Making the business effective - Topic 1.4

What are sole traders?

Businesses with just one owner

What are the advantages of sole traders?

• Easy to set up

• You get to be your own boss

• You alone decides what happens to you business

What are the disadvantages to sole traders?

• Might have to work long hours

• Unincorporated - the business doesnt have its own legal identity and if its sued, your sued personally

• Unlimited liability - liable for paing back all the businesses debts if it goes bust and your personal finances to pay the debts

• It can be hard to raise the money to start up the business - banks often see loans to new businesses as risky

What is a partnership?

Partnerships have two or more people running the business

What are the advantages of partnerships?

• More owners mean more ideas and skills

• Shared work

• More capital (money) can be put into the business to help start it up

What are the disadvantages of partnerships?

• Each partner is legally responsible for what the other does

• Unlimited liability

• Potential disagreements

• The profits are shared between partners

What is a limited company?

Its incorporated - has its own legal identity

• Owned by shareholders

• Limited liability

What is a private limited company?

Shares can only be sold if all shareholders agree

What are the advantages to private limited company?

• Limited liability

• Easier to get a loan or mortage

What are the disadvantages of private limited companies?

• More expensive

• Legally obliged to publish its accounts - dont have to make it public

What is a franchise?

Businesses where they sell products or use the trademarks of another firm

• They give the firm they a franchising a fee or percentage of the profit

• Or they can buy the right to trade under the name of the fanchisor

What are the advantages of franchising?

• Customers will already recognise the franchisors brand and are more likely to buy it

• Easier to get a bank loan to start up - less risky

• The franchisor may provide the franchisee with training

What are the disadvantages of franchising?

• Franchisor may have strict rules on what a business can sell and how it can operate - limited freedom

• Usually have to pay a lot of money to start the business and then make regular payments to the franchisor

What three factors influence location?

• Location of raw materials

  • Lower transport cost

• Labour supply-

  • Area of high unemployment

• Competition

  • Being near competitors can be a advantage as there is local suppliers, skilled labour and customers know where to come

• Location of the market

  • Firms that transport their finished products need to locate near customers

  • Locating near the market means people know about them

• Using the internet

  • Location can be more flexible

  • Trading over the interent means businesses can be closer to their raw materials

  • Dont need fixed premises

What are the four elements to the marketing mix?

• Product

• Price

• Promotion

• Place

What can affect the marketing mix?

• Changes in technology

  • Eg e-commerce and digital communication

• Customer needs

  • Eg lowing the price of old technology as its not long what customers need

• Competition

  • Decisions made based on how to have a better products then competitors

How can a new business focus on price?

• Higher prices

  • Cant benefit economies scale

  • High start up cost

How can new businesses focus on products?

• Small range of products and focus on a high quality

  • Dont have enough money to develop

How can a new business focus on promotion?

• Promote locally eg local newspaper

  • Advertisments can be very expensive

How can small businesses focus on place?

• Choose to sell directly to customers so need to locate need potential customers

  • Cant afford to sell through large retailers

What is a business plan?

Outlines what a business will and how it aims to do it

What are the advantages to business plans?

• Makes the owner think carefully

• Figure out how much money the need for each step

• Helps convince financial backers that the business is a good investment

• Reduce risks of new business ideas

• Help realise in the early stage if a idea is bad

What should be included in the plan?

• The business idea

• Business aims and objectives

• Target market

• Marketing mix

• Location

• Finance