Standard Short Answers

Question 1

Outline ONE advantage and ONE disadvantage of establishing a sole trader

Answer 1

(i) Business is owned and operated by one [person with complete control.
There is a low cost of entry
No partner disputes
(ii) Unlimited liability
Business ends with owner dies
Burden of management
Difficulty raising funds for expansion

Question 2

Outline ONE advantage and ONE disadvantage of establishing a partnership

Answer 2

(i) Operated by 2-20 people
Low cost of entry
Shared responsibility and workload
Pooled funds and talent
(ii) Personal unlimited liability
Liable for all debts including partner
Possibility for disputes
Divided loyalty and authority

Question 3

Outline ONE advantage and ONE disadvantage of establishing a private company

Answer 3

(i) It is easy to raise capital from selling shares to private investors.
Limited liability
(ii) Cot of formation
Double taxation

Question 4

Outline ONE advantage and ONE disadvantage of establishing a public company

Answer 4

(i) Easy to obtain finance by selling shares to public
Limited liability
(ii) Cost of formation
Double taxation
To publish its audited financial accounts each year, its annual report.

Question 5

Describe TWO strategies that may be used in response to challenges faced by a business in the establishment stage.

Answer 5

(i) The business has slow or erratic sales.
They must develop a solid foundation for future growth
They must establish a customer base large enough to sustain viability.
(ii) Securing initial investment. Start up capital can be sourced from the owner’s personal savings(equity), or a loan from a financial institution(debt).

Question 6

Describe TWO strategies that may be used in response to challenges face by a business in the growth stage.

Answer 6

(i) Continue growth. This can be done through emerging or acquiring. Vertical, horizontal, conglomerate diversification.
(ii) Innovate products to satisfy existing customers while tapping into new markets. Mass market becomes a possibility. Mass market techniques of extensive promotion can be used to widen distribution.

Question 7

Describe TWO strategies that may be used in response to challenges face by a business in the maturity stage.

Answer 7

(i) Profits slow or plateau.Fiance should be devoted to advertising and developing (invest in R&D for innovation of products)
(ii) Loss of interest in initial concept, complacency builds. They need to restructure or reorganise this business. This could include a work team approach, or TQM/quality circles.

Question 8

Describe TWO strategies that may be used in response to challenges face by a business in the post-maturity stage.

Answer 8

(i) Is marketing keeping the business relevant? Reassess marketing, conduct market analysis. Research & Development to improve quality of products.
(ii) Refine the business objective and vision by assigning a business plan. Evaluate and change.

Question 9

Explain ONE advantage and ONE disadvantage of starting a business from scratch

Answer 9

(i) The owner has the freedom to set up the business as they wish, determine the pace of growth and change.
There is no goodwill the owner must pay.
(ii) Time is needed to develop a customer base, employee staff, and develop credit with suppliers. If the startup period is too slow the business may not generate profit for so

Question 10

Explain ONE advantage and ONE disadvantage of buying an existing business

Answer 10

(i) Sales from existing customers will generate instant income.
Stock and employees already acquired.
(ii) Existing reputation and policies in the business may be hard to change.