Topic 1.4- Making the Business Effective Flashcards
What is limited liability?
Limited liability means that when paying back debts, the owner’s business assets are only at risk ( not personal)
What is unlimited liability?
Unlimited liability is when both personal and business assets are at risk when paying back debts.
Give 2 features of a business owner operating at limited liability.
- has its own legal identity,
- owners are not personally responsible for its debts.
Give 2 features for a business owner operating at unlimited liability
- does not have its own legal identity
- personally responsible for all debts of the business.
What is a sole trader?
A sole trader is a business that is owned and run by one person. ( usually small businesses)
Give 3 advantages of operating as a sole trader
- quick and easy to set up
- makes own decisions
- keeps the profits
Give 3 disadvantages of operating as a sole trader
- risk of unlimited liability
- high level of responsibility
- works long hours
- harder to obtain finance- no access to share capital
What is a partnership?
A partnership is a type of business that has 2 or more owners ( usually lawyers or doctors)
Give 3 advantages of operating as a partnership
- quick and easy to set up as there is more finance being invested
- shared decision-making by the owners- expertise
- shared responsibility for debt by the owners
Give 3 disadvantages of operating as a partnership
- profit and rewards are shared
- there is the risk of unlimited liability
- conflict amongst owners can occur
What is a private limited company (LTD) and who are they owned by?
An incorporated company owned by shareholders ( invited by the business)
Give 3 advantages of operating as an LTD.
- the owners have limited liability
- shares can be sold to raise money
- shares are known to the shareholders- less conflict
- ideas can be shared
Give 3 disadvantages of operating as an LTD.
- shared profits - diluted
- financial documents are released to the public
- no access to the stock exchange- harder to raise finance
What is a franchise?
the right given by one business to another to sell goods or services using its name.
What is a franchisee
buys a franchise and usually pays a fee
What is a franchisor?
a business that gives franchisees the right to sell their products and services in return for a fixed sum of money
Give 3 advantages of setting up a franchise
- established business ( including customer base)
- lower risk ( than setting up a new business)
- the franchisor provides support and training
Give 3 disadvantages of setting up a franchise
- profit is shared with the franchisor
- no independent decision making
- expensive to set up- high start up costs
- if reputation is damaged in one store it can affect the franchise as a whole
Name the factors that influence business locations
proximity to :
- the market
- labour
- materials
- competitors
What is E-commerce?
The selling and buying of goods or services over the internet
How does e-commerce impact location decisions?
Allow businesses to choose cheap locations, because there is no requirement to be located near to customers
Give 3 benefits of e-commerce
- lower costs
- flexible working hours
- access to a much larger market of potential customers
How does proximity to the market affect business location?
- needs to be located near target market
- passing trade benefits
importance of proximity to labour when making decisions on business locations ( 2)
- located in an area with high unemployment means wages can be kept low
- located in an area that has people with skills relevant to the job role
Why is proximity to raw materials important when making decisions on business locations?
- allows a business to save money ( transport costs are less)
Why is proximity to competitors important when making decisions on business locations?
- access to skilled labour, local suppliers
- when located closer, there will be wide access to customers
Give two ways the nature of a business’ activity affect its location? (manufacturing vs retail)
- retail businesses will be in city centres as they provide services that may require to be in locations convenient for customers.
- manufacturing business may be in rural area as land is cheap and you don’t need to be close to your customers.
What is the marketing mix?
Product, Price, Place, Promotion
Why is Product an important element in the marketing mix?
- products need to stand out from competitors so that customers buy from it.
- This can be a USP
what is the design mix?
- aesthetics ( appearance)
- function (USP?)
- cost
What is Price?
Price is the amount of money consumers are charged to buy a product
What are the 4 different pricing strategies- x
- penetration pricing
- priced skimming
- competitor pricing
- cost plus pricing
What is penetration pricing?
product sold at low price to generate sales before price is increased
What is price skimming?-x
high initial price to attract buyers with a strong desire for the product then lowering prices
What is competitor based pricing?- x
- businesses who price products based on competitors to reduce risk of overpricing
What is cost plus pricing?-x
a pricing method where a fixed percentage is added on top of the cost to produce one unit of a product
What does Place refer to in the marketing mix?
Place refers to where the customer is able to purchase the product or service.
Define distribution channel
The different ways in which a product gets from the producer to the consumer.
Give 3 different types of distribution channels
1) manufacturer → customer
2) manufacturer → wholesaler → customer
3) manufacturer → wholesaler → retailer → customer
What is a wholesaler?
A business that buys products in bulk from the producer
What is a retailer?
A store (or person) that sells products directly to customers.
What is promotion in the marketing mix?
the methods a business uses to create interest in its products and services to a customer
Give 3 different types of promotion
- digital marketing
- sponsorship marketing
- social media
What is digital marketing?
promotion of products using the multimedia
What is the competitive environment?
A market where there are other businesses producing the same or similar products and services.
Give 3 ways a business can gain a competitive advantage
- create a USP
- offering a product or service that fills a gap in the market
- offering sales promotions
Give 3 ways a business could adapt to change customer needs
- introducing new products
- changing the selling price of products
- introducing e-commerce
What is a business plan?-x
A business plan is a document created by a business which outlies what a business will do and how it aims to do it
Give 4 features of a business plan-x
Any from these:
- business idea
- business aims and objectives
- target market
- cash flow forecast
- sources of finances
- revenue forecast
- sources of finance
What is the purpose of a business plan?- x
- to minimise the level of risk when setting up a business
- help educate and persuade potential investors
