WBS12 Managing business activities

Lessons in WBS12

1. The business plan
   Plan = aims, market research, marketing, operations, finance (cash flow, break-even, sources). Uses: raise finance, test the idea, set targets, communicate. Onl
2. Internal sources of finance
   Internal finance: owner's capital, retained profit, sale of assets. No interest and no loss of control, but limited in amount and not available to every busines
3. External finance: who provides it
   Sources: family and friends, banks, peer-to-peer, crowd funding, business angels, other businesses. Suitability depends on amount, time period, legal form, risk
4. External finance: loans, shares, overdrafts and more
   Debt (loans, overdrafts) must be repaid with interest but keeps control. Equity (shares, venture capital) is never repaid but dilutes control. Leasing, trade cr
5. Sole traders, partnerships and private limited companies
   Sole trader: one owner, full control, unlimited liability. Partnership: shared skills and capital, unlimited liability. Ltd: separate legal entity, limited liab
6. Franchises, social enterprises, lifestyle and online businesses
   Franchise: brand and system for a fee and royalty; lower risk, less independence. Social enterprise: trades for a social aim and reinvests surplus. Lifestyle: i
7. Growing into a public limited company
   plc: shares offered to the public, listed on a stock exchange. Flotation raises large capital and lets owners cash in. Costs: fees, loss of control, takeover ri
8. Limited and unlimited liability
   Unlimited: owners' personal assets at risk (sole traders, partners). Limited: shareholders lose at most their investment (Ltd, plc). Only limited companies can
9. Sales volume, revenue and costs
   Revenue = price x volume. Total cost = fixed + variable. Average cost = total cost / output. Profit = revenue - total cost.
10. Sales forecasting
    Forecasts drive production, staffing, cash flow and finance. They depend on consumer trends, economic variables and competitors, and are least reliable for new
11. Break-even analysis
    Contribution = price - variable cost per unit. Break-even = fixed costs / contribution. Margin of safety = output - break-even.
12. Break-even charts, changes and limitations
    TR crosses TC at break-even. Break-even revenue = break-even output x price. Profit = margin of safety x contribution. Target output = (FC + target profit) / co
13. Constructing a cash-flow forecast
    Net cash flow = inflows - outflows. Closing = opening + net. Next opening = this closing. Record cash when it moves: credit sales arrive later.
14. Interpreting and using cash-flow forecasts
    Read the forecast for negative balances, the lowest point and trends. Use it to arrange finance early, time purchases and monitor. It is only as good as its ass
15. Budgets: purposes and types
    Budgets plan, control, coordinate, motivate and allocate resources. Historical budgets adjust last year's figures (quick but repeat waste). Zero-based budgets j
16. Variance analysis and the difficulties of budgeting
    Variance = actual - budget. Favourable: income up or costs down. Adverse: income down or costs up. Investigate causes; budgets are hard because forecasts are un
17. Gross profit, operating profit and profit for the year
    Gross profit = revenue - cost of sales. Operating profit = gross profit - operating expenses. Profit for the year = operating profit - interest - tax.
18. Profitability: profit margins
    Margin = profit at that level / revenue x 100. Compare over time and with rivals. Improve by raising prices, cutting direct costs or overheads, or selling more
19. Liquidity: profit versus cash and the liquidity ratios
    Current ratio = current assets / current liabilities. Acid test = (current assets - inventory) / current liabilities. Profit is not cash: credit sales, inventor
20. Improving liquidity and managing working capital
    Working capital = current assets - current liabilities. Improve liquidity by selling assets, extending supplier credit, factoring receivables or cutting invento
21. Causes of business failure
    Internal: poor cash management, overestimated sales, overtrading, poor inventory control, poor marketing, poor quality. External: market, competition, economy,
22. Production methods: job, batch, flow and cell
    Job: one-off, customised, high unit cost. Batch: groups of identical items, some variety, downtime. Flow: continuous, standardised, lowest unit cost, inflexible
23. Productivity, efficiency and lead times
    Labour productivity = output / workers per period. Labour cost per unit = labour cost / output. Efficiency = producing at minimum average cost. Short lead times
24. Capacity utilisation
    Capacity utilisation = current output / maximum output x 100. Higher utilisation spreads fixed costs. Under-utilisation raises unit costs; over-utilisation risk
25. Inventory control, buffer inventory and JIT
    Re-order quantity = maximum - buffer. Re-order level = buffer + usage x lead time. Too much inventory ties up cash; too little loses sales. JIT and lean product
26. Quality management: control, assurance, TQM and kaizen
    Quality control inspects and detects; quality assurance prevents at every stage; quality circles are worker problem-solving groups. TQM makes everyone responsib
27. Inflation, exchange rates and interest rates
    Inflation raises costs and cuts real incomes. Appreciation: exports dearer, imports cheaper; depreciation: the reverse. Higher interest rates raise borrowing co
28. Taxation, government spending and the business cycle
    Tax rises cut disposable income or profit; indirect taxes raise prices. Government spending helps its suppliers and supports demand. Boom, downturn, recession,
29. Legislation: consumers, employees, environment, competition and IP
    Laws protect consumers (quality, honest advertising), employees (pay, hours, discrimination), the environment (pollution, waste), health and safety, and competi
30. The competitive environment and how small firms compete
    Competitors' number, size and behaviour shape pricing and strategy. More competition lowers prices and margins. Small firms compete through service, niches, dif
31. Unit 2 exam technique (WBS12)
    2 hours, 80 marks: A 30, B 30, C 20. Calculate: formula, data, answer with units. Analyse 6 = 2K 2A 2An. Discuss 8, assess 10 and evaluate 20 need balance and a

Next exams for WBS12

• January 2027: Fri 15 Jan 2027, morning, 2h 00m
• Summer 2027: Mon 10 May 2027, morning, 2h 00m

From Pearson's final timetables. All exam dates. Always confirm your entries with your exams officer.