LC Business Notes 2024 PDF

Leaving Cert Business Revision Notes for 2024 These notes are for revision, they are not exam answers, points mentioned in these notes should be expanded on in the exam and examples given where necessary. Not all definitions are exhaustive Please do not sell or claim these as your own wor...

Leaving Cert Business Revision Notes for 2024 These notes are for revision, they are not exam answers, points mentioned in these notes should be expanded on in the exam and examples given where necessary. Not all definitions are exhaustive Please do not sell or claim these as your own work Enjoy, Best of Luck  People in Business A business is an organisation set up to provide goods and services. ★ Commercial organisations try to make a profit ★ Social enterprises are not for profit organisations ★ Private sector businesses are individually owned ★ Public sector organisations are state owned Stakeholders are the different groups of people who are directly affected by how a business operates. Entrepreneurs: People who take the initiative to turn an idea into a business. They need the investor, the investor needs them. Investors: People who provide a business with the needed financial resources. The finance can come from: 1. Owner’s / equity capital: Money is exchanged in return for partial equity in the business. 2. Loan capital: Loans which need to be repaid with interest. 3. Grants: Gifts of money which doesn’t need to be repaid as long as certain conditions are met. Employers: Recruit staff. Their rights include: Hiring employees when needed Directing employees to work as needed Dismissing employees fairly (The Unfair Dismissals Acts 1997-2007) Their responsibilities include: Providing written contract of employment Paying wages as agreed Providing safe working conditions Complying with employment laws Employees: People recruited by the business to assist in return for a wage. Their rights include:  Written contract of employment Payment as agreed Working in a safe and healthy workplace Freedom to join a union Their responsibilities include: Following instructions as reasonable Doing a fair day’s work Being honest and loyal to their employer Managers: Are responsible for running the business and achieving its goals. They must plan, organise and control all aspects of the business and they must have leadership, motivational and communication skills. Producers and Suppliers: Producers must produce products, suppliers supply the raw materials. Consumers and customers: Consumers purchase goods and services solely for their own use, customers can sell them on again. Society: This refers to the local community nearby and the national and international society that the business has an effect on. Government: Local and national authorities that set the rules and regulations that businesses must follow. The government wants businesses to provide jobs, taxes and obey the law. In return, the government doesn’t really do anything. Interest groups represent stakeholders who share a common interest, they try to influence the decisions of others by lobbying, negotiations, boycotts, etc. Business Interest Groups represent the interests of the business: Irish Business and Employers Confederation (IBEC): represents small and medium sized businesses. It attempts to influence unions and national and EU governments on legislation, taxes and employee pay and regulation. It provides advice through the Small Firms Association. Irish Small and Medium Enterprises (ISME): Speaks and advises small-medium enterprises, not part of IBEC. Chambers of Commerce aim to protect + promote business in their local area. Trade Associations represent businesses in a similar activity: The Society of Irish Motor Industry (SIMI) The Food and Drink Industry Ireland (FDII) RGDATA (Independent grocery retailers) The Irish Farmers Association Other Stakeholder Interest Groups: Trade unions represent employees, example The Irish Congress of Trade Unions (ICTU) The Competition and Consumer Protection Commision (state owned) The Consumers Association of Ireland (private and not for profit) Other environmental and specialists interest groups, e.g. GAA Stakeholder Wants Offers in Return  Owners Money Ideas Control Goods and services Finance and support Employment Employees Taxes No risk Shares Interest (on loans) Investors Profit Finance Shares Advice Employers Reliable staff Pay and promotions Hard work Training Employees Pay and advancements Hard work Security Skills and reliability Suppliers Loyalty and Payment Supplies Customers Affordable quality Payment and loyalty Society Jobs and no damage Favourable public opinion Government Tax and law abiding Fair law, stability, Tax businesses breaks Grants, Advice, Services, Roads and Infrastructure A competitive approach is where a stakeholder relationship is win-lose. It is suitable when dealing with rival firms but can be unsuitable for stakeholders and the reputation of the business. A cooperative business approach is where stakeholder relationships are win-win. Stakeholder relationships can change over time. There’s also dependent relationships. Resolving Conflict: 1. Non-Legislative ways: Talk and try to negotiate Seek help from a third party such as a shareholder interest group, some organisations may provide arbitration (listen and recommend a solution). 2. Legislative ways: Use a state conflict resolution agency: Competition and Consumer Protection Commision Court, Small Claims Procedure, Labour Court Workplace Relations Commision 3. Use the Law: For consumer/business conflict: Consumer Protection Act 2007 Sales of Goods and Supply of Services Act 1980 For employer/employee conflict: Industrial Relations Act 1990 Employment Equality Act 1998 Unfair Dismissals Act 1997-2007  Resolving Marketplace Conflict A contract is a legally binding agreement that can be enforced in a court of law. Elements of a contract: 1. Offer: A contract must have an offer, this can be done verbally, in writing or by conduct (e.g. giving of money). An offer is terminated if it is revoked before acceptance, not accepted in time or rejected by the party. Items in a shop are defined as an invitation to treat, not an offer. For example, if a car is labelled as €19000, a customer can offer less. 2. Acceptance: Is acceptance without conditions, all acceptance of offers must be honoured. An offer can be accepted in the same ways it can be given. 3. Consideration: This is what a party agrees to give/do for the other party. It proves the existence of a contract. 4. Intention to Contract: There are 2 concepts that are assumed when making a contract. 1. That any business agreement is legally binding and 2. Any social/private agreement is not intended to be legally binding. 5. Consent to Contract: This means that there is genuine agreement between each party at their own free will. If a person is pressured, misinformed or can prove that it was a genuine mistake, the contract is invalid. 6. Capacity to Contract: You do not have the legal right to enter a contract if: You are under 18 You are intoxicated or unsound of mind at the time If a company acta ultra vires, by starting a contract to do with something separate from its legally stated purpose in its Memorandum of Association, the contract is invalid. 7. Legality of Form: Means that certain contracts must be drawn up in writing to be valid, e.g. hire purchase, property, insurance. 8. Legality of Purpose: A contract must be for a legal purpose and not break any laws. A contract can be terminated by: 1. Performance 2. Agreement to terminate 3. Frustration, this includes natural disasters, death, bankruptcy, etc. 4. Breach of Contract Essential elements of a contract include conditions, non essential elements include warranties. If a warranty is broken, you are entitled to compensation but the contract itself still stands. Remedies for breach of contract: 1. Rescind the contract (cancel) 2. Sue for compensation 3. Seek specific performance this means getting the court to order the other party to fulfil the conditions. Caveat emptor means let the buyer beware. It is a legal term that states a buyer must use a certain degree of common sense. If you have not used common sense, your complaint at court could be thrown out. The Sale of Goods and Supply of Services Act 1980: It sets out the rights of consumers, the responsibilities of retailers and the remedies available. ➔ The legal rights of consumers: Goods sold must be of merchantable quality, i.e., they must be reasonably durable to do their job even if they’re on sale. Goods must be fit for purpose intended. Goods must be as described. The buyer is entitled to legal possession and quiet possession. Services must be provided by a skilled person with due care and diligence. Any materials used must be fit for purpose. Consumers renting/buying on hire purchase have the same rights as someone who is paying cash upfront. ➔ The legal responsibilities of retailers: Retailers are legally responsible for any defects, even if it is the manufacturers fault. Retailers must respect the rights of consumers. Complaints about the product must be dealt with. Pretending to limit the retailers responsibility is illegal e.g. you can’t say that there will be no cash refunds. However, a consumer has no right to redress if it was their fault, if they simply changed their mind or if they did not act reasonably promptly. Product guarantees are an additional benefit and cannot limit the consumers rights. Written guarantees must be clear in: Goods covered Who is offering the guarantee Its duration Claims procedure Remedies offered Demanding payment for unsolicited goods sent is illegal ➔ Remedies available: Repair, which must be satisfactory Replacement Refund is legally entitled to the consumer if the goods are not fit for purpose or as not described. The Consumer Protection Act 2007: This protects consumers from unfair business-customer practices. It does not apply to dealings between businesses. Specifically, it: ➔ Prohibits false product description. ➔ Prohibits false prices, any goods that are marked as reduced in a sale must have been at the original higher price for at least 28 consecutive days before the sale. ➔ Prohibits false/misleading advertising.  ➔ Prohibits businesses from engaging in aggressive practices. The CCPC (Competition and consumer protection commission) is the state agency that promotes fair competition and protects the interests of consumers. It: Provides info and advice to the public on personal finance and their rights. Provides info and advice to businesses on their obligations. Advises the government on how to best achieve the commission's goals. Enforces consumer and competition law. They can legally enter a business to collect evidence, they can issue fines and they can bring people to court. Serious offences can be reported to the DPP. Publishes a Consumer Protection list of businesses found in breach of consumer law. Non-legislative ways to resolve consumer complaints: Talk, know your rights, ask to speak to the manager, if that fails, write a letter of complaint to the retailer. Bring proof of purchase. Seek help from a 3rd party: 1. The CCPC 2. The Consumers’ Association of Ireland, a non-commercial organisation set up to protect and promote the interests of consumers. Members pay an annual fee. They publish reports and surveys, highlight areas of problems, run an advice service and they lobby the government. 3. Trade associations 4. Financial services Ombudsman (for complaints with financial institutions). The decision of them is binding but it can be brought to court to seek a legislative solution. 5. The Office of the Ombudsman for the Public Service specialises in complaints against state-owned organisations. They are financed by the government but are apparently independent of them. They have no power to enforce a recommendation but the majority oblige with it to avoid bad publicity. If you want to contact them, you must first try to resolve the complaint with the body itself, then you can go to them within 12 months of the incident. Legislative ways to resolve complaints from consumers: Hire a solicitor: Any complaints too large for the small claims procedure should be brought to the district/higher court. The advantages of using the courts small claims procedure: 1. Faster 2. Cheaper 3. Accessible 4. Unbiased The disadvantages of using the courts small claims procedure: 1. Only deals with complaints to a limited value (€2,000) 2. Recommendation is not legally binding 3. If you are not happy, you will then still have to go through the courts.  Resolving Conflict in the Workplace -Industrial Relations refers to the quality of relations existing between managers and employees. Good industrial relations have benefits like: ➔ Easier recruitment and retainment of staff ➔ Low levels of absenteeism and labour turnover (resignation) ➔ More productive staff ➔ Few industrial disputes, any conflict between workers and employers. Causes of industrial disputes: Pay and pension Working hours, holidays, health and safety, working conditions Introduction of new tech/practices that may threaten jobs Redundancies/dismissals Discrimination Industrial relations can worsen by: ➔ Poor communications ➔ Unrealistic/demanding employees/employers ➔ Aggressive behaviour or autocratic managers who don’t listen to their employees. ➔ Lack of trust Good industrial relations can be promoted by: Good wages and conditions Open communication Keeping promises and building trust + respect Treating staff fairly Having a good grievance procedure that is simple fair and quick Ensuring dismissals are fair -Trade Unions: Benefits to employees: ➔ They seek to protect rights of employees ➔ They look for better pay and conditions ➔ They negotiate on behalf of the employees ➔ They give advice and provide a national voice through the ICTU Benefits to employers: They simplify communications saving money and time The ICTU: This is a body that speaks for all unions in the ROI. They act as a negotiator with dealings between workers and the government/EU/employer organisations such as IBEC. They promote the benefits of union membership and resolve disputes between different unions. They also provide training, education and research for unions and their members. -Pay and Working Conditions: Pay is negotiated by different types of claims: ➔ A cost of living claim ➔ A comparability claim (e.g. Dunnes and Lidl) ➔ A relativity claim, (e.g. if shelf stackers get a rise, checkout personnel might want a rise to maintain their higher rate of pay) ➔ A productivity claim Local Pay Bargaining where pay is changed in an individual firm. This can be done individually or collectively among employees. National Pay Bargaining is usually negotiated between the main social partners (e.g. the government, IBEC and ICTU. Social Partnership is where these partners agree on national pay and conditions. The Industrial Relations Act 1990: Sets out rules concerning industrial disputes and strikes They must be legitimate trade disputes. This includes pay, conditions, duties, dismissals, union recognition or employment policies. It is illegal to strike over how a business is run or for political issues. Unions must hold a secret ballot which members must be fully informed of and given reasonable opportunity to vote. A majority is required to strike. Unions must give at least a week's notice before a strike. Employees have immunity from suing by the employer from loss of earnings. Unofficial disputes have no union/ICTU support, they are illegal. They are not immune from being sued by the employer. A wildcat strike is where a strike occurs with little/no notice. They usually flare up quickly and are resolved quickly. Primary Picketing of the employer’s workplace is legal so long as it is peaceful. Secondary picketing of another organisation not involved in the dispute is illegal unless there is reason to believe that the second employer is assisting the first to frustrate strike action. The WRC is the state organisation that provides industrial relations information and assistance with disputes. Types of Industrial Action: ➔ Token Stoppages stopping shortly to demonstrate their strength of feeling. ➔ Work to Rule employees do the very basic required and no more to still be paid. ➔ Go Slow employees do as little as possible and as slowly as possible while still being paid fully. ➔ Overtime Bans ➔ Strike no work no pay. ➔ All out Strike The ICTU orders all union members to leave the premises (usually a sign of a very serious strike) Consequences of Industrial Action: Business: Operation and profit disruption, reputation ruined, recruitment and retention becomes more difficult, time is diverted to resolving the dispute instead of running the business. Employees: Wages and savings are lost, job security is down, if the strike fails union confidence decreases. Customers: Inconvenience, severity depending on the service provide (e.g. electricity) Suppliers: Loss of sales and profits Investors: Reduction in dividends (payment) and undermining ability for the firm to pay interest on loans. Economy: Loss of wages, less money in the economy, substitute products may have to be imported which may make Irish jobs redundant. Government: Loss of VAT, tax and corporation tax. Worsens Ireland’s reputation for businesses. Organisations to help resolve Industrial Disputes: The WRC: ➔ Promotes good industrial relations ➔ Promotes compliance with law ➔ Provides practical advice in resolving disputes 1. The Industrial Relations info Service: Provides info and answers questions in relation to employment rights and responsibilities and industrial relations matters. Offers guidance to firms drawing up Codes of Practice voluntary rules for solving industrial disputes. 2. Dispute and Strike Resolution Service: Provides conciliation (assistance in negotiating) and arbitration (recommending a solution). The conciliation services can be requested online via a form by the employee/employer and this usually resolves the dispute. However, the WRC’s recommendations are not legally binding and can be appealed to the labour court. 3. Grievance Resolution Service: This service helps solve grievances by employees, who can request it by an online form. When both sides agree, the WRC will come on site and recommend a solution which again, is not legally binding. All cases are held in private. 4. Investigation of Compliance with Employment Law: They can carry out unannounced visits to the workplace and employers found to be breaking the law can be prosecuted. The Labour Court’s Appeals Services: A WRC recommendation can be appealed here. This is the court of last resort for industrial disputes and its decision is legally binding. -Redundancies and Dismissals: Dismissal sacked due to incompetence, dishonesty or breach of company discipline. The Unfair Dismissals Acts 1997-2007: (mainly with employers employed over 1 year) A dismissal is fair if: ➔ The employee was incompetent/incapable of working to an acceptable standard ➔ The employee’s conduct was unacceptable ➔ The job has become redundant, employees with more than 2 years of employment are entitled to a minimum lump sum dependent on their time and the business and their pay at the time of the redundancy. ➔ Voluntary redundancy is sometimes offered. They usually have cash incentives and possibly early pension payments. Compulsory redundancy is where the employee must leave. ➔ The employer can confirm that a fair procedure was followed before dismissal, for example: ◆ Inform the employee of concerns ◆ Provide advice and support to improve ◆ Give a formal verbal warning ◆ Issue a first written warning ◆ Issue a second written warning/demote/suspend/dismiss the employee. *In situations of serious misconduct (theft, violence, etc.) the employer can dismiss immediately without warning but they need to prove that it was justified. A dismissal in unfair if: ➔ Procedure was not followed by the employer ➔ Proof of incompetence, conduct, etc. was not given ➔ Proof of redundancy was not given ➔ If constructive dismissal was present. Where the employer bullies an employee out of their job. In this case it is important for the employee to prove their resignation was justified. ➔ The employee has been employed for any period of time and are dismissed for: ◆ Maternity, paternity, adoptive, carer’s leave ◆ Joining a trade union/striking ◆ Complaining about breaches of minimum wage law ◆ Their age (once they are between 16 and 66) ◆ Their religious/political views ◆ Their race, colour, gender. Before dismissal, an employee has the right to : Ask why, and have a right to reply to the reason(s) To have a fair hearing and to be accompanied by a rep. Penalties for unfair dismissals: Financial Compensation up to 2 years pay. Reinstatement with compensation for lost earnings.  Re-engagement in the same/similar job with no financial compensation. This usually happens when an employee contributes to their own dismissal. If a valid complaint is made to the WRC, they will send a mediator, if this is refused by both parties, they will make a legally binding decision to throw out the complaint. The decision may be appealed. -Conflict over Discrimination: Discrimination: Where one person is treated less favourably than another is, has been or would be treated. The Employment Equality Act 1998: It is illegal to discriminate on the basis of: Gender Marital Status Family Status Age (so long as between 18-65) Race Disability Religious Belief Sexual orientation Travellers The law covers applicants to a job, any employee and any customer Legislative ways to resolve discrimination: The WRC’s arbitration/conciliation services. Non-Legislative ways to resolve discrimination: Talk Seek help/advice from third parties  Entrepreneurs and Enterprise -Enterprise is any attempt to start/do something new. An Entrepreneur is a person who has the initiative and takes the risk to start an enterprise. Enterprise can be seen in business (Today FM), at home (DIY), at school (TY Mini Company), in the community (Social enterprises, GAA) or in the public service, where the government is the entrepreneur (Coillte, ESB, Fáilte Ireland) -Intrapreneurship: Entrepreneurship in the workplace Examples: The Playstation was an idea by a Sony employee and was released in 1994, thought of by Ken Kutaragi. The same was for the Xbox. Dreamworks Animation provides its animators with free script writing classes so they can have a chance at becoming a film writer, Ways to promote intrapreneurship include: Giving people greater freedom and personal responsibility in their work Make an environment where it is ok to make and learn from mistakes Reward intrapreneurship Encourage teamwork Provide training in creativity and intrapreneurship Benefits of intrapreneurship for businesses: New Products Business Growth/Profit Motivates workforce Greater Productivity -Rewards and Risks of Entrepreneurship: Rewards: (Why might someone want to be an entrepreneur) ➔ Independence ➔ Personal Satisfaction ➔ Income ➔ Creativity and new challenges ➔ (Redundancy forces them to work for themselves) Risks: ➔ Loss of money ➔ Loss of time and effort ➔ Stress and worry -Personal Characteristics of an Entrepreneur: 1. Confident and proactive, i.e. they do it instead of thinking about doing it. The opposite of reactive. They are future focused. 2. Determined and motivated, they work very hard and are resilient when things go wrong. 3. Innovative and creative. 4. Realistic Risk Takers. 5. Decisive but flexible, i.e. quick to make decisions but also learns from mistakes. -Learned Skills of an Entrepreneur: 1. Identifying opportunities 2. Setting goals and plans 3. Stress management 4. Learn to get along with others, i.e. social, communication and listening skills. -Importance of Enterprise: Entrepreneurs Personal Satisfaction Business Promotes profitability Intrapreneurship is encouraged Society Creation of jobs Encouragement of creativity National self confidence, belief in yourself Charities provide valuable aid Government gets taxes  Intro to Management Strategic goals are long term (5-20yrs) Tactical objectives are short term (1-5yrs) - Management is the ability to achieve results through people. - Managers are those specifically responsible for achieving the objectives set out for the business. Management Skills Management Activities Leadership Planning Motivation Organising Communication Controlling -Relevance of Management: ➔ At Home: Parents will manage the house using all of the above skills and activities. ➔ In a Business: A business needs good management to succeed. ➔ In Schools: A principal will manage a school, a teacher a class. ➔ In the Community: Events, games, sports and groups all need appropriate management to go ahead. ➔ In the Public Service: Politicians, TDs, ministers need all of the above skills and activities, most notably leadership and communication skills. -Personal Characteristics of Managers: ➔ Problem Solvers: They break down problems into small copeable parts. ➔ Decisive: They make decisions and set goals quickly but are ready to be responsible for these decisions and goals. ➔ Good with People: They must provide leadership and clear direction. ➔ Confident and Inspirational: This builds an effective workforce and confidence. ➔ Good Communicators: Direct people but also listen to them. ➔ Good Time Management: Delegate work so not to waste time or get stressed. AREA ENTREPRENEURS MANAGERS Ideas and Creativity They have ideas and Less creative with little time initiative to start new things for new ideas. More routine and prefer to put their work energy and time into this Personal Risk Taking They sacrifice their own time No personal risks. They’re and finance operating alone employees usually with no or with a few partners ownership Managing Day to Day Thrive on the excitement of Work is more routine and Business something new but get structured. Delegating work bored with the day to day. is important for time Often unwilling/unable to management delegate decision making  Intro to Management SMART Specific, Measurable, Achievable, Realistic, Time Based.  Leadership and Motivation: A leader gives direction by guiding people towards achieving goals. Leadership is the ability to influence others to go in a particular direction and achieve a particular goal. It involves: Providing direction via communication and clear instruction ensuring that everyone knows what they are doing and how to work together to do so. Influencing Corporate Culture, (the feeling/atmosphere in a workplace) Motivating, being aware of the factors that influence productivity. Setting an example, giving respect to the leader. Delegation, Giving authority for carrying out work to others. Delegation: Advantages Disadvantages More time, less stress for managers Staff mightn’t be able to do it Staff gain experience, skill and flexibility Staff may outperform managers Work is done faster No delegation will result in more stress, less time and poor decision making. A manager can delegate but still takes responsibility. Delegation can only happen if: 1. The employees are trustworthy and responsible 2. There’s a good control system to reduce mistakes 3. The manager has the foresight to see the benefits of delegation An autocratic leader (or authoritarian) doesn’t like to share power or decision making power, they like to do it themselves. This may work sometimes but usually does not. Example, Steve Jobs. A democratic leader is willing to discuss issues with staff and delegate power and responsibility. It is common. Example, Bob Geldof. A laissez-faire leader (or free rein or spectator) gives staff a general goal or target to aim for and lets them do it how they want to. Example, Richard Branson. Autocratic Democratic Laissez-faire Trust Little of it Trustful Complete trust Delegation Unwilling Readily do so Always Listening Ignores Always Always Communication One-way, orders Listen then instruct Little Persuasion Uses authority Through reasonable Authority reasonable arguments arguments  Advantages Disadvantages Autocratic Quick decisions, work done Stress on manager as the manager wants, Unmotivated staff suitable when discipline is Lack of trust, I.R conflict critical, very good in a crisis. Democratic Better quality decisions Slower decisions which can More time, less stress be bad if too many opinions Loyalty and good I.R are taken aboard Intrapreneurship Laissez-faire Speedy decisions by staff Staff may be stressed if not close to the issue able to handle responsibility Motivates Poor or reckless decisions Intrapreneurship due to lack of supervision Motivation is the willingness of people to work hard and to contribute their best effort. A motivated workforce can lead to: Increased Productivity Intrapreneurship Improved I.R. Easy recruitment and retention Repeat business from happy customers Maslow’s hierarchy of needs: His theory of motivation states that all human needs can be arranged in a hierarchy in order of their importance. We begin with the most basic needs and once it’s satisfied, we move on to the next relevant one, each becoming more complex and more psychological. However, if the basic needs are not met, one will remain unmotivated regardless of any higher needs met. Advantages of Maslow’s: 1. Recognises that motivation comes not only from money. 2. Sees that different people are motivated by different things at different times. 3. Gives leaders an understanding of the different types of motivation. Disadvantages of Maslow’s: 1. People are much more complex, everyone’s motivation varies. 2. People do not seek to just satisfy one need at a time then move on to the next. McGregor’s Theory of Motivation: This one says that managers can either have an attitude x/y in terms of their way of motivating staff. Disadvantages of x: Advantages of y: Reduced motivation High motivation Less creativity More creativity Poor reputation Better business reputation Higher staff turnover Lower staff turnover Reduced profitability Better I.R. Increased profitability  Communication: Communications refer to the transfer of information between people. It can be written, physical, verbal or visual. Formal Communications pass through the approved channels of communication Informal Communications/Grapevine refers to the informal communication existing within every organisation/business. Managers need the following skills to communicate effectively: Speaking Clearly Listening Giving and receiving feedback Clear and concise writing The ability to read and understand communications The ability to select the best medium for communicating Effective ICT (Info and comm techs) use Sender Message Receiver Feedback Sender Managers spend about 90% of their time communicating with different stakeholders. Importance of Communication between Internal Stakeholders: ➔ Manager-Employees - Needed to ensure the right work is done on time and up to standard. ➔ Manager-Manager - To ensure that they all have the info needed to make good quality decisions ➔ Management-Investors - To ensure accurate information about the financial performance of the business to ensure continued trust and investment. Importance of Communication between External Stakeholders: ➔ Business-Customers - To be informed of new developments and to solve problems, resulting in loyal custom. ➔ Business-Suppliers - To make sure the company’s needs are met and any delays are communicated. ➔ Business-Gov - To apply for grants, lobby for change and reporting breaches of law. ➔ Business-Society - Good public relations will result in a good image for the company. Communication Medium is the actual method used to send the message/data. External Communication: communication with external stakeholders, ex. Advertising, letters/social media or calls. Internal Communication: communication between staff, ex. Emails, meetings, memos. Communication Channels: the routes which info flows between people. ➔ Upward communication, up in the hierarchy ➔ Downward communication, down in the hierarchy ➔ Horizontal communication, through people of same level Advantages and Disadvantages: 1. Written: Permanent, can be studied, no memory needed, fast No instant feedback, mightn’t be private, can be overwhelming 2. Verbal: Quick and Instant, Misunderstanding can be fixed fast, personal understanding quick No proof, may be incorrect, some don’t listen, can be forgotten 3. Visual: Easy to understand/remember, good for stats, clear message, impactful, quick Needs support of other type, takes time to prepare Meetings: Where 2+ people get together to communicate with each other. Reasons: ➔ To provide/pass on information ➔ To discuss an issue ➔ To decide Types of Meetings: ➔ Formal: structured and planned, usually with chairperson and secretary ➔ Ad-hoc meeting: short notice, usually to deal with an issue ➔ Board meeting: Where directors plan, decide and review, usually monthly ➔ AGM: All shareholders, board elected, decisions made and questions asked ➔ EGM (Extraordinary): Where an important issue/emergency needs to be discussed before the next AGM. Chairperson: Responsible for the correct running of a meeting. Should be impartial, tactful and clear. Duties: ➔ Set and follow agenda ➔ Open the meeting and assure any quorum is met. ➔ Ensure standing orders are agreed and points of order are answered. ➔ Facilitate communication and keep order. ➔ Call for votes where necessary (they have casting votes). ➔ Close meeting. Secretary: Responsible for notifying participants in advance about the meeting, takes minutes. They should be organised, good at summarising and have good language skills. Duties: ➔ Organise venue, facilities and equipment. ➔ Send out notice. ➔ Record minutes. ➔ Support chairperson and deal with any correspondence. Document at a Meeting: 1. Notice: sent to everyone supposed to attend, usually with a copy of the agenda. 2. Agenda: summary of items to be discussed, should be relevant with most important issues at the top. Minutes must go first Chairperson’s report 3rd Auditors’ report 4th A.O.B. last 3. Minutes: summary of events at meeting, should match the agenda. Differences of a club’s AGM: They are non-profit organisations. Paying members, not shareholders. Management committee, not board of directors. Subscriptions, not investments/shares. Slightly different agenda, treasurer’s report not auditors’. Advantages of Meetings: Clarity due to noticeable tone, body language and additional emphasis. Rapport, a positive relationship between participants can be achieved. Speed, much quicker than a chain of letters/emails. Feedback is easy and quick to get. Disadvantages of Meetings: Costs time and money There is sometimes no written record so it can be easy to forget details Complex info can be hard to understand verbally, a graph/report may be better Meetings may not always be accurate as misunderstandings are common, especially if the speaker isn’t clear or precise. Memos: Memorandums are short written notes about one issue. Very common for internal communications and are unlikely to be forgotten. Effective memos should be short and on point. Business Letters: Used in important situations, especially when a written record is required. Should be clear and on point. A Press Release is a type of business letter sent to journalists by organisations/individuals wanting to get publicity for an announcement or to respond to negative publicity. Reports: Written documents about a specific topic/issue presenting info, evaluation and recommendations. Reasons for Reports: To investigate the cause of an incident To solve a problem To identify possible courses of action and their implications To monitor progress Qualities of a Good Report: Gathers relevant info dealing with the issues in the terms of reference Provides a good analysis of the subject Assists management decision making by giving clear realistic and accurate info Advantages of a Report: Gathers relevant information Provides detailed info, research and analysis Helps management make informed decisions Can be made by outside experts so not to take up managers’ time Disadvantages of a Report: Can be easily discouraging if too long or badly laid out Requesting a report can be an excuse to delay dealing with the issue Recommendations can easily be ignored Visual Communication:  Benefits: Improves presentation Simplifies info Speeds up info absorption 1. Pie Charts 2. Pictograms 3. Time-Trend Graph 4. Bar Chart 5. Gantt Chart: Time taken to complete work against time planned to do so 6. Break-Even Charts 7. Maps 8. Organisational Charts Elements of Effective Communication: 1. Timely sender, not too early, not too late 2. Accurate, Brief and Clear message 3. Appropriate, Fast, Cheap, Recordable, Legal medium 4. Allowing Feedback Barriers to Effective Communication: Inappropriate Time Jargon Wrong Receiver Not allowing feedback Inaccurate information Inappropriateness Lack of listening, trust or respect Bad Wording Slowly/Unreliably sent Misinterpretation ICT in relation to Communication: The use of computers, telecommunications and electronics to gather, store, process and distribute information. The internet, email, intranet, LAN, cloud, EDI (Automated Stock Ordering), cheap, video- conferencing, social media, software apps, word processing/database/spreadsheet software. Advantages: Disadvantages: Fast Info Security Good for Advertising E-Crime Enhanced Shareholder Relationships Disruption in case of ITC failure Reduced Marketing and Travel Costs Expensive to upgrade Motivation by Working from Home Data Protection Act 2018: Data Protection is keeping data secure from unauthorised access. General Data Protection Regulation the EU law to protect personal data of citizens Requires that any organisation storing people’s info online or physically must ensure that it's accurate and up to date. It can only be used for lawful purposes. Data Subject: Anyone who’s info is stored on someone else’s computer. Data Controller: Anyone who keeps anyone’s info on their computer. Rights of Data Subjects: Right of access: how much, what type and for what use your info is being held Right to object You’re entitled to a full copy within 40 days of asking Right to complain to the Data Protection Commissioner Right to have errors corrected/data deleted: incorrect data requests or requests to remove from mailing lists must be met in 40 days Right to compensation where errors cause harm Right to never be subjected to automated decision making Right to privacy and protection against data being used for direct marketing Responsibilities of Data Controllers: Fair and Open Obtination of information, only what they need and when it's needed Use of it for only the Specific Purpose it was given for Secured Storage of Information To Comply with Access, Correction or Deletion Requests Must report breaches within 72 hours Data Protection Commissioner: ➔ Provides the public with information about the acts ➔ Maintains a register of organisations holding sensitive information ➔ Helps businesses develop codes of practice ➔ Investigates complaints, they can enter and inspect ➔ Conducts data protection audits ➔ Have the power to compel businesses to provide data and correct it ➔ Publishes an annual report and advises government Importance of Data Protection: Prevents identity theft Stops theft of money Stops unwanted ads Stops spying Consequences for Businesses: They can be fined up to €20m or up to 4% of their annual sales Customers can sue for damages It will damage reputation  Planning Organising and Controlling Planning: clearly setting out goals for the business and how they will be achieved 1. Analyse the Situation: A SWOT analysis is a management tool used to assess a business in terms of its: Strengths, which should be defended and taken advantage of. Weaknesses, which should be fixed quickly to protect the business. Opportunities, which should be exploited where possible. Threats, which should be defended against. 2. Identify a Goal: Goals can be short/long term. Mission Statements are short, precise statements used to describe who a business is and what they’re doing. 3. Draft a Plan: Strategic/Corporate Plan: Long term plan for the whole company. 2+ yrs. Tactical Plan: Break down of the strategic plan into small, specific and manageable steps. 1-2 yrs. Operational Plan: Short term plans for weeks/months ahead on certain areas. Contingency Plan: Special plans to cope with unexpected circumstances such as disruptions, sales, IR. 4. Implement and Review: The plan should be broken down into tasks assigned to people. They must be communicated well so everyone knows their role. Business Strategies: Low Cost Strategy: Companies making as little as possible or nothing at all to draw customers in and get their repeat business. Ryanair, Lidl. Differentiation Strategy: Making something so unique that people will pay more for it. Emirates. Niche Strategy: Meeting a certain niche, usually luxurious. Ferrari. Qualities of a Good Plan: Importance of Planning to Managers: - Helps identify strengths, weaknesses, opportunities and threats. - Sets clear targets. - Gives direction and purpose, assisting leadership and motivation. - Provides necessary information to investors. Organisation: bringing people and resources together effectively to implement plans. It allows: ➔ Work to be done to be identified ➔ Creation of a suitable organisational structure ➔ Delegation of work appropriately ➔ A clear chain of command to be maintained Organisational structure: Identifies different departments and management functions. They set out a chain of command. 1. Functional Organisational Structure; divides a business in terms of marketing production HR and finance. Advantages: Builds up skills and expertise. Provides clarity and accountability. Motivates with clear promotional pathways. Disadvantages: Employees might lose focus of overall business goals. Communication between departments can be slow/misunderstood. 2. Product Organisational Structure; organises a business in terms of the products it makes. Advantages: Improves communication between functional experts. Allows creation of new products. Allows divisions to focus on their product. Disadvantages: Functions are wastefully duplicated costly. There might be competition for the same customers. 3. Geographical Organisational Structure; Divides in terms of the geographical markets it serves. Advantages: Staff can meet local conditions and needs. Encourages healthy competition between regions. Disadvantages: Wasteful duplication and lack of coordination if not correctly managed.  4. Matrix Organisational Structure; where staff are brought together in teams to achieve a clearly defined goal. There are self managing teams with a team leader who delegates and ensures goals and schedules are met. All members input into decision making Advantages: Synergies are created by combining departments’ strengths making an innovative team. Communication is improved and work is therefore efficient. Better I.R as everyone knows each other and how departments work. Employees are motivated in a team. Disadvantages: Employees report to two bosses which can be confusing and stressful if directions contradict. Communication is tested and decisions may be slow/poor. It requires training staff well which is costly. Organisational structures should be: ➔ Simple ➔ Easy to communicate through ➔ Have a narrow span of control where tight supervision is required ➔ Have a wide span of control to promote intrapreneurship and creativity ➔ Cost effective Organisational Charts: charts showing organisational structure, chain of command and span of control. Chain of Command: how decisions flow from the top of the organisation through the layers to the bottom. Shorter chains allow easier communication. Span of Control: The number of people reporting directly to a manager. Delayering: Reducing the number of layers in an organisational structure. Management Control; The continuous monitoring and checking of results to see if they’re in line with goals in plans. It ensures that planning and organising is effective and efficient. Stock Control; Ensuring the right amount and type of stock is held without increasing stock holding costs. Buffer Level; The minimum level of stock that should be held. It ensures that a business has enough stock It frees up space It reduces waste It improves profitability It improves cash flow Just in Time (JIT): a stock-control system where stock is delivered only when it is needed. It has a very low buffer level and requires good planning and efficient delivery. Quality Control: Ensuring a product/service is at expected standards. It can: Reduce waste of defective products and legal costs. Increase satisfaction, demand and profitability. Promote a good image. Meet legal requirements like merchantable quality It can be achieved by: Regular systematic/random inspection Training quality focused employees Encouraging managers to motivate employees Facilitating teamwork with quality as a main goal Quality circles, employee focus groups discussing quality ISO Award: International Standards Office award recognising quality control standards Q Mark: Excellence Ireland Quality Association award only recognised in Ireland, usually a stepping stone to an ISO Award. Credit Control: Monitoring who is given credit, for how long and ensuring they pay on time. Credit Controller: Person responsible for managing credit given and controlling payments. Bad Debts: Customers who’ve bought on credit but are now unable to pay it back. To Improve Credit Control: Offer discounts to encourage non-credit sales. Take out insurance against bad debts. Research the credit background of customers. Refuse to give credit in the first place. Have a good and consistent follow up procedure (emails, threaten legal action) Sell with a Reservation of Title, stating that it can be repossessed if now paid for Financial Control: Monitoring the financial affairs of a business to ensure that it’s profitable and has enough money to pay its bills. Financial Control can be achieved by using: Cash-Flow Forecast Ratio Analyses Cost Control Break Even Analysis Importance of Control to Management: ➔ Identifies deviations from plans. ➔ Reduces waste, increases efficiency and productivity. ➔ Ensures correct amount of stock. ➔ Keeps bad debts to a minimum. ➔ Improves product quality. ➔ Monitors the financial health of a business.  HR Management HRM is the recruitment, training and retention of motivated employees while maintaining good I.R. HR Planning: Identifying future staff needs and planning to have the right amount of staff with the right skills at the right time. Preparing a HR plan: ➔ Audit HR Levels; A HR Audit surveys the skills present in the current workforce. It is compared with future needs to prepare for shortages/surpluses. ➔ Forecast Future HR Needs; Plan for changes in staff numbers. Natural Wastage is where staff retire/take up a new job. Businesses always need the right amount of skilled staff. ➔ Monitor Turnover Levels; The rate at which employees leave a firm. A low level is good as it introduces new skills and views gradually but a high level is harmful because it results in a lack of skilled and experienced staff. It is costly to train new staff and money is lost while the position is left empty. Causes of this; Poor recruitment procedures Poor pay/conditions Discrimination Better opportunities elsewhere Poor I.R. resulting in low morale ➔ Prepare a HR Plan; To ensure the right amount of staff are there at the right time: Train and upskill employees Promote staff Redeploy unnecessary staff Recruit new employees Downsize by natural wastage/redundancies Recruitment and Selection: 1 Job Description; Describes the vacancy including title, conditions, duties, responsibilities, place of work, supervision and assessment arrangements. 2 Prepare a Person Specification; This describes the qualities required. This can be academically, physically, language or experience related. 3 Advertise the Vacancy; Internally; Through notice boards, email, etc. It can mean promoting/redeploying. Less risky as employee is already known Promotion can motivate employees Low cost of advertising job Externally; Inviting applicants from outside the firm using personal contacts, papers, websites, employment agencies, universities, etc. New skills and experience can be introduced to the firm Likely to get a wide range of different applicants Less likely to encounter jealousy associated with internal promotions 4 Shortlist Applicants; A HR manager will shortlist candidates with the most promising applications. They’ll usually reject any incomplete, sloppy or misspelt applications. A Covering Letter is a short letter highlighting why you think you're suitable and requesting an interview. A CV is a short document summarising your education, qualifications, training and experience. An Application Form may be needed to ask about the applicant's name address, education, experience and relevant interests. 5 Interview; To determine whether an applicant is suitable for the job. An interview panel is a number of people interviewing one person. Questions should focus on ability to: Perform the job. Fit in, get along and work as a team. Develop their potential and contribute. Candidates cannot be asked about certain personal topics like age and marital status. Promising candidates may be asked to a 2nd interview. A Selection Test measures and compares an applicant's intelligence aptitude and personality. 6 Check References; This needs to be done to prove accuracy and honesty. A Reference is a written or verbal recommendation from a former employer or someone familiar with the applicant. 7 Make an Offer; Once an offer is accepted, a legal contract of employment exists and the applicant is entitled to a written contract with all the terms and conditions. Unsuccessful candidates should be notified also. A HR manager should ensure that the process is fair and free from bias. Equal Opportunities; All applicants of equal ability for a job should have an equal chance of appointment, regardless of any personal circumstances. Training and Development: Induction: The general intro of new staff into the organisation and job. It should familiarise them with: ➔ Policies and rules ➔ Those who they’ll be working with ➔ Layout of building, etc. Training: Ensuring that employees are skilled and knowledgeable enough to do the work. On the job training provides practical experience. Off the job training or education is any training outside of the immediate workplace. Development:Teaching multiple skills suitable for many jobs. ➔ Staff are flexible and adapt to change easier. ➔ They’re more suitable for promotion as they’ve a better knowledge of the work. Performance Appraisal: The process of setting performance standards for each employee and assessing their performance regularly over time. They: Agree productivity goals. Review productivity progress. Discuss productivity results.  Identify training needs. Decide who is suitable for a promotion or bonus. Improve communication and I.R. Productivity is the measurement of efficiency in a business. Financial Rewards: Flat-Rate Pay: Receiving an agreed set rate per week/month based on a standard amount of hours worked. It is predictable but there is no incentive to work harder or longer. Time-Rate Pay: Pay at a set amount for each hour worked, with overtime usually at a higher rate. Easy to calculate but there is no reward for efficiency or effort and people may work slower to get paid more. Piece-Rate Pay: Paid for each item produced, provided it meets the standards. It encourages maximum effort but also rushing. Not always suitable as quality may be difficult to measure or maintain. Bonuses: Giving employees a share of the profits as a result of their increased efficiency/effort. Commission: Extra payment based on a percentage of the value of sales achieved by the employee. Benefits-in-Kind (BIK): Taxable, non-cash payments. For example, meals or company cars. Profit-Sharing Schemes: Sharing part of the profits with employees through additional payments. Share-Ownership Schemes: Offering free or cheap company shares giving employees a personal incentive to make the company as profitable as possible. It improves I.R. and motivation. Determining Financial Remuneration: This is done controlled by supply and demand: Influencing Supply: ➔ Requirement of training and education ➔ Requirement of previous experience ➔ Element of risk, danger or poor conditions ➔ Trade union negotiations Influencing Demand: ➔ General economic environment (low employment=high wages) ➔ Tech changes (can create jobs/make them redundant) Non-Financial Rewards: Job Satisfaction; the degree to which the employee feels positive about their job and enjoy doing it. Factors influencing it: ★ Working hours and holidays ★ Stress of work ★ Absence/presence of harassment, bullying or discrimination Harassment; behaviour towards staff that is unwelcome and stresses/intimidates them. ★ How safe and pleasant the workplace and social environment are  ★ How flexible working arrangements are, e.g. job sharing, flexitime and rotation ★ How much of a variety of tasks the job offers ★ How enriched the job is with responsibilities ★ How trained and educated the staff are How to improve IR from a HRM perspective: Train managers to deal with HR Recruit staff with a positive attitude and train them right Communicate often and honestly about the state of the business Have clear grievance procedures Provide attractive rewards Respect staff Create a friendly and cooperative workplace  Managing Change: Causes of Change: Changes in Tech: This affects how and where businesses are operating. New products, methods of production, marketing and selling methods and communication mediums all affect how a business runs. Changing Laws and Regulations: These laws include those on consumer rights, employment law, environmental protection and fair competition. Changing Customers: Tastes and fashions change, education makes people more quality aware, competition leads to few loyal customers. Customers also want companies to be ethical and environmentally friendly. Changing Competition: Competitors are constantly updating and adding products, there are always cheaper ways of doing business and company growth forces small businesses out of the market. Changing Employees and Labour Market: Employees have more skills and education. They want interesting and well paid jobs, with flexible conditions and high ethical standards. The labour market is now more diverse than ever. How Businesses Manage Change: Change Management: anticipating change and adapting the business to a constantly changing business environment. It involves: 1. Communicating the need for change 2. Adopting a facilitator management style 3. Promoting employee empowerment 4. Encouraging teamwork 5. Focusing on a commitment to quality Communicating the Need for Change: Resistance can arise from the following fears: There will be more work Staff won’t be skilled enough to do it and will become unable to cope There may be a loss of income resulting in a loss of jobs The changes mightn’t work To avoid resistance, management should: Communicate openly and honestly about the changes Allow employee input into change Negotiate dealt to reward effort and or sacrifices Lead by example Adopting a Facilitator Management Style: ➔ Provide interesting and challenging work ➔ Train sufficiently ➔ Empower staff to get on with their job without interference ➔ Mentor staff by giving advice, support, praise, recognition and reward ➔ Consult with staff about what has to the be done and how to best do so Promote Employee Empowerment: Provide staff with a clear goal and deadline, give them sufficient resources and the freedom to decide how best to achieve the goal. It requires: A facilitator attitude Investment in training Proper management control to ensure errors are fixed and learnt from Rewards to encourage staff to take on extra responsibility Teamwork Advantages: ➔ Makes use of staff skill, intelligence and initiative ➔ Increases intrapreneurship, motivation, self-esteem, self actualisation needs and productivity ➔ Frees up managers’ time ➔ Reduces absenteeism and labour turnover ➔ Increases job satisfaction and loyalty Disadvantages: ➔ Mistakes can be made if staff are under trained ➔ An increase in work or pressure can cause staff to becomes unhappy and demotivated ➔ Unhappy managers can feel their power is being taken away from them Promoting Teamwork: Characteristics of a good team: Clear goal and purpose Sufficient resources Competent team leader Shared input into decision making Committed members with a positive attitude The Tuckman Model (1965): 1. Forming: Members meet and get to know each other. 2. Storming: Opinions clash but the team leader must ensure conflict is avoided. 3. Norming: The team begins to find a way to work together, they respect each other's roles, responsibilities and work methods. 4. Performing: The team settles down and works effectively toward their goal. Benefits of Teamwork for Business: Improves staff relations and communications Allows better and faster decision making Motivation and job satisfaction rise Committed teams can achieve a better standard of work, increasing company profitability Benefits of Teamwork for Staff: Improved staff relations Satisfies social needs Increases job satisfaction Gives a team spirit Promoting a Commitment to Quality: TQM (Total Quality Management) an approach aiming to maximise quality by getting staff to constantly look for ways to improve quality. Its core principles are promoting employee empowerment, teamwork and quality commitment. To adopt a TQM approach, businesses should: Recruit and train quality focused staff Adopt facilitator management styles Empower and motivate staff Facilitate teamwork Adopt a strict policy of quality control Have a quality assurance system, or an ISO/Q mark. Benefits: ➔ Better quality produce ➔ Enhanced reputation ➔ Increased loyalty ➔ You can charge more ➔ Waste is reduced and profitability increased Problems: ➔ It can be slow to implement as employees' attitudes and work methods have to change a lot. ➔ The high standards required can put staff under pressure and can challenge a business’ HRM system. Effects of New Tech on Management and Business; 1. Communication: Messages and data can now be sent very fast from any location because of the internet. This allows businesses to discuss and decide on decisions almost instantly. 2. Marketing: Market research can be conducted faster. Online ads and sales can be made which are often cheap. E-Commerce, E-Business and M-Commerce (Mobile) are now often used. 3. Production and Stock Control: EDI saves time. CAM + CAD speeds up the design and manufacturing processes. CIM (Computer Integrated Manufacturing) controls the entire production process from start to finish and dramatically reduces labour costs. However it needs very careful management. Tech reduces costs and ups efficiency. 4. HR: Jobs become redundant, some are made to manage the new tech. E-Working (working from home) reduces costs for employer and employee. Training can be easier, cheaper and more accessible. Payroll management is now faster and more efficient. 5. Financial Management: New tech and the training needed to use it is very expensive. Accounts are more accurate, faster to make and easier to share and edit. Comms, travel and marketing expenses fall. 6. General Management: HR + IR face the challenges of redundancies, redeployment or retraining. The business is more vulnerable to cyber attacks and power outages, this requires more contingency planning. Data security laws hold businesses responsible for safeguarding data.  Managing Household + Business Insurance + Tax Insurance Risk Management: Identifying key risks and their likely effect. Then putting in place a strategy to minimise their occurrence. It involves identifying the risk, reducing the likelihood of it and taking out insurance. Methods of Risk Reduction: Fireproof materials, smoke alarms and sprinklers. Good security cameras, locks and guards. Using a security firm for money/valuables transport. Stories copies of data in another location. Health and safety programmes. Proper contingency planning. Insurance: A contract where the insured pays a premium to the insurer in return for a promise to compensate in the event of financial loss. It works on the basis of pooling and risk sharing. Importance of Insurance to Business: 1. Protects business security 2. Improves cash flow, saves money and reduces the risk of unexpected costs 3. Makes exporting less risky as goods can be insured 4. May be required legally. Importance of Insurance to Households: 1. Greater financial security 2. Peace of mind 3. Enhances savings Insurance for Business: Assets: Property insurance Cash and valuables insurance Motor insurance Employees: Permanent health insurance Key person insurance PRSI (Pay Related Social Insurance) Fidelity Guarantee (covers staff fraud and dishonesty) Liability: Public liability Product liability (damages caused by product) Employer’s liability (claims from employees) Consequential loss (business interruption due to major risk occurrence) Insurance for Households: Assets: Home Insurance Motor insurance (3rd party at minimum) Liabilities: Mortgage Protection Insurance Health: General health insurance (serious illnesses)  Permanent health insurance (% of salary if you're out of work) Personal Accident Insurance Life Assurance: Compensates a named benefactor when the insured dies. 1. Whole Life Assurance: Pay for life, paid on death 2. Endowment Life Assurance: Pays when you reach an age or if you die before 3. Term Life Assurance: Insures you only for a certain period Becoming Insured: 1. Contact Insurer: Brokers work independently and give unbiased advice while agents only sell their company's policies. 2. Proposal Form: Application form to apply for cover. The item being insured is the exposure unit. 3. Risk Assessment + Calculation of Premium: Factors influencing premium price: Level of risk Value of insured item Profit targets of insurer Loadings: Characteristics which add to motor premiums No Claims Bonus: Discounts for not claiming in the past 4. Policy is Issued: A cover note is issued. It's a temporary document providing proof of insurance until the full contract is ready. The full contract sets out items covered, value of compensation and any terms and conditions. 5. Claim is Made: An insurance claim form describes what happened and what was lost. They may send an assessor to inspect and decide if there will be compensation given. Principles of Insurance: 1. Insurable Interest: You must benefit from the continuous existence of the insured item and must suffer from its loss. You can only seek insurance if it was damaged by something you have insured it against. This is the proximate cause. 2. Utmost Good Faith (Uberrimae Fidei): You must give truthful information and all relevant facts when applying. 3. Indemnity: The insurer agrees to compensate for actual loss, not sentimental and not for profit. Life assurance is an exception here. Over insurance is where an item is insured for more than its value. Under Insurance is where an item is insured for less than its value. For under insurance, the average clause rule applies. This means that partial insurance only results in partial compensation, even if the damage done is worth less than that insured for. 4. Contribution: When more than one insurer is involved, they split the cost of the claim between them to stop the insured from making money. 5. Subrogation: Insurers who pay out full compensation for an item are entitled to ownership and to sue a third party for causing the damage. The insured can no longer sue the 3rd party. Settling a Claim: Cash compensation Replacement Repair/Reinstatement (for partial damage) Similarities of Business and Household Insurance: Risks must be identified and insured against Forms must be filled out and documents must be kept safe, accurate and up to date Differences between Business and Household Insurance: Businesses have more risks and more to lose Businesses must pay PRSI on all employees but households only on their own income Businesses can put down insurance costs as an expense Tax: The Revenue Authority is the state agency responsible for collecting taxes Reasons for Tax: Redistribution of wealth Raise money for the government To discourage purchasing certain products Tax for Businesses: (Apart from self-assessment tax) Corporation Tax: Paid at 12.5% on company profit. VAT: A percentage added to certain products or services. Due every 2 months at rates or 23% and 13.5% Capital Gains Tax: Payments on profits from the sale or disposal of business assets. Customs Duties: Taxes levied on imports from non-EU countries. Commercial Rates: Paid to the council when using a property for commercial purposes. Employer’s PRSI: Levy on firms for every person employed. Calculated as a % of gross. Effects of Tax for Business: Lowers profit Raises costs Raises sale prices Adds work to HR Dictates where they operate Tax for Households: PAYE: Paid by employees but dealt with by employer. (Progressive + Direct) Self-Assessment Income Tax: For the self employed. Same rates as PAYE but must be dealt with yourself. PRSI: Insurance paid to the state as a % of gross income. USC: Tax from gross income. VAT (Regressive + Indirect) Local Property Tax: Paid by owners of a residential property, varies with value of property. Excise Duty: Added to certain goods, fuel, tobacco and alcohol. Custom Duties Motor Tax Capital Gains Tax: Tax on profits gained from sale or disposal of an asset here or abroad excluding that of the person’s main residence, compensation or lotto winnings. Capital Acquisitions Tax: Paid on gifts or inheritance. Deposit Interest Retention Tax (DIRT): Paid on interest automatically by the bank. Audit: A detailed examination of a taxpayer’s financial records by Revenue. Tax Avoidance: Legally taking advantage of the tax system to reduce what you owe. Tax Evasion: Illegally avoiding paying full tax by not declaring income or claiming deductions you are not entitled to. PAYE: Employers deduct income tax and PRSI. There is a standard cut off rate, a higher and top rate and tax credits, which are government allowances. B-I-K: Free goods and services given to employers. Added to gross income by their value for tax purposes. Form 12-A: Used for first employment Notice of Tax Credits: Sent by Rev. to taxpayer Form P-60: Used to prove income Form P-21: Balancing statement for overpayment Form P-45: Cessation statement Tax Credits: PAYE Single Person's Personal Married Person's Personal Blind Person's Incapacitated Child Dependent Relative Home Carer's Single Parent's Trade Union Membership Services on Revenue Online: Review + Update personal information Claim Tax Credits Review P21 Claim Tax Refunds Access services like Property Tax payments Calculating Net Income: Gross Wage (Pay and BIK) -PAYE +Credits -PRSI -USC =Net Income Similarities In Tax Differences in Tax They must register and keep accurate Different taxes and collection methods records More allowances for business They seek legal ways to reduce tax Business can claim VAT refunds They cooperate with Revenue Businesses are unpaid tax collectors Consider timing of tax payments when managing cash flow  Managing Household + Business Finances Cash Flow: The difference between money in and out of a business/household. Cashflow Forecast: Document showing planned flows of money in and out of a business/household over a period of time. On a business forecast, money in is labelled as receipts and money out are payments. () are used to indicate negative figures. Benefits: Assists financial planning, acts as an early warning system. Provides financial control, helping identify where cutbacks or loans are needed or when there’ll be a surplus. Can be a loan requirement. Elements: Be realistic Incorporate seasonal factors Incorporate delays in credit/payment Incorporate the likelihood of bad debts Include all taxes Dealing with a negative cash flow: Offer discounts to current debtors Sell an investment Sales/Promotions Other options of finance Cutbacks Reduce dividends All expenditure can be classed as fixed, irregular or discretionary. Selecting a Source of Finance: ➔ Purpose: Source should match use ➔ Amount: Source must be able to provide amount needed ➔ Cost: Should be low with as little interest as possible APR: Standard measure of interest charges on loans ➔ Control: Are you able to keep up the repayments? Collateral/Security: Assets that can be taken by the lender if you fail to pay ➔ Risk: Spread out the payments and predict cash flow, protects reputation Short-Term Sources of Finance: 1. Trade Credit: Receiving goods but not paying immediately, amount is variable, usually more expensive. No security needed but reputation is on the line. 2. Accrued expenses: Delaying payments to fund something else. Amount is usually small, no interest, high risk of reputation damage and cut off. No security/chance of a discount. 3. Factoring Debts: Selling the right to collect a debt to a factoring firm, can be with/without recourse. Large amounts can be collected at a high fee, no loss of control but can be risky as it may make the firm look desperate. 4. Invoice Discounting: Taking out a loan to cover what you are owed until you get it back. Large amounts can be borrowed, costly but no risk.  5. Overdrafts: Short term loans to a current account holder giving them access to more than what is in their account. Amount available is typically low, interest is charged high but no security needed. Bank can demand payment at any time. Medium-Term Sources of Finance: 1. Hire Purchase: Buying an asset by paying in instalments. No full ownership until fully paid. More expensive but no security required. Assets can’t be used as collateral. Risk of depreciation, interest can be written off against tax by a business. 2. Leasing: Renting for an agreed time. Costs a bit more, no security needed but you never own it. No worry for depreciation, payments are tax deductible. 3. Term Loan: Medium term loan repaid monthly over 1-5 years. Conditions are negotiable, fixed/variable interest rate. Large amounts are available, interest is lower than overdrafts, collateral may be needed. Failure to pay damages reputation. Long-Term Sources of Finance: 1. Mortgage: Loan used to finance the purchase of a house/property. Large amounts available, interest varies per person, property acts as collateral, risk of repossession. 2. Savings/Retained Earnings: Savings accounts pay interest based on amount and time. Retained earnings are profits kept to allow expansion. No cost, risk or loss of control. 3. Owner’s Capital/Equity: Finance from the owner’s personal savings, from the introduction of a partner / from sale of shares. Dividends have to rise if successful, control of company is diluted, no risk provided that the business doesn’t fail. Venture Capitalists: Investors who buy shares in SMEs with good potential with the plan to later profit from their sale. 4. State Grants: Gift of money to be used for a specific purpose, no interest or repayments. Conditions apply with consequences if they aren’t adhered to. Large amounts available. 5. Sale + Leaseback: A contract to raise immediate cash by selling an asset and then entering a long term lease with the buyer. Amount is large, long term costs, business loses control of asset, no risk. 6. Debentures: A long term fixed interest loan often for a high sum, secured against a valuable asset of a business. Paid back in full at one future payment but interest is due annually. Requirements for a Loan: Amount: Large amounts are riskier and more long term Purpose: It is more likely for approval if it is for a low risk and productive purpose Personal Contribution: Those willing to use their money as well show commitment Name, Address, Occupation / Nature of Business Character and Reputation Creditworthiness Ability to Repay: Evidence of income/profits. A well prepared business plan may also be needed. Security (Collateral) How Current Accounts Assist Managing Finance: ➔ Direct Payment Systems for paying wages ➔ Standing Orders arranging to pay a fixed amount at regular intervals ➔ Direct Debits automatic payments of varying amounts at regular intervals ➔ Debit Cards allow the holder to debit from the account ➔ Online Banking allows transfers + payments ➔ Cheques a note to the bank asking to pay a person x amount from your account ➔ Overdrafts allow flexible borrowing ➔ Bank Statements list of all transactions since last statement Similarities and Differences between Managing Business + Household Finances: Similarities: 1. Both use cash flow forecasts and plan for upcoming shortages/surpluses. 2. Both raise finance from similar sources and use current accounts 3. Both keep accurate financial records Differences: 1. Businesses have more money 2. They have more complex cash flow forecasts (more types of tax and payments) 3. They can access different sources of finance which are unavailable to households  pManaging Business Finances Using Accounts All organisations keep accounts to ensure they have money to pay expenses. The main two accounts are Trading, Profit and Loss Accounts and Balance Sheets. P+L Accounts: (Income Statements) Shows the amount of income earned, expenses incurred and profits made. Also shows tax, retained earnings and dividends. Sales - Cost of Sales = Gross Profit Gross Profit - Expenses = Net Profit Net Profit - Tax - Dividends = Retained € Balance Sheets: (Statement of Financial Affairs) A statement of the wealth of a business. Shows all assets and liabilities of a business on a specific date. Total Fixed Assets Total Current Assets - Current Liabilities = Working Capital Working Capital + Fixed Assets = Total net Assets Capital Employed Gross Profit Margin: Gross Profit / Sales x100 Net Profit Margin: Net Profit / Sales x100 Current (Working Capital) Ratio: Measures a firm's ability to pay its current liabilities. Healthy ratio is 2:1, indicating liquidity. Current Assets / Current Liabilities (Rounded to 2 D.P.) Acid Test Ratio: Measures a firm’s ability to raise cash quickly to meet its current liability debts. Should be minimum 1:1. Below 1 indicates illiquidity. Current Assets - Closing Stock / Current Liabilities (Rounded to 2 D.P.) ROI: Measures the % return a business is generating on capital employed. Net Profit / Capital Employed Liquidity (Solvency): The ease with which a business can pay its short term bills. Achieved by having assets which can be easily converted into cash. Insolvency: Where total liabilities exceed total assets, meaning a business is unable to pay all its liabilities. Liquidation: When a business is closed down and its assets sold off to pay as much debt as possible. Managing Working Capital: ➔ Sell off slow moving stocks for cash ➔ Proper stock control ➔ Proper credit control ➔ Increase prices ➔ Raise finance by selling shares/assets/by getting a loan ➔ Prepare proper cash flow forecasts Debt/Equity Ratio: (Gearing): Debt (Long Term Only) Capital / Equity Capital % of loans compared to finance being invested Debt Capital: Long term loans, preference shares and debentures Equity Capital: Issued Ordinary shares and retained earnings Preference Shares: Shares paid first Low Gearing: Having a ratio less than 1:1 (100%). Means low risk, low debt and high reinvestment. Neutral Gearing: Ratio of 1:1 High Gearing: Greater than 1:1. High level of debt, little cash available. Causes: ○ Pressure on management to remain profitable ○ Reduced dividends ○ Difficulty obtaining finance ○ Liquidation risk Shareholder interest in accounts: ➔ Managers: To monitor their financial management against rivals’. Assists decision making. ➔ Owners/Investors: Check profitability and ability to pay dividends. ➔ Employees: Confirms job security and opportunity for a raise or threatens them. ➔ Banks: Interested in a company’s ability to repay and provide collateral. Businesses who don’t pay may go into receivership. ➔ Suppliers: Interested in their ability to pay. ➔ Government: Calculate tax due and eligibility for grants. ➔ Competitors: Identify financial strengths and weaknesses in rivals so they can efficiently compete against them. Limitations of Ratio Analyses: Staff relations with management is not taken into account Assets may not be shown to true value Ratios are based on past figures, not future projections Accounts only hold for a year, balance sheet are only true for the day Doesn’t consider business environment (competition, recession, influences) Inflation/Deflation may impede comparison of one year to the next Different accounting policies may be used in different years  Identifying Business Opportunities Internal Sources of Ideas: For Entrepreneurs: Hobbies/Interests Skills + Knowledge Personality Frustration Inventions/Accidental Discoveries Brainstorming: A creativity technique for coming up with new ideas. Set a time limit Quickly write down ideas Review pros and cons of each Select the best for further research For Existing Businesses: Customer Feedback Market Trends Intrapreneurship R+D: Investing in the research and development of improved products. Supply Substitution External Sources of Ideas: For Entrepreneurs: Friends + Family Media Networking: Deliberately making useful contacts through meetings, social events or clubs. Copying State Agencies - LEOs, Enterprise Ireland Franchising Management buy outs For Existing Businesses: International Business Trends - Trade shows + exhibitions Import Substitution Market Research Companies Third level education links Researching Ideas: Market Research: Gathering and analysing information about the potential market for a product or service. Indicates the size, growth and personality of the market Identifies competitors' strengths and weaknesses Tests customer reactions Predicts sales and gives an optimum production number Reduces risk of failure Types of Market Research: Factors to Consider: Detail needed, costs, time and money available. Desk Research: Accessing info already available by others. Reports + Stats: CSO, Enterprise Ireland, Trade Associations, etc. Internet: Free Articles: General info Experts Feedback: From sales staff, previous R+D, customers Commercial Market Research Companies Advantages: Large amount available at a low cost Can be used to collect internal and external data Disadvantages: Can be too general, lacking detail May be inaccurate or out of date Field Research: Going to the market place to gather info directly from customers or competitors. Observation Research: Watching the behaviour of customers. Reveals customer choices but not why. Customer Surveys: Sampling: Interviewing a small group representative of the larger market. Focus Groups: Gathering a small amount of customers to discuss their attitude, habits and behaviour when shopping In detail. A Consumer Panel: A focus group containing people who're consulted regularly for ongoing field research. Advantages: More accurate and detailed info Disadvantages: Time consuming and costly Stages of Development: 1. Idea Generation 2. Product Screening: Sorting the promising idea from the weak ones. Ideas can be categorised into, unrealistic, marginal or worthy of further consideration. This reduces the risk of wasting money and time. 3. Concept Development: Each concept should have a USP: A feature that makes it attractive and distinctively different from its competitors. 4. Feasibility Study: A preliminary investigation into how realistic it will be to produce, fund, sell and profit from the product. It determines production feasibility, costs, profits and any potential legal issues. 5. Prototype Development: A sample product manufactured on an experimental basis to see if the design works in practice and appeals to customers. Dermines materials required, cost and predicted profits. 6. Test Marketing: Launching on a small scale to evaluate consumer reaction. Determines advertising methods and any price changes needed. 7. Production + Launch Break Even Analyses: Fixed Costs: Costs that remain constant regardless of number of units produced. Eg. rent, wages, insurance. Variable Costs: Costs that vary depending on how many units are produced. Eg. electricity, materials. Break Even Point: Shows the amount of sales needed at a particular price in order to cover costs and break even. Fixed Costs Selling Price - Variable Cost (per unit) BE Point in Units x Selling Price = BE Point in € Margin of Safety: The amount by which a firm’s sales can drop before reaching the BEP. Break Even Chart: Visually illustrates if a product will profit or not depending on the amount of sales achieved. Drawing a BE Chart: 1. Draw table with: ○ Sales ○ Total Rev. (Price x Sales) ○ Fixed Costs ○ Var. Costs (V.C x Sales) ○ Total Costs 2. Title ‘BE Chart for x’ 3. Label X axis ‘Units Sold’, Label Y axis ‘Value of Sales/Costs’ 4. Draw the fixed costs line 5. Draw the total costs line starting at the fixed costs level 6. Draw the total revenue line starting at 0 7. Mark the BE Point 8. Mark + Note the Margin of Safety 9. Highlight profit and loss areas Advantages: Simple to calculate Shows the MoS Shows the effect of price and cost changes Assists in determination of financial feasibility Communicates info clearly Limitations: Simplistic in the sense that it assumes all figures remain the same Ignores the possible effect of a change in any figure  Marketing Marketing: Identifying the customer need and then designing packaging pricing promoting and distributing a product/service in a way that customers will want to buy it. It focuses on the customers’ needs and often the need comes before the product. A Marketing Strategy: A plan setting out how a business will identify and satisfy the customer needs identified by market research. Research Opportunities Segment the Market Position the product Devise a marketing mix Market Segmentation: Dividing the market into clearly identifiable sections with specific characteristics. ➔ Demographic: Analyses in terms of age, income, gender, social class, location, etc. ➔ Psychological: Analyses in terms of attitudes and tastes, status, personality. ➔ Geographical: Location A Target Market: A precise description of the customer whom a product or service will be aimed at. A Market Niche: A specific gap in the market for a new product or service. Product Positioning: Creating an image for a product or service in the mind of the targeted consumers. Marketing Mix: Consists of 4 elements (product, price, place, promotion) used to turn the marketing strategy and the product positioning into a reality. A Product Portfolio: Describes the range of products and services offered by a business. Product: Design and Quality: The function should be as expected. The product must be fit for purpose and of merchantable quality. The form should be practical and appealing in terms of colour, shape, style and image. Branding: Branding: Creating an identity for a product that clearly distinguishes it from competitors Brande Name: The distinctive name given to a product Brand Logo: The distinctive visual image that helps a product to stand out Brand Leader: The brand with the highest percentage share in a particular market Own Brand/Private Label Products: Products sold by retailers under their own name Benefits of Branding: Customer Recognition: Differentiates the product, making it easier to advertise and launch similar products Customer Desire: Produces a desired image of the product in the market Customer Loyalty: Easier recognition and familiarity which increases sales. Brand Loyalty: Where customers repeat purchase a specific brand’s product regularly. Higher Price: Attractive, high quality brands are of a higher price Packaging: Should provide protection and allow easy storage and display Should be attractive with the right image and appropriate information Should provide specifications, contents, uses, ingredients, etc. Protection: Patent: Provides legal protection of an invention/design/p