Chap 15- Business Startup

Question 1

What are the three big decisions an entrepreneur must make when starting up the business

Answer 1

Organisational options (type of business structure)
Production options
Financial options

Question 2

What are the three types of business structure a startup business can be

Answer 2

Sole trader
Partnership
Private limited company (LTD)

Question 3

Explain sole trader

Answer 3

A business set up, owned and run by one person

Ex: farmers, chemists

Question 4

Explain four advantages of sole trading

Answer 4

Easy to set up- Minimal legal requirements and no government permission
Get to keep all the profits- rewarded
Confidentiality- dont publish financial accounts
All decisions made by one person - quick and easy and means there is no missing opportunities

Question 5

Explain five disadvantages of sole trading

Answer 5

Unlimited liability - the owner is at risk of losing their personal possessions e.g their house, if the business goes bankrupt
Stressful - one person is doing all work may burn out
Difficult to raise capital (money)- difficult to get loan as sole trading is likely to get bankrupt
No continuity of existence
Lack of expertise- relying on one person to know how to run every aspect of business

Question 6

Explain a partnership

Answer 6

Business set up, owned and run by between 2 -20 owners
All resources and talents are combined together to make business as successful as possible
Ex: Accountancy firms e.g KPMG

Question 7

Explain four advantages of Partnerships

Answer 7

Quick and easy to set up - and few legal requirements and no government permission but Deed of Partnership should be drawn up (contract between the partners)
More money and resources available - more capital
Different skills and expertise- can divide up work also with more peoples opinions better decisions made
Final accounts do not have to be published - confidential type of business

Question 8

Explain the five disadvantages of Partnerships

Answer 8

Unlimited liability - If business owes a lot of money partners are jointly and severally liable to pay it all back. they stand to lose personal assets.
Decision making is slower - more people have to be consulted business is less flexible to change
Profits must be shared between partners in agreed profit sharing ratio- may be unfair as doesn’t always represent amount of work put in
Disputes may arise between partners
No continuity of existence

Question 9

Explain private limited companies (ltd)

Answer 9

A business set up by 1 - 149 people (shareholders)
A LTD is considered a separate person from its owners for legal requirements and can sue and be sued
Ex: Zara (ZA Clothing Ireland LTD) or Eason and son ltd

Question 10

Explain five advantages of Private limited companies

Answer 10

Limited liability - owners are only at risk of losing the money they invested in the company
Easier to raise money- shareholders invest
Workload split among directors- all have different skills and they brainstorm ideas generating better ideas
Lower tax on profits than sole trader or partnership- 12.5%, lower than self assessment income tax, more money to reinvest into business
Continuity of existence - business does not cease to exist if one of owners dies

Question 11

Explain four disadvantages of Private limited companies

Answer 11

Complicated set up- legal requirements and permission from Registrar. must receive certificate of incorporation
Accounts must be published by law- not confidential
More people to consider in the decision making process- Greater chance of conflict between owners and may miss opportunities
Legal requirements to obey- auditing of accounts, annual returns, time and effort in this area

Question 12

What are the three main production methods an entrepreneur can choose from

Answer 12

Job Production
Batch Production
Mass Production

Question 13

Explain job production

Answer 13

Products made to order, one at a time
Each is individual and unique
Uses highly skilled workers
High quality materials used
Products are more expensive
Ex: custom made wedding dress

Question 14

Explain Batch Production

Answer 14

Making large amount of a product in one go (Production run)
Product is same for all customers
Products made in advance and are available to buy straight away
Labour is not highly skilled; machines may be used
Materials are cheaper - economies of scale are achieved
Ex: books, newspapers

Question 15

Explain mass production

Answer 15

Continuously making product always in demand
Products are identical and are made in advance so they are ready for purchase
Specialised machines are used
Unskilled workers may be used on an assembly line
Huge economies of scale are achieved so products produced are low cost
Ex: chocolate bars

Question 16

What are the three categories of finance? explain

Answer 16

Short-term - must pay back within 1 year ex: trade credit
Medium-term - paid back within five years ex: leasing
Long-term - has longer than 5 years to pay ex: debentures

Question 17

What are the factors to consider when choosing a source of finance

Answer 17

Cost
Security
Risk
Ownership

Question 18

Explain business plan

Answer 18

A business plan is a written document someone uses when starting a major business venture.
Sets out objectives of business and the overall direction of it. The plan sets out how the business will achieve its objectives ie. make and sell the product and how they intend to finance the business

Question 19

What are the headings of a business plan

Answer 19

Description of the Business
Market Analysis
Marketing Plan
Production Plan
Finance Plan

Question 20

Explain the importance of a business plan

Answer 20

Raises Finance- will convince investors to lend money they are convinced business will profit
Sets Out Targets- gives business direction and focus. Sets out steps to guide business to success
Control- allow entrepreneur to identify objectives and measure whether the business has achieved them by a particular time if not reaching standards they can fix that
Solutions- allows business to identify solutions to any issues that may arise e.g cash flow can solve in advance of happening

Question 21

Explain production run

Answer 21

making a large amount of one product all in one go

Question 22

Explain what to include in a business plan under the heading description of business

Answer 22

Sets out details of business proposition

People starting the business are introduced and the product as well as long term objectives

Question 23

Explain what to include in a business plan under the heading market analysis

Answer 23

Must show there is a viable market fr the product
How will she beat competitors to win customers
describes target market, trends and competitive advantage over competitors

Question 24

Explain what to include in a business plan under the heading marketing plan

Answer 24

Describes marketing strategy how to get customers convinced to buy
She will detail 4 P’s, product, price she wants to charge, promotion methods, and places she will sell

Question 25

Explain what to include in a business plan under the heading production plan

Answer 25

Describes how the product will be made, manufacturing process and equipment needed.
Also how will they ensure products are of the best quality

Question 26

Explain what to include in a business plan under the heading finance plan

Answer 26

Decides how much it will cost to finance business, and how much she has vs needs
sets out any collateral she has for loan and sets out projected final accounts and cash flow forecast for new few years