Starting A Business

Question 1

Why are businesses set up?

Answer 1

Financial reasons, personal reasons and helpful reasons.

Question 2

What are common business aims?

Answer 2

1) Make profit to survive.
2) Be the biggest in their market.
3) Have highest quality products.
4) Expand the most (become biggest).
5) Satisfy customer needs.
6) Be most ethical and environmentally friendly.

Question 3

Define enterprise

Answer 3

Identifying new business opportunities and taking advantage of them.

Question 4

Define gap in the market

Answer 4

A product/service that no other business is already providing but which customers will be willing to pay for.

Question 5

Define niche market

Answer 5

A small part of the overall market and is made up of customers with a particular need.

Question 6

Why are niche markets a good opportunity for small businesses?

Answer 6

Because big business don’t need to bother with them.

Question 7

Entrepreneurs do calculated risks. What does this mean?

Answer 7

1) They’ll do research.
2) Plan the business carefully to ensure it has a good chance of succeeding.
3) Weigh up the consequences of failure.

Question 8

What are the advantages of sole traders?

Answer 8

1) Easy to set up.
2) Small amount of capital needs to be invested, reducing start up cost.
3) Decide what happens to any profit.

Question 9

What are the disadvantages of sole traders?

Answer 9

1) You have to work long hours.
2) Can’t share responsibility with anyone (you might not be good with handling money).
3) Unlimited liability (you are held personally responsible for if the business goes bankrupt and have to sell your possessions to pay the debt).

Question 10

What are partnerships?

Answer 10

Business is owned by 2-20 people and have an equal say in making decisions and an equal share of profits.

Question 11

What are the advantages of partnerships?

Answer 11

1) Shared responsibility - allows specialisation (one partner’s strengths can complement another’s).
2) More people are also contributing capital, which allows for more flexibility in running the business.
3) Less time pressure on individual partners.

Question 12

What are the disadvantages of partnerships?

Answer 12

1) Each partner is legally responsible for what all other partners do.
2) Unlimited liability.
3) The distribution of profits can cause problems.

Question 13

What are private limited companies?

Answer 13

Limited liability (owners only risk losing money they invest in the business - no matter how big its debts are).

Memorandum of Association (who and where the business is).

Article of Association (how business will be run).

Question 14

What do private limited companies have?

Answer 14

Limited liability (owners only risk losing money they invest in the business - no matter how big its debts are).

Memorandum of Association (who and where the business is).

Article of Association (how business will be run).

Question 15

What are the advantage of a private limited company?

Answer 15

Limited liability.

Question 16

What are the disadvantages of private limited company?

Answer 16

1) More expensive to set up (lots of legal paperwork).

2) Company is legally obliged to publish its accounts every year.

Question 17

Why is an Ltd. having a separate legal identity beneficial?

Answer 17

Because any money the company owns is in its own bank account, not the owners (owners don’t get in trouble; company does because of limited liability).

Question 18

What is a franchising?

Answer 18

Where a company gives another firm the right to sell their products (or use their trademarks) in return for a fee.

Question 19

Who is the franchisor and the franchisee?

Answer 19

Franchisor - Product manufacturers.

Franchisee - Firm selling the franchisor’s products.

Question 20

What are the advantages of franchises?

Answer 20

1) The business is already established.
2) Expands the business.
3) Franchisor increases their market share, without increasing the size of their own firm.

Question 21

What are the disadvantages of franchises?

Answer 21

1) Franchisees don’t have much control.
2) Franchisees can’t create their own products.
3) If franchisee has poor standards, franchisor’s brand could get a bad reputation.

Question 22

How do business measure their success?

Answer 22

They see if they have achieved their objectives i.e. survival, growth, profit etc.

Question 23

What is a stakeholder?

Answer 23

Anyone affected by the business.

Question 24

Give examples of internal and external stakeholders.

Answer 24

Internal - Owners and employees.

External - Customers, suppliers, local community and government.

Question 25

What are the 7 sections of a business plan?

Answer 25

1) Personal details.
2) Mission statement.
3) Objectives.
4) Product description.
5) Production details.
6) Staffing requirements.

Question 26

What influences where a business is set up?

Answer 26

1) Location of raw materials (lower transport costs).
2) Labour supply (close to area of high unemployment which keeps wages low).
3) Transport.
4) Economies of concentration (similar business nearby so easy to find skilled labour and local suppliers).
5) Communication links (telephone, internet and postal).
6) Market location (near customers).
7) Government policy.