1.4 Making the Business Effective

private limited company

where shares can only be sold to "family and friends"

unlimited liability

if a business goes bankrupt or bust, there is no limit to what an entrepreneur can loose

limited liability

if the business goes bankrupt or bust, shareholders can only loose the money they have put into the business

advantages of a private limited company

• owners have limited liability

• gives individuals to be their own boss

• shares can be sold to save money

• shareholders need to be invited, so it stops outside influence

disadvantages of a private limited company

• often more paperwork

• can be very time consuming to set up

sole trader

an individual that started and owns the business and holds all responsibility

advantages of sole trader

• easy to set up

• makes own decisions

• keeps the profit

disadvantages of sole trader

• risk of unlimited liability

• works long hours

• high level of responsibility

partnership

individuals who start and own the business and share all profit and responsibility

advantages of partnership

• easy to set up

• shared decision making

• shared responsibility for debt

disadvantages of partnership

• can involve long hours

• conflict between owners could occur

• risk of unlimited liability

franchise

the right given by one business to another to sell goods using its name

franchisor

a business that gives a franchisee the right to manufacture, distribute or sell its branded products

royalty payment

a fee a franchisor takes from the franchisee to distribute or sell its branded products

advantages of a franchise

• less risk to setting up a new business

• benefit from national marketing

• brand image and reputation is already established

• high chance of survival

disadvantages of a franchise

• the initial cost of investment is high

• franchisee don't make their own decision

• restrictions on where a franchise can be set up

• other franchises can be set up locally which can cause competition

factors influencing business location

proximity to market, labour, materials, competitors, and nature of business activity

retail business location

a retail business will want to locate close to where customers go

service business location

a service business may need to locate close to customers but might not need premises

manufacturing business location

businesses that produce goods will look to locate close to good transport links (roads, ports, airports)

impact of the internet on business locations

e-commerce and m-commerce has made it easier for businesses to reach their target customers on a global level and trade

benefits of e-commerce

• reduce costs

• do not have to be near target market

• can trade 24/7

• can use multiple channels to reach target customers

4 P's of marketing mix

product, price, promotion, place

price

how much a business will charge for a good or service

factors that affect price

• market research

• number of competitors

• state of economy

product

the good or service the business produces

promotion

activities that increase visibility and sales of product

place

refers to location of business

who uses a business plan

• owners = as a guide and working document

• investors = to access risk and reward

• lenders and investors = to assess the risk of the business failing

advantages of a business plan

• minimises risk

• required to obtain finances

disadvantages of a business plan

• forecasts and estimates may not be accurate

• time consuming

• entrepreneur may lack expertise

what's included in a business plan

• the business idea

• business aims and objectives

• target market

• cashflow forecast

• sources of finance

• location

• marketing mix