Business unit 1

Sole trader

a business owned by one person who has unlimited liability. However

Unlimited liability

The owner is personally and fully responsible for all losses and debts of the business. A sole trader has unlimited liability.

Advantages of a sole trader

Completely independent and can make decisions

Can keep all the profits

Quick and easy to set up

All financial information is kept private

Disadvantages of a Sole trader

Unlimited liability

May be difficult to raise enough money to start or grow a business

Puts a lot of pressure on just one person

Difficult to run if the sole trader is sick or needs time off

Partnership

A business owned by 2-20 people who share the financial risk

Deed of partnership

A binding legal document which states the formal rights of partners

Franchise

One business gives another business permission to use the name and products in return for a fee and a share of its sales revenue.

Franchisor

an individual or organization granting a franchise

Franchisee

A person or business buying a franchise

Royalty

A fee a franchisor takes from the franchisee

Advantages of a franchise

Lower risk then setting up independently

Support and training provided by franchisor

Franchisees benefit from national or international marketing campaigns

Well known brand name and reputation

Disadvantages of a franchise

high franchising fees and royalties

strict operating standards

purchasing restrictions

limited product line

Brand reputation can be damaged by other franchisees if the do not maintain standards

Private limited company

A business owned by more than one person which has limited liability. Share can be bought by friends and family members only- need to be accepted to buy

Limited liability

A form of business ownership in which the owners only lose the investment the put in. no personal assets and money is at risk.

Advantages of PLC

Limited liability

Flexibility in management- more people to add to their expertise

Rises more capital- can invest a lot more money by selling additional share

can control who buys shares in the company

Disadvantages of PLC

Expensive

Cannot exceed 50 members

There may be disagreements between shareholders.

dynamic

something that changes a lot

product

something that is made for profit. It satisfies customers needs and wants.

service

something you can do to help others

tangible

can be touched

intangible

cannot be touched

obsolete

something that is outdated or no longer in use.

Why new business ideas come about

- changes in technology

- changes in what consumers want

- products and services becoming obsolete

Original ideas

-solve problems

-an entrepreneur has a passion or interest

-A business has carried out research into the wants and needs of shoppers and created products to meet those needs

-A gap in the market may have been spotted

Adapting existing ideas

A business could create a new product by:

-Mix and Match

-New version of an old product or service

-Cheaper version of and old product or service

Business risk

the possibility than an enterprise may have lower profits than expected or experience a loss

Risks and entrepreneur faces

-Business Failure

-financial loss

-lack of security

Why do businesses fail?

-Too much competition

-Tax system

-Burden of regulation

-Not enough government support

-Lack of bank lending

-Late payments

Cash flow

all the money in and out of the business

Competitive risk

risk that the competitor may perform better than you (E.g- better marketing)

Technical risk

risk that the product/service may not work

Financial risk

the start-up doesn't have enough investment to launch effectively.

business reward

a benefit business that it brings to the owner

Business success

can be measured in terms of the level of sales

Profit formula

Profit \= Total Revenue - Total Cost

Three purposes of business activity

-To produce goods and services

-To meet customer needs

-To add value

What is needed to produce goods and services?

Capital

Enterprise

Land

Labour

Expectations customers have for businesses

-Fast-efficient and accurate service

-High quality products with a competitive price

- Trained staff

-Clean shop

-Sufficient stock

Added value

The difference between what a business pays its suppliers and the price it is able to charge for its product or service

Five ways to add value

-Branding

-Unique Selling Point (USP)

-Design

-Quality

-Convenience

roles of an entrepreneur

-takes risks

-makes business decisions

-organises resources

Four key customer needs

Price

Quality

Choice

Convenience

How can a business generate sales

lowering the price

promoting the product through advertising

running a competition or other promotional activity

improving the product

Three purposes of market research

-Identify and understand customer needs

-Identify gaps in the market

-Reduce risk and make informed business decisions