1.4 Making the business effective

Question 1

What are the advantages of being a sole trader in a business?

Answer 1

1) They’re easy to set up, which means they’re great to start up a business.
2) You get to be your own boss.
3) you alone decide what happens to any profit.

Question 2

What are the disadvantages of being a sole trader?

Answer 2

1) You might have to work long hours and may not get many holidays.
2) You’re unincorporated. This means the business doesn’t have its own legal identity. So, if anyone sues the business, they’ll sue you personally.
3) You have unlimited liability. This means you are liable (legally responsible) for paying back all the business’s debts if it goes bust. As you aren’t legally separate from the business, your personal finances are at risk e.g., you might have to sell everything you own to pay the debts.

Question 3

What are partnerships?

Answer 3

Partnerships are like two or more sole traders.

Question 4

What are the advantages of partnerships in a business?

Answer 4

1) More owners means more ideas and a greater range of skills and expertise e.g. one partner might be great at sales while another is good at planning.
2) It also means more people to share the work
3) More owners means more capital (money) can be put into the business, so it can grow faster.

Question 5

What are the disadvantages of partnerships?

Answer 5

1) Each partner is legally responsible for what all of the other partners do.
2) Like sole traders most partnerships have unlimited liability.
3) More owners means more disagreements. You’re not the only boss. If the partners disagree about which direction the business should go in and how much time to put in, it can get unpleasant.
4) The profits are shared between the partners. so if a sole trader decides to go into partnership with another person they could end up with less money for themselves.

Question 6

What are the two types of limited companies?

Answer 6

Private and public

Question 7

How is a limited company different from sole traders and partnerships?

Answer 7

A limited company is incorporated - it has a separate legal identity from the owners. so, any money, property, tax bills, etc. in the company’s name belong to the company, not the owners.

Question 8

What does it mean by being incorporated?

Answer 8

Being incorporated means the owners have limited liability. If anything goes wrong (e.g. somebody sues the company, or it gets bust) it’s the company that’s liable not the owners. The owners only risk losing the money they have invested.

Question 9

Who is a limited company mostly owned by?

Answer 9

It is owned by shareholders. The more shares you own, the more control you get.

Question 10

What does it mean by private in a limited company?

Answer 10

Private means that shares can only be sold if all the shareholders agree. The shareholders are often all members of the same family. Private limited companies have ltd. after their name.

Question 11

What are the advantages of private limited companies?

Answer 11

1) The big advantage over sole traders and partnerships is limited liability you can’t lose more than you invest.
2) It’s easier for a ltd. company to get a loan or mortgage than it is for a sold=e trader or partnership.

Question 12

What are the disadvantages of private limited companies?

Answer 12

1) They’re more expensive to set up than partnerships because of the legal paperwork.
2) Unlike sole traders or partnerships, the company is legally obliged to publish its accounts every year (although they don’t have to be made public).

Question 13

What are the advantages of franchises?

Answer 13

1) Customers will already recognise the franchisor’s brand so are more likely to buy from the franchise. This means there’s less risk of failing.
2) As franchises are less risky than starting a business from a scratch, it can be easier to get a bank loan to start up.
3) The franchisor might provide the franchisee with training or help with things like management and accounting.

Question 14

What are the disadvantages of a franchise?

Answer 14

1) The franchisor might have strict rules about what the business can sell and how it can operate so the franchisee’s freedom is limited.
2) The franchisee usually has to pay a lot of money to start the franchise and then make regular payments to the franchisor. These costs may mean they end up with less money than if they started a business from scratch.

Question 15

What 5 things should the business look for when they are choosing a location?

Answer 15

1) Location of raw materials
2) Labour supply
3) Competition
4) Location of the market
5) Using the internet

Question 16

Why is labour supply important when choosing a location for a business?

Question 16

Why is labour supply important when choosing a location for a business?

Answer 16

1) If The location is close to an area of high unemployment this will help to keep the wages low.
2) It also means there’ll be a good selection of people to choose from and the firm should be able to find enough workers.

Question 17

Why is it important to look at the competition when choosing a location for a business?

Answer 17

To see if there are similar businesses nearby because being near competitors can be an advantage.
For example, it should be easy to find skilled labour there are already local suppliers and customers will know to come.(other businesses might prefer to be away from competitors so they don’t lose sales or don’t have to reduce their prices to become more competitive.

Question 18

Why is it important to look at the competition when choosing a location for a business?

Answer 18

To see if there are similar businesses nearby because being near competitors can be an advantage.
For example, it should be easy to find skilled labour there are already local suppliers and customers will know to come. (Other businesses might prefer to be away from competitors so they don’t lose sales or don’t have to reduce their prices to become more competitive.

Question 19

Why is it important to consider the location of the market when choosing a location for the business?

Answer 19

1) Some firms pay more to transport their finished products than their raw materials. These types of firms find it cheapest to locate near their customers.
2) Some businesses locate near to their market so people know about them and can easily get to them. It also helps them to get sales through passing trade (e.g., from people who walk past the business)

Question 20

Why is it important to use the internet when choosing a location for the business?

Answer 20

1) The internet means that the location of some firms is more flexible.
2) For example, trading over the internet (e-commerce) means manufacturers can locate further from their market, but closer to their raw materials. It may also mean they don’t need fixed premises (e.g. a shop) To sell their products from.
3) Documents can also be accessed over the internet which means some businesses no longer need fixed premises for offices. Instead, their employees can work from home and the business can potentially employ people all over the world.

Question 21

What are the 4Ps in the marketing mix?

Answer 21

Product, Price, Place and promotion.

Question 22

What should the firm do when choosing a product for the marketing mix?

Answer 22

The firm must first identify customer needs (or wants). Then it needs to come up with a product that will fulfil some (or one) Of these needs. So, spinach-flavoured sweets, for example, probably wouldn’t sell that well.

Question 23

What should the firm do when choosing a price for a product in the marketing mix?

Answer 23

The price must be one that the customer thinks is good value for money. This isn’t the same as being cheap. You might be prepared to pay a lot of money for a brand new, 50-inch plasma screen TV, but you’d expect an old basic 12-inch model to be much cheaper.

Question 24

What should the firm do when promoting the product in the marketing mix?

Answer 24

The product must be promoted so that potential customers are aware that it exists and will want to buy it.

Question 25

What should the firm do when choosing a place for the product in the marketing mix?

Answer 25

Place can refer to the method of distribution used to get a product from the company to the customer. For example, whether it is sold through retailers or sold straight to a customer.

Question 26

How will a small business focus on price in the marketing mix?

Answer 26

Small and new businesses can charge higher prices than large businesses as they will need to cover their costs in order to survive.

Question 27

How will a small business focus on a product of the marketing mix?

Answer 27

They will have a smaller range of products compared to larger businesses so they may instead focus on providing higher quality products e.g. they may choose to make their products using job production rather than flow production.

Question 28

How will a small business promote its products in the marketing mix?

Answer 28

They are unlikely to use TV advertising since it’s very expensive, so a small firm is likely to use cheaper methods such as flyers or free samples. Promoting the right brand (the overall image of the company) is really important especially for a new business as it will be trying to establish an image with its customers. Small businesses are more likely to promote to local customers which is likely to affect the way in which they promote themselves. For E.g., it may be more effective to advertise in local rather than national newspapers.

Question 29

How will a small business pick a place to sell its products in the marketing mix?

Answer 29

Many small businesses may choose to sell directly to customers or through smaller retailers.

Question 30

Why is writing a business plan useful for a new business?

Answer 30

It will help to reduce risks of a new business idea.

Question 31

Whys is a business plan useful for a new business?

Answer 31

Because it helps managers to decide what objectives need to be set to achieve their aims once the business is up and running.