Business activity

Question 1

why would someone want to set up a business?

Answer 1

Financial reasons
becoming their own boss
for personal satisfaction
to earn a living from a hobby or interest
to benefit more of the effort they put in

Question 2

financial reasons

Answer 2

to earn an income after becoming unemployed or to earn a profit which may be greater than their income when working for someone else.

Question 3

for personal satisfaction

Answer 3

building your own business may help the individual reach the higher goals in life

Question 4

to earn a living from a hobby or interest

Answer 4

may be passionate about the product or

service they provide. This could make them motivated and could make them happier going to work

Question 5

to benefit more of the effort they put in

Answer 5

they will earn more money with more effort they put into working for their own business.
unlike working for someone else as no matter how much effort they put in they will still earn the same wages.

Question 6

Name some business aims

Answer 6

survival 
profit maximisation
growth
increasing market share
customer satisfaction

Question 7

survival

Answer 7

the owners want the business to continue in the long term. This will provide them with employment and income

Question 8

profit maximasation

Answer 8

the owners may want to increase the amount of profit they receive.

Question 9

market share

Answer 9

this involves the owner of the business wanting to have the biggest percentage of customers as possible and perhaps to be the biggest business in the market.

Question 10

what is an aim

Answer 10

a long term business goal

Question 11

what is an objective

Answer 11

a short term business goal which is more realistic and achievable

Question 12

benefits of becoming a sole trader

Answer 12

easy to set up
independence for the entrepreneur - all decisions are made by the owner without consultation, so without delay.
all profits are kept by the owner

Question 13

disadvantages of becoming a sole trader

Answer 13

limited liability
limited capital when setting up the business
huge workload and responsibilities
poor decision making

Question 14

benefits of partnerships

Answer 14

shared workload
spread risk
east to set up 
shared raising of capital
more expertise

Question 15

disadvantages of partnerships

Answer 15

shared profit
unlimited liability
disagreements can affect the business
imbalance of work and effort between the partners can cause problems

Question 16

limited liability

Answer 16

when the owner of business can only lose the money invested into a business if the business goes bankrupt

Question 17

unlimited liability

Answer 17

when the owners of a business can lose both the money invested into a business and personal possessions if the business goes bankrupt

Question 18

name the economies of scale

Answer 18

marketing economies
bulk buying
financial economies
technical economies 
managerial economies

Question 19

marketing economies

Answer 19

larger firms can afford a higher advertising budget then smaller businesses but the cost can be spread over the increase of sales from the advertising.

Question 20

technical economies

Answer 20

larger firms are more able to afford modern better equipment and pay for this with money made from increased output

Question 21

financial economies

Answer 21

larger business can negotiate lower interest rates with the banks for vast sums of money they borrow plus the have more credibility.

Question 22

managerial economies

Answer 22

larger businesses can afford to pay highest salaries for managers that can run the business efficiently and profitably.

Question 23

why do business want to grow?

Answer 23

to increase profits by benefiting from economies of scales
to reduce competition
to diversify in order to spread risks

Question 24

economies of scale occur when

Answer 24

the cost per unit falls as a business expands

Question 25

what is diversification

Answer 25

diversification is when a business sells new products in a different new market

Question 26

what is integration? external growth

Answer 26

integration is where a business grow by joining or aquiring another business.

Question 27

horizontal integration

Answer 27

when a business joins another business at the same stage of the production process in the same market.

Question 28

vertical integration

Answer 28

when a business joins another business at a different stage of the production process eg movie directors owning cinemas

Question 29

How can integration benefit a business?

Answer 29

it will improve the corporate image as the business is now found in several sectors joint advertising can promote all goods and services produced - spreads the cost of advertising Following vertical integration the business has much more control over the supply of factors of production and so of costs the business can keep profits at all stages of production

Question 30

what is a franchise

Answer 30

a franchise

Question 31

who is a franchisor?

Answer 31

a franchisor is the person who sells the franchise to the franchisee

Question 32

who is a franchisee?

Answer 32

a franchisee is the person who buys the franchise from the franchisor.

Question 33

Advantages of purchasing a Franchise to the franchisee -

Answer 33

well-known name potentially means that the business will already have customers receives support and advice from the franchisor - the business is less likely to fail / go bankrupt Franchisor may help with loans and finance and may provide finance at a low favorable rate of interest The franchisor finds goods to sell so there is no pressure to find suppliers - will have a trustful supplier who mat help with loans on items. Furniture and fittings may be provided by the franchisor National advertising paid by the franchisor will make the franchise better known.

Question 34

What are the negatives of purchasing a franchise to the Franchisee?

Answer 34

Franchises can be very expensive - a set up cost is paid to the franchisor limits the franchisees control over the business - the franchisee will have to put ideas forward to the franchisor and will have to get them approved by him/her before putting them into place. Goods bought from the franchisor may be more expensive than goods of other suppliers The franchisee may lose customers and business may suffer because of the actions of other franchisees who may create a bad reputation.

Question 35

franchisor benefits

Answer 35

Receives royalty payments from the franchisee business grows without the franchisor doing much of the work Franchisor sells stock to the franchisees the franchisee has to deal with losses

Question 36

franchisor negatives

Answer 36

Has to pay for the following costs: - training costs - national advertising costs - costs related to the organisation and outlet has less control over the individual outlets the franchisor may suffer if an outlet is run badly by a franchisee

Question 37

Why do some businesses remain small?

Answer 37

The size of the market may be limited short supply of capital restricts growth desire of the owner - the owner may not want to grow their business due to the extra pressure.

Question 38

How are small businesses able to survive?

Answer 38

They provide customers with personal service - the owner of the business usually works within the business so is close to customers and may provide informal credit and delivery Knowing and familiarizing with the customers means that the owner can be friendly towards them and greet them in a welcoming manner. This encourages customers to return and maintains customer loyalty. The owner may be aware of customer needs. Due to being a smaller business the owner may be able to provide goods and services that fulfill a customers specific needs and wants which results in good customer services and repeat purchases. Smaller businesses are often found in local communities and so they are close enough for customers to to buy products without the need to travel.- this encourages customers as it is easier for them to access items they may be looking to purchase. Also good for repeat everyday purchases such as milk.

Question 39

What do successful businesses depend on?

Answer 39

spending on market research , product development an investment in new factories and equipment. increased advertising and sales promotions

Question 40

name the factors affecting business location?

Answer 40

``` proximity to suppliers proximity to customers cost of business location proximity to employees infrastructure - transport links proximity to competition ```

Question 41

Name the different sectors within a business?

Answer 41

``` business operations marketing human resources production finance ```

Question 42

Name some characteristics of an entrepreneur?

Answer 42

hard working determined decision maker risk-taker

Question 43

what are the advantages of being a private limited company?

Answer 43

The shareholders have limited liability The business has continuity - if a shareholder sells their shares the business wont end. they will have more capital than unlimited liability businesses as they can sell shares companies can gain from specialized management employed by the board of directors.

Question 44

what are the disadvantages of being a private limited company?

Answer 44

may be expensive and difficult to organised as a range of documents are needed in order to ensure the business is set up and managed properly and legally. profits are shared between the shareholders - dividends capital may be limited as it cannot be raised by investors on the stock market.

Question 45

what are the advantages of being a public limited company?

Answer 45

They have access to more capital as they are able to sell shares on the stock market/stock exchange Banks are more likely to lend them money (More credible) often at lower rates of interest as they know they will be likely to pay it back public limited companies are some of the best known businesses. This encourages investment and greater share ownership in them but consumers also have more confidence in buying from them.

Question 46

what are the disadvantages of being a public limited company?

Answer 46

As shares are sold on the stock market anyone can buy them and the shareholders could possibly lose control if someone buys more than half of shares. The business accounts must be made available to anyone its expensive to st up and run a public limited company.

Question 47

What is a charity?

Answer 47

A charity is a non profit making organisation that is set up for "charitable purposes"