1.4 MAKING THE BUSINESS EFFECTIVE Flashcards
sole traders? 1m
- a business ownership structure where one person owns an unincorporated business
-sole trader businesses have just one owner e.g. most small businesses like plumbers, hairdressers, fishmongers
sole traders advantages and disadvantages? 6m
advantages = - they’re easy to set up, which means they are great for start up businesses
- you get to be your own boss
- you alone decides what happens to any profit
disadvantages = - you might have to work long hours and may not get many holidays
- you are unincorporated, this means you are liable (legally responsible) for paying back all of the businesses debts if it fails, as you are not legally separated from the business, your personal finances are at risk e.g. you may have to sell all that you own to pay back your debts.
- banks also find sole traders risky so its hard to get a loan, you may have to rely on savings or family and friends
partnerships? 1m
- a business ownership structure in which a small number of people (usually between 2-20 own an unincorporated business) e.g. solicitors doctors’ surgeries.
- each partner has an equal say in making decisions and an equal share of the profits unless they have an agreement called deed of partnership
partnerships advantages and disadvantages? 6m
advantages = - more owners means more ideas and greater range of skills and expertise
- more people to do share the work
- more capital can be put in the business so it grows faster
disadvantages = - each partner is legally responsible for what all the other partners do
- most partnerships have unlimited liability (legally responsible)
- more owners means more disagreements, if one disagrees and one agrees in terms of business decisions it can get messy
- profits shared with another person so if a sole trader decides to partnership with another it means less money for themselves
limited companies? 4m
- limited companies are owned by shareholders
1. They are incorporated meaning they have a separate legal identity from the owners
2. So any money, property, tax bills etc. in the company’s name belong to the company and not the owners
3. So if anything goes wrong or the company goes to bust it is the company that is liable not the owners
4. The owners only risk losing the money they invested
5. It is owned by shareholders, the more shares you own the more control you get
private limited companies? 1m
- a business ownership structure that is incorporated and has shares, but the shares can only be sold with the agreement of all the shareholders.
private limited companies advantages and disadvantages? 4m
advantages = - the big advantage over sole traders and partnerships is limited liability so you cannot lose more than you invest
- it is also easier for a Ltd company to get a loan or mortgage than it is for a sole trader or a partnership
disadvantages = - more expensive to set up due to all the legal paperwork
- unlike sole traders and partnerships, the company is legally obliged to publish its accounts every year (although it doesn’t have to be made public)
franchising? 6m
- Where a business lets another firm sell it’s products using its trademark
- Some people will start up a business as a franchise of another company
- This is where they sell products or use trademarks of another firm. They then give the firm they’re franchising from a fee or a percentage of their profits
- The product manufactures are known as franchisors and the firms selling the products are known as franchises
- Franchises can trade under the name of the franchisee but advertise that they sell a particular manufacture’s products e.g. car dealerships selling certain tyres or car rims from a certain manufacture
- Or the franchisee might buy the right to trade under the name of the franchisor
franchising advantages and disadvantages? 4m
advantages =
- customers will already recognise the franchisors brand so are more likely to buy from the franchise, meaning less risk of the business failing
- as franchises are less risky than starting a business from scratch, it can be easier to get a bank loan to start up
- the franchisor might provide the franchisee with training, or help on things such as management and accounting
disadvantages =
- the franchisor might have strict rules about what the business can sell and how it can operate, so the franchisee’s freedom is limited
- 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
different factors of business locations? 6m
- Location of raw materials = raw materials if located nearby will lower transportation costs.
- Labour supply = if location is close to an area of high unemployment then this will help keep wages low as well as a good selection of workers
- Competition = if there are similar businesses nearby it can be an advantage due to already skilled labour from people and local suppliers (some businesses prefer to be away from competitors as not to lose sales or have to reduce prices)
- Location of the market = some firms pay more to transport their finished products than their raw materials. These types of firms find it cheapest to locate near to their customers. Some businesses locate near to their market so people know about them and can easily get to them, it also helps to get sales through passing sales (people who walk by and notice the business)
- Using the internet = the internet means the location of some firms is more flexible e.g. e-commerce (trading over the internet) so manufactures can locate further from their market but also closer to their raw materials. Also meaning they do not need fixed premises e.g. a shop to sell their products. Documents can also be accessed over the internet which means some businesses do not need fixed premises and employees can work from home and people all over the world can be employed
the four Ps? 4m
- This is called the marketing mix = coming up with a product the people need or want then making it possible for people to buy it
- Product = the firm must identify customer’s needs or wants. Then it needs to come up with a product that will fulfil some or one of these needs e.g. spinach sweets wouldn’t sell that well
- Price = the price must be one that the customer thinks is a good value for money. This isn’t the same as being cheap. You may be prepared to pay a lot of money for a brand new 50 inch plasma TV but you’d expect an old basic 12-inch model to be much cheaper.
- Promotion = the product must be promoted so that potential customers are aware that it exits and will want to buy it
- Place = place can refer tot he method of distribution used to get a product from the company to the customer e.g. whether it is sold through retailers or sold straight to a customer
marketing fix affecting factors? 6m
- Technology can affect the marketing mix
- changes in tech may affect different parts of the marketing mix e.g. improvements in e-commerce means that more companies are selling their products online rather than in stores - Depends on customer needs
- what customers need will change over time too e.g. businesses may have to lower their prices for products that use older tech as these products no longer meet the needs of customers - competition affects marketing mix
- how competitive the market is and what businesses competitors are doing will also affect how a firm balances the elements of its marketing mix e.g. if competitors are offering the same products at lower prices, a business may need to lower its prices to stay competitive
- if a competitor starts selling a brand new product, a business may need to develop a its own version of the same product in order to offer a similar range of products to its customers
- in a really competitive market, customers may have a lot of products to choose from, so businesses may choose to spend more money on promotion to make their products more appealing than their competitors.
business plan? 1m
An outline of what a business will do and how it plans to do it
information needed for a business plan? 6m
- the role and importance of a business plan in minimising
risk and obtaining finance.
- the business idea
- business aims and objectives
- the target market
- use of the marketing mix
- the location
- finance/ cash flow
