1.4 - Making the Business effective Flashcards
1.4.1 - The options for start-up and small businesses 1.4.2 - Business location 1.4.3 - The marketing mix 1.4.4 - Business plans
Explain the term ‘unlimited liability’.
There is no legal distinction between the business and the owner and so any debts that the business incurs are the responsibility of the owner(s). In other words there is no limit to their financial responsibility and if the debt cannot be repaid then the sole trader/partners’ assets may be sold to pay off the debt.
Explain the term ‘limited liability’.
With limited liability, the business and the shareholders that own it are distinct and so any debts are the responsibility of the business and not the shareholders personally, so the maximum they can lose in the case of business failure is limited to the amount they have invested.
Explain the term ‘sole trader’ and identify the advantages and disadvantages of operating as a sole trader.
A sole trader is an entreprenuer who runs their own business.
Benefits
- The sole trader is in control and can make all of the decisions
- Keeps all of the profits
- Has independence as they work for themselves
- Accounts and business information can be kept private
Drawbacks
- A sole trader has unlimited liability
- As they are the person in charge having to make all of the decisions can be stressful and the environment can become quite pressurised
- If the sole trader becomes ill, then they risk not earning revenue if they have not employed anyone to help them
- Banks may be less likely to lend to you as it is just you on your own, so it is only the sole traders assets that can help secure the loan
Explain the term ‘partnership’ and identify the advantages and disadvantages of operating as a partnership.
A business that has 2 or more individuals who form a business together. They have a partnership agreement which outlines how the partnership will operate.
Benefits
- Partners can benefit from shared expertise and responsibility
- Shared workload which reduces pressure
- The risk is shared
- Accounts and partnership information can be kept private
Drawbacks
- Partnerships have unlimited liability
- Partners are responsible for any debts incurred by other partners
- Disagreements may occur which could affect the function of the business
- Profits need to be shared amongst partners
Explain the term ‘private limited company’ and identify the advantages and disadvantages of operating as an ‘ltd’.
A private limited company is the most common form of UK company incorporation. It is set up directly by registering the company with Companies House. It operates as a distinct legal entity to its directors and shareholders – the company is therefore an ‘individual’ in its own right.
Benefits
- Owners benefit from limited liability
- Often customers trust an ‘ltd’ more as it appears bigger, more trustworthy, more established.
- Can be easier to raise finance for above reasons or by inviting shareholders to invest capital
- You can retain control easier compared with a plc.
Drawbacks
- More complex to set up than a sole trader as you must register with Companies House
- You must report limited financial information which is then available to the public
- Shareholders may disagree, which can cause conflict
Explain the term ‘public limited company’ and identify the advantages and disadvantages of operating as a ‘plc’.
It is a limited liability company whose shares may be freely sold and traded to the public via the stock exchange. A plc must have a minimum share capital of £50,000 and can be idenitfied when it has the letters ‘plc’ after its name. Public limited companies have a separate legal identity from its investors.
Benefits
- Shareholders benefit from limited liability
- Can be easy to raise finance through the selling of shares
- Considered more prestigious and therefore reliable because of its size and available capital
- As a result of the size, plc’s can often negotiate better prices, which means they can benefit from economies of scale
Drawbacks
- Full financial records are available to the public
- They are susceptible to takeovers which means original investors can lose control if someone buys a majority share
- Because their financials are available to the public they are more exposed to media attention and scrutiny and any negative attention can affect the value of the share price.
- Can be the subject of pressure group action because of exposure of financial records and company information
Explain the difference between the terms ‘franchisee’ and ‘franchisor:’:
Franchisee is the person/organisation that pays to use the name to sell, distribute or produce the product, the franchisor is the organisation that gives the rights to another to use.
Explain the term ‘franchise’ and identify the advantages and disadvantages of operating as a ‘franchise’.
hThe right given by one business to another business/individual to sell goods or services using its name and systems.
Benefits
- Training and development provided by the franchisor
- Equipment provided by the franchisor
- The suppliers are already established, often benefitting from economies of scale
- Customers can be more easily found because of an established brand name
- Often the franchise also offers other services, e.g. help with finance, insurance
Drawbacks
- Investment is usually very high and the franchisee will need to pay royalties (a % of sales revenue)
- The franchisee needs the franchisor’s permission to sell the business
- Unable to control certain aspects as you must adhere to the franchisor’s terms and conditions
- The franchisor can end the agreement without any reason or compensation
Identify and explain the 7 factors that can affect the location of a business.
- Proximity to the market- are the customers accessible?
- Proximity to labour- can you access suitable staff with the right skills and qualifications?
- Proximity to competitors- if you sell shopping goods then locating near a competitor will be beneficial as customers may browse the goods on offer, but if selling convenience goods then being near competitors may negatively impact your business
- Proximity to raw materials- if the product is bulk gaining, then locating near customers may be more important, but if it is bulk reducing then locating near the suppliers may be more cost effective.
- Inertia- Often a business is in its location as it has not had cause to change, eg an entreprenuer starts the business in their house and there has not been change for change sake
- Cost- comparing the prices of locations is essenritla in minimising costs, after taking all of the above into account
- The nature of the business activity; is it in manufacturing, retailing, exporting or tourism?
Explain the term E-Commerce and how its has affected business locations.
E-commerce involves trading on the internet. The ability to do this has reduced the significance of the physical location for many businesses, which means they may not need to locate on expensive high streets which can help to minimise their costs, nor do they have to be physically close to the market they target as they can reach their customers via the internet.
Define the term ‘ marketing mix’.
The marketing mix is the combination of product, price, promotion and place strategies that a business uses to meet customers needs which in turn generates sales for their product or service. The marketing mix is also known as the 4P’s.
Explain each of the elements of the ‘marketing mix’.
Product: The product or service is the physical good or service that a business sells. In order to be successful the product has to meet customers needs through either the function, design or be of a particular quality for example.
Price: The price must reflect the value customers place on the product. There are several pricing strategies that a business may use, for example; premium, competitive, psychological or penetrative for example.
Promotion: Promotion is the communication between the business and the customer to generate awareness for the product or service. This includes; advertising, the use of social media, viral advertising, sponsorship and public relations.
Place: The way in which a product is distributed- how it gets from the producer/supplier to the consumer, this includes online and mobile retailing (E-commerce and M-Commerce).
Explain the impact of technology on each element of the marketing mix.
Product: products must be constantly innovated to make people’s lives easier and make products and services even more convenient. Technology can also mean it is cheaper to produce a product, so it may make the cost of producing the product even lower.
Price: As a result of price comparison sites customers can easily compare prices of different products so pricing strategies may have to be adjusted to take account of the comepetitive market and businesses have to constantly monitor their competitors to ensure they remain competitive
Promotion: many businesses these days have switched from predominantly traditional methods such as print media and tv campaigns to digital marketing strategies via social media sites such as Instagram and Twitter. Many companies have begun to use influencers as part of their digital marketing strategy.
Place: E-commerce and M-comerce capabilities mean businesses can now trade online and also allow customers to customise their products meaning they can potentially meet customers’ needs to an even higher standard than before.
Explain the importance of having an ‘integrated’ marketing mix.
A business must have a marketing mix where each of the elements complements each other as otherwise it will fail to meet customers’ needs, eg the pricing strategy must reflect the product quality in the eyes of the consumer, it must then be promoted on sites/ways those specific customers will see and the way those specific customers will shop.
Explain how the marketing mix can be affected by changing customer needs.
A business will need to adapt its marketing mix as customer needs change over time as if it does not then it will likely lose market share to competitors.
Product: It is important features are constantly adapted and updated as trends and consumer tastes and preferences change over time
Price: Monitoring competitor prices is essential so that a business can respond to any change in pricing by competitors or as new competitors enter the market
Promotion: If the product or price is changed for example this must be communicated to customers to boost sales as new needs may be met or new markets may be accessible
Place: Reviewing retail strategies or updating websites to reflect any changing needs is essential in order to stay competitive and continue to meet the customer needs
