1.4 Making the Business Effective Flashcards
1
Q
What is a sole trader?
A
Businesses that have only 1 owner
- most small businesses
- plumbers, hairdressers, newsagents, fishmongers
2
Q
What are the advantages of being a sole trader?
A
- Easy to set up (great for start up businesses
- Get to be own boss (more flexibility, make own decisions)
- Owner alone gets to decide what to do with the profit
3
Q
What are the disadvantages of being a sole trader?
A
- May have to work long hours with short holidays
- Unincorporated-> business doesn’t have its own legal identity, so suing the business=suing the owner
- Unlimited liability- liable for paying all the businesses debts if it goes bust-> personal finances are at risk (may have to sell assets to pay off debts)
- Hard to raise money-> banks see it as risky investment, hard to get a loan so have to rely on friends, family and savings
4
Q
What is a Partnership?
A
Business that is owned by 2 or more partners
- each partner has equal say in decision making
- equal share of profits between partners
- accountancy firms, solicitors, doctor’s surgeries
5
Q
What are the advantages of a partnership?
A
- More owners= more ideas and a greater range of skills and expertise
- More people to share the workload
- More capital (money) can be invested into the business-> it grows faster
6
Q
What are the disadvantages of being in a partnership?
A
- Each partner is legally responsible for other partners’ actions
- Unlimited liability
- More owners could lead to more disagreements
- Shared profit, could lead to less money per partner
7
Q
What are the 2 types of Limited Company?
A
Public Limited Company (PLC)
Private Limited Company (Ltd)
8
Q
What is a Limited Company?
A
- Incorporated-> separate legal identity to the owners, so taxes, bills and property under the company name belong to the company NOT the owners
- Limited Liability-> company is liable for legal issues, not the owners, owners assets aren’t at risk, ONLY money invested into the business
- Owned by shareholders-> more shares= more control
9
Q
What are the advantages of being a Private Limited Company?
A
- Limited Liability, can only lose amount invested into business (over sole traders and partnerships)
- Easier to get a loan or mortgage (than for a sole trader or partnership)
10
Q
What are the disadvantaged of being a Private Limited Company?
A
- More expensive to set up partnerships (due to legal paperwork)
- Company is legally obliged to publish accounts yearly (doesn’t have to be public) which sole traders and partnerships DO NOT have to do
11
Q
What is Franchising?
A
A business sells the products or uses the trademarks of another firm, giving the firm their franchising from a fee or profit percentage
12
Q
What is the difference between franchisors and franchisees?
A
Franchisor- product manufacturer
Franchisee- firms selling the products
13
Q
What are the 2 different ways franchises can operate?
A
- Franchisees can trade under the name of the Franchisee bus advertise they sell a particular manufacturer’s products (car dealerships)
- Franchisee can buy the right to trade under the name of the franchisor (fast food firms)
14
Q
What are the advantages of Franchising?
A
- Customers will recognise the franchisor brand, so are more likely to buy from the franchisee-> less risk of business failure
- Less risky than starting a business from scratch + easier to get a bank loan to start up
- Franchisor might provide franchisee with training, help with management or accounting etc
15
Q
What are the disadvantages of Franchising?
A
- Franchisor may have strict rules on what to sell and how to operate the business-> freedom is limited
- Franchisee usually has to pay a lot to start the franchise and then make regular payments to the franchisor-> high costs, may end up with less money that if they started the business from scratch
16
Q
What factors will a business consider when choosing where to locate itself?
A
- Location of Raw materials
- Labour supply
- Competition
- Location of the Market
- Using the Internet
17
Q
How does Location of Raw Materials influence the location of a business?
A
- Nearby= lower transport costs
- if bulk buying, being closer with less transport costs is efficient and keeps fixed costs low
18
Q
How does Labour Supply influence the location of a business?
A
- Near an area of high unemployment= keep wages low
- Good selection of people to choose from + can easily build a workforce
- Local colleges (built up areas) can provide training
19
Q
How does Competition influence the location of a business?
A
- Near competitors can be an advantage-> easy to find skilled labour, local suppliers, eager customers
- Away from competitors-> won’t lose sales to competitors, do not have to reduce prices to stay competitive
20
Q
How does Location of the Market affect the location of a business?
A
- Pay more to transport products than raw materials BC cheaper to locate nearer customers
- Locate near market-> people get to know the business + easily access + helps get sales through passing trade (ie people walking past)
21
Q
How does Using the Internet influence the location of a business?
A
- Internet-> location of firms is more flexible
- Ecommerce-> manufacturers can locate further from market BUT closer to raw materials. Also no need to have a shop (lower costs)
-Documents can be accessed over internet-> some businesses no longer need offices, people can work from home + employ people globally
22
Q
What is the Marketing Mix (4 P’s)?
A
Price
Place
Promotion
Product
23
Q
What is Product?
A
Creating a product that fulfils the identified wants and needs of a customer
24
Q
What is Price?
A
Must be good value for the customer
- doesn’t have to be cheap if it meets needs (ie is luxury)
25
What is Promotion?
Promote the product so potential customers are aware it exists and want to buy it
26
What is Place?
Method of distribution to get the product from the company to the customer
(ie sold through retailers or sold straight to the customer)
27
What factors can affect a business' marketing mix?
- Each of the other factors
- Changes in technology
- Changing customer needs
- Competitive markets + Competition
28
How do the different parts of the marketing mix affect each other?
EG: Quality will affect the cost, therefore the price it is sold for etc
29
How does Changes in Technology affect the marketing mix?
- improvements in Ecommerce means more companies are selling online than in stores
- changes in digital communication-> change how companies promote their products
30
How do Changing customer needs affect the marketing mix?
EG: companies may have to lower prices for products using older technology as they no longer meet customer needs
31
How does a Competitive market and a Business' Competitors affect the marketing mix?
- Competitors are offering the same products at lower prices-> business will need to lower prices to stay competitive
- Competitor starts selling brand new product-> business may have to develop its own version of the same product to offer similar product rage
- Competitive market-> may have lots of products, have to spend more on promotion to make products seem appealing
32
Why does a Small Business have to ensure they get their marketing mic correct?
They have fewer sources of finance than established businesses, so are more likely to fail
33
How do small businesses focus on Price?
- Cannot benefit from 'Economies of Scale' like larger businesses due to their inability to bulk but raw materials
- Also may have high start up costs from buying new machinery etc
- Need to have HIGHER PRICES than larger businesses to cover costs in order to survive
34
How do small businesses focus on Product?
- Have less money to spend on developing a wide product range, so may have smaller range compared to larger businesses
- Focus on providing higher quality products (ie choose job production over flow production)
35
How do small businesses focus on Promotion?
- Cannot use high cost promotion methods (TV ads etc) so use cheaper methods (flyers, free samples)
- Promoting right brand (overall image of company) is important, especially when trying to establish a brand image to customers
- Small businesses can promote to local customers (unless based online), which can affect the way they promote themselves (ie in local newspaper rather than national newspaper)
36
How do small businesses focus on Place?
- Chose to sell directly to customers or through small retailers
- large retailers may not want to buy a new, unrecognised brand's products (more risky)
- hard to sell large quantities to retailers
37
What is a Business Plan?
An outline of what a business will do, and how it aims to do it
38
Why should businesses have a Business Plan?
- Useful when a business wants to make a change
- Forces the owner to think carefully about what the business will do, its organisation and resources-> allowing to calculate how much money is needed
- Can be used to convince financial backers it is a sound investment-> can show backer info on business operations, helping them decide how likely it is they get their money back
- Helps reduce risks of a new business idea
- Can help realise a new business idea is bad at an early stage, before wasting any time and money (due to planning)
- Can help make business decisions-> ie Sales forecast, shows how much stock is needed to meet demand
39
What should a business plan include?
The business idea
Business aims and objectives
Target Market
Marketing Mix
Location
Finance
40
What should the Business Idea include in the plan?
What the firm is about, details of products being sold, how it is achieving its USP
41
What should the Business aims and objectives include in the plan?
Aims are more generic and long term
Objectives are more specific, short term
42
What should the Target Market include in the plan?
Who the business is selling to, backed by market research
43
What should the Marketing Mix include in the plan?
How the business will sell its products using the Marketing Mix/4 P's
44
What should the Location include in the plan?
Where the business should locate and why
(ie near target market or suppliers and why)
45
What should Finance include in the plan?
How much money is needed to start up the business and where the money will come from
- Cash Flow forecast
- Forecast of business' costs, revenue and profits
- ratios to show backer likely return of investment
