Overview of WebDesPix (WDP)

1. AN OVERVIEW OF ISSUES TO DO WITH WEBDESPIX (WDP) This is only a start look at your booklets and notes! WebDesPix

2. CONTEXT – WebDesPix Ltd (WDP) In 1999, three students (Tom, Dee and Ali) in the final year of their Computer Studies degrees at Bristol University decided to start a business designing websites. The business was called WebDesPix (WDP). On the advice of Tom’s father, John, WDP was a private limited company. John is still involved with the company as non-executive Chair and attends a monthly board meeting, travelling from Suffolk to Bristol. The company has always been located in Bristol. Tom says, “We could have run the company from anywhere in England but, as we were all from different parts of the country, it was easier to locate where we had studied”. The initial capital of £8 000 was raised from the three families. Ali left the company after two years and was bought out by Tom and Dee, who each now own 50% of the shares. They are planning to give John shares in the company. It is company policy to re- invest profits. The company has never had a bank loan but uses an overdraft facility. The objectives of WDP for 2009 were to: • consolidate following two years of sustained growth (15% on turnover per annum) • market all products on-line • increase use of e-commerce in its own website and those it designs for other companies • continue trading in a competitive market where anybody can set up as a web designer. Web design is still the core business of the company but new services include electronic newsletters, domain registrations, hosting and search engine optimisation. The company offers three standard web design packages: Budget at £800, Professional at £1 000 and Executive at £1 500. Each package provides a number of web pages, e-mail facilities and the costs of hosting the site. WDP will give a quotation to clients who require non-standard packages. The majority of clients are in the South West of England but 25% of the company’s income is from clients in the South East. WDP uses branding, shown below, with the tag line, ‘Like ducks to water’. The company is labour-intensive with relatively small overheads. WDP builds and upgrades its own computers. Tom is responsible for sales and finance, and Dee for design and health & safety. All other areas of the business are shared between them. There are seven full-time employees: two sales assistants, two computer coders, two search engine optimisers and a design assistant. All of these salaried positions require highly-qualified (a degree in IT) and skilled people who train new employees as required. Vacancies are advertised on the company website and at regular networking meetings with other businesses in the Bristol area. Tom and Dee interview all applicants personally. There is a three-month probationary period for all new employees. There are two part-time employees: a Personal Assistant (PA) for Tom and a bookkeeper. The part-time employees present monthly invoices for their services. Full-time employees receive a monthly bonus based on turnover; free health insurance after six months’ employment; a free lunch each Friday and the use of a Wii during their breaks. Office hours are five days a week from 0900 to 1730. The two sales assistants receive, in addition to their salary, a commission of 12½% on their sales. No employee works from home. The main form of communication is by e-mail. Fax is now rarely used. There is occasional use of video-conferencing. The company website displays examples of its web design work. Tom says, “Networking meetings and word-of-mouth are very important and bring us most of our clients”. All financial documents are raised by the Sage Accounting package and the PA uses Word, Excel, PowerPoint, Access and Outlook.

3. TYPES OF BUSINESS WebDesPix

4. Private Limited Company Definition of a (LTD) WDP is a private limited company that is run by its shareholders, but these shareholders are made up of only family and friends (Tom, Dee and John). Shares for WDP are not available to the general public and are not sold on the stock exchange.

5. How WDP was set up • Step 1 – A memorandum of association and articles of association was prepared. • Step 2 – These documents were sent to the registrar of companies • Step 3 – The registrar of companies issued a certificate of incorporation which allowed WDP to start trading.

6. What type of Business is WDP? L T D Private Limited Company W h y d i d t h e y b e c o m e a n L T D ? How is it formed? • H a v e l i m i t e d l i a b i l i t y – r a t h e r t h a n u n l i m i t e d c a n ’ t t a k e P W • C a n r a i s e / g e t c a p i t a l i n t o t h e b u s i n e s s b y s e l l i n g S h a r e s t o f a m i l y / f r i e n d s , D i r e c t o r s c o n t r o l w h o t h e y s e l l t o . • E a s i e r t o g e t b e t t e r l o a n d e a l s ( c h e a p e r ) – b e t t e r r i s k f o r B a n k s • B e t t e r c r e d i t f a c i l i t i e s f r o m s u p p l i e r s W h a t a r e t h e a d v a n t a g e s o f s t a y i n g a n L t d ? T h e y h a v e l i m i t e d l i a b i l i t y , c a n ’ t b e t a k e n o v e r – s t a y s i n F a m i l y . H a v e t o t a l c o n t r o l . M e m o r a n d u m o f A s s o c i a t i o n A r t i c l e s o f A s s o c i a t i o n R e g i s t r a r o f C o m p a n i e s C e r t i f i c a t e o f I n c o r p o r a t i o n

7. Advantages and D isadvantages of WDP’s type of ownership. • It can raise capital by issuing (selling) shares, but not to the general public. • The owners have limited liability. • WDP has its own legal identity • Money can be raised by selling shares to their friends and family. • WDP cannot sell shares on the stock market. • Annual reports have to be produced by law.

8. Reasons why WDP might change ownership 1. Growth of the business 2. To raise extra capital Growth/decline of the business Growth/decline of the business • As WDP grows it will need new sources of capital and it may need to change its legal structure.

9. Obtaining finance Obtaining finance – As a public limited company (Plc) WDP will be able to raise considerably more capital than a private limited company (Ltd). – But remember, we are in a recession difficult to launch on the stock market and it would be very expensive. Not a realistic option for WDP. Changing to a Public Limited Company Definition of a (PLC): A public limited company is a business that is run by shareholders, the shares can be bought by any one, and its shares can be bought on the stock exchange.

10. What sector does WDP operate in? WDP provides web design, electronic newsletters, domain registration, hosting and engine search optimisation services. They therefore operate within the tertiary sector. This is where finished product can be sold . This sector provides both goods and services.

11. Main Roles and responsibilities of those involved in LTD’s WILF: The meaning and responsibilities of: 1. CEO 2. Board of directors 3. Chief executive chair

12. Activity: Use the case study to answer the following questions: 1. Who are the owners of WDP? 2. Who are the directors of WDP? 3. Who the non-executive chief of WDP is? 4. Who the board of directors of WDP might be?

13. Who are the owners of WDP? WDP is owned by its shareholders which are currently Tom, Dee and members of their families (including Ali’s as they all invested capital into the business).

14. Who are the directors of WDP? The Directors of WDP are Tom and Dee. Roles and responsibilities of Tom and Dee: 1. Act on behalf of the shareholders 2. Run the day to day affairs of WDP 3. Provide reports to shareholders about WDP performance, future plans and strategies. 4. Prepare the articles and memorandum of association. The objectives of the company are defined in the Memorandum of Association and regulations are laid out in the Articles of Association. 5. Hold yearly board meetings

15. What is John’s position with WDP? Johns position within WDP is that of non- executive chair . His main roles and responsibilities are to: 1. Work with Tom and Dee to develop an appropriate schedule and agendas for board meetings. 2. Chairing all meetings of the Board 3. Address all issues relating to the performance of individual directors Tom and Dee.

16. Who are the board of directors? The board of directors of WDP will be made up of Tom, Dee, John and shareholders. The members of the board (other than Tom, Dee and John) will be decided by the shareholders voting.

17. Communication between the board of directors and shareholders 1. Communication between the board and shareholders happens mainly through yearly meeting called annual general meetings. 2. The board meet monthly to discuss WDP performance .

18. WDP may look to see if they can use any Economies of Scale What are they, give me (4)? • B u y i n g – b u y i n b u l k c h e a p e r p r i c e s • M a r k e t i n g – c o s t o f a d v e r t i s i n g p e r i t e m c h e a p e r • F i n a n c i a l – E a s i e r t o b o r r o w m o n e y a t b e t t e r r a t e s , i s s u e s h a r e s • A d m i n i s t r a t i v e – c a n a f f o r d s p e c i a l i s t m a n a g e r s D i s e c o n o m i e s o f S c a l e S o m e t i m e s c a n b e a p r o b l e m – H o w ? • D e c i s i o n s t a k e l o n g e r • C o m m u n i c a t i o n p o o r w i t h s t a f f • E m p l o y e e s f e e l d e m o t i v a t e d • M a y l e a d t o t r a d e u n i o n p r o b l e m s

19. LOCATION WebDesPix

20. Factors which may influence a business’s choice of location include: • Close to customers • Availability of skilled labour • Transport links for suppliers and distribution • Financial help available from the government • History and tradition • Wage levels

21. Close to Customers • These businesses depend on customers passing through their doors and spending money. Locating near their customer base increases their chances of making sales.

22. • The cost of labour varies in different parts of the UK, because of levels of unemployment and differences in living costs. Wages in London are usually higher than in the rest of the UK. • Businesses need people to work for them. Consequently, businesses often set up in populated areas. Availability and Cost of Skilled Labour

23. • Most businesses need to be easily accessible to their suppliers and distributors. • Businesses that distribute their products within the UK or overseas will have to think about access to the transport infrastructure . Transport Links for Suppliers and Distribution

24. Financial help available from the government • The government can give grants, tax relief and subsidies to businesses that set-up in areas of high unemployment. The aim is to try and create new jobs. Benefits: These incentives can drastically cut a business costs.

25. History and tradition • Sometimes businesses will locate in a certain area because there is a history of that type of business in the area. Benefits of this will be: - People in the area have the skills that are needed. - Local colleges provide special training for the type of work required.

26. Wage levels • The average wage offered by businesses varies in different parts of the UK. • So business need to think about the wage or salary that people in that area will expect as this can raise their costs. Think about this. Do you feel that WDP should stay in Bristol or maybe move to the South East where 25% of their customers are. Be able to answer reasons for and against moving location.

27. HUMAN RESOURCES WebDesPix

28. External Recruitment 1. Methods used by WDP to recruit and select staff 2. How their recruitment and selection process can differ

29. Starter 1. Use the case study to identify what methods of recruitment and section WDP use to recruit staff. 2. List one advantage and drawback for WDP using these methods for both recruitment and selection.

30. What methods do WDP use at the moment to recruit staff? Vacancies at WDP are advertised via: • the company website • Networking meetings

31. What selection methods do WDP use to recruit staff? Selection at WDP takes the form of: • Interview (Tom and Dee carry these out personally). • All applicants have a 3 month probationary period.

32. The stages in recruitment that WDP will need to go through to recruit staff In order to externally recruit staff WDP will go through the following stages: 1. Write a job description 2. Write a person specification 3. Advertise job via their website or at networking meetings 4. Receive applications 5. Shortlist 6. Interview 7. Appoint successful applicant (subject to references) 8. Check references

33. Other methods of recruitment that WDP could use to advertise/recruit staff Other external methods of recruitment that could be used by WDP: • Bristol local newspaper • ICT related professional journal/magazines • Job Centre • Recruitment agency • Careers Service • Head hunting • Local radio • University Career Fairs • Competitors staff!

34. Things that WDP will need to consider when deciding to recruit staff • How quickly vacancy needs to be filled • Pay • Skills, qualifications and experience needed • Local supply and demand for jobs • Importance of job to organisation • Size of organisation

35. Method Advantage Disadvantage Job centres It’s a free service. Not all the people that attend my have the skills WDP are looking for. Local newspaper Jobs advertised will be specific to that area. So WDP may be able to recruit a local worker. Usually only advertise jobs one day a week. National newspaper Has the potential to reach a large amount of people. WDP will have to abide by strict laws concerning discrimination. Usually only used to recruit managers and specialist staff. Specialist magazines WDP can target specialist staff i.e. dentists. Can be very expensive. Employment agencies WDP can send details of vacancies to the employment agency who will match up any potential employees from their records of people who have registered on their books. WDP has to pay for the service to find the right candidate. Local radio A useful opportunity for WDP to advertise their business. WDP can reach a large number of people at one time. WDP adverts will only come on at certain time slots, people may not be listening. Networking meetings Can save WDP a great amount of time and money. Word-of-mouth recommendation does not always mean the person can do the job.

36. Selection stages that WDP will need to go through 1. Receive application forms or CVs – to find out qualifications and experience 2. Shortlist - by comparing applications with person specification 3. Interview – to judge qualities not possible to judge from written applications - also to give applicants a chance to find out about the WDP. - Could also include a test to find out whether candidate has key skills needed for the post 4. Call for references – to check performance in a previous job or to check character

37. Method Advantage Disadvantage Curriculum Vitaes WDP can quickly get brief history of the applicants career, qualifications, experience and interests. They can quickly establish if they match her person specification. Sometime they are not honest and reliable. Application form WDP is able to collect the information that they want by designing the application form. They involve printing and posting costs for WDP. Interviews It’s can be a good way of finding out the persons reasons for applying for the job. John and Dee can ask questions regarding information to do with the job face-to-face. They can see their personality. Not always the most reliable method, it is difficult to check what the applicant is actually like or whether they are capable of doing the job. Aptitude Tests WDP can test the applicants skills in carrying out specific duties to do with the job. Involves a lot of time and preparation to set-up the newsletter or web page etc that they want the applicant to adapt or build. Letters of application WDP may get an idea of the applicants personality and written communication skills. Sometime they are not honest and reliable. Takes time to read. References WDP will get a written account of the applicants personality, time-keeping, honesty, reliability and work. Reference may not be always totally be honest and reliable.

38. It is important for WDP to have a good recruitment process for the following reasons: • John and Dee can make sure that she employ’s the best person for the job. This person should in-turn bring new ideas into the practice, and help them towards achieving their overall business aims and objectives. Why is it Important to Have a Good Recruitment and Selection Process?

39. Exam Question 1 WDP are growing. As a result John and Dee decide to recruit new members of staff. Explain the stages they will go through in recruiting and selecting new employees (4 marks)

40. Exam question 2 WDP need to recruit a new sales team. Identify and evaluate suitable methods of: • recruiting and selecting • Training • Motivating The new team (12 marks)

41. Exam question 3 WDP has to advertise for a new member of staff to work at the business. They must choose one of the following to advertise for the new member of staff: • A free weekly paper that serves the local town. • Local radio • ICT related professional journal/magazines • Job Centre 1. From the list choose a suitable source to advertise for the new member of staff. Give one reason for your choice (2 marks). 2. Suggest one disadvantage to WDP of using the source you have chosen (1 mark).

42. Employment Legislation How the law will affects the way WDP recruits and selects staff WebDesPix

43. Keywords: • Discrimination – When you don’t give someone a job or treat them differently because of their colour, sex, or race.

44. Sex Discrimination Act What the Act says: It is illegal to discriminate against anyone because of their sex or marital status. How this will affect WDP: When advertising a vacancy John and Dee must be careful with the language and wording used in the advert. When selecting the best candidate for the job they cannot be seen to be choosing the candidate based on their sex or martial status. They should also not promote, train, or dismiss any of their staff on these grounds.

45. Race Relations Act What the Act says: It is illegal to discriminate against someone on the basis of race, ethnic group or colour. How this will affect WDP: When advertising a vacancy WDP must be careful with the language and wording used in the advert and must not show preference to a particular ethnic group. When selecting the best candidate for the job John and Dee cannot be seen to be choosing the candidate based on their ethnic group. They should also not promote, train, or dismiss any of their staff on these grounds.

46. Equal Pay Act What the Act says: An employee who does similar work as someone else of the opposite sex is entitled to equal rates of pay and conditions. Men and women should be given equal pay. How this will affect WDP: WDP must pay all their staff that do the same job i.e . the 2 sales assistants, the same amount of pay regardless of their gender.

47. Disability Discrimination Act What the Act says: It is unlawful to discriminate against a person on the grounds of disability. How this will affect WDP: When advertising a vacancy WDP must be careful with the language and wording used in the advert. When selecting the best candidate for the job John and Dee cannot be seen to be choosing the candidate based on a disability they may have, as long as the disability will not affect them from carrying out the job. WDP should also not promote, train, or dismiss any of their staff on these grounds.

48. Exam question 1 Advise how the following acts will influence how John and Dee writes the job advertisement and carries out the selection process: • Race relations • Sex discriminations • Disability discrimination • Equal pay (8 marks)

49. Benefits and drawbacks of WDP using probationary periods as part of the recruitment process

50. What is a probationary period? A trial period for new employees, prior to their employment becoming permanent. Up to a maximum of 90 days.

51. Advantages and disadvantages of WDP using probationary periods • Evaluation – WDP can evaluate the employee performance before making them permanent. Less risk. • Termination – WDP can terminate the employee without repercussion. • Resignation - On the flip side, a disadvantage of probation period is that an employee can resign at will, leaving the WDP with an unexpected vacancy.

52. QUALITY OF SERVICE / CUSTOMER CARE IN BUSINESS? WebDesPix

53. WDP want to make sure their staff provide a quality service What quality programmes could they put in to do this? • S e t u p t h e i r o w n t r a i n i n g p r o g a t w o r k – t o s e t b a s i c s t a n d a r d s – d i p l o m a s f o r s t a f f g a i n i n g l e v e l s + b o n u s • T Q M – T o t a l q u a l i t y M a n a g e m e n t , e v e r y o n e i n v o l v e d i n k e e p i n g a n e y e o n q u a l i t y • Q u a l i t y C i r c l e s – g r o u p s o f e m p l o y e e s l o o k i n g a f t e r d i f f e r e n t s e c t i o n s a n d m a k i n g s u r e q u a l i t y i s g o o d • K a i z e n – ( J a p a n e s e c o n c e p t ) c o n t i n u o u s i m p r o v e m e n t o n a d a y t o d a y b a s i s

54. MARKETING THE BUSINESS? WebDesPix

55. WDP say they are market orientated what does this mean? H o w t h e n c a n t h e y m a k e s u r e t h a t t h e y p r o v i d e w h a t t h e i r c u s t o m e r s w a n t ? G i v e w a y s o f d o i n g t h i s • M a r k e t R e s e a r c h : P r i m a r y – q u e s t i o n n a i r e s S e c o n d a r y – u s i n g r e p o r t s • F o c u s g r o u p s • T e l e p h o n e s u r v e y s / q u e s t i o n n a i r e s f r o m c u s t o m e r d a t a b a s e • C h e c k o u t w h a t t h e i r c o m p e t i t o r s a r e d o i n g • G o i n g t o e x h i b i t i o n s f o r w e b d e s i g n c o m p a n i e s WDP

56. USE OF TECHNOLOGY IN BUSINESS WebDesPix

57. Websites What can WDP use the Web for : 1. Marketing all their products – creating awareness of their services. 2. Advertising their services 3. Emailing - communicating with its customers.

58. E-commerce What is e-commerce? E-commerce means to sell products or services over the internet. What can WDP use e-commerce for : 1. Customers can order WDP products online and pay for then using their credit or debit card. Once paid for WDP will forward them their design package e.g. web page, e-mail facilities etc.

59. Benefits of WDP using e- commerce Advantages: 1. WDP can sell products anywhere in the world, thus increasing their market share. 2. WDP can reduce costs as the cost of downloading information on their services is paid for by the internet user not WDP. 3. There is no need for WDP to hire a large sales team as most of the sales take place over the net.

60. Exam Question What are the advantages to WDP of communicating electronically via the website, email and e-commerce? 6 marks

61. Sources of finance that WDP can use to help achieve their objectives Objectives: • Market all products on line. • Increase the use of e-commerce • Survive within a competitive market

62. USE OF E COMMERCE IN BUSINESS WebDesPix E-commerce Wh at is it?

63. Using E-commerce gives businesses access to customers all over the word. This is known as ‘ The global market ’ which is reached by means of a website . Think of examples of websites you or your family frequently use to make purchases.

65. What do you think are the advantages for businesses of using e-commerce?

66. Advantages of e-commerce for a business • Access to the global market means the business will be better known • A business using e-commerce can get ahead of its rivals • Increased sales, leading to increased profit • Savings on expensive showrooms • Reduced advertising costs • Increased sales leads to ‘economies of scale’ • Business is open 24/7

67. What do you think are the advantages for customers of using e-commerce?

68. Advantages of e-commerce for customers • Customers have a huge range of goods to choose from • They can ‘shop around’ the ‘web’ for the best bargain • Internet prices are often lower than in shops • Customers can shop from the comfort of their own home ’24/7’

69. What do you think are the disadvantages for businesses of using e-commerce?

70. Disadvantages of e-commerce for a business • Being part of the global market means the business is in competition with lots of others • Designing and keeping the website up-to- date is expensive and requires specialists • Market research needs to be very detailed to meet the needs of customers in such a wide market • Packing and distribution of products can be very costly and involve long distances • Not all the businesses target customers have access to the internet.

71. What do you think are the disadvantages for customers of using e-commerce?

72. Disadvantages of e-commerce for customers • Customers need to own or have access to a computer and be on-line and know how to use the Internet. • It is not easy to assess the quality and suitability of many products on the screen. • Inconvenience of returning unwanted goods. • Customers usually have to have a credit card to make Internet purchases • Security risks of buying on-line

73. Things to think about! One of WDP’s objectives is to expand the use of e-commerce on its own website. Evaluate this decision. (12 marks)

74. HOW CAN WDP RAISE FINANCE? WebDesPix

75. Why does WDP need to raise finance? In order to raise finance to achieve their objectives for 2009 WDP will need to raise finance. This can come from both internal and external sources. • Internal sources = re-invested profits, share capital. • Short-term external sources = overdraft and loans.

76. What is an overdraft? An overdraft is when a business draws more money from its bank account than it currently has in its account through an agreement with the Bank. Advantages of use: 1. WDP can borrow money when needed. 2. Interest is only paid when the money is taken out. Disadvantages: 1. Banks can insist that It can be repaid immediately.

77. What are loans? A loan is a sum of money borrowed from a bank. The loan has to be re-paid in fixed monthly instalments. Disadvantages of use: 1. Interest is payable on the loan. 2. Banks may require WDP to provide security or collateral against the loan. Which means the bank will sell some of WDPs assets (things which it owns) if it fails to make the payments. 3. Can be affected by a raise in interest rates.

78. How could a change in interest rates affect WDPs loan or overdraft repayments? What are interest rates? Is the percentage that is charged for borrowing. High interest rates: Will mean that the charge for borrowing money will be high. WDP will have to pay a lot of interest on top of its borrowing. Low interest rates: Will mean that the charge for borrowing will be low. WDP will have to pay back less interest on their borrowing.

79. Illustration of interest rates If WDP borrowed £8000 from the bank in the form of a short-term loan, in order to increase the use of e-commerce, with an interest rate of 5%. 1. How much would WDP need to pay back to the bank in total? 2. If interest rates increased to 9%. How much in total would they need to payback to the bank. £8400 £8720

80. Exam question 1. WDP are considering approaching the bank for a bank loan as additional finance to help them achieve their objectives. Discuss the advantages and disadvantages of this decision. 6 marks. 2. Outline the affects on WDP if interest rates increase during the year they have taken out the bank loan. 4 marks

81. MOTIVATION ISSUES? WebDesPix

82. Motivation • Motivation in practice is all about, how firms get the most out of their employees at work. The terms explained below are just some of ways in which business motivates 'in practice' • Job enlargement - means increasing the scope of the job. Could be increasing the workload (job loading) more of the same or giving people more responsibility (job enrichment). • Job enrichment - increasing the amount of responsibilities workers have. Giving workers a range of responsibilities and tasks, a complete unit of work, responsibility for quality and self-checking and opportunity to show their responsibility. • Job rotation - proving a range of activities to decrease the boredom.

83. Motivation in practice – cont.. Team working - the attempt to maximise worker satisfaction by organising employees into teams. Characteristics of teams might include multi-skilling, self- checking, autonomous worker groups (Kaizen, quality). Empowerment - gives workers the authority to carry out the task, how the want to carry that task out and what the task should be. By empowering workers they are given more control over their working lives and greater responsibility. This method involves delegating power away, it is therefore not such a good idea if control is important.

84. Motivation: Financial and non-financial incentives Financial Incentives • Piecework Workers paid per unit. Piecework encourages workers to produce more to meet targets and therefore might result in poor quality products. This form of payment might therefore not suit everyone and is not conducive to teamwork. • Performance-related pay People's pay is related to how well they perform in their jobs. Often this is related to appraisal system. People might be awarded anywhere between 0-7% depending on how well they've performed and met their targets. This method of pay could be open to abuse by managers and how can you measure the performance of some workers e.g. teachers, policemen, nurses etc.?

85. To make sure B&R’s staff provide a quality service/product they’ve got to be motivated! Draw a diagram of Maslow’s & Herzberg’s theories + what are they called? MASLOW SURVIVAL SECURITY SOCIAL STATUS SELF ACTUALISATION PAY CONDITIONS PRAISE RECOGNITION PROMOTION

86. EXTRA INCENTIVES – BONUS/ COMMISSION ISSUES? WebDesPix

87. How does WDP use Commission? Commission jobs pay you on the amount of sales you create. WDP pay part commission and part wage to two of their sales staff. The commission is paid on the amount of sales made for WDP services/products. The more the sales assistants sell, the more money they will get as "commission“. Therefore there is no end to how much they can earn in a commission job.

88. Advantages and disadvantages of WDP using commission as a method of payment • It’s a form of motivation for their employees to really try and sell WDP’s services/products. • Is a strong indicator of employee productivity. • Can also act as a de-motivator if no sales are made. • Sales people may cut corners to make sales (e.g. not explain WDPs products or services in enough detail to potential customers).

89. To keep the Staff motivated WDP need to have different incentive packages Non Financial package (fringe benefits)? Benefits? • P E N S I O N S C H E M E S • D I S C O U N T O N U S E O F L E I S U R E F A C I L I T I E S • F R E E B U S S E R V I C E T O W O R K • F R E E C A R P A R K I N G • S U B S I D I S E D C A N T E E N M E A L S • F R E E U N I F O R M M A N A G E R S M A Y G E T E X T R A S S U C H A S : - H E A L T H I N S U R A N C E - C O M P A N Y C A R - S H A R E O P T I O N S

90. HOW CAN THE GOVERNMENT AFFECT THE ACTIVITIES OF WDP? WebDesPix

91. Change exchange rates As WDP are an internet company they have a potentially national (if not global) market. If WDP sell their products/services abroad they will need to consider the affect that a change in exchange rates will have on their business: • A fall in value of the £ – will mean that WDP products/services will seem more attractive to overseas customers as they will be cheaper. More sales. • A rise in value of the £ - will have the opposite effect on WDP.

92. Change in interest rates • Cost of borrowing: if WDP decided to take out a loan the interest charged on the sum borrowed will affect their costs. A rise in rates will mean that WDP costs will rise as they have to pay back more interest on their loan and visa versa. • Consumer spending: A rise in rates will cause consumers to cut back spending on ‘non- essential’ items such WDP products/services and vice versa.

93. The effects of good and poor communication on WDP METHODS OF COMMUNICATION WebDesPix

94. What methods of communication do WDP use to communicate? Starter question: 1. Identify which methods of communication WDP use to communicate. Separate these into Oral, written and electronic methods. 2. List the advantages and disadvantages of WDP using each of these methods to communicate.

95. Benefits and drawbacks of using Email Benefits 1. Messages can be keyed in and stored until needed. 2. People can keep in touch easily. 3. One message can be sent to a number of different people at the same time. 4. Can be printed out 5. Attachments. 6. Messages can be saved. Drawbacks 1. Users need a modem and computer and provider. 2. Connections can be lost. 3. Users have to check their mail regularly. 4. Server problems will affect communication. 5. Easy to delete messages. 6. Messages can be intercepted – not good for confidentiality.

96. Benefits and drawbacks of WDP using video conferencing Benefits 1. Save people travelling to meetings (John). 2. Face to face communication. 3. Saving cost and time. Drawbacks 1. Links may not be good. 2. Hardware is expensive. 3. Everyone needs to be available at the same time.

97. Benefits and drawbacks of WDP meetings Benefits 1. Everyone gets the same information. 2. Issues can be discussed freely. 3. Feedback can be given and received, immediately. 4. Problems can be sorted quickly Drawbacks 1. In large meetings there is no way of checking that everyone is listening, or understood. 2. Not everyone is always available. 3. Not everyone has confidence to talk at meetings. 4. Cost of travelling to meetings.

98. Benefits and drawbacks of WDP using a computerised system to manage their finances. Benefits 1. Speed – Can be used to create invoices, prepare budgets, produce quotations, keep track of travel expenses. 2. Time saving – calculations can be made in a fraction of a second. 3. Accuracy 4. Adaptability Drawbacks 1. Complexity – Use of Formulas 2. Set-up cost – Buying hardware and software, cost of training, and updates.

99. Benefits of WDP having good communication • Ensures that action is consistent and coordinated. • Encourages motivation – as employees feel they have a say. • Jobs can be completed correctly and on time. • Provides shareholders, directors and managers with information on which to base decisions. • Provides feedback. • ------------------------------------ • Communicating with Staff? Daily morning meeting to discuss issues • Notice board/ newsletter • Updated via emails • Social events (use of informal communication)

100. Drawbacks of WDP having poor communication • Orders can be lost. • Poor motivation • Loss of shareholders • Increased workload – trying to mend errors. • Poor business image.

101. EXAM QUESTION 1. The directors of WDP plan to use the internet to advertise their new product range. Discuss whether this is an appropriate method. (4 marks) 2. WDP also communicates with interested people through its website, which has an e-mail facility. What are the advantages, to WDP, of communicating electronically via the website and e-mail.

102. CASHFLOW FORECASTS WebDesPix

103. Cash Flow • Cash flow is the relationship between the money coming into a business and the money going out. Sales revenue Own capital Loans Rent Materials Wages Utility Bills Advertising

104. Cash versus Profit • Good cash flow does not mean profit! • You may have enough money to pay the bills but if it is taken from loans or your own pocket it is not profit. • Equally you can make a profit over a year but have times when there is a cash flow crisis.

105. Cash Flow Forecast • A cash flow forecast is a prediction of future cash inflows and outflows. • Firms carry out cash flow forecasting to help them plan and manage their short- term finances.

106. Uses of Cash Flow Forecasting • Helps a business to plan ahead for future finances. • Helps to identify potential problems and months when the business will have a cash shortfall. Firms can then make changes to improve cash flow • A cash flow forecast will be needed to obtain finance such as a bank loan

107. Managing Cash Flow • A business needs to: • Forecast cash flow • Identify any future cash flow problems such as a deficit • Analyse the cause • Take action to prevent a cash flow crisis

108. What are the causes of cash flow problems? • A fall in the number of customers (low sales) • Giving customers too long a credit period • Bad debts (customers not paying) • Paying out for supplies, salaries etc before receiving revenue from customers • Large payments for bills e.g. electricity bills paid quarterly • Purchasing large pieces of equipment without sufficient funds. • Seasonal demand

109. Exam Focus: What cash flow problems is WDP likely to face? • Paying out for staffing, supplies & overheads before receiving revenue from customers as it is likely to give customers a credit period. • Bad debts – a possibility in the current economic climate. • Purchasing pieces of equipment e.g replacing computers without having sufficient funds arranged

110. How can cash flow be improved? • Promote or attract new customers to get revenue • Obtain trade credit from suppliers • Reduce credit periods for customers or obtain deposits/part payments • Actively chase debts • Put off purchases of equipment or lease them • Spread payments of bills • Arrange an overdraft facility.

111. Jan Feb March April May Income 2000 1500 2000 2500 4000 Expenditure 1500 2500 3000 2000 3000 Opening balance Closing balance WDP’s bank account has a closing balance of 1000 in December CASH FLOW CASH FLOW Work out the cashflow figures Are there any problems, what do you suggest WDP does? 1000 1500 1500 500 500 (500) (500) 000 1000 000

112. Practice Question • Tom is responsible for dealing with the financial management of WDP. One of the ways he does this is by managing the cash flow. • (a) Using examples of cash flow problems, explain how Tom could limit their impact.(8)

113. FINANCE – FINAL ACCOUNTS WebDesPix

114. Company Accounts The Profit and Loss Account This shows the sales revenue, costs and profit of the business over a one year period The Balance Sheet This shows what the business owns (assets) and what it owes (liabilities). At the end of each year every company must complete its final accounts. These must by law include 2 accounts.

115. Who is interested in the accounts? • The government – for tax purposes • Shareholders – to check investment • Banks & creditors – to check the business is safe • Managers – to help improve the performance of the company • Competitors – to see how they compare

116. What is profit? • The business makes a profit if the income from selling goods & services is more than the costs paid out in running the business. If the business cannot cover its costs it will make a loss Profit = Sales Turnover – Total Costs

117. The Profit and Loss Account • This shows how the revenues, costs and profits are recorded by the business. The Trading Account • This shows how gross profit is calculated: Gross Profit = Sales Turnover – Cost of Sales

118. Gross Profit • Gross profit just shows how much profit is left after the variable costs have been paid. E.g. How much its making on its sales. • The higher the gross profit the better the business is doing and the more money they have to pay off their expenses.

119. The Profit and Loss Account • This shows how net profit is calculated. Net Profit = Gross Profit – Expenses

120. Net Profit • The net profit is the real profit of the business it is what is left after the running costs/expenses/overheads for the company have been paid. • The higher the net profit the more successful the business.

121. The Appropriation Account • This shows what happens to the net profit and how much profit is retained by the business for future use. Retained Profit = Net Profit – Taxation - Dividends

122. Sales 600 Cost of Sales 200 ----------------------------- ? ? ----------------------------- Overheads 150 ---------------------------- ? ? ---------------------------- Dividends 50 Tax 75 ---------------------------- ? ? ---------------------------- Can you fill out the Full Profit & Loss account? 400 GROSS PROFIT NET PROFIT RETAINED PROFIT 250 125 E x t r a c t f r o m W D P ’ s f i n a n c i a l s t a t e m e n t f o r 2 0 0 6 T u r n o v e r 2 1 2 1 9 2 0 E x p e n s e s 1 8 7 8 9 2 4 F i x e d A s s e t s 2 7 5 8 3 3 C u r r e n t A s s e t s 9 0 2 4 4 0 C u r r e n t L i a b i l i t i e s 3 6 6 4 1 3 C a p i t a l & R e s e r v e s 8 1 1 8 6 0 Another name for Turnover? Which item would show WDP’s debtors? List 3 expenses?

123. RATIO ANALYSIS WebDesPix

124. Ratio Analysis • We can use ratios to judge the profitability of the business. • Gross Profit Margin • Net Profit Margin • Return on Capital Employed (ROCE)

125. The Directors of WDP, have asked their Accountant to work out some Ratios for them. Calculate the results 2006 2005 £ £ Sales 2 636 248 2 686 140 Cost of Sales 1 907 787 1 904 417 Gross Profit ? ? Gross Profit ratio = Gross Profit x 100 = % Sales What is the Gross Profit for both Years? Calculate the Gross Profit ratio for both years What action should the Directors look to take? 728 461 781 723 2006 728 461 x 100 = 27.63% 2636248 2005 781 723 x 100 = 29.10% 2686140

126. USES OF RETAINED PROFIT WebDesPix

127. What is retained profits? • When a business makes a profit and it does not spend it, it keeps it - and accountants call profits that are kept and not spent retained profits.

128. What can WDP use retained profits for? Retained profit is available to use within the WDP to help them to pay for: 1. Marketing all products on line, 2. Paying for e-commerce technology 3. Paying other costs that will allow them to survive. 4. Retained profits are also kept for when WDP may have difficulties in the future, so they save them for a rainy day! 5. Pay shareholder dividends

129. Where can retained profits be seen ? • WDP calculates its retained profit on their appropriation account. It is then shown on their balance sheet. • WDP’s amount of retained profits can be seen on its balance sheet. This will be called shareholder equity . It is called shareholder equity (money) because retained profits belong to the shareholders and should have been paid to them in dividends.

130. Benefits of WDP using retained profits to achieve their objectives rather than using other sources of finance. 1. The use of retained profits avoids the possibility of a change in control resulting from an issue of new shares. 2. Interest is not charged like on an overdraft or loan. 3. WDP does not increase their amont of liabilities.

131. Disadvantages of using retained profits 1. Shareholder do not receive a dividend payment as they agree for dividends to be retained and ploughed back into the business.

132. Exam Question WebDesPix Ltd have never used a bank loan and it is company policy to re-invest profit. • Analyse the benefits to WebDesPix Ltd of taking this approach to expanding their business. (8 marks)