Business Startup Flashcards
3 Organisational Options for a start-up
- Sole Trader
- Partnership
- Private Limited Company
Define Sole Trader
a business that is set up, owned and run by one person on their own. It suits smaller businesses
4 Advantages and Disadvantages of Sole Trader
ADVANTAGES:
easy to set up
all profits go to the owner
confidential
decisions can be made quickly
DISADVANTAGES:
unlimited liability
difficult to run on your own
can be hard to raise finances
no continuity of existence
Define Unlimited Liability
if a business goes bankrupt and owes a lot of money, then the sole trader is solely responsible for paying back all of the businesses loans
Define Partnership
a business where between 2 and 20 people come together to set up and share control of a business
5 Advantages and 3 disadvantages of partnership
ADVANTAGES:
few legal registration requirements
more capital available
a different set of skills
work can be divided up
confidential type of business
DISADVANTAGES:
unlimited liability
decision making can be slower
profits have to be shared
Define Private Limited Company
formed when between 2 and 149 people put together money to start a new business. 1 share= 1 vote
5 Advantages and 3 Disadvantages of Private Limited Company
ADVANTAGES:
limited liability
easier to raise capital
workload is split
less tax on their profits
possibility of continuity of existence
DISADVANTGES:
complicated to set up
not confidential
lot of legal requirements
3 Types of Production
Job Production
Batch Production
Mass Production
Define Job Production
making one product at a time. Each product is unique where the customer comes in and sets out what they want. Requires highly skilled labourers. Products tend to be more expensive.
Define Batch Production
making large amounts of the product all in one go. It is the same for all customers. It can be made in advance because the product will be the same for everyone. Does not require skilled workers. Cheaper to make these products due to economies of scale. e.g. bread
Define Mass Production
sometimes called flow line mass production. Involves making the product continuously all year round. Therefor it is only suited to products that are in demand all year. Product is the same so it can be made in advance. Does not require highly skilled workers and huge economies of scale. e.g. toilet paper
4 Implications of Changing Production Methods
- INVESTMENT- batch and mass production methods are both heavily automated. This requires large investment
- FINANCE- additional long-term sources of finance may be needed to set up a new production process.
- OWNERSHIP STRUCTURE- the business may have to change its structure in order to raise the finance necessary for the investment.
- CHANGES TO STOCK CONTROL- if the business changes from job to batch production, it will no longer be making goods to order for the customer.
Short, Medium and Long Term Sources of Finance
(3 of each)
SHORT TERM:
bank overdraft
trade credit
accrued expenses
MEDIUM TERM:
hire purchase
leasing
term loan
LONG TERM:
debentures
equity capital
grant
4 Reasons for Choosing a Business Location
ACCESSIBILITY- the business need to be accessible to its target market
COMPETITION
OPERATING EXPENSES- renting a storefront on a popular street/ shopping centre is likely to be more expensive than opening a store in a small commercial district.
AVAILABILITY OF WORKFORCE
6 Things in a Business Plan
business details
objectives
product details
market details
production details
finance details
Importance of a Business Plan (4)
SEEKING FINANCE/ INVESTORS- it is a vital document when approaching any financial institution, grant agencies or other investors seeking funds for the enterprise.
SETS TARGETS- set out its targets and strategic objectives. All key areas of success are focused on which should increase the chance of business success.
GIVES FOCUS- allows all stakeholders in the business to be on the same page when it comes to business activities. All stakeholders have a clear blueprint to follow and so time is not wasted
VIABILITY- usually include financial projections, ratios, cash-flow forecasts and break-even charts. It measures the viability of the business moving forward.
