1.4 - Making the Business Effective Flashcards
What happens when an entrepreneur starts a business?
+When an entrepreneur starts a business there are some important decisions to make.
+For example what legal structure the business should have.
What is the easiest business to start?
Sole Traders
What are sole trader businesses?
+Sole trader businesses have just one owner [though the owner may employ other people to work for them].
+Most small businesses are sole traders - you don’t need to do much except start trading.
+Examples include plumbers, hairdressers, newsagents and fishmongers.
What are the advantages of sole traders?
- They’re easy to set up, which means they’re great for start up businesses.
- You get to be your own boss.
- You alone decide what happens to any profit.
What are the disadvantages of sole traders?
- You might have to work long hours and not get many holidays.
- You’re unincorporated, meaning the business doesn’t have its own legal identity - So if anyone sues the business they’ll sue you personally.
- You have unlimited liability, meaning you are liable [legally responsible] for paying back all of the business’s debts if it goes bust - As you aren’t legally separate from the business, your personal finances are at risk [eg. you might have to sell everything you own to pay the debts].
- It can be hard to raise money - Banks often see sole traders as risky, so it may be hard to get a loan; You often have to rely on your own savings, or family and friends.
What is limited liability?
+Some companies have limited liability - which means the amount of debt the owners have to pay back is limited to the amount they invested.
What are Partnerships?
They are like two or more sole traders
Where do you get Partnerships?
+You get partnerships in businesses like accountancy firms, solicitors and doctors’ surgeries.
+Partnerships generally have between two and twenty partners.
+Each partner has an equal say in making decisions and an equal share of profits - unless they have an agreement called a deed of partnership that says different.
What are the advantages of Partnerships?
- More owners means more ideas, and a greater range of skills and expertise - [eg. one partner might be great at sales, while another is good at planning].
- It also means more people to share the work
- More owners means more capital [money] can be put into the business, so it can grow faster.
What are the disadvantages of Partnerships?
- Each partner is legally responsible for what all the other partners do.
- Like sole traders, most partnerships have unlimited liability.
- More owners means more disagreements - You’re not the only boss; if the partners disagree about which direction the business should go in and how much time to put in, it can get unpleasant.
- The profits are shared between the partners - so if a sole trader decides to go into partnership with another person, they could end up with less money for themselves.
Who owns Limited Companies?
+Limited companies are owned by shareholders
+The more shares you own, the more control you get.
What are the two types of limited company?
+They are Private and Public
+But both kinds have some important differences compared to sole traders and partnerships.
What is a limited company?
+A limited company is incorporated - it has a separate legal identity from the owners.
+So any money, property, tax bills etc. in the company’s name belong to the company, not the owners.
What does being incorporated mean?
+Being incorporated means the owners have limited liability - if anything goes wrong [eg. somebody sues the company or it goes bust], it’s the company that’s liable, not the owners.
+The owners only risk losing the money that they have invested.
What happens in Private Limited Companies?
Ownership is restricted
What does ‘Private’ in Private Limited Company mean?
+‘Private’ means that shares can only be sold if all the shareholders agree.
+The shareholders are often all members of the same family,
+Private limited companies have Ltd. after their name.
What are the advantages of Private Limited Companies?
+The big advantage over sole traders and partnerships is limited liability - you can’t lose more than you invest.
+It’s easier for a Ltd. company to get a loan or mortgage than it is for a sole trader or partnership.
What are the disadvantages of Private Limited Companies?
+They’re more expensive to set up than partnerships because of all the legal paperwork.
+Unlike sole traders or partnerships, the company is legally obliged to publish its accounts every year [although they don’t have to be made public].
What does Franchising use?
Franchising uses the brand name or product of another firm.
What is setting up as a franchise of another company?
+This is where they sell the products or use the trademarks of another firm - they then give the firm they’re franchising from a royalty fee or a percentage of their profits.
What are franchisors and franchisees?
+The product manufacturers are known as franchisors and the firms selling their products are franchisees.
What can Franchises trade under the name of?
+Franchises can trade under the name of the franchisee but advertise that they sell a particular manufacturer’s products [eg. car dealerships].
+Or the franchisee might buy the right to trade under the name of the franchisor - most of the big firms in the fast-food industry are this type of franchise.
What are the advantages of franchising?
- Customers will already recognise the franchisor’s brand so are more likely to buy from the franchisee - this means there’s 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 with things like management and accounting and advertising.
What are the disadvantages of franchising?
- 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 [ongoing royalties and commision] - these costs may mean they end up with less money than if they started a business from scratch.
- There is always a risk the franchisor could go out of business, so the franchisee will suffer.
- If there is bad publicity elsewhere in another part of the franchise, it will also affect every single establishment, decreasing customers and profit.
Sometimes, what is business success all about being?
+Sometimes, success in business is all about being in the right place - When a firm chooses where it’s going to locate, there are lots of things to think about to get a site that suits the business and its customers.
How is the location of a business influenced?
+The location of a business is influenced by different factors.
+Suppose a new start-up company Granite King are looking for a location for their new kitchen worktop manufacturing business - They’ll want to think about these things:
- Location of Raw Materials
- Labour Supply
- Competition
- Location of the Market
- Using the internet
