Business GCSE topic 1.4 - Making the business effective

Sole trader

Someone who starts and runs a business by their own

Advantages of sole trader

* Keep all profit
* Own control/decisions

Disadvantages of sole trader

* Heavy workload
* Business failure
* Unlimited liability
* No cover off work

Partnerships

Business owned and run by 2-20 people

Advantage of partnerships

* Shared decision making
* Shared workload
* Cover when ill/holiday
* Shared risk

Disadvantages of partnerships

* Shared profit
* Unlimited liability
* Disagreements

Purpose of signing a deed of partnership

Agreement made between two individuals who have the intention of doing business with each other and share profits and losses

Public limited company (PLC corporations)

Sells shares through stock exchange (publicly). Firms often become PLC when they wanna expand as selling shares on stock market allows for finance for investment to be raised

Advantages of PLC

* Limited liability as company is incorporated
* Easier to raise finance from bank as they pose less risk

Disadvantages of PLC

* Owners have little say on how business is ran
* Company must show audited accounts
* Anyone can takeover company if they can afford enough shares

Audited accounts

financial statements of a company that have been reviewed and verified by an independent auditor to ensure accuracy and compliance with accounting standards.

Flotation

converting a private company into a public company by issuing shares available for the public to purchase.

Who runs a Private Limited Company (LTD corporation)

Shareholders

Shares

portion/percentage of a company

Board of Directors

The people that run the LTD who’ve been chosen by shareholders.

Purpose of the Board of Directors

Run the company all day and make the vital decisions

Where shares can be sold in an LTD

To people the shareholders know such as family/friends etc

How LTD receive profit

They receive a share of profit called dividends as a reward for investing in more shares

Corporation tax

 tax based on the **profits** of a business

Limited liability in LTD

* Shareholders aren’t responsible for company’s debt
* Only lose money invested in business
* Personal assets are secured

Advantages of LTD

* shares in the business can be sold to raise money
* any new shareholders need to be invited, which protects the business from outside influence
* Easier to source finance

Disadvantages of LTD

* Shared profit through dividends
* often more paperwork
* it can be very time consuming to set up
* Audited accounts must be submitted as well as registering at Companies House to become an LTD

Franchise

Franchisor licences the franchise to franchisee to operate its brand/business idea

Franchisor

business that gives franchisees the right to manufacture, distribute or sell its branded products in return for a fixed sum of money or **royalty payment**

Royalty payment

A fee a franchisor takes from the franchisee, usually as a percentage of their gross sales revenue in return for the right to manufacture, distribute or sell its branded products.

Franchisee

Person who bought franchise from franchisor

Process of becoming a franchise

A new business must pay a fee. In return, it gets to join the franchise and benefit from using its name, products, training, marketing and equipment. 

Advantages of being a franchisee

* Support of a company that’s well known
* Easy recognition
* Training/Signage is provided
* Knowledge about area you’re living in

Disadvantage of being a franchisee

* Pay royalties
* High upfront fee
* Less control of franchise
* End up with disagreements

Advantages of being a franchisor

* Paid a high upfront fee
* Paid in royalty
* Brand recognition
* Weak competition as territories divided up

Disadvantages of being a franchisor

* Damaged reputation to franchisor if franchisee messes up
* Less control for business owner as they’ll have to run promotions currently advertised

Marketing mix

provides a framework for businesses to create and implement **successful marketing strategies**

The four Ps of marketing mix

Product

Place

Price

Promotion

Promotion

 Plays a crucial role in **generating customer awareness**, interest and desire for a product/service. Helps to **build brand awareness and loyalty** which can lead to repeat purchases and referrals

Ways of promotion

* advertising
* Direct selling to customers
* Public relations

Elements of product design

* Function
* Aesthetics
* Cost

Aims of product design

To be both **functional and attractive,** while also being **cost-effective** for both the manufacturer and the consumer

What manufacturers do with product design

* Balance all three elements
* Focus on only 1 element

How price can be used to generate sales revenue

* By understanding their customers, competitors, and costs, businesses can set prices that maximise revenue and profitability

How pricing is important

P**ositioning the brand** in the market and help a firm to compete effectively

Place

**physical location of the business** and/or **the journey (distribution)**

Why place is important

* Choosing the most efficient location or distribution network will result in **lowered costs and greater profits**

How price changes in a competitive environment

* businesses may need to lower their prices to remain competitive
*  offer **temporary discounts or promotions** to attract customers

How product changes in a competitive environment

Where there are **many substitutes**, businesses may need to **differentiate their product/service** to stand out:

* focus on improving the quality, functionality, or **unique features** to appeal to customers

How promotion changes in a competitive environment

*  **increase their marketing expenditure** to reach potential customers
*  invest in targeted advertising, social media campaigns, or other promotional activities to create brand awareness and **stand out from competitors**

How place changes in a competitive environment

* Businesses may need to locate themselves in areas with **high foot traffic** or use **innovative online channels** to reach customers who prefer to shop online

How price gets changed due to changing customer needs

* During a recession, consumers may become more price-sensitive and shop around for more affordable options
*  **reduce prices or offer discounts** to remain competitive

How product gets changed due to changing customer needs

* Businesses must adapt their products to changing needs
* **introduction of new products** in the market, such as plant-based meat substitutes, which have been successfully marketed to this growing market segment
* New variations of product to stand out to competitors and gain more customers

How promotion gets changed due to changing customer needs

* **shift towards digital marketing**, as consumers increasingly rely on social media to inform their purchasing decisions
*  led to businesses **investing more in digital marketing channels** such as influencer marketing, to reach their target audience

How place gets changed due to changing customer needs

* e-commerce has made it easier for consumers to **shop online** and have products delivered to their doorstep
* In response, many businesses have invested in their online presence offering **convenience and fast delivery** to cater to the needs of their customers

How technology affects price

* Businesses can use **data analytics** to analyse their competitors' pricing strategies and set their prices accordingly
* help companies **reduce costs** in several ways which gives them the option of **lowering their prices**

How technology affects product

* Businesses can now easily **gather feedback** from their customers
* This information can help businesses **create and refine products** that meet customers' needs

How technology affects promotion

* easily reach their target audiences with **highly targeted marketing messages**
* digital channels to create two-way communication with customers, allowing them to provide feedback and ask questions

How technology affects place

* E-commerce has made it possible for businesses to **reach customers in any location**, at any time,
* Businesses can expand their reach **beyond their physical location** and offer a wider selection of products