1.4 - Making the business effective Flashcards
Define unlimited liability
When the entrepreneur and the business are seen as the same legal entity and this means that any debts incurred by the business is solely responsible for the entrepreneur.
Define limited liability
When the entrepreneur and the business are seen as two separate entities and this makes the entrepreneur only liable for the amount of money they have personally invested.
What are the five forms of business?
- Sole trader
- Partnership
- Private Ltd Company
- Public Ltd Company
- Franchise
What may entrepreneurs often start up as?
Entrepreneurs may often start up as a sole trader. Then when they eventually gain more funding or provide more security for the owners by switching to limited liability.
What is a sole trader?
A business which has unlimited liability with only one owner.
What are the advantages and disadvantages of being a sole trader?
Ad:
- Quick and easy to set up
- Sole trader keeps all the profits
- Owner has complete control
- Business’ financial information is kept private.
Dis:
- unlimited liability
- limited access to finance and capital
- limited skill set of the owner and entrepreneur
What is a partnership?
An unincorporated business that has two or more owners who share the risk.
What are the advantages and disadvantages of a partnership?
Ad:
- easy to set up + cheap
- better skillset as more people can share skills
- the workload could be shared
- business financial info is kept private
Dis:
- Unlimited liability
- disagreements between partners?
- profits have to be shared among partners in given ratios
What is a private limited company?
Who can buy shares of it?
An incorporated business that is owned by shareholders. Shares can only be sold privately, usually to friends and family.
What are the advantages and disadvantages of a private limited company?
Ad:
- limited liability
- access to greater finance and capital
Dis:
- overall control could be lost
- more legal paperwork and setting up is more complex.
- the company’s accounts and financial info is not kept private.
What is a franchise?
Where the franchisee will sell the products or use the trademarks of another firm. They then give the franchisors a % of the profits.
What are the advantages and disadvantages of a franchise?
Ad:
- less risky + easier to get a loan
- customers already recognize the brand, less risk of the business failing
- franchisor undertakes advertising and promotion
- franchisor might provide the franchisee with training or help support.
Dis:
- franchisee has to pay a lot to start up (royalty)
- franchisor may have a strict rule about what the franchisee can sell
What are the 4 main factors that affect business location?
- Proximity to raw materials
- Proximity to Labour (workers)
- Proximity to competition
- Proximity to market (customers)
What do these four main factors depend on?
The nature of business activity
Where do retail companies want to be located?
as close to their customers as possible, but an exception to this would be if the business sells products on the internet.
Where would service companies want to be located?
near their customers but sometimes they can be located anywhere + can be located near labour
Where would manufacturing companies like to be located?
areas with cheaper rent rather than being close to their customers
Define e-commerce.
Any transaction that takes place through the internet
Define m-commerce.
Any transaction that takes place using mobile technologies
What does a business operating in e-commerce need location-wise?
- cheap locations because no requirement needed to locate near customers
advantages of e-commerce?
Ad:
- business less reliant on physical premises, lower overhead costs
-can reach much larger markets, as there is a lesser need to be geographically close to customers.
What are the four elements of the marketing mix?
- Place
- Price
- Product
- Promotion
What is the importance of place within the marketing mix?
- refers to the physical location of the business
- important, as when chosen wisely it can significantly reduce costs for the business.
What is the importance of price in the marketing mix?
- can help a business understand competitors, customers and costs effectively to maximise profit and revenue
- pricing can play a significant role in positioning the brand in the market or can help the firm be competitive.
What is the importance of product in the marketing mix?
- refers to the combination of elements that make up a product’s design
- a strong brand can use the product’s design to differentiate it from other products and can add value to their product.
- also needs to take into consideration customer quality expectations.
What is the importance of promotion in the marketing mix?
- refers to the process of generating customer awareness
- promotion helps to build brand awareness and loyalty which can lead to repeat purchases and referrals.
Why is the marketing mix important?
It is an essential tool for a company looking to maximise its marketing impact and long-term success.
How would price change due to competition?
- lowering prices
- temporary discounts or promotions to attract customers
How would product change due to the competitive environment?
- need to differentiate products/services to stand out
- involves changing product design to add value.
How would promotion change due to the competitive environment?
- increase marketing expenditure
- they might need to target a wider range of customers in more places to stand out from competitors (e.g: targeted advertising)
How will place change due to the competitive environment?
- might need to locate where they can get a competitive advantage depending on the nature of the business.
- businesses need to locate with high foot traffic or use innovative online channels to reach customers who prefer to shop online.
How would the marketing mix change due to changing customer needs?
They would change to fit the needs of customers and to also maximise profit and revenue for the business.
How has changes in technology changed the marketing mix?
- how businesses create and distribute products
- how businesses communicate with customers and set prices
Name 5 things that a business plan would consist of.
- business idea
- business aims and objectives
- target market
- cash flow forecast
- sources of finance
- business location
- planned marketing mix
What is the role of a business plan in minimising risk for the business?
- reduce the risk
- helping owners to raise finance
- helps to be well-informed about successes and any failures that the business could incur
- how to reduce the risk of failure
What is the overall role and importance of a business plan?
the business idea
business aims
objectives
target market (market research)
forecast revenue, cost and profit; cash-flow
forecast
sources of finance; location; marketing
mix
Advantages of a business plan?
- helps to set goals
- outlines every possible risk and prepares the business if done correctly.
Disadvantages of a business plan?
- can be time consuming and expensive to make
- forecasts and revenue can be misleading for the business
- need to be flexible which is hard to do
