Making A Business Effective Flashcards
Limited liability
The level of risk is limited to the amount of money that has been invested in the business or promised as an investment
Assets
Property, such as a house or car
Incorporated
A business that is registered as a company so the business and the owners are separate in the eyes if the law
Unlimited liability
The level of risk goes beyond the amount invested, so the personal assets of the business owner can be used to pay off the business’s debts
Unincorporated
A business that is not registered as a company so the owners and the business are the same body in the eyes of the law
Sole trader
A type of unincorporated business that is owned by just one person
Partnership
A business that is owned by a group of two or more people who share the financial risk, decision - making and the profits
Deed of partenership
A legal document that defines the terms of a partnership
Shareholders
Investors who are part owners of a company. They invest in the business in return for a share of the profits and voting rights at the AGM
Advantages of Sole Trader
- makes all the decisions by themselves, which is quick and doesn’t lead to disagreements
- quick and easy to set up
- sole trader keeps all the profits
- financial information is kept private
Disadvantages of Sole Trader
- unlimited liability
- difficult to raise enough money to establish or grow the business
- puts a lot of pressure on just one person
- can be difficult to run if owner is unavailable
Advantages of Partnership
- business owners have wider expertise and can share ideas and decision-making
- risk is shared
- can be easier to raise finance
- financial information kept private
Disadvantages of Partnership
- decision made by one partner can affect all partners
- if a partner leaves the business no longer exists
- profits are shared
- there may be disagreements between partners
Advantages of Private Limited Company
- owners have limited liability
- the term LTD may make it appear to be a bigger or more long-established business
- can be easier to raise finance
- business can continue to trade even if shareholders change
Disadvantages of PLC
- more complex set-up
- may be disagreements between shareholders
- financial information is published
- more requirements to report information to organisations such as HMRC and Companies HOuse
Franchise
When one business gives another business permission to trade using its name and products in return for a fee and share of its profits
Franchisor
An established business that gives permission to an entrepreneur to trade using its name and products
Franchisee
An entrepreneur who pays a fee to trade using the name and products of an established business
Advantages of Franchising
- lower risk than setting up independently, as the business model is already successful
- support and training provided by franchisor
- franchisees benefit from national marketing campaigns
Disadvantages of franchising
- franchisees have to pay an initial fee as well as ongoing fees and/or share of their profits
- franchisees cannot make independent decisions
- brand reputation can be damaged by other franchisees if they do not maintain standards
Proximity to key factors
Nearness to Market, Labour, Materials, Competitiors
Proximity to market
How close a business is to its customers
Business may look at the footfall of the location or research the demographics of the area to see if it matches with customers
Labour
Workers or the workforce
Footfall
The number of people passing a particular location within a given time period
Demographics
The characteristics of the population such as gender, age, religion and wealth
Proximity to labour
May locate where there is plenty of labour
If they need a highly skilled workers they may locate near London but if they need unskilled workers they may locate where there is high unemployment
National Living Wage
The minimum amount that a business is legally allowed to pay its employees
Proximity to materials
May locate itself as close as possible to the raw materials that it uses to produce its finished products
Bulk-gaining product
An end product that is bigger than the raw materials used to make it such as a bicycle
Bulk-reducing product
A product that is smaller than the raw materials it uses, such as paper
Proximity to competitors
Some business choose to locate themselves away from their competitors if selling a convenience good
However they may want to be close if the business sells what is known as a shopping goods
Convenience good
A product that a customer buys frequently or routinely
Shopping good
A product that a customer takes time to consider before purchasing, by looking at and weighing up a number of options before choosing one
Topography
The physical characteristics of a landscape such as being flat or hilly
Inertia
When a business is located in a certain area because that is where it was first set up. The business stays in that location because it is easier.
E-commerce
Using the internet to carry out business transactions
M-commerce
Using mobile technologies such as smartphones and tablets to carry out business transactions
Multi-channel
Using a number of methods to reach the customer including physical stores and e-commerce
Benefits of e-commerce
Lower operating costs
Ability to reach a wider audience
Ability to trade 24 hours a day, 7 days a week
Ability to respond to changing consumer buying habits
multi-channel
Using a number of methods to reach the customer, including physical stores and e-commerce
Marketing Mix
Combination of the four ‘P’s of marketing: price, product, promotion and place
Price
Amount of money that a customer will need to pay to receive the product
Factors influencing price
The amount of competition from other businesses
Customers’ opinions about the product’s value
Product
The actual good or service that the business is offering for sale
A Good & Example
A product that can be touched, such as a smartphone or a scooter
Service & Example
A product that cannot be touched, such as a taxi ride or buying car insurance
Promotion
The range of activities undertaken by a business to make customers aware of its products and to encourage customers to by them
Examples of Promotion
Offering discounts
Television or billboard advertising
Using social media
Sponsoring people or organisations
Place
Where the customer can purchase the product
Route that a product takes to get from the manufacturer to the end customer
Place marketing mix examples
Online
Through a retailer
Direct from the manufacturer
Competitive environment
Refers to the number and relative power of businesses competing in one market
Examples of how a business may respond to its competitors
-Changing a product’s price to match or undercut its competitors, though businesses have to be careful that this strategy does not result in a price war
-altering aspects of an existing product or bringing out a new product with a unique feature to achieve product differentiation
-undertaking promotional activities to boost brand awareness in order to encourage more brand loyalty
-changing the place or increasing places where products are available to the customer in order to maintain or increase market share
Undercut
Sell the same product for a lower price than competitors
Price war
When competing business try to undercyt each other by lowering prices. This leads to an ongoing battle where only the customer benefits
Product differentiation
Designing a product with some unique features that distinguish it from similar products sold by competitiors
Brand loyalty
A customer’s willingness to buy a product from a particular business rather than from its competitors
Market share
The proportion of sales in a market that are take by one business
Examples of changing consumer needs on the marketing mix
-Launching new products to responf to consumer trends
-Changing prices in response to economic conditions
-Opening more small local stores to male products more easily accessible to consumers who do not own cars
Recession
A period of economic decline characterised by the fact that the economy has failed to grow 6 consecutive months
Promotional mix
The combination of promotional activities that a business uses to make customers aware of a product with the aim of increasing sales
Example of a business changing its promotional mix to use increasing popular uses of technology
Introducing e-commerce or m- commerce to meet customer needs
using more digital communication to promote products and keep customers interested in the brand
changing aspects of product design by incorporating new technologies into the product
Business plan
A document that outlines how an entrepreneur is going to set up a new business
SMART objectives
Objectives that are Specific, Measurable, Achievable, Realistic and Time-bound
Market research
The process of gathering information about the market and customers’ needs and wants in order to help inform business decisions, including product design and marketing
Target market
The group of people that a business has identified as potential customers
Revenue
The money that will come into a business from sales
Profit
The amount of revenue left over once costs have been deducted
Cash flow
The amount of money coming in and going out of the business and the timing of its movement
How can be risk reduced?
-Detailed planning
-setting cclear objectves and aims
-conducting market research
-making financial forecasts
-using a cash flow forecast
Budgets
Pre-set financial targets for a business to achieve, like a sales budget, or abide by, such as an expenditure budget, in a given period of time
Negative cash balance
Occurs if the business’s opening balance results in a negative amount at the end of the period, leading to a cash shortage
Overdraft
A facility provided by a bank allowing a current account holder to withdraw more money than there is in the account
Bank loan
A fixed sum of money lent by a bank to an individual or a business for a specific purpose, which must be repaid with interest in set payments over an agreed period of time
Private limited company
An incorporated business that is owned by shareholders who invest in the business in return for a share of the profits and voting rights at the annual general meeting
Public limited company
An incorporated business that can sell shares to the public
Trade credit
A credit arrangement that is offered only to businesses by suppliers
Venture capital
Money to invest in a business is sourced from individuals,or groups of people, who wish to invest their own money into new businesses
Retained profit
Money that a business keeps, rather than paying out its shareholders
Crowdfunding
A business obtains funding from a large number of people who each pay a small amount of money
Advantage to a business of locating close to the market
More likely to be considered by people making a purchase
Advantage to a business of locating in an area of high unemployment
They will have more people to choose from if they need more staff. Businesses looking to recruit people may also be able to offer lower pay and still attract new staff, although they cannot offer less than the National minimum wage
