Category: Featured

Business Failure

May 5th, 2016
Businesses just starting out have a generally low rate of success, 50% of businesses fail within the first two years. Some of the common causes of business failure are avoidable, however there are some examples that businesses may not predict.

Could Leadership Cause Business Failure?

Leadership in a business is vital to its survival, but failure to identify where they need to straighten up and fly right again could mean that a business is left behind, unable to correct it’s course.
- Loss of Control, Just short of divorce of ownership, an owner unable to make effective and authoritative decisions could mean that a business could start to lack innovation or a competitiveness that every business needs to get an advantage over competition. At the same time, an owner making too little decisions could also mean a business effectively has no leader, which in small business could be the difference between growth and decline.
- Overtrading could see a business go into liquidation, it is important that a business can fulfil its promise and deliver too customers and HMRC, if a business does not identify when it needs to have some liquid assets or a financial cushion, it could loose out on future repeat purchases. Bad leadership could be the root cause of overtrading, however poor management and/or communication could also make overtrading the determinate factor. Machinery breaking may also mean that overtrading orders that they can no longer fulfil could cause massive cash flow problems for a business
- Ineffective Expenditure could mean that a business could go quick. Inability to manage finance and good investments could see even the largest business fail. Even if a business does not invest in merit-less research and development, a lack of innovation or diversification in their products could also see them fail as a result.
  - Poor cash flow could lead to insolvency.
  - No profit made
  - Margins are too high, not enough return.
  - No Inflows, Product is not developed effectively.
  - Pressure groups prevent business from making enough money or attract too much of a negative stigma.
  - Interest rates mean business cannot afford premises.
  - Business unable to move product as price is too high because ingredients are too expensive.
Business can also fail if they do not have enough profit,companies that can’t expand due to financial and logistical restraint, greed and overheads being too high could mean that a business is unable to continue trading.

Key Terms
- Business Administration – A management firm (usually accountants) come into a business in order to improve spending and save a business from collapse.
- Liquidation – Selling assets to cover costs. Usually as a last resort to pay debtors.
Common Business Failure

Financial
- Minimum wage has increased (living wage)
- Economy is bad (or not favourable)
- Inadiquate Finance
- Majour Bad Debt
- Inadiquate shareholder capital
- Employees are not getting paid, so stop working
- Greed or Theft
- Dominant sales from a now dead source
Non-Financial
- Legal and Social Change
- Consumer Protection Laws
- Poor Management
- No Interest in Business
- Poor Idea
- Poor Execution
- Poor Tourism/Footfall
The Working Capital Cycle

May 5th, 2016

The working capital cycle is a proportion of a businesses working capital that is used to allow a business to operate normally, it is the funds required by a business in order to continue trading efficiently. Without a business being able to calculate how much working capital it needs in order to operate, then it may find it hard to continue to function, the working capital cycle involves anything from inventory and supplies, to production and storage. Without proper working capital, it could lead to business failure.

The Working Capital Cycle

The working cycle has limited use as a single planning tool, however when combined with multiple tools, it can provide a very powerful overview of what a business works with month, to month. Just because a business has inflows of $1m each month, it does not mean that they make $1m profit. The working capital cycle will also allow a company to identify any ways of keeping a positive cash flow through better trade terms as well.

Each ‘stage’ of the capital cycle has multiple costs associated with it. Just because a product needs to be stored, does not mean it has not cost, there may be refrigeration cost, it could be perishable, it may need a security guard to look after the facility, the lights and electricity around the building all need to be paid for. It is important that a customer receives the product as soon as it is made, as it means that overall there is less cost associated with the product, additionally for products like clothing and fashion accessories or technology, the longer it is stored could also mean that its value is decreased as it goes out of fashion.

Over trading could also mean that a company may not be able to pay for the process to be completed using its normal working capital and may have to secure new funds for the time being until the debt is paid after they have sold the product.

How Long Will my Phone Battery Last Before it Dies?

May 5th, 2016

phone battery last before it dies Defined obsolescence has gotten a hold of me again, I will have to purchase a new phone, as my old one is about to expire! I have had my phone for about 2 Years, I recieved it in the summer and It was fairly new at the time, being released in August 2014, My little HTC Desire 610 has been through a lot. It’s had 2 screen protectors, 2 cases and been across 3 networks. Now that It is aged, I have since rooted it and install android Lollipop it has had a new breath of life, However It’s quite slow as a daily driver and I think I will need a new one soon. The battery cover on the back cannot be removed and only the SIM card and External Memory can be replaced. How Unfortunate. But It got me wondering, How long will my phone battery last before it dies.

Some people wonder how long their phone battery will last before it dies, before it basically doesn’t hold a charge and it’s battery life is no longer able to last a day.I however know that answer, my phone will die on approximately Saturday, December 24th 2016 at 8:20 am, as at this point it will no longer hold a charge. How do I know this? Let me explain…

Data Collection

Firstly, I needed to collect data to predict when my phone was degrading in battery life, I decided that the easiest measurable metric would be when my phone was plugged in. Because I would usually do this when I got in from home, It did not require me collecting any data as it could all be done automatically. I know this isn’t the most precise method for multiple reasons, such as I may not always plug my phone in at the same time, the phone may not always record the results (as you will see) and the percentage when i plug it in is not an accurate assumption of health. However my findings did show a trend that shows the battery is degrading at about 0.000109% every minute, which gives me 7 and a half months to buy a new one.

Recording the Results

To record the results I used Google Drive and IFTTT to note down the percentage charge at the times the phone was disconnected and reconnected from power. It also recorded the charge type, such as USB,AC or an external Battery. This could potentially also alter my results as the percentage increase would vary over different mediums of charge, so I eliminated all but AC power, as this was always from the same plug and USB lead. So, How did I calculate how long will my phone battery last before it dies?

The recipe I used is nearly identical to this one, I made one for it being plugged in and one for it being unplugged. the data ended up looking like this.

Date and Time	Status	Battery Percentage	Power Source
March 11, 2016 at 04:19PM	Unplugged	41
March 11, 2016 at 04:19PM	Charging	41	AC
March 11, 2016 at 04:33PM	Unplugged	50
March 11, 2016 at 04:34PM	Charging	49	AC
March 11, 2016 at 04:37PM	Unplugged	52
March 11, 2016 at 04:39PM	Charging	52	AC
March 11, 2016 at 04:44PM	Unplugged	56
March 11, 2016 at 04:45PM	Charging	56	AC

As you can see at this time I unplugged the device multiple times over 25 minutes to read emails and texts or whatever showed up on my phone. I was interested in this, so charted the occurrences of a date and time, and found that I had unplugged and plugged in again my phone four times in 1 minute at maximum, and had unplugged and plugged in my phone over 249 times. Here are the occurrences, excluding dates where I did not plug in my phone as although it would contribute to how long will my phone battery last before it dies, it did not trigger the app.

phone unplug replug showing Battery Last before It Dies

This also got me wondering how many times a day I unplugged my phone, If you look at the data, It shows that, for example, on the 20th of February, a Saturday, I unplugged my phone 16 times.

times phone was unplugged on a given day showing Battery Last before It Dies

It seems that for about a week during march I was unplugging my phone a lot, and I can’t really see a connection, I was at school on the 11th, I guess I must have been heavily using my phone over that period. The more perceptive of you will have noticed that the entire month of April is omitted, that is because the data was not recorded as I had been logged out of the IFTTT app, I did not realise until later when I re-enabled it, Having the empty months would alter the data so I have removed them from the results. Perhaps I shouldn’t worry how long will my phone battery last before it dies and instead how long the connector will last.

So How Long Will My Phone Battery Last Before It Dies?

phone plug in showing Battery Last before It Dies

This graph shows every event recorded, including when I was not recording the phone being plugged in, It clearly shows, using a linear trendline, that there is a decline in the battery percentage. Which shows my phone’s average battery percentage when being plugged in, when it reaches 0%, which I have decided is to be a dead battery, in 336101 Minutes, or 5602 hours. Coincidentally, It dies on Christmas Eve, the perfect time to be gifted a new phone ;).

Factors Affecting Sales Forecasts

May 4th, 2016
Sales Forecasts are charts and graphs, equations and educated predictions that allow businesses to predict future sales with a degree of accuracy.
- Consumer Trends – People being proud of bargains and discounts. sales forecasts become harder to predict when consumerism changes.
- Economic Variables – Recessions, Booms and Recovery.
- Competitors Actions – loss leaders and pricing strategy may try to undercut you.
- Digital Music for example, as become harder to predict as people have found new ways to obtain it illegally.
- Fashion Items have an unpredictable life span.
Businesses use a range of forecasting tools to make forecasts

No single technique is reliable, but having multiple will allow you to better predict the future

Using sales forecasts may be useful but having data that is unreliable could mean that the forecast is not accurate. Making forecasts that are too long into the future could be considered extrapolation.

Extrapolation is cheap, although inefficient it gives a fixed perspective of what to expect which is better than nothing.

Planning for the worst allows companies to expect and anticipate failure. Very successful stable products cannot predict when sales will fall as their product is likely very price inelastic and customers are used to the product’s taste or function that changing it could make customers unhappy with the product. ‘Many financial measurements which are useful and valid in static situations are strategic traps in growth situations.’

Failing to predict sales forecasts correctly

Failing to accurately predict sales forecasts may mean that a business could fail. Working capital is cash that is spent on the business, liquidity is not. Having a lot of working capital does not necessarily mean you are liquid. You may also have;
- Contingency Finance (A financial Cushion)
- Credit Periods yet to expire
- An active Working Capital Cycle
That must be paid before you consider any additional finance as liquid that you can spend on anything. Additionally when a business is in liquidation whereby they have had to cease trading there is still things that have to be paid off, and unfortunately for some employees, this may be unfair as it could mean a business cannot afford to pay them because they do not have the funds.
1. The Tax Office must be paid, to cover the business from litigation.
2. Shareholders must be paid dividends and the value of their shares.
3. Employees must be paid their wages.
Some Key Terms
- An Income Statement – Measures the business performance over a period of time, and may allow them to determine where forecasting was over-optimistic. It shows a companys revenue and total spending over a given period of time.
- A Statement of Financial position is a snapshot of the business assets.
- A Cash flow statement shows cash flow sources over a given period of time. It shows exactly how much a business has received and spent.
What is Break-even analysis useful for anyway?

May 2nd, 2016
What does Break-even calculate?

Here is a Break-even chart. It represents a 24 day period.

y = cash x = days

Break-even is when a business is not making any losses or profit, seen in the chart above at 11 days. It can be seen that the yellow total costs line, is the same angle as the variable costs line, plus fixed costs. It also can be determined, that the blue shaded are represents the magin of safety as after that all costs are paid.

What is Margin of Safety?

The margin of safety is how much additional units you have sold in a given period. For example, in the graph below, we are on our 18th day.

On this day we have spent approximately $680 since day 1, and by day 18, we have made $1040 revenue, so our margin of safety is $1040-$680= $360, however margin of safety does not work in money so we need to convert it back to units, so if each unit sells for $10, then our margin of safety is 36 units.

What is Break-even useful for? (Advantages and Disadvantages)
- The point at which you aren’t making any losses or profit.
- It allows you to identify problems you may face with cash flow on new investments, for example;
  - Investing in a more expensive warehouse may not be financially viable, as the investment would create a small margin of safety.
  - Increasing variable cost may make break-even harder to achieve.
- It allows a business to ‘relax’ it’s workload after it has reached it’s margin of safety, as it no longer needs to cover costs. Everything made past the break-even point is profit.
- It may allow an entrepreneur identify where they may want to take risks.
- It also allows an entrepreneur to identify when a theorised project is not financially viable.
- It focuses on what output is required before a business reaches profitability
- Helps management and Finance providers better understand the viability of a risk or business idea.
- It does not cater for potential changes in the moment
- Unrealistic assumptions that everything stays the same.
- It is more of a planning aid, than a decision tool.
However there are limitations of the chart, as it does not allow you to anticipate economy of scale, changes in fixed cost or demand. The most important factor that it allows you to calculate is the point that you aren’t making any losses or profit.

How is Break-even calculated?
```
Break-even Output = Fixed Costs / Contribution per unit
```
```
Contribution per unit = Selling price per unit - Variable cost per unit

or

Contribution per unit = Contribution per unit x Number of units sold
```
Common AS-Level Business Studies Equations

May 2nd, 2016
Here is a list of routinely forgotten equations for Business Studies, make sure to memorise them.

Equations

Total Contribution =

Total revenue - Total variable cost

Contribution per unit =

Selling price per unit - Variable cost per unit

or (for total contribution)

Contribution per unit x Number of units sold

Profit =

Total contribution - Fixed cost

Break-even Output =

Fixed cost / Contribution per unit

What do they mean?
- Contribution is useful for a business to be responsible for a range of products, it allows them to calculate how much money they make on a sale.
- The Break-even charts (and equation) is a tool that allows you to show total costs at all possible levels of output or demand from zero to maximum capacity. Break-even is not given in money, and should be the amount of units sold.
- Profit is money made, not taking anything into account other than fixed and variable cost.
- Contribution per unit, is just total contribution per unit. So to get it, divide by the amount you sell of a product (or use the other formula). Don’t confuse this with break-even.
When calculating using these equations it is important to consider external factors. Such as extrapolation or economic variables that could be changing the data. However you may not get questions like this in the exam.

Sometimes four mark questions may ask about productivity. For example, these questions do not want you to describe the formula, they may want you to state it. But make sure to stick to the ‘because, leading to, therefore and such as’ structure. Otherwise you may not be answering the question correctly.

Break-even output is easier to consider it as the fixed costs divided by the contribution per unit, like so. If it costs $500 in rent, and you get $1 for every candy bar you sell, you need to sell 500 candy bars. Because $500 / $1 is 500 not $500.

Remember that break-even output is never given as money. Remember also to consider confidence intervals may mean that the data given is not accurate, as well as the accuracy of the data you have received.

Remember that the information you have may be hear-say and not 100% accurate, things may change. The variable cost of items may raise, or lower. Total contribution may not be accurate if the business sells multiple products at different prices. Make sure to base your equations off all of the information available, don’t take short-cuts.

"Revenue is vanity, Profit is sanity, Cash is King!"

Remember, its not percentages or ratios that businesses put in the bank, it’s dollars. credit. So think about how valuable the data you have actually is. Make sure you understand the numbers! cash flow shortages can be negated with better trade terms. Having predictable cash flow is preferable, so make sure that you mention it.
Trade-offs and Opportunity Cost

May 2nd, 2016

What is Trade-offs and Opportunity Cost?

Trade-offs are choosing one thing over another, if you choose to invest in paint over pencils, your opportunity cost, is that you can no longer colour with pencils. This is a poor example, so lets look at some real data so we can get a good understanding of what opportunity cost is really about, and for that we need an example.

Nails and Hammers LTD.

A company, called Nails and Hammers LTD, produces hammers and nails, they have a good reputation, but are not really known, they also manufacture their hammers cheaply and therefore some of them are not exactly to the highest quality. in their first year, they only sell 100 units, this is barely enough sales to keep the business going, so they decide to invest in one of two strategies. Investing in Machinery, in order to produce better quality hammers, or Invest in Advertising, to get the word out about their Hammers and Nails. They decide that they will spend $300 dollars in the second year and see how it goes. They do their market research and come up with these two graphs.

It can be seen from these graphs, that investment in advertisements will produce more sales than investment in machinery, therefore investment in Advertising is the way forward for Nails and Hammers LTD. This is called a trade-off, without the graph, it wouldn’t be known which is better for sales until the second year had ended. The same investment of $300 produced more sales. Lets, look at more data.

Opportunity Cost

Opportunity cost is essentially what you could have won if you had invested in something else, if you can only learn piano or tennis, and you choose piano, the opportunity cost is that you could have learnt tennis.

Let’s take our previous example, and pretend that we invested in the lesser option, Machinery, we can see that we didn’t make as much as we would have if we had invested in Advertising. The opportunity cost in the third year would have been 200, because the investment in advertising, produced 700 sales, minus our 500 sales.
Garbage in Garbage Out Data

May 1st, 2016

When you signup for a website. You enter your information (or data). You don’t always get it right and could miss a box or spell your own credentials wrong (garbage), this data in an ICT system is very important that it is minimised. There are numerous ways that this can be accomplished.

Data must be correct

In order to have an accurate IT solution, your data must be correct, otherwise users may find your solution hard to use. It is important that you minimise GIGO through thorough data validation.

Garbage in Garbage Out

When you enter data into an ICT system it is vital that your data is accurate, valid, and up to date. This can be accomplished though input validation. When you enter data, it should be of top quality it is vital that GIGO does not occur. GIGO is garbage in, garbage out, and refers colloquially to the fact that whatever you put into an ICT system, such as garbage, is what you will get out. This is because ICT systems are designed to preform the task that they were designed for, and doing tasks that aren’t what they are supposed to do, will inevitably produce garbage as computers work by logical process. An example of this would be putting an email address in a phone number box on contact information, and when ringing someone, the call does not connect, because it cannot ring an email address.

To stop this sort of thing from happening you must read instructions, follow tutorials and understand the implications of what you are doing, otherwise you could corrupt your data.

Data should be accurate, up-to-date, reliable, complete, correct, designed for purpose and when entered, it should be paramount that it follows these principles, otherwise your it solution could produce frustrating results that the user does not expect. Make sure your data is accourate by forcing users to enter it correctly.
Advantages and Disadvantages of a Public Limited Company

April 30th, 2016
What is a Public Limited Company?

A Public Limited Company is a business that has decided to offer it’s shares on the public stock market. The Stock Market is where anyone can invest in a Public Limited Company. These are usually high value, large businesses that can have massive profits, and offer dividends to those who invest.

In order to become a Public Limited Company, PLC, you need;
- At least two directors.
- A Secretary
- And you must float at least $50,000 shares on the stock exchange, to become a PLC.
Unlike other businesses, a PLC is often owned by a board of directors, that dictate the decisions of a business. PLC’s must also pay Dividend, which is money that the investors receive from the business, determined by their share value. As PLC’s have external influences, they also fluctuate in value and therefore can loose money. Some businesses owners also find that they can loose control. Being a PLC can bring in more capital and make the business more known publically on the sock exchange.

For contrast, to become a Sole Trader. All you have to do is contact HMRC (Her Majesty’s Revenue and Customs) and every year fill in a self assessment. An LTD must send a Memorandum of Association and Articles of Association. For this reason it becomes a lot harder to do so and often people will employ a Secretary. To be a PLC can take lots of time and can sometimes not be possible for companies with a very bad image. Companies also may struggle if they are unreliable or have seasonal traits, such as a manufacturer of Christmas gifts.

Advantages of a Public Limited Company
- Having Shares will fund expansion, allowing the business to grow.
- This also raises company profile.
- The business can raise a lot of capital because there is no limit for shareholders to invest.
- Shares are transferable, so investors can split profits.
- You can get input from investors.
- Investors may try to grow the business, through things like discounted advertising, if they own part of another business.
Disadvantages of being a Public Limited Company
- There could be a possible loss of control, as people may find that shareholders own over 50% of the shares, entitling them to the ownership of the business. This is also known as a divorce of control.
- Shareholders may have other plans to maximise profits over social and ethical goals.
- Share prices could collapse.
- There are a lot of legal formalities.
- Fluctuations in share price could make a company worthless overnight.
- PLC’s are hard to maintain. As they are usually large, often everyone has their own ideas.
- Some companies may be overvalued.
- Some do not have $50,000 worth of shares to float.
A PLC is usually for large companies. Small businesses will not always expect to grow, Corner shops for example, will not grow beyond what is possible due to the local footfall. Therefore PLC’s are often global businesses.

Understanding Different Business Types

April 30th, 2016

There are many business types of organisation, these all have their advantages, so it is important to know which is better for which task, otherwise a company may find some aspects harder than they should be. The main business types are;

Business Types [icon name=icon-building]

A Sole Trader is a business owned by an individual, It can have many employees. Common sole traders could be corner shops or man-with-van businesses.
A Partnership is a business owned by two or more people (usually up to 20), the ownership of the business is split between them. A partnership may be a small manufacturing company or some large accountancy firms have larger quantities of partners.
A Franchise is a business that is owned by a franchisor, and the licensing to use the brand name is given to the franchisee to sell products under their name. Common examples would be fast food restaurants or garages.
A Private Limited Company (or ‘LTD’) is a company that offers shares, but does not sell them to the general public. Generally they will have either small amounts of capital, or very large amounts. The size of the business can vary, and can be a multinational company or a medium sized business.
A Public Limited Company (or ‘PLC’) is a company that sells it’s shares on the stock exchange, allowing members of the general public to invest capital into the business.
A Co-operative is a business set-up to serve the public, and may have ethical goals, over profits and sales. Some supermarkets work in this way.
A Social Enterprise is a business who’s money goes toward a social goal(s). Examples would be a company supporting people with an illness or disease.
There are also Lifestyle Businesses who’s owners work as part of their lifestyle. This can depend on the characteristics of the entrepreneur.

Most of these business types operate on two different types,

Limited Liability is when only the Business assets can be taken to recover debt. Limited Liability is where the owner is protected from any trouble the business suffers, and vice versa.
Unlimited Liability is when the business is not protected from such problems, and if the business were to get into financial trouble or insolvency, then the owners assets could be taken as a circumstance.

An LTD (Private Limited Company), must send a Memorandum of Association and Articles of Association. To receive a Certificate of Incorporation and Limited Liability. Becoming Incorporated means that the company and the owner are seen as two separate entities legally.

To be Unincorporated, would mean that the business and the owner are seen as one legal entity.

Limited Liability
Advantages	Disadvantages
The owner is not responsible for the debts of the company. The business is not effected by the owners problems. Sole traders may find it easier to secure trade credit as it is checked against your credit rating.	The owner has to pay Corporation Tax. It usually takes time to register. There may be additional cost as the owner may have to hire an accountant. The owner may face troubles moving profits or assets from the company to him. It may be harder to secure good trade terms with suppliers as they may see the company as a potential liability. This means your business type is Incorporated.

Category: Featured

Could Leadership Cause Business Failure?

Key Terms

Common Business Failure

Financial

Non-Financial

The Working Capital Cycle

Data Collection

Recording the Results

So How Long Will My Phone Battery Last Before It Dies?

Failing to predict sales forecasts correctly

Some Key Terms

What does Break-even calculate?

What is Margin of Safety?

What is Break-even useful for? (Advantages and Disadvantages)

How is Break-even calculated?

Equations

What do they mean?

What is Trade-offs and Opportunity Cost?

Nails and Hammers LTD.

Opportunity Cost

Data must be correct

Garbage in Garbage Out

What is a Public Limited Company?

Advantages of a Public Limited Company

Disadvantages of being a Public Limited Company

Business Types [icon name=icon-building]