BTECTech Award

In EnterpriseComponent 3

Revision Booklet

In order to help you for February’s External Assessment (Exam) I have put together this

revision book with some sample questions from previous examinations.

Remember you get 1 hour to complete the examination and you will be completing it on paper.

Topics Covered Are:-Promotional Mix

Segmentation

Marketing Constraints

Financial Documents

Payment Methods

Costs

Revenue

Statement of Income

Statement of Financial Position

Profitability Rations

Liquidity Ratios

Cash-Flow

Break-Even

Sources of Finance

The Promotional Mix

These are the different ways in which a Business can reach their target Market. If they use it correctly it increases the chance of the customer

buying the product. But what are the members of the promotional mix:-

What is it called? What is it? Why is it good? Why is it bad?Advertising When you

communicate through the media about your product

to the customer

Can be very effective at reaching

a lot of people

Often very expensive

Direct Marketing Where the company communicates

directly with the customer either via e-mail or the post

Can send customers personalised offers that may be very

effective

Can be irritating

Sales Promotion Special offers to encourage people to

buy or buy more

Often works and attracts new customers

increasing sales

Cannot stay at this price forever as not

enough profit is made

Public Relations Where a business performs various activities such as competitions and sponsorship to get

into the mind of the consumer (but they are not advertising)

Cheaper than advertising and can create a very good

image for the company.

Often does not lead to a quick increase in sales as you are

not actually advertising.

Personal Selling Where a sales person assists and

encourage a customer to buy a product (either in person or over the

phone)

Can often help persuade customers who are not sure if they want to buy or

not.

Can be expensive as you have to pay an employee to do this,

also can become irritating.

EXAMPLE QUESTIONS:-

Tyler has found out that he could use direct marketing to attract and maintain customers.

(b) State two methods that Tyler could use to carry out direct marketing. (2)

1..................................................................................................................

2..................................................................................................(Points for Activity 2 = 6 marks)

Message and MediumThey like to ask you what these are, essentially the message is what the

company wants to tell the customer about the product and the medium is how they get the message across e.g. TV, Radio. For example here is a

question from last year:

Market SegmentationVery Basic, Essentially how you divide up a market so

you can target specific groups.This allows them to target adverts at the customers most likely to see

them and increase sales. The ways in which you can divide up a market are:

Example Questions:

Constraints on MarketingNot all Businesses can just market however they want, for example a local

Business cannot just advertise on TV because they could not afford it. Also a small Business would not know how to make a TV advert. The

exam board wants you to know how these different factors impact on a Businesses choice of promotion.

Example Question:

Financial Documents

There are several documents that are very important to the smooth running of a Business.

It is essentially they are kept correctly because not only do they help a Business keep track of their sales and costs to ensure they can make as such profit as possible. But also if they are inaccurate the Business may upset customers and lose them. The documents you need to know are:

Invoice A bill sent by a Business to a customer in order to ask for payment for goods/services

Delivery Note A note that is delivered along with the goods, explaining what products are in this

delivery and why some may be missingPurchase Order A document completed by a business and

sent to their suppliers detailing what they require in their next order

Credit Notes A credit note is the opposite of an invoice. It's a document you would give to a

customer if you want to reduce the amount that customer is going to pay you. Usually

because they have returned something.Receipt something such as a piece of paper or

message proving that money has been recieved

Statement of Account A document normally produced at the end of the year, showing what a customer has

bought, how much they have paid and what they may still owe.

Questions on these topics can range from why they are needed, to putting them in order and even completing them.

Example Questions:

Payment MethodsThere are several different methods that a person can

use to pay for different productsCertain businesses tend to use certain methods, for example if you need to make a regular payment e.g. phone bill they tend to use direct debit.

But please use the table to become familiar with all of them:

What is it called? What is it? Why is it good? Why is it bad?Cash Using the currency

of that country to pay for

goods/services

Instant and you do not have to pay any

interest on it

Can only spend it if you have it and there is security

issues with holding a lot of cash

Credit Cards This is a card where a person is able to

spend up to a

Can spend large amounts you do not have then spread

You have to pay it back with interest

and not everyone is

certain amount then pay it off over a period of time

out the payment. eligible for a credit card.

Debit Cards A card where the money is transferred from your account to the company.

Saves you having to carry cash and you can spend online.

You can only spend what you have and there are security

issues if you lose it.Direct Debit A regular transfer of

money from your account to a

Businesses, usually each month.

You don’t forget to pay and lose your service e.g. phone, also the customer

can cancel it anytime.

Will be rejected if there is no money in

the account

Payment Technologies

New technologies where you pay for products in ways

other than money or a card e.g. Google

Pay/Apple Pay

Very convenient and encourages people to buy as it is less effort and quicker

e.g. a coffee shop at a train station

Not all businesses have it as it requires

new equipment. Also can only spend

up to £30.

Example Question:

CostsDifferent Types of Costs

These can be split into different categories. Firstly on the amount of the costs:-

1. Fixed Costs:- These stay the same no matter what e.g. Rent2. Variable Costs:- These will go up or down if the business produces

more or less products e.g. materials, stock

Also costs can be categorised by how often you pay them:-

1. Start-Up Costs:- These are paid once, when the Business opens e.g. buying the initial stock

2. Running Costs:- These have to be paid each month when the business operates e.g. heating, lighting, rent

Finally you may have to calculate the total amount of costs a business has to pay:

Example Questions:

RevenueThis is How a Business Makes Money

Revenue is essentially how much money a business makes through selling a good or providing a service. You may get questions on the different

ways a business makes Revenue. For example:

Selling Goods Performing a Service

Someone Paying You Rent Someone Paying You Interest on a Loan

Or it could be asking you to calculate how much Revenue a Business has made:

 revenue = price x quantityExample Questions:

Key TermsBefore we go into the nest topic you need to learn the

following key termsNot only are they needed for the next few topics but also they love to ask

little questions just based on the understanding on these terms.:-

Example Questions:

Turnover is simply sales, and cost of sales are your variable costs that have been used to generate these sales, e.g. stock, materials.

Capital is money that is invested in the Business

Assets are things a Business own, Fixed stay in the company for a long time e.g. Building. Current are in the Business for less than a year e.g. Cash

Gross Profit is what you are left with when you take “cost of sales” away from sales, expenses are your other costs other than “cost of sales” (usually Fixed), when these are taken away you are left with Net Profit. Retained Profit is any profit a Business keeps holdof to invest in the future.

Liabilities are bills that a Business owes. Current have to be paid in the next year, Long-Term don’t have to be paid in the next year.

Debtors are people who owe you money and Creditors are people you owe money

Net Current Assets are what you have left of your Current Assets after you take away the current Liabilities

Statement of Comprehensive IncomeThis is document can also be known as a Profit and Loss

Account. It is a Document Produced Each Year to See How Much Profit or How Much Loss a business has madeIt starts with the sales and then subtracts the various costs until it is left

with the NET Profit at the end:-

You have two types of profit, so you can see which type of costs are going up and you can try and solve this to increase your final profit. Obviously

you could also sell more.

Example Questions:

Statement of Financial Position

You start with your sales

Then you take away the “cost of sales”, These are the costs of selling the product e.g. Materials, stock. Also known as Direct Costs or Variable Costs.Once the Cost of Sales have been taken away you are left with the Gross Profit.

You then take away your expenses, these are your other costs like rent. They don’t change so are fixed or also known as indirect costs.

What you are left with is the NET proft. The money you get to keep

This is a Document That is Produced Once A Year and shows the Value of The Business and How Much Has

Been Invested in it. It is also known as a Balance SheetThese two amounts should balance therefore it can be seen that no

money has gone missing from the Business. Also it shows the financial state of the company so that Businesses can see this before they choose whether to work with them. THIS IS WHY THE GOVERNMENT SAYS EVERY

BUSINESS SHOULD MAKE ONE ONCE A YEAR.

This is confusing, let’s break one down:

Therefore:-

But what should it balance with:-

Example Questions:

Profitability RatiosThese Are Used by a Business To Find Out How Efficient

They Are At Generating a ProfitThere are two you need to know:-

Gross Profit Margin: This examines the relationship between Gross Profit and Sales Revenue. Showing how much of the Sales Revenue is the company’s Gross Profit.

The formula is:

Gross Profit Margin = X 100Sales Revenue

Gross Profit

Net Profit Margin: Like Gross Profit Margin shows the connection between Sales Revenue and Gross Profit but this time looking at Net Profit. If the Net Profit Margin is 3% then for every pound made by the company 3p is the Net Profit.

The formula is:

Net Profit Margin = X 100Sales Revenue

Net Profit

ESSENTIALLY IF YOUR GROSS PROFIT MARGIN IS GOING DOWN IT MEANS YOUR COST OF SALES ARE INCREASING. IF YOUR NET PROFIT MARGIN IS DECREASING IT MEAN YOUR EXPENSES ARE

GOING UP.

Example Questions:

Liquidity RatiosThese Are Used by a Business To Find Out Whether They

Have Enough Money Available To Pay Their BillsBoth these ratios look at whether or not the business has enough assets to repay its current liabilities if payment was required immediately. If there are not enough assets to perform this they will run the risk of having to sell fixed assets.

Current Ratio:

Acid Test Ratio (a tougher test, used because if it was so easy to sell stock why hasn’t it been sold also if you have to sell stock quickly it wont be worth as much):

Current Ratio=Current Liabilities

Current Assets

Acid Test Ratio=Current Liabilities

(Current Assets – Inventories (stock))

ESSENTIALLY IF NUMBER YOU GET IS LESS THAN ONE THEY DO NOT HAVE ENOUGH MONEY TO PAY YOUR DEBTS, FOR EXAMPLE IF YOU GET 0.7:1 IT MEANS YOU HAVE 70P FOR EVERY £1 YOU

OWE.

Example Questions:

Cash-FlowThis Simply Means The Money Flowing In and Out of a

BusinessBusinesses create a Cash-flow forecast which predicts how much money

will come in and out of a Business each month.

It is useful because it:

Helps a Business get a loan Will show a business if they are going to have a lack of cash one

particular month

If they have a lack of cash one month there are three things they can do.

1. Get a loan or overdraft2. Delay paying a supplier

3. Collect money owed to you faster

Example Questions on the next page:

Break-EvenThis is the Point Where a Business Covers its Costs and

Doesn’t Make a Profit or a Loss.There are two parts of Break-Even you may be tested on. Firstly you may have to label or read the Break-Even point on a graph. Such as this one:

Or you may have to calculate the Break-Even amount from the formula:

JUST REMEMBER THE BREAK-EVEN AMOUNT IS ALWAYS IN PRODUCTS (NOT MONEY)

Example Questions:

Extra Example Question:

Use The Break Even Formula To Calculate How Many CD’s This Company

Has To Sell To Break-Even?

Answer:_______________

Sources of FinanceThese Are Where A Business Obtains The Money To Start

Up FromThese can be split into two categories:-

1. Internal:- Money raised from inside the Business e.g. Owner’s Funds, Sales of an Asset (something you own)

2. External:- Money from outside the Business, for example a loan/mortgage from a bank or a new investor.

Here are the main methods you need to know:-

Retained profits (Internal)

When a business is performing well financially, it may choose to reuse some of the profits it made in previous years to help fund development/ expansion projects.

Owners’ funds (Internal)

The owners of businesses often use their own savings to help them start up. It is common for two or three people to combine their money to start up a business.

Loans (External)

When a business needs a substantial amount of finance, it is likely to apply for a bank loan.

Advantages:

Advantages:

No interest costs to pay.

Disadvantages:

May not leave the business with a fair amount of funds to use if the project fails.

Advantages:

Avoids interest on loans. Owners keep complete control

of the business.

Disadvantages:

If the owners remortgaged and the business fails, they could loose their homes.

There is a limit to how much money can be raised.

Very quick Gives you access to a large amount of finance Often you can get advice from the bank

Disadvantages:

The interest rates are often high. Banks usually require security for loans in the form of assets which the business could lose if

it starts missing repayments. Banks do not take control of the business but they do ask for regular updates on its progress.

Government grants (External)

The British Government and European Union offer some financial assistance to help businesses which meet certain criteria, such as small businesses starting up, businesses in assisted areas or ones developing new technology.

Advantages:

You don’t have to pay it back No interest

Disadvantages:

Usually you have to do something that the Government wants e.g. opening in an area of high unemployment.

Hire purchase and leasing (External)

When a business cannot afford to buy assets outright, such as vehicles, machinery and equipment, it could choose to hire purchase or lease them.

Advantages:

You can buy expensive assets and spread the cost out over years

Disadvantages:

The company will be charging you interest until it will be fully paid off.

Venture Capital (External)

Venture capital businesses are large businesses which lend money to smaller businesses. The lender becomes a shareholder in the business. Their aim is for the business to grow rapidly over a 3-7 year period so that the share price increases. Then the venture capitalist would sell its shareholding at a profit.

Advantages:

You get the resources and advice from a much larger Business

Disadvantages:

The company will own a part of the business and will be taking a share of future profits.

Credit Card (External)

Businesses can get credit cards like a person can, they are very similar except they will have a much larger limit.

Advantages:

Allows the Business to get resources even if they don’t have cash available.

Disadvantages:

They will have to pay interest on the things they buy.

Trade Credit (External)

This is where your supplier allows you to pay later, maybe after you have sold the products yourself.

Advantages:

Allows the Business to get resources even if they don’t have cash available.

Disadvantages:

They may ruin their relationship with their supplier if they do not pay in time.

Example Questions: