Business Topic 1.4 Test Revision
What is liability?
Liability refers to who is responsible for a business debts (especially when the business fails) businesses can have either limited or unlimited liability…
Limited liability:
If your business gets into debt you will lose any money you invested into the business but are not responsible for paying off the dept
Unlimited liability
If your business gets into debt you are responsible for repaying ALL the debts. If you cannot repay your personal belongings are at risk as they can be reprocessed
Liability enables you to separate you from the business. You need to separate yourself from the business because if it was to fail then you do not want to involve friend/family away from the business failing. If you do not have limited liability then your friends/family will be involved and the government can get involved to sell your house to pay off your debts
Sole Trader:
A sole trader is an individual who owns and runs their own business. This is the simplest form of business
Advantages:
Easy to set up
All profits go to you
You are responsible for all the decision making
You are your own boss
Disadvantages:
Unlimited liability
Need lots of money to start the business
No sick/holiday pay - if you don't work you don't make any money
The owner has to do everything even if they are not very good at it.
Partnership:
Two or more people (usually 2 - 20) combine their resources to for a business and agree to share profits and losses.
Advantages:
More equity available to finance the business compared to a sole trader
Different partners can bring different skills
Workload is shared
Each partner invests money
Spreads risks across more people
Disadvantages:
Unlimited liability
Profit is shared between partners
Partners may not always agree on decisions for the business
Conflict
Slower decision making can arise from differing opinions, which may impact the overall efficiency and profitability of the organization.
Private Limited Company (LTD):
Private limited companies are owned by shareholders. They are able to sell shares in their business privately to friends, family and private investors
Advantages:
Owner can retain control
More able to raise money by selling shares
Limited liability
Shareholders have little say in how their investment is spent and so business keeps control
Disadvantages:
Must be registered with the Registrar of Companies
High set-up costs (legal and administrative)
Harder to motivate and control workers
You have to publish your accounts
Can't sell to the general public
More legal restrains when setting up the business
Have to pay dividends (share of the profit)
What is a franchise?
A franchise is when a well-known business sells the rights to its business idea, brand, image, logo etc to another business
In other words, the buyer buys the rights to trade under the name and use the successful ideas off a well-known business.
Factor | How would this influence location? |
Location of supplier | If a supplier is located near to your company the transport and delivery costs will be lower. If the product being supplied is perishable it would be better to source a supplier close to your business as they will be able to deliver the goods quickly |
Labour availability | Businesses need to make sure they are located in an area that has people with skills relevant to the job role. In general, for roles with a low requirement for skills, a business would just need to be located near any populated area to ensure it can hire employees. For roles that require a high level of skill, such as a design engineer, computer scientist or solicitor, businesses may need to be located close to big cities, university towns or other areas that attract more highly-skilled people. |
Location of customers | Being close to your customers means that you are more likely to generate income e.g. if a surf shop was really far away from the sea then it would be very hard for them to generate enough income. Need to know where your target market is. |
Location of competitors | Being close to competition means these businesses are more likely to be considered by people making a purchase. Being far away from each other could limit sales for such businesses. |
Nature of business | The impact of location depends on the type of business. For example, it is important for shops and restaurants to be conveniently located for customers. A delivery-only takeaway may prefer to be located in cheap premises on the edge of town, close to good transport links. |
Impact of e-commerce
e - commerce refers to the process of buying or selling products electronically via the internet.
m - commerce is using mobile technology like smartphones and tablets
Traditionally businesses always used to operate from a fixed premises, however as technology has developed , many businesses now operate online.
The marketing mix - The set of marketing tools that the firm uses to pursue its marketing objectives.
Meeting customer needs…
In order to meet customer needs a business must:
Sell the products they want
Charge them a price they are willing to pay
Make them available in the right place
Make them aware of the product by using suitable promotion methods
The Marketing Mix
The marketing mix is the effective coordination of the 4 elements of marketing also known as "the 4P's"
Product
Price
Promotion
Place