Theme 1 - Entrepreneurs and Leaders

Question 1

Benefit of a business plan to obtain finance

Answer 1

1. Business plan involves carrying out market research
2. Such as a questionnaire
3. Based on a large sample size
4. Which improves validity of results
5. And develop reliable sales prediction
6. Which can be used to create a cash flow forecast
7. And convince the bank they can make loan repayments
8. And attract investors to invest in r&d

Question 2

Benefit of a business plan

Answer 2

1. If the business plan is based on valid market research
2. Collected from a large sample size
3. It will include a reliable sales forecast
4. So the business can reliably forecast their net cash flow
5. If the business can reliably forecast a POSITIVE net cash flow
6. This will demonstrate to a bank that they are able to repay a loan
7. Convincing a bank to lend them cash
8. Which can also lead to business being able to invest in Research and development

Question 3

Drawback of a business plan

Answer 3

• A business plan can quickly become outdated
• For example there can be an unexpected change in (REALTE TO PESLTE FACTOR TO BUSINESS)
• Causing an unexpected change in demand
• Making the market research in the plan invalid
• Resulting in unreliable sales forecast
• Inaccurate cash flow forecast
• Therefore any financial predictions will be unreliable
  making the loan ore investment unnatractive

Question 4

Benefit of an LTD

Answer 4

1. Can choose own shareholders​ that share the vision and passion for the company. ​
2. Might mean that they are more focused on long term results as they share goals on R+D and long term investment to develop the business
3. Can reinvest more capital into R+D growth rather than being pressured to pay dividends
4. Able to pursue objectives and innovate
5. Differentiate from competitors long term
6. Link to Price elasticity

Question 5

Benefit of becoming a PLC

Answer 5

1. Public limited company ​
2. Gone through stock market floatation
3. Can sell and advertise shares on the stock market ​
4. This should lead to an increased volume of shares sold
5. This will increase share capital ​
6. Increased cash available to invest in non-current assets e.g. a store for a retailer

Question 6

Drawback of a partnership

Answer 6

1. Unlimited liability
   ​
2. Increased risk of investment​
3. If business debt exceeds business assets
4. ​May need to sell personal possessions
5. This increased risk will make investment less attractive ​
6. Leading to reduced investment
7. Less capital ​
8. Reduced assets

Question 7

Drawback of an LTD

Answer 7

1. Business are limited to who they can sell shares to
2. Cannot sell shares on the stock market
3. This means a lower volume of shares is now sold
4. Limiting the capital they can raise
5. This means they are not able to spend cash on R&D for specialist scientists and engineers
6. As they cannot pay the wages
7. Unable to create new products as a result of being understaffed
8. Limiting R+D
9. Decreased innovation
10. less differentiated products
11. Price elasticity

Question 8

Drawback of a PLC

Answer 8

• Public limited companies shares are sold to the public
• Therefore, there is more pressure from shareholders for short term profits
• So the business may neglect long term objectives for short term returns
• To satisfy shareholders by using profit to pay dividends
• Neglecting investment into R&D to develop innovative products
• Product becomes less differentiated in long term

Question 9

Benefit of a sole trader

Answer 9

• Sole traders are the only owners of a business
• Therefore they can maintain full control over day to day operations
• Able to establish a strong power culture
• Maintains consistency throughout the business
• Build a strong brand image
• Differentiate from competitors
• Price inelastic
• Increase prices without significant fall in demand
• Increase sales revenue
• Increased gross profit margins
• Increased retained profit to reinvest in……

Question 10

Drawback of sole trader

Answer 10

• Unlimited liability
• Increased risk of investment
• If business debt exceeds businesses assets
• They may need to sell personal possessions
• This increased risk will make investment less attractive
• Leading to reduced investment
• Less capital
• Reduced assets

Question 11

Benefit of a partnership

Answer 11

• Knowledge and experience from the partners
• (LOOK IN CASE STUDY FOR EXPERIENCE)
• Improved innovation
• Differentiation through (SPECIFY)
• Price inelastic
• Increase price
• Without significant fall in demand
• Increased gross profit
• Increased operating profit

Question 12

drawback of a partnership

Answer 12

• Unlimited liability
• Increased risk of investment
• If business debt exceeds business assets
• May need to sell personal possessions
• This increased risk will make investment less attractive
• Leading to reduced investment
• Less capital
• Reduced assets

Question 13

Benefit of franchisor model

Answer 13

• Becoming a franchisor means allowing independent businesses to use your brand name
• This means that the franchisee provides the capital to open new branches/stores
• Therefore reducing the capital required for expansion
• Leading to the franchisor being able to expand quicker
• And they are able to benefit from marketing economies of scale
• Fixed costs of advertising spread over more units
• Lower fixed cost per unit, making advertising more affordable
• Able to increase marketing budget and advertise more
• Able to build a stronger brand

Question 14

Drawback of franchisor model

Answer 14

• Franchisors risk damaging their reputation
• As the franchisors is not responsible for the day to day running of the outlet
• The franchisee may fail to uphold high levels of customer service
• due to lack of supervision from franchisor
• Poor customer service in one outlet could then affect the reputation of others
• Meaning customers may switch to a rival business
• Reducing sales revenue
• Reducing gross profit

Question 15

Benefit of franchisee model

Answer 15

• Becoming a franchisee means paying to use another businesses brand name
• This means they already have access to a well known brand
• Therefore there are already customers who have brand loyalty
• Making the business more price inelastic
• The franchisee can charge higher prices than independent businesses as customers will be willing to pay them
• Leading to increased revenue and profit margins
• More retained profit to reinvest in opening further franchises

Question 16

Drawback of franchisee model

Answer 16

A
- Becoming a franchisee means paying to use another businesses name

• This will lead to higher costs as fees and royalties will need to be paid
• There fore leading to increased cash outflows
• Lower net cashflow
• Possibly reducing cash reserves
• Liquidity becomes lower
• Unable to pay day to day bills such as rent and suppliers
• Forced to sell non current assets in order to pay bills
• Unable to operate

Question 17

Drawback of limited liability

Answer 17

• The owners are not risking personal possessions
• So if the business is unable to pay back loan through sale of personal assets
• Then the supplier or bank lose the amount owed
• This increases risk of lending cash to the business
• or increases the risk of offering trade credit
• Making banks and suppliers less likely to lend
• Struggle to get trade credit or a loan
• Limited expansion
• Cant benefit form EOS

Question 18

Opportunity costs LOA (Business choices)

Answer 18

• When the business
  (from the case)
  choses to (pick an
  example from the
  case)
• They forego the next
  best alternative
  (name the
  alternative from the
  case)
• This therefore
  means they miss
  out on the benefits
  of the alternative
• Identify the benefit of the
  alternative from the case
  here
• Link to either reduced
  EOS or high price
  elasticity line of analysis

Question 19

Choices and potential trade-offs LOA (Business choices)

Answer 19

• When the business
  chooses one
  alternative (name
  it) instead of
  another (name it)
• They gain less of the
  option they gave up
• Explain the impact
  of this
• Link to either reduced
  EOS or high price
  elasticity line of analysis

Question 20

Survival (business objectives)

Answer 20

• To achieve the
  objective of survival
• A business must
  ensure that it has
  good liquidity
• Whereby they have
  sufficient current
  assets to meet
  current liabilities
  when they are due
• This can be achieved by
  increasing cash inflows
• So the business is not
  forced to sell non - current assets to
  increase cash inflows
• No disruption to
  day to day
  operations
• Reduced chance of
  business failure

Question 21

Profit maximisation (business objectives)

Answer 21

• To achieve the
  objective of profit
  maximisation
• A business must
  either increase
  revenues or decrease
  costs
• Choose appropriate
  method for business
• Business can retain
  more profit
• And reinvest (be
  specific)

Question 22

Sales maximisation (business objectives)

Answer 22

• To achieve the
  objective of sales
  maximisation
• Business can change
  price dependent on
  PED
• Increase sales
  revenue

Question 23

Social objectives (business objectives)

Answer 23

• To achieve a social
  objective
• Business must
  operate ethically (be
  specific to business)
• Business can become
  price inelastic
• PED line of analysis

Question 24

Market share (business objectives)

Answer 24

• To achieve an
  objective of
  increased market
  share
• Business needs to
  increase their sales
  volume/revenue as
  percentage of total
  market value
• Business can change
  price (dependent on
  PED)
• Increased sales
• Increased market share

Question 25

Employee welfare (business objectives)

Answer 25

• To achieve an
  objective of
  improved employee
  welfare
• Business will invest
  into improved
  working conditions
• Link to appropriate
  motivational theorist
• Improved employee
  motivation

Question 26

Customer satisfaction (business objectives)

Answer 26

• To achieve an
  objective of
  improved customer
  satisfaction
• Business will invest
  market research to
  identify customer
  wants and needs
• Adapt
  product/service to
  meet needs
• Better meet needs
• Price inelastic

Question 27

Importance of creativity as an entrepreneur

Answer 27

• Creativity is one
  important
  characteristic of an
  entrepreneur
• This will help them to
  innovate and come
  up with unique
  product ideas
• Differentiate them
  from competitors
• Build a strong brand
• More loyal customers
• Price inelastic
• Increase prices
  without a
  significant fall in
  demand
• Increase in
  revenue
• Increase in gross profit
  margin
• Increase in retained
  profit to reinvest
  in…..

Question 28

Creativity as an important characteristic?

Answer 28

• Creativity is one important characteristic of an entrepreneur
• This will help them to innovate and come up with unique product ideas
• Differentiate them from competitors
• Build a strong brand
• More loyal customers
• Price inelastic
• Increase prices without a significant fall in demand
• Increase in revenue
• Increase in gross profit margin
• Increase in retained profit to reinvest