest rates If WDP borrowed £8000 from the bank in the form of a short-term loan, in order to increase the use of e-commerce, with an interest rate of 5%.How much would WDP need to pay back to the bank in total?If interest rates increased to 9%. How much in total would they need to payback to the bank.£8400£8720
80Exam questionWDP are considering approaching the bank for a bank loan as additional finance to help them achieve their objectives.Discuss the advantages and disadvantages of this decision. 6 marks.2. Outline the affects on WDP if interest rates increase during the year they have taken out the bank loan. 4 marks
82MotivationMotivation in practice is all about, how firms get the most out of their employees at work. The terms explained below are just some of ways in which business motivates 'in practice'Job enlargement - means increasing the scope of the job. Could be increasing the workload (job loading) more of the same or giving people more responsibility (job enrichment).Job enrichment - increasing the amount of responsibilities workers have. Giving workers a range of responsibilities and tasks, a complete unit of work, responsibility for quality and self-checking and opportunity to show their responsibility.Job rotation - proving a range of activities to decrease the boredom.
83Motivation in practice – cont.. Team working - the attempt to maximise worker satisfaction by organising employees into teams. Characteristics of teams might include multi-skilling, self-checking, autonomous worker groups (Kaizen, quality).Empowerment - gives workers the authority to carry out the task, how the want to carry that task out and what the task should be. By empowering workers they are given more control over their working lives and greater responsibility. This method involves delegating power away, it is therefore not such a good idea if control is important.
84Motivation: Financial and non-financial incentives PieceworkWorkers paid per unit. Piecework encourages workers to produce more to meet targets and therefore might result in poor quality products. This form of payment might therefore not suit everyone and is not conducive to teamwork.Performance-related payPeople's pay is related to how well they perform in their jobs. Often this is related to appraisal system. People might be awarded anywhere between 0-7% depending on how well they've performed and met their targets. This method of pay could be open to abuse by managers and how can you measure the performance of some workers e.g. teachers, policemen, nurses etc.?
85PRAISE RECOGNITION PROMOTION To make sure B&R’s staff provide a quality service/product they’ve got to be motivated! Draw a diagram of Maslow’s & Herzberg’s theories + what are they called?SELF ACTUALISATIONSTATUSSOCIALSECURITYSURVIVALMASLOWPRAISE RECOGNITION PROMOTIONPAY CONDITIONS
87How does WDP use Commission? Commission jobs pay you on the amount of sales you create. WDP pay part commission and part wage to two of their sales staff. The commission is paid on the amount of sales made for WDP services/products. The more the sales assistants sell, the more money they will get as "commission“. Therefore there is no end to how much they can earn in a commission job.
88Advantages and disadvantages of WDP using commission as a method of payment It’s a form of motivation for their employees to really try and sell WDP’s services/products.Is a strong indicator of employee productivity.Can also act as a de-motivator if no sales are made.Sales people may cut corners to make sales (e.g. not explain WDPs products or services in enough detail to potential customers).
89Non Financial package (fringe benefits)? To keep the Staff motivated WDP need to have different incentive packagesBenefits?Non Financial package (fringe benefits)?PENSION SCHEMESDISCOUNT ON USE OF LEISURE FACILITIESFREE BUS SERVICE TO WORKFREE CAR PARKINGSUBSIDISED CANTEEN MEALSFREE UNIFORMMANAGERS MAY GET EXTRAS SUCH AS: - HEALTH INSURANCE- COMPANY CAR- SHARE OPTIONS
90HOW CAN THE GOVERNMENT AFFECT THE ACTIVITIES OF WDP? WebDesPixHOW CAN THE GOVERNMENT AFFECT THE ACTIVITIES OF WDP?
91Change exchange ratesAs WDP are an internet company they have a potentially national (if not global) market. If WDP sell their products/services abroad they will need to consider the affect that a change in exchange rates will have on their business:A fall in value of the £ – will mean that WDP products/services will seem more attractive to overseas customers as they will be cheaper. More sales.A rise in value of the £ - will have the opposite effect on WDP.
92Change in interest rates Cost of borrowing: if WDP decided to take out a loan the interest charged on the sum borrowed will affect their costs. A rise in rates will mean that WDP costs will rise as they have to pay back more interest on their loan and visa versa.Consumer spending: A rise in rates will cause consumers to cut back spending on ‘non-essential’ items such WDP products/services and vice versa.
93The effects of good and poor communication on WDP WebDesPixMETHODS OF COMMUNICATIONThe effects of good and poor communication on WDP
94What methods of communication do WDP use to communicate? Starter question:Identify which methods of communication WDP use to communicate. Separate these into Oral, written and electronic methods.List the advantages and disadvantages of WDP using each of these methods to communicate.
95Benefits and drawbacks of using Email Messages can be keyed in and stored until needed.People can keep in touch easily.One message can be sent to a number of different people at the same time.Can be printed outAttachments.Messages can be saved.DrawbacksUsers need a modem and computer and provider.Connections can be lost.Users have to check their mail regularly.Server problems will affect communication.Easy to delete messages.Messages can be intercepted – not good for confidentiality.
96Benefits and drawbacks of WDP using video conferencing Save people travelling to meetings (John).Face to face communication.Saving cost and time.DrawbacksLinks may not be good.Hardware is expensive.Everyone needs to be available at the same time.
97Benefits and drawbacks of WDP meetings Everyone gets the same information.Issues can be discussed freely.Feedback can be given and received, immediately.Problems can be sorted quicklyDrawbacksIn large meetings there is no way of checking that everyone is listening, or understood.Not everyone is always available.Not everyone has confidence to talk at meetings.Cost of travelling to meetings.
98Benefits and drawbacks of WDP using a computerised system to manage their finances. Speed – Can be used to create invoices, prepare budgets, produce quotations, keep track of travel expenses.Time saving – calculations can be made in a fraction of a second.AccuracyAdaptabilityDrawbacksComplexity – Use of FormulasSet-up cost – Buying hardware and software, cost of training, and updates.
99Benefits of WDP having good communication Ensures that action is consistent and coordinated.Encourages motivation – as employees feel they have a say.Jobs can be completed correctly and on time.Provides shareholders, directors and managers with information on which to base decisions.Provides feedback.Communicating with Staff? Daily morning meeting to discuss issuesNotice board/ newsletterUpdated via sSocial events (use of informal communication)
100Drawbacks of WDP having poor communication Orders can be lost.Poor motivationLoss of shareholdersIncreased workload – trying to mend errors.Poor business image.
101EXAM QUESTIONThe directors of WDP plan to use the internet to advertise their new product range. Discuss whether this is an appropriate method. (4 marks)2. WDP also communicates with interested people through its website, which has an facility.What are the advantages, to WDP, of communicating electronically via the website and .
103Cash FlowCash flow is the relationship between the money coming into a business and the money going out.Sales revenueOwn capitalLoansRentMaterialsWagesUtility BillsAdvertising
104Cash versus Profit Good cash flow does not mean profit! You may have enough money to pay the bills but if it is taken from loans or your own pocket it is not profit.Equally you can make a profit over a year but have times when there is a cash flow crisis.
105Cash Flow ForecastA cash flow forecast is a prediction of future cash inflows and outflows.Firms carry out cash flow forecasting to help them plan and manage their short-term finances.
106Uses of Cash Flow Forecasting Helps a business to plan ahead for future finances.Helps to identify potential problems and months when the business will have a cash shortfall. Firms can then make changes to improve cash flowA cash flow forecast will be needed to obtain finance such as a bank loan
107Managing Cash Flow A business needs to: Forecast cash flow Identify any future cash flow problems such as a deficitAnalyse the causeTake action to prevent a cash flow crisis
108What are the causes of cash flow problems? A fall in the number of customers (low sales)Giving customers too long a credit periodBad debts (customers not paying)Paying out for supplies, salaries etc before receiving revenue from customersLarge payments for bills e.g. electricity bills paid quarterlyPurchasing large pieces of equipment without sufficient funds.Seasonal demand
109Exam Focus: What cash flow problems is WDP likely to face? Paying out for staffing, supplies & overheads before receiving revenue from customers as it is likely to give customers a credit period.Bad debts – a possibility in the current economic climate.Purchasing pieces of equipment e.g replacing computers without having sufficient funds arranged
110How can cash flow be improved? Promote or attract new customers to get revenueObtain trade credit from suppliersReduce credit periods for customers or obtain deposits/part paymentsActively chase debtsPut off purchases of equipment or lease themSpread payments of billsArrange an overdraft facility.
111CASH FLOW Work out the cashflow figures JanFebMarchAprilMayIncome2000150025004000Expenditure3000Opening balanceClosingbalance10001500500(500)0001500500(500)0001000WDP’s bank account has a closing balance of 1000 in DecemberWork out the cashflow figuresAre there any problems, what do you suggest WDP does?
112Practice QuestionTom is responsible for dealing with the financial management of WDP. One of the ways he does this is by managing the cash flow.(a) Using examples of cash flow problems, explain how Tom could limit their impact.(8)
113FINANCE – FINAL ACCOUNTS WebDesPixFINANCE – FINAL ACCOUNTS
114The Profit and Loss Account Company AccountsAt the end of each year every company must complete its final accounts. These must by law include 2 accounts.The Profit and Loss AccountThis shows the sales revenue, costs and profit of the business over a one year periodThe Balance SheetThis shows what the business owns (assets) and what it owes (liabilities).
115Who is interested in the accounts? The government – for tax purposesShareholders – to check investmentBanks & creditors – to check the business is safeManagers – to help improve the performance of the companyCompetitors – to see how they compare
116Profit = Sales Turnover – Total Costs What is profit?The business makes a profit if the income from selling goods & services is more than the costs paid out in running the business. If the business cannot cover its costs it will make a lossProfit = Sales Turnover – Total Costs
117The Profit and Loss Account This shows how the revenues, costs and profits are recorded by the business.The Trading AccountThis shows how gross profit is calculated:Gross Profit = Sales Turnover – Cost of Sales
118Gross ProfitGross profit just shows how much profit is left after the variable costs have been paid. E.g. How much its making on its sales.The higher the gross profit the better the business is doing and the more money they have to pay off their expenses.
119The Profit and Loss Account This shows how net profit is calculated.Net Profit = Gross Profit – Expenses
120Net ProfitThe net profit is the real profit of the business it is what is left after the running costs/expenses/overheads for the company have been paid.The higher the net profit the more successful the business.
121The Appropriation Account This shows what happens to the net profit and how much profit is retained by the business for future use.Retained Profit =Net Profit – Taxation - Dividends
122Extract from WDP’s financial statement for 2006 Can you fill out the Full Profit & Loss account?SalesCost of Sales? ?Overheads ? ?Dividends Tax? ?Extract from WDP’s financial statement for 2006Turnover Expenses Fixed Assets Current Assets Current Liabilities Capital & ReservesGROSS PROFIT400NET PROFIT250Another name for Turnover?Which item would show WDP’s debtors?RETAINED PROFIT125List 3 expenses?
124Ratio AnalysisWe can use ratios to judge the profitability of the business.Gross Profit MarginNet Profit MarginReturn on Capital Employed (ROCE)
125The Directors of WDP, have asked their Accountant to work out some Ratios for them. Calculate the results£ £Sales Cost of SalesGross Profit ? ?Gross Profit ratio = Gross Profit x 100 = % Salesx 100 = %x 100 = %What is the Gross Profit for both Years? Calculate the Gross Profit ratio for both yearsWhat action should the Directors look to take?
126USES OF RETAINED PROFIT WebDesPixUSES OF RETAINED PROFIT
127What is retained profits? When a business makes a profit and it does not spend it, it keeps it - and accountants call profits that are kept and not spent retained profits.
128What can WDP use retained profits for? Retained profit is available to use within the WDP to help them to pay for:Marketing all products on line,Paying for e-commerce technologyPaying other costs that will allow them to survive.Retained profits are also kept for when WDP may have difficulties in the future, so they save them for a rainy day!Pay shareholder dividends
129Where can retained profits be seen ? WDP calculates its retained profit on their appropriation account. It is then shown on their balance sheet.WDP’s amount of retained profits can be seen on its balance sheet. This will be called shareholder equity. It is called shareholder equity (money) because retained profits belong to the shareholders and should have been paid to them in dividends.
130Benefits of WDP using retained profits to achieve their objectives rather than using other sources of finance.The use of retained profits avoids the possibility of a change in control resulting from an issue of new shares.Interest is not charged like on an overdraft or loan.WDP does not increase their amont of liabilities.
131Disadvantages of using retained profits Shareholder do not receive a dividend payment as they agree for dividends to be retained and ploughed back into the business.
132Exam QuestionWebDesPix Ltd have never used a bank loan and it is company policy to re-invest profit.Analyse the benefits to WebDesPix Ltd of taking this approach to expanding their business. (8 marks)