1.4 Making the Business Effective

Question 1

<p>What is a <b>sole trader</b> business?</p>

Answer 1

<p>A sole trader is single person who is the exclusive owner of the business</p>

Question 2

<p>What are the advantages of setting up a sole trader business?</p>

Answer 2

<ul><li>They are the easiest type of business to set up</li><li>The sole trader gets to be their own boss</li><li>The sole trader decides what to do with the profit</li><li>It is easy to change the legal structure if circumstances change</li></ul>

Question 3

<p>What are the disadvantages of setting up a sole trader business?</p>

Answer 3

<ul><li>Unlimited Liability means that there is no legal distinction between the sole trader’s assets and the business’ assets</li><li>It can be hard to raise finance. Banks often see sole traders as riskier</li><li>All the responsibility for making business decisions is yours. Having someone to share decision making with can improve performance</li><li>It can be harder to retain (keep) good employees as they aren’t necessarily given a share of the profits</li></ul>

Question 4

<p>What is a <b>Partnership</b> business?</p>

Answer 4

<p>A Partnership is a business owned by 2-20 partners. Each partner has an equal share of the profits and equal say in the decision making</p>

Question 5

<p>What are the advantages of setting up a Partnership?</p>

Answer 5

<ul><li>More people means more experience and more ideas. Decisions can also be better as the owners can discuss pros and cons with each other</li><li>It is easier to raise money because banks are more likely to lend to a partnership than to a sole trader. More investments means increased access to finance for the firm and this supports quick growth</li><li>Good employees can be made into partners and this means it is easier to retain the best employees</li></ul>

Question 6

<p>What are the disadvantages of setting up a Partnership?</p>

Answer 6

<ul><li>The profits are shared, so if a sole trader decides to go into business with another person, they may end up with a lower profit for themselves</li><li>Like sole traders, partnerships have unlimited liability</li><li>Partners may disagree about business decisions</li><li>Each partner is liable for the actions of the other partners. This may lead to further friction between partners</li></ul>

Question 7

<p>What are <b>limited companies</b>?</p>

Answer 7

<p>Limited companies are businesses that are <b>owned by shareholders</b></p>

Question 8

<p>What are the two types of limited companies?</p>

Answer 8

<ol><li>Private Limited Companies</li><li>Public Limited Companies</li></ol>

Question 9

<p>How are Limited companies different from partnerships and sole traders?</p>

Answer 9

<ul><li>Limited companies are incorporated</li><li>Owned by Shareholders</li><li>Limited Liability</li></ul>

Question 10

<p>What does being <b>incorporated</b> mean?</p>

Answer 10

<p>Being Incorporated means that the shareholders are protected by limited liability. This means the shareholders are only responsible for the amount that they have invested</p>

Question 11

<p>What is a <b>Private Limited Company (Ltd)</b></p>

Answer 11

<p>A private limited company is a company where ownership of shares is restricted. For the company to sell shares, all shareholders must agree to sell them. They are mainly sold to family and friends</p>

Question 12

<p>What are the advantages of setting up a private limited company?</p>

Answer 12

<ul><li>The key advantage over sole traders and partnerships is that shareholders have limited liability</li><li>The fact that ownership is restricted means that all shareholders must agree to sell shares. This means that the owners retain (keep) a lot of control over how the business is managed</li><li>It is normally easier for a limited company to get a loan than it is for partnerships, as a company is normally seen as less risky. This should increase a company’s access to finance</li></ul>

Question 13

<p>What are the disadvantages of setting up a private limited company?</p>

Answer 13

<ul><li>Finance is needed to incorporate a business. There is an upfront fee as well as costs associated with paperwork. This means that it may not be possible for smaller firms (or brand new firms)</li><li>Unlike sole traders and partnerships, the company is legally obliged to publish their accounts each year and competitors may use these to become more competitive</li></ul>

Question 14

<p>What are <b>public limited companies</b>?</p>

Answer 14

<p>Public Limited Companies are companies that sell shares on the stock exchange</p>

Question 15

<p>Why do firms become public limited companies?</p>

Answer 15

<p>Firms becom public limited companies because it allows them to raise finance for investment</p>

Question 16

<p>What are the advantages of public limited companies?</p>

Answer 16

<ul><li>Selling shares on a stock exchange allows companies to raise money for investment, which enables the company to grow faster or bigger</li><li>It is much easier for companies to raise capital (money) from banks if they are public limited companies because they present less of a risk (given the number and size of investors)</li><li>Shareholders have limited liability because the company is incorporated</li></ul>

Question 17

<p>What are the disadvantages of public limited companies?</p>

Answer 17

<ul><li>Owners often have very little say over how the business is run. This means that it can be hard to agree on how the business is run</li><li>Anyone can take over the company if they are able to buy enough shares. When shareholders own more than half the shares, then they will have control over the company</li><li>The company’s accounts must be made public. This means that competitors can see how well the company is doing.</li></ul>

Question 18

<p>What is a <b>Social Enterprise</b>?</p>

Answer 18

<p>A social enterprise is a form of a not-for-profit organisation that makes a profit through selling goods and services</p>

<p>This profit is then reinvested to support the social enterprise's aim</p>

Question 19

<p>What is <b>Franchising</b>?</p>

Answer 19

<p>Franchising is when a company gives someone the right to sell its product and use its trademark</p>

Question 20

<p>Who is a <b>franchisor</b>?</p>

Answer 20

<p>A Franchisor is an individual or group who grants the licence to a business to set up a franchise</p>

Question 21

<p>Who is a <b>Franchisee</b>?</p>

Answer 21

<p>A Franchisee is an individual or group who buy the rights to set up a franchise</p>

Question 22

<p>What are the advantages of franchising?</p>

Answer 22

<ul><li>The business can expand without needing large amounts of investment. The firm does not incur the costs involved with opening new stores</li><li>The business also does not have to be concerned about some of the risks of becoming a larger corporation, for example, diseconomies of scale (which may be caused by the growth from opening and operating new stores themselves)</li><li>Franchising increases brand awareness of the firm’s products or services</li></ul>

Question 23

<p>What are the disadvantages of franchising?</p>

Answer 23

<ul><li>A disadvantage of franchising is that the franchiser does not have complete control over how they operate</li><li>If a franchise is run badly, then a single franchise or store can negatively affect the brand image</li></ul>

Question 24

<p>What are the main factors that influence where a business locates?</p>

Answer 24

<ul><li>Proximity to Materials</li><li>Proximity to Labour</li><li>Proximity to Competitors</li><li>Proximity to market</li><li>Proximity to Suppliers</li></ul>

Question 25

<p>What are the 4P's of marketing mix?</p>

Answer 25

<ul><li>Price</li><li>Promotion</li><li>Place</li><li>Product</li></ul>

Question 26

<p>Why do businesses create business plans?</p>

Answer 26

<ul><li>Important for new businesses</li><li>Raising Finance</li><li>Setting Objectives</li><li>Organisation of the Business</li></ul>

Question 27

<p>Why is it important for new business to create a business plan?</p>

Answer 27

<p>It is important for a new business to have a plan for the owner to clarify their thoughts and plans and for a potential investor like a venture capitalist or bank manager. A detailed plan lets the owner and financial backers think about the business idea in depth</p>

Question 28

<p>Why is it important to create a business plan when you are trying to raise finance?</p>

Answer 28

<p>To decide whether to give finance to a business, investors and banks need in-depth financial information.
A business plan can provide detailed info about the costs and expected revenue for a company and this can be used to convince financial backers that they should invest</p>

Question 29

<p>Why is it important to create a business plan to set goals?</p>

Answer 29

<p>A plan lets a business clearly set out what the business’ objectives are and how they are going to go about achieving them
These specific business objectives help firms to achieve their aims as they are measurable targets for the firm to work towards
It also allows a business to see which areas (growth, sales, profits etc.) they need to improve and which they are doing well on. If they fail to meet an objective then it can be easier to understand why it was not met</p>

Question 30

<p>Why do you create a business plan to organise a business?</p>

Answer 30

<p>By detailing how functions of the business will be organised, a business plan can help improve the way that a business is run
It helps businesses, particularly smaller ones, to think logically about the most efficient way to run a business</p>

Question 31

<p>What is an <b>Executive Summary</b> in a business plan?</p>

Answer 31

<p>The executive summary is a concise overview of the entire business plan</p>

Question 32

<p>What is a <b>Mission Statement</b> in a business plan?</p>

Answer 32

<p>A mission statement says what a company wants to achieve</p>

Question 33

<p>What is the <b>products and services section</b> in a business plan?</p>

Answer 33

<p>This section should clearly describe which products or services the company sells and why customers will benefit from this
This also may include what a product’s unique selling point (USP) is</p>

Question 34

<p>What is the <b>market analysis section</b> in a business plan?</p>

Answer 34

<p>This will include an in-depth analysis of different aspects of the business’ environment</p>

<ul><li>Analysis of competitors – Who the main competition are and where they are positioned in the market</li><li>Analysis of customers – The different customer segments and which of these will be the ‘target market’</li></ul>

Question 35

<p>What is the <b>organisation and management team section</b> in a business plan?</p>

Answer 35

<p>This will outline the company’s organisation structure and provide personal details of the owners and other important personnel</p>

Question 36

<p>What is the <b>Production details section</b> in a business plan?</p>

Answer 36

<p>This will outline how a firm will produce its products or provide its services.
This includes things like the location of factories, who the suppliers will be, what materials will be needed and how much they will cost</p>

Question 37

<p>What is the <b>Finance Section</b> in a business plan?</p>

Answer 37

This section will outline the investment that is needed to start up a business, as well as objectives for revenue and profit.

<ul><li>Cost and profit - This includes detailed outlines of the forecasts for cost, revenue and profit</li><li>section usually includes a cash-flow forecast and projected profit and loss account for the first 12 months of trading</li><li>Sources of finance - This section often includes details of how a company will fund investment if it is required</li></ul>

Question 38

<p>What are the advantages of making a business plan?</p>

Answer 38

<ul><li>Business plans provide parameters for setting targets</li><li>Management can check staffing, incomes, product ranges and lots of other things against previous business plans and expansion plans</li><li>A business plan can be used as a benchmark against outcomes like cashflow, production outcomes or service delivery. The plan can also be compared to the behaviour of competitors and the business’ own performance in past years</li></ul>

Question 39

<p>What are the disadvantages of making a business plan?</p>

Answer 39

<ul><li>Businesses need to be flexible and able to adapt to a changing environment. A business plan may stop a company changing</li><li>Business plans can be costly and time-consuming to make. If an entrepreneur has less time to spend designing a good product and selling to customers, then the time spent making a business plan may be negative for the business</li><li>Also, forecasts of revenue and profit may be misleading and lead to bad decisions</li></ul>

Question 40

<p>What are the different sections of a business plan?</p>

Answer 40

<ul><li>Financing Plans</li><li>Production Details</li><li>Management team &amp; Organisational Structure</li><li>Description of Products and Services</li><li>Mission Statement</li><li>Revenue Forecasts</li><li>Market Analysis</li><li>Executive Summary</li></ul>

Question 41

<p></p>

Answer 41

<p></p>

Question 42

<p></p>

Answer 42

<p></p>