chapter 15 Business Start-Ups

Question 1

challenges of setting up a business

long-term finance

Answer 1

attracting investment, balancing souces- not taking on too much debt (repayments), not giving away much equity (loss of control)

Question 2

challenges of setting up a business

working capital

Answer 2

having enough cash to meet day-to-day expenses (cash flow)

Question 3

challenges of setting up a business

production method

Answer 3

choosing job, batch or mass (depending on USP, customer, price)

Question 4

challenges of setting up a business

ownership

Answer 4

choosing suitable structure- sole trader, partnership or limited company

Question 5

challenges of setting up a business

marketing

Answer 5

conducting research to know where to advertise, cost if sales promotions, how to use social media and public relations for publicity

Question 6

challenges of setting up a business

market research

Answer 6

finding useful, up-to-date research, conduct field research (takes time and money)

Question 7

challenges of setting up a business

creating a USP

Answer 7

developing features to stand out from competitors and existing products

Question 8

challenges of setting up a business

location

Answer 8

cost of buying/leasing shops or premises (the right place for the target market)

Question 9

challenges of setting up a business

staff

Answer 9

availability/ cost of staff, interviewing, employee legislation, tax

Question 10

name 3 organisation options

Answer 10

sole trader
partnership
private limited company

Question 11

sole trader

Answer 11

one person
farmers, local pubs
owner/company are the same

Question 12

unlimited liability

Answer 12

if the business goes bankrupt and owes a lot of money, the sole trader will become responsible for paying the debts

Question 13

benefits of sole trader

Answer 13

quick and easy to set up
keep profits
private (finance records don’t have to be published)
quick decisions can be made

Question 14

challenges sole trader

Answer 14

unlimited liability
expansion is difficult (can’t sell shares)
lack of experience in some areas
requires a lot of effort and stress 
no continuity of existence

Question 15

partnership

Answer 15

2-20 people
solicitors, doctors etc
jointly owned

Question 16

partnership benefits

Answer 16

easy to set up 
more capital
losses shared
optional to have a deed of partnership 
more experience
private- financial records don’t have to be published

Question 17

deed of partnership

Answer 17

profits to be shared
each partner is responsible for it
what happens if business closes
salaries of partners 
can partners withdraw money

Question 18

challenges partnership

Answer 18

disagreements
profits shared
unlimited liability
decision making slower
not a separate legal entity

Question 19

private limited company

Answer 19

owned by 1-149 shareholders 
limited liability 
directors run the business on behalf of the shareholders 
ltd follows the name
cannot sell shares to the public 
separate legal entity

Question 20

limited liability

Answer 20

in Irish law the company is separate from its owners, the company makes the contract therefore the company is sued not the shareholders

Question 21

private limited company benefits

Answer 21

limited liability
more experience
workload shared
easy to raise extra capital
lower tax rates (12.5%) than PAYE
continuity of existence

Question 22

private limited company challenges

Answer 22

complicated to set up
legal issues
registration expenses
submission of audited acc. companies. Registration Office- costly
publish financial accounts- not private

Question 23

name 3 production options

Answer 23

1 job production
2 batch production
3 mass production

Question 24

job production

Answer 24

high quality
single product 
produced to order
unique products
no stock holding
highly skilled labour
payment in advance
products tend to be expensive
boat-making

Question 25

batch production

Answer 25

``` producing a large amount in one go all products are the same average quality stock of goods planned for sale careful planning required semi-skilled labour (lower wages) cheaper products than job economies of scale eg fashion clothing ```

Question 26

mass production

Answer 26

``` once used- need to replace buy the item time and time again products are in constant demand huge economies of scale unskilled labour storage facilities are essential and costly large quantities, standard quality goods costly machinery marketing is essential to achieve mass salea eg Biro pens ```

Question 27

impact of going from job to batch

Answer 27

1 investment required purchase machines lower wages less skilled offer redundancies 2 loss of USP unique products lost lose competitive advantage lose loyal customers 3 effective stock control storage space too much stock too little stock 4 reduced prices premium pricing will jot work sell at a lower price 5 lower profit margins GP will fall NP will fall overall profit will increase

Question 28

list impact of job to batch

Answer 28

``` 1 investment required 2 loss of USP 3 effective stock control 4 reduced prices 5 lower profit margins ```

Question 29

impact of going from batch to mass in general

Answer 29

``` fewer options for consumers because only one product no variation USP will be a low price does a larger market exist? capital investment required brand image impacted ```

Question 30

batch to mass impact on staff

Answer 30

redundancies bad industrial relations low morale repetitive tasks

Question 31

batch to mass less diversified business

Answer 31

less flexible less variety low to respond to market changes

Question 32

selecting a source of finance

Answer 32

cost- interest, charges risk- what happens if there’s a problem repaying security- is collateral required ownership- is part of the business given away

Question 33

accrued expenses

Answer 33

cost- free, no interest risk- failure to pay reputation damaged security- no security ownership- full ownership required

Question 34

bank overdraft

Answer 34

cost- expensive, high rate of interest, extra charges for exceeding limit risk- failure to pay, reputation damaged, repayment can be demanded at any time security- no security ownership- full ownership retained

Question 35

trade credit

Answer 35

cost- free, no interest risk- failure to pay, reputation damaged security- no security ownership- full ownership retained

Question 36

hire purchase

Answer 36

cost- expensive rate of interest risk- failure to pay, reputation damaged, asset repossessed security- no security ownership- full ownership retained

Question 37

leasing

Answer 37

cost- rent could be more expensive than buying risk- failure to pay- reputation damaged security- no security ownership- full ownership retained

Question 38

medium term loan

Answer 38

cost- cheaper than HP and leasing risk- failure to pay, reputation damaged security- security needed, collateral required ownership- full ownership retained

Question 39

grants

Answer 39

cost- free risk- must be repaid if agreement broken security- no security ownership- full ownership retained

Question 40

debentures

Answer 40

cost- fixed rate of interest each year risk- failure to pay, reputation damaged, security can be taken if default occurs security- security required ownership- full ownership retained

Question 41

equity capital

Answer 41

``` cost- dividends paid each year directors decide amount risk- bankrupt, directors are banned from being involved in a company for 5 years security- security required ownership- ownership is reduced ```

Question 42

business plan

Answer 42

``` written statement objectives want to achieve strategies to achieve them direction map ```

Question 43

description of business

Answer 43

the people who are starting the business, experience products, USP long term objectives, mission statement, strategic planning

Question 44

market analysis

Answer 44

``` viable market for product compete with competition competitive advantage target market market trands ```

Question 45

marketing plan- marketing strategy

Answer 45

product price place promotion

Question 46

production plan

Answer 46

``` how to make the product manufacturing process equipment used ensure quality source raw materials ```

Question 47

finance

Answer 47

cost to finance the business how much money they will invest how much extra money is needed is collateral available projected- profit and loss account, balance sheet, cash flow forecast short, medium, and long term sources of finance

Question 48

list importance of a business plan

Answer 48

1 convince investors 2 set targets 3 guide for a business’ success 4 anticipate problems

Question 49

explain importance of a business plan

Answer 49

``` 1 convince investors sound idea projected P&L account sufficient future profits to repay finance 2 set targets performance can be measured corrective action can be taken control progress can occur 3 guide for a businesses success sets out objectives outlines strategies to achieve them all stakeholders have a coordinated approach helps to know where your business should be 4 anticipate problems corrective action prepare solutions helps to keep you on the right road ```