Topic 1 Business Ownership Flashcards
Define what a business is
Abusinessis any organisation that makesgoodsor providesservices to customers.
Why might someone start a business?
Lots of entrepreneurs have financial objectives e.g. to earn a huge fortune or a steady income.
There might also be non-financial reasons, like the freedom of being your own boss.
For many people, running a business is a challenge that they enjoy. Some people start a business because they want to benefit others.
This could be done by starting a charity, or by having social objectives for their business.
How do business’ start? Explain what a potential buisness man needs to do top start his buisness
Careful planning is required; the entrepreneur will have to:
Decide on the product and produce a model or prototype.
Decide the best place to get the materials required.
Design a business plan. Study the market to see if there are already similar products available.
Research the price at which competitors are selling the product.
Work out costs of production and a profit margin in order to decide on a selling price.
Market research to see who would be likely to buy product and price they might pay.
Research where the product could be sold to best advantage.
Organise the necessary finance e.g. from personal savings or borrowing from friends or arranging a bank loan or overdraft.
Advertise product widely in most economical way.
Create a brand for the product that would make it stand out from the crowd. Register the product and get a patent
What is a private sector business?
Any business which is owned by private people
What is a public sector business? Include an exmaple of a puclicm sector buisness
Any business owned by the government e.g. hospitals
Name the four types of private sector businesses.
Sole trader, partnership, private limited company, public limited company
Define what a sole trader is
Business which is fully owned by one person who has complete control over how the firm is run.
How do you set up a business as a sole trader?
Register as self-employed with Revenue and Customs and if applicable apply for a trading licence.
What is ‘unlimited liability’ as a sole trader?
Legal obligation on the owner of a business to pay in full all the debts incurred by that business (no separate legal existence i.e. in extreme cases they will need to sell personal possessions in order to cover the debt if it occurs)
What are the advantages of a sole trader?
Low start up costs as relatively straight forward process (compared to other forms of business ownership) as few legal formalities involved.
All profits are kept.
Better control (quicker decisions).
Financial privacy.
What are the disadvantages of a sole trader?
Unlimited liability.
Lack of capital sole traders find It difficult to find the money to start their business and banks often reluctant to lend.
Long hours.
Lack of continuity – if sick or die! Lack of expertise – e.g. sole trader setting up a restaurant, skills in cooking, marketing, accounts, purchasing etc. are required
Define what a partnership is
A partnership occurs when two or more people combine to form a business i.e. they share responsibility
Who should a partnership agreement be drawn up by?
It should be drawn up by a solicitor
What are the advantages of partnerships?
Low start-up costs.
Shared work load i.e. lower workload.
Specialisation e.g. someone covers accounts while someone else covers marketing and sales.
Raising capital easier than sole trader.
Financial privacy financial affairs do not have to be published and therefore business dealing can be kept private.
What are the disadvantages of partnerships?
Loss of autonomy – i.e. all decisions have to be discussed and agreements reached slowing down decision making process.
Conflict between partners. Unlimited liability.
Lack of continuity – death, divorce (if married couple).
Lack of capital – limited due to small number of partners.
