Theme 1 - Entrepreneurs and Leaders Flashcards
1
Q
Benefit of a business plan to obtain finance
A
- Business plan involves carrying out market research
- Such as a questionnaire
- Based on a large sample size
- Which improves validity of results
- And develop reliable sales prediction
- Which can be used to create a cash flow forecast
- And convince the bank they can make loan repayments
- And attract investors to invest in r&d
2
Q
Benefit of a business plan
A
- If the business plan is based on valid market research
- Collected from a large sample size
- It will include a reliable sales forecast
- So the business can reliably forecast their net cash flow
- If the business can reliably forecast a POSITIVE net cash flow
- This will demonstrate to a bank that they are able to repay a loan
- Convincing a bank to lend them cash
- Which can also lead to business being able to invest in Research and development
3
Q
Drawback of a business plan
A
- A business plan can quickly become outdated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
4
Q
Benefit of an LTD
A
- Can choose own shareholders that share the vision and passion for the company.
- 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
- Can reinvest more capital into R+D growth rather than being pressured to pay dividends
- Able to pursue objectives and innovate
- Differentiate from competitors long term
- Link to Price elasticity
5
Q
Benefit of becoming a PLC
A
- Public limited company
- Gone through stock market floatation
- Can sell and advertise shares on the stock market
- This should lead to an increased volume of shares sold
- This will increase share capital
- Increased cash available to invest in non-current assets e.g. a store for a retailer
6
Q
Drawback of a partnership
A
- 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
7
Q
Drawback of an LTD
A
- Business are limited to who they can sell shares to
- Cannot sell shares on the stock market
- This means a lower volume of shares is now sold
- Limiting the capital they can raise
- This means they are not able to spend cash on R&D for specialist scientists and engineers
- As they cannot pay the wages
- Unable to create new products as a result of being understaffed
- Limiting R+D
- Decreased innovation
- less differentiated products
- Price elasticity
8
Q
Drawback of a PLC
A
- 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
9
Q
Benefit of a sole trader
A
- 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……
10
Q
Drawback of sole trader
A
- 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
11
Q
Benefit of a partnership
A
- 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
12
Q
drawback of a partnership
A
- 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
13
Q
Benefit of franchisor model
A
- 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
14
Q
Drawback of franchisor model
A
- 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
15
Q
Benefit of franchisee model
A
- 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
