1.4 Making the business effective

What is limited liability

owners are not personally responsible for its debts and personal items cannot be used to pay off business debts

What is unlimited liability

owners are personally responsible for all of the debts and has no legal identity

What are the types of business ownerships

• Sole Trader: Unlimited liability, personal responsibility for debts.

• Partnership: Shared ownership, potential for disagreements.

• Private Limited Company (Ltd): Limited liability, more paperwork.

What are advantages of being a sole trader

• it is quick, cheap and easy to set up

• the business owner will have a lot of control over the business and its money

• it gives individuals the opportunity to be their own boss and make all the business decisions

What are disadvantages of being a sole trader

• it has the risk of unlimited liability

• it can involve long work hours and stressful conditions

• there is a high level of responsibility for the owner

• often the owner performs many different roles in the business

What are advantages of partnerships

• they are usually quick and easy to set up

• there is shared decision-making by the owners

• there is shared responsibility for debt by the owners

What are disadvantages of partnerships

• they can involve long work hours

• conflict amongst owners can occur

• there is the risk of unlimited liability

• one partner may let the others down by not upholding their responsibilities in the business

What are advantages of private limited companies (Ltd)

• the owners have limited liability

• it gives individuals the opportunity to be their own boss

• any new shareholders need to be invited, which protects the business from outside influence

• shares in the business can be sold to raise money

What are disadvantages of private limited companies (Ltd)

• there is often more paperwork

• in some instances, other people are able to view the business’s financial information

• it can be very time consuming to set up

• the business may require outside professional help to manage its finances

What is a franchisor

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

What is a franchisee

business that agrees to manufacture, distribute or sell branded products under the licence of a franchisor

What is a franchise

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

What are advantages of setting up a franchise

• the franchisee gets access to free training and marketing

• the franchisee is part of an established business

• it can be easier to make money

• it is lower risk for a new entrepreneur than setting up a new business

What are disadvantages of setting up a franchise

• the franchisee has to pay a percentage of its profits to the franchisor. This is known as royalties

• it can be expensive to set up

• the franchisee cannot make individual business decisions without consulting the franchisor

• other franchises can be set up locally, which can cause competition for customers

What are factors influencing business location

proximity to:

• market

• labour

• materials

• competitors

What are the natures of business activity in terms of location

• Retail- situated in a busy street

• Service- anywhere but particularly near their target market

• Manufacturing- need to be away from residents due to resources being exported

• Tourism- popular areas e.g beaches

What is the the impact of the internet on location decisions

Due to E commerce It means they don’t need fixed premises (e.g. a shop) to sell their products from allowing them to save costs and near their raw materials

What are factors influencing price in the marketing mix

• competition – a business may need to reduce its prices to compete with other businesses

• customer opinions – about the product and its worth

• brand image – some products can have a higher price because customers perceive the business' brand as desirable

• availability – if a product is in short supply, this can drive up the price as customers are more likely to pay more for something in limited supply (eg a concert ticket)

What is product in the marketing mix

meet the needs of the customers and have a USP

What is promotion in the marketing mix

• advertising

• sales promotions

• sponsorship

• public relations.

What is place in the marketing mix

the way in which a product is distributed (e.g. online or through retail stores)

How to adapt the marketing mix based on the competitive environment

• offering a product or service that fills a gap in the market- offering better sales promotions, such as buy one get one free (BOGOFF), online discount codes or cashback

• creating a unique selling point (USP)

• developing relationships with existing customers to make them more likely to buy again

What is the impact of changing consumer needs on the marketing mix

• changing the features of a product to incorporate new trends and technology

• adjusting the price of its products in response to competitors’ pricing

• launching a new advertising campaign to boost interest in response to falling sales

• selling its products through popular retailers

• allowing customers to return online products free of charge

• opening new retail outlets to provide greater convenience to customers

• introducing m-commerce and e-commerce to the business to meet customer expectations

What is the impact of technology on price

Customers can easily compare prices online businesses have to monitor rivals to remain competitive.

What is the impact of technology on product

New technology demands that products are constantly innovated, especially in tech industries that produce items such as computers and smartphones.

What is the impact of technology on promotion

focus from traditional advertising mediums to forms of digital communication such as social media sites.

What is the impact of technology on place

E-commerce not only provides an effective channel for selling, but also the ability to customise products and services.

What is a business plan

a plan for the development of a business, giving forecasts of items such as sales, costs and cash flow

Who uses business plans

• owners: as a guide and working document

• partners and employees: anyone wanting to work with/for the business

• investors: to assess the risk and reward of investing in the business

• lenders: e.g. banks will want to investigate the likely success and risk of lending to a new business

Why would a business owner write a business plan

• convince a bank to loan the business money

• forecast financial projections

• identify the needs of customers

• formulate market research into important information, e.g. about competitors

• provide the owner with a plan of action that will minimise risk.

What is the role and importance of a business plan

to identify:

• the business idea

• business aims and objectives

• target market (market research)

• forecast revenue, cost and profit

• cash-flow forecast

• sources of finance

• location

• marketing mix.

What is the purpose in planning business activity

• minimise risk

• obtaining finance.