Business 1.4

Sole trader - advantages

Sole trader - advantages

•It was quick and easy to set up

•Get to make all the decisions.

•Get to keep all the profits.

•There is minimal paperwork.

Disadvantages of a Sole Trader

•Unlimited Liability

•May lack skills needed to handle all areas of the business

•Making all the decisions can be stressful

•Can be difficult to raise finance

•Heavy workload

Partnership – advantages

•Simple to form a business together

•Minimal paperwork once Partnership Agreement set up

•Partners can provide specialist knowledge and skills

•Jobs can be shared

•Greater potential to raise finance

•Any losses will be shared

Partnership – disadvantages

•Partners have to live with decisions of others

•Decision-making can take longer

•Harder to raise finance than a company

•Short life, as if one partner leaves or dies the partnership ends

•Profits have to be shared

Private Limited Company \n Advantages

Limited liability - protects the personal wealth of the shareholders

Easier to raise finance as can sell shares

Stable form of structure – the company continues to exist even when shareholders change

Original owners are likely to retain control

Private Limited Company \n Disadvantages

Shareholders have to agree about how profits are distributed

Greater administrative costs than setting up as a sole trader or partnership

Finance limited to “friends and family”

Less privacy - public disclosure of company information, but not as extreme as for a plc

Directors’ legal duties are stricter

Size of business

start-up businesses often start as sole traders or partnerships, as they are easier and quicker to set up compared to a Ltd.

Type of business

If expertise is involved such as doctors or lawyers they are more likely to be partnerships than sole traders. If risks are involved, a Ltd is more likely.

Lender requirements

The bank may prefer the business to be set up a sole trader or partnership, to make sure they can be paid back any bank loan by the individuals if the business fails.

•Investment protection

a limited company may be chosen so investors can be protected by limited liability.

Control

The owner, as a sole trader, or a shareholder, holding the majority of shares in a company, has total control of the business.

Growth

Becoming a plc allows a large amount of finance  to be raised.

Advantages of setting up as a franchise

•Still own business

•Tested & developed format & brand

•Advice, support, training

•Easier to raise finance

•No industry expertise required

•Buying power of franchisor

•Lower risk method of market entry + lower failure rate

Disadvantages for the franchisee

•Not cheap!  The franchisee has to pay substantial initial fees and ongoing royalties and commission.  He/she may also have to buy goods directly from the franchisor at a mark-up

•There are restrictions on marketing activities, for example not being allowed to undercut nearby franchises, and on selling the business

•Risk that the franchisor will go out of business

•The franchise needs to earn enough profit to satisfy both the franchisee and franchisor

Upside for the Franchisor

• classic growth strategy for a proven service business format

•Enables rapid geographical growth for a minimum investment

•Still have an option to open solus branches

•Cream-off the “above normal” profits

What is the marketing mix?

How a business combines its product and its price, and uses promotion and the place of sale in order to be successful

Product

The good or service that the customer obtains

Price

How much the customer is paying for the product

Promotion

How the customer is found and persuaded to buy the product

Place

How the product is distributed to the customer

Business Plans

A business plan is an essential part of starting any business. Entrepreneurs create business plans to help them consider all of the elements they are going to need for their new business to be a success.