Unit 7a Internal analysis:

• Mission


  The overall purpose of a business
• Mission


  • Influenced by what the owners want the business to achieve, their personal values and beliefs, and what market opportunities there are
• Objectives

  The goals a business sets in order to achieve its mission
• Types of objectives

  • Profit
  • Growth
  • Survival
  • Cash flow
  • Social/ethical performance
• Factors influencing objectives

  • Internal factors
  • External factors
• Internal factors

  • Ownership form
  • Short-termism
  • Internal environment (size, culture, resources, views of leaders)
• External factors

  • Political
  • Legal
  • Economic
  • Social
  • Technological
  • Environmental
  • Competition
• Strategy

  A medium to long-term plan of action developed to achieve a business's objectives
• Objectives

  Must be set before a strategy can be put in place
• All businesses need to have a strategy
• Strategy in larger firms

  • More clearly defined as it will influence the plans of individual departments
• Tactics

  Short-term plans for implementing strategy, focused on day-to-day activities
• Strategic decisions

  Long-term, high-risk decisions that determine the overall direction of the business
• Functional decisions

  Decisions made in individual departments to implement the overall strategy, more short-term and lower risk
• SWOT analysis

  A four-factor model that details the strengths, weaknesses, opportunities and threats facing a business
• SWOT analysis

  • Strengths and weaknesses are internal factors, opportunities and threats are external factors
• SWOT analysis helps businesses plan strategies by focusing on opportunities that build on strengths, converting weaknesses into strengths, and managing threats
• SWOT analysis can be redone to adapt strategy to changing conditions
• SWOT analysis lets a business know where it has a competitive advantage over rivals
• Balance Sheets


  Lists of Assets and Liabilities
• Balance sheets


  • Snapshot of a firm's finances at a fixed point in time
  • Show the value of all the business' assets (the things that belong to the business, including cash in the bank)
  • Show all the business' liabilities (the money the business owes)
  • Show the value of all the capital (the money invested in the business)
  • Show the source of that capital (e.g. loans, shares or retained profits)
• The 'net assets' value (the total fixed and current assets minus total current and non-current (long-term liabilities) - is always the same as the 'total equity' value - the total of all the money that's been put into the business
• That's why they're called balance sheets — they balance
• Assets


  Things the Business Owns
• Assets


  • Provide a financial benefit to the business, so they're given a monetary value on the balance sheet
  • Can be classified as non-current assets (fixed assets) or current assets
• Non-current assets


  Assets that the business is likely to keep for more than a year, e.g. property, land, production equipment, desks and computers
• Depreciation


  Non-current assets often lose value over time, so they're worth less every year
• Current assets


  Assets that the business is likely to exchange for cash within the accounting year, before the next balance sheet is made
• Current assets


  • Receivables (money owed to the business by other companies and individuals)
  • Inventories (or stock - products, or materials that will be used to make products, that will be sold to customers)
• Calculating net assets


  1. Add current and non-current assets together

  2. Deduct current and non-current liabilities
• Liabilities


  Debts the Business Owes
• Current liabilities


  Debts which need to be paid off within a year, e.g. overdrafts, taxes due to be paid, payables (money owed to creditors), dividends due to be paid to shareholders
• Non-current liabilities


  Debts that the business will pay off over several years, e.g. mortgages and loans
• Bad debts


  Debts that debtors Won't Ever Pay
• Ideally, every debt owed by debtors to the business would be paid. Unfortunately, the real world isn't like that.
• Debts which don't get paid are called "bad debts". These bad debts can't be included on the balance sheet as an asset - because the business isn't going to get money for them.
• Writing off bad debts


  The business writes off these bad debts, and puts them as an expense on the profit and loss account
• It's important to be realistic about bad debts. The business shouldn't be over-optimistic and report debts as assets when they're unlikely to ever be paid. On the other hand, they shouldn't be too cautious and write debts off as bad debts when they could make the debtors pay up.
• Working Capital


  The Finance available for Day-To-Day Spending
• Working capital


  The amount of cash (and assets that can be easily turned into cash) that the business has available to pay its day-to-day debts