GCSE Business In The Real World

Question 1

What are sole traders?

Answer 1

Easiest business to start

Have just one owner (though the owner may employ people to work for them)

Most small business are sole traders

You don’t need to do much except start trading

Question 2

Give advantages of sole traders

Answer 2

Easy to set up

Get to be your own boss

You alone decide what happens to any profit

Question 3

Give disadvantages of sole traders

Answer 3

Might have to work long hours and may not get many holidays

You have unlimited liability

You’re unincorporated

Can be hard to raise money

Question 4

What does unlimited liability mean?

Answer 4

Means if the business goes bust owing a certain amount you are liable (legally responsible) for paying back all of the degt which might mean you have to sell everything you own

Question 5

What does unincorporated mean?

Answer 5

Means the business doesn’t have its own legal identity so if anyone sues the business they’ll sue you personally

Question 6

Why is it hard for sole traders to raise money?

Answer 6

Banks 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

Question 7

What is a partnership?

Answer 7

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

Question 8

Give advantages of partnerships

Answer 8

More owners means more ideas and a greater range of skills and expertise

More people share the work

More owners means more capital (money) can be put into the business o it can grow faster

Question 9

Give disadvantages of partnerships

Answer 9

Each partner is legally responsible for what all the other partners do

Most partnerships have unlimited liability

More owners means more disagreements - if the partners disagree about which direction the business should go in and how much time to put in it can get unpleasant

Profits are shared between the partners - could end up with less money for themselves

Question 10

Who are limited companies owned by?

Answer 10

Shareholders

The more you own the more control you get

Question 11

What are the two types of limited company?

Answer 11

Public

Private

Question 12

Give information about a limited company

Answer 12

Is incorporated - has a separate legal identity from owners

Question 13

What does it mean if a limited company is incorporated?

Answer 13

Any money, property, tax bills etc not he company’s name belong to the company not the owners

Means they have limited liability

Question 14

What does it mean if the owners of a limited company have limited liability?

Answer 14

If anything goes wrong (sued or goes bust) it’s the company that’s liable not the owners

Owners only risk losing the money they have invested

Question 15

What is the ownership of a private limited company like?

Answer 15

Ownership is restricted

Private means shares can only be sold if all shareholders agree

The shareholders are often all members of the same family

Question 16

How do you know a company is a private limited company?

Answer 16

It has Ltd after their name

Question 17

Give advantages of a private limited company

Answer 17

Big advantage over sold traders and partnerships is you have limited liability (can’t lose more than you invest)

Being incorporated -company can continue trading after a shareholder dies unlike partnerships

Easier to get a loan or a mortgage than it is for sole traders and partnerships

Owners keep a lot of control over how the business is manages and how many people get to share the profits

Question 18

How do owners keep a lot of control over their private limited company and how is this good?

Answer 18

For someone to buy shares all the other shareholders have to agree

Owners keep a lot of control over how the business is manages and how many people get to share the profits

Question 19

Give disadvantages of having a private limited company

Answer 19

More expensive to set up than partnerships because of all the legal paperwork you have to do

Unlike sole traders or partnerships the company is legally obliged to publish it’s accounts every year (although they don’t have to be made public

Question 20

What does public mean?

Answer 20

The company shares are traded on a stock exchange , and can be bought and sold by anyone

Firms often become public when they want to expand

Have PLC at the end of its name

Question 21

What are the advantages of a PLC?

Answer 21

Much more capital raised than any other form of business

Helps company expand and diversify

Like private they have limited liability and are incorporated

Question 22

What are the disadvantages of a PLC?

Answer 22

Can be hard to get lots of shareholders to agree on how business is run - each shareholder has every little say unless they own a lot of shares

Easy for someone to buy enough shares to takeover the company - if they can convince share holders to sell

Accounts have to be public

More shareholders means there’s more people wanting a share of profits

Question 23

Why is publishing accounts for a PLC a negative?

Answer 23

Everyone including competitors can see if they’re struggling

Question 24

What sort of liability do smaller businesses (sole traders and partnerships) tend to go for?

Answer 24

Unlimited liability

Question 25

What sort of liability do larger businesses (Ltd’s or Plcs) tend to go for?

Answer 25

Limited liability

Question 26

When starting up a business what do you have to consider in terms of legal structure?

Answer 26

Whether you have limited or unlimited liability The amount of control you want over how the business is run And their structure which can change overtime

Question 27

What is the similarity and main difference between PLCs and LTDs?

Answer 27

They’re both incorporated and have limited liability Big difference is the owners of PLCs can’t control who buys shares

Question 28

How do not-for-profit organisations generate income and why do they need to generate enough income?

Answer 28

Don’t try to make profit for owners Many have charitable status (get some tax relief and are able to apply for certain grants) Need to generate enough income to cover their costs

Question 29

Are all not-for-profit organisations the same?

Answer 29

No their size and aims can be very different

Question 30

What happens to any surplus gained in a not-for-profit organisation?

Answer 30

Any surplus is put back into the business or used to fund projects that help the community

Question 31

How easy are not-for-profit organisations to set up and why?

Answer 31

They’re hard to set up There are list of rules to follow Many charities are funded mainly by donations and grants which means they may not have a stable income

Question 32

What are social enterprises and how do they work?

Answer 32

Another type of not-for-profit organisation Make money by selling products Similar to “for-profit”businesses but their aims are always centred around using their profits to benefit society in some way As they make profit through what they sell they don’t rely as heavily on donations and grants as many charities

Question 33

Are not-for-profit firms easy to manage and why?

Answer 33

Hard to manage Hard particularly if there’s always uncertainty about how much finance they’ll have available and if they rely on volunteers rather than permanent members of staff

Question 34

As not-for-profit organisations can vary, there are many different legal structures they can have, what are they?

Answer 34

Unincorporated organisation Incorporated association

Question 35

Is it easy to set up an unincorporated association? Not-for-profit

Answer 35

Easy to set up BUT people who manage the organisation have unlimited liability

Question 36

Bigger organisations tend to be incorporated, why? Not-for-profit

Answer 36

People who run them have limited liability Often “limited by guarantee “ meaning some of its members guarantee that they’ll pay a fixed amount of money on behalf of the business if it goes bust

Question 37

How can financial aims be measured in terms of money?

Answer 37

Survival Maximise profit Growth Increase shareholder value Increase market share Maximise sales Achieve financial security

Question 38

How can financial aims be measured in terms of money....survival?

Answer 38

The main and most important short term aim for all businesses is surviving 60% of new firms close within five years of starting

Question 39

How can financial aims be measured in terms of money....maximise profit?

Answer 39

Vast majority of firms will aim to maximise profits However it can take a few years for a new firm to make any profit at all

Question 40

How can financial aims be measured in terms of money....growth?

Answer 40

Many firms will aim to grow but growth can mean many different things Eg/ increasing number of employees, products sold or income from sales Some firms want to grow domestically (in country they set up) or internationally (expand into other countries)

Question 41

How can financial aims be measured in terms of money....increase shareholder value?

Answer 41

Many firms aim to increase shareholder value (making their shareholders more wealthy) by increasing the value of the firm Eg/ making more profit or by growing

Question 42

What are shareholders?

Answer 42

Shareholders get a share of the firms profits Can sell their shares to make money (the better the company’s doing the more the shares are worth) Limited company’s have shareholders

Question 43

How can financial aims be measured in terms of money.....Increase market share value?

Answer 43

When a business first sets up it has zero market share so one of its first aims is to capture a part of the market and establish itself Can then aim to increase its market share by taking sales away from competition or by persuading new customers to enter the market and buy its products

Question 44

What does market share tell you?

Answer 44

Tells you what percentage of a markets total sales a particular product or company has made

Question 45

How can financial aims be measured in terms of money....maximise sales?

Answer 45

Increasing sales is a good way for a business to grow its market share The business can monitor sales in terms of how many of a particular product it sells or by how much money it takes in from selling its products NOT THE SAME AS MAXIMISING PROFIT Eg/ a business reduces its prices in order to increase sales but selling more cheaply means it won’t male as much profit

Question 46

How can financial aims be measured in terms of money....achieve financial security?

Answer 46

Many businesses will depend on external sources of finance such as loans or the business owners’ savings when they first start So an aim for a new business is likely to be achieving a point where it can depend on its own revenue to fund its activities Eg/ sales go beyond its break even point

Question 47

A business my have non-financial aims. What is meant by “Do what’s right socially and ethically”?

Answer 47

Some firms want to make sure they are acting in ways that are best for society and that society believes are morally right (many think its wrong to test on animals) May want to make sure their activities don’t cause unnecessary harm to the environment Other firms are setup to provide a service that benefit others

Question 48

A business my have non-financial aims. What is meant by “Achieve customer satisfaction”?

Answer 48

Customer satisfaction measures how happy consumers are with the products provided by the firm Firm can measure this by carrying out customer opinion surveys, a type of market research

Question 49

A business my have non-financial aims What is meant by “Personal reasons”?

Answer 49

May be personal reasons why an entrepreneur decides to start a business Eg/ want a personal challenge of running a business or want the satisfaction of owning their own business, some might want the independence and control of being their own boss

Question 50

How are objectives different to aims?

Answer 50

Objectives are more specific and once set they act as clear targets for firms to work towards Objectives are measurable steps on the way to the aim

Question 51

A business can check back after a period of time to see whether it’s objectives have been achieved, what is this a way of?

Answer 51

It’s a way of measuring success

Question 52

Which 3 factors affect the objectives of a business?

Answer 52

Size of the business The level of competition a business faces The type of business

Question 53

Elaborate on how the size of a business affects the objectives of the business.

Answer 53

Many small local business depend on word of mouth to survive so a major objective for them might be customer satisfaction - they may be more concerned with survival and growth rather than increasing market share Larger businesses get more attention from the public so might set objectives about acting ethically and projecting the environment to try avoid bad publicity - large businesses may also be PLCs so might focus on increasing shareholder value

Question 54

Elaborate on how the level of competition a business faces affects the objectives.

Answer 54

If a business is in a highly competitive market it might focus on customer satisfaction so that it can win customers from its rivals Increasing or holding onto its market share might be more important than maximising profits If a firm doesn’t face much competition it’s objectives may be focused more on growth and maximising profits

Question 55

Elaborate on how the type of business affects the objectives.

Answer 55

Eg/ not for profit businesses ads more likely to focus on social or ethical objectives rather than growth or profit

Question 56

Why might a business’s objectives change to whether it aims to survive or grow?

Answer 56

A new start up business’s aims are likely to be focused on survival however once its stable aims might be centred around growth and maximising profits for reinvestment If it becomes a large established business it might aim to have the largest market share But if the economy takes a downturn the business might start struggling and its aims once more become focused on survival

Question 57

Why might a business’s objectives change to the size of its workforce?

Answer 57

For example if a business is expanding it might aim to recruit more staff If a business has recently taken over another firm it might aim to reduce the size of its workforce so it doesn’t have multiple people carrying out the same role

Question 58

Why might a business’s objectives change to enter or exit new markets?

Answer 58

A business could aim to enter a new market (eg/ targeting different group of people in the same place or starting to sell products in a new location) this could be because the business is growing but may also be because their existing markets are shrinking and they need to find new places to sell their items If a product isn’t selling well in a particular market the business’s aims are likely to change so that they exit that market

Question 59

Why might a business change the size of its product range?

Answer 59

For example if a business has a product that’s selling really well it might aim to bring out more products in the same range with different features If fi has products in a range that don’t sell well it might aim to decrease the product range and concentrate on promoting and growing its best selling products