1.3 Business revision Flashcards
Entrepeuners
People who set up a business are called entrepreneurs.
● Entrepreneurs are innovators.
● Entrepreneurs are in charge of organising other aspects of their business
such as: labour and equipment. They are key decision makers.
● Entrepreneurs are risk takers. They risk losing any money put into a
business. However, if the business succeeds, they are rewarded with
profit.
What is unincorporated and incorporated business.
Unincorporated: Businesses where there is no legal difference between
the owner and the business. These businesses tend to be small and
owned by one person or a small group of people.
● Incorporated: Business that has a separate legal identity from that of its
owners.
Limited and unlimited liability
Limited Liability: Owner is only responsible for the original amount of
money he invested in the business.
● Unlimited Liability: Owner of a business is personally liable for all
business debts.
What is a sole trader
A sole trader is the simplest form of business organisation. It has one
owner (but can employ any number of people).
Advantages and disadvantages of a sole trader.
Advantages Disadvantages
The owner keeps all the profit. $$$ Have unlimited liability.
The owner is independent and has complete control. May struggle to get finance.
It is simple to set up and has no legal requirements. Independence may be too much of a responsibility.
Flexibility - for example, can quickly adapt to
change.
Long hours and very hard work.
Can offer a personalized service. Usually too small to exploit economies of scale*.
May qualify for government help. No continuity - the business dies with the owner.
what are partnerships?
A partnership is business owned by 2 to 20 people.
● Owners share responsibility for running the business and they also share
the profits.
● Some partners may decide to produce a deed of partnership, which is a
legal document that states the partners’ rights (in the event of a dispute):
○ How much capital ($) each partner will contribute
○ How profits (and losses) are shared among the partners
○ The procedure for ending the partnership
○ How much control each partner has
○ Rules for taking on new partner
Advantages and disadvantages of a partnership
Advantages Disadvantages
Easy to set up an run with no or very few legal
formalities.
Partners have unlimited liability.
Partners can specialise in their area of expertise. Profit has to be shared
The job of running a business is shared. Partners may disagree.
More capital can be raised with more owners. Partnerships still tend to be small.
what is a franchise
● A franchise is when a business (the franchisor) allows another operator
(the franchisee) to trade under their name.
● Franchisees pay fees to the franchisor.
What does the franchisor offer to the franchisee?
A license to trade under the recognised brand name of the franchisor
● A start-up package including help, advice and essential equipment, usually
including branding materials
● Training in how to run the business and operate the systems used by the
franchise
● Materials, equipment and support services that are needed to run the
business
● Marketing support that is organised on behalf of all the franchisees
● An exclusive geographical area in which to operate
In return for these services the franchisee has to pay
certain fees…
● A one-off start-up fee
● An ongoing fee (usually based on sales)
● Contribution to marketing costs
● Franchisors may make a profit on some of the materials, equipments and
merchandise supplied to franchisees
Franchisor
Advantages Disadvantages
Fast method of growth. Potential profit shared with franchisee.
Cheap method of growth. Poor franchisees may damage the brand’s
reputation.
Franchisees take some of the risk. Franchisees may get merchandise from elsewhere.
Franchisees are normally more motivated than
employees.
Cost of support for franchisees may be high.
Franchisee
Advantages Disadvantages
Less risk - a tried and tested idea is used. Profit is shared with the franchisor.
Back-up support is given. Strict contracts have to be signed.
Set-up costs are predictable. Lack of independence - strict operating rules apply.
National marketing may be organized. Can be an expensive way to start a business.
