Topic 1.4 Making the Business Effective Flashcards
What is a sole trader?
A business run by one person, that person has unlimited liability for any business debts
What is a private limited company?
A small family business in which shareholders enjoy limited liability
What is limited liability?
Restricting the loss suffered by owners/shareholders to the sum they invested in the business
What is unlimited liability?
Treating the business and the individual owner as inseparable, therefore making the individual responsible for all the debts of a failed business
What is bankrupt?
When an individual is unable to pay their debts, even after all personal assets have been sold for cash
What are the advantages of setting up as sole trader?
- Owner makes all the decisions, reducing time taken
- Low set up costs
- Choose own working hours
- It’s easy to set up
- Limited legal requirements
- Accounts can remain private
- Owner does not have to share profits
- Usually small so need little capital
What are the disadvantages of setting up as sole trader?
- Difficult for business to grow due to limited work one owner can do
- Limited finance so difficult for business to expand
- Unlimited liability
- Long hours may be required
- No-one to share responsibility with
- Banks are less likely to lend to sole traders
- May be no cover during illness or holiday
- Running costs might by higher
- No-one to share decision with
What is a partnership?
Partnership allows two or more people to run a small business together and they need a ‘Deed of Partnership’
What are the disadvantages of a partnership?
- Partners jointly responsible for debts
- Possible disagreements between partners
- External capital may be difficult to obtain
- Ordinary partners have unlimited liability
- Complications of partners leaving or joining
- Possible legal costs of drawing up a deed
What are the advantages of a partnership?
- Partners can bring different skills
- Risk is shared
- Increased public perception compared to sole trader
- It’s easy to set up (a Deed is advised)
- Accounts can remain private
- Capital can be obtained from partners (greater amount)
- Responsibilities and decisions can be shared
What is a limited company?
A limited company is incorporated, so the company is a separate legal entity. The owners are called shareholders and they have limited liability and are paid a dividend. A Memorandum of Association and Article of Association to the Companies House.
What are the advantages of a limited company?
- Company and owners are separate legal identities
- Shareholders have limited liability
- Easier to get a loan than sole traders & partnerships
- Capital can be raised through shares
What are the disadvantages of a limited company?
- All shareholders have a vote so decision making can take time
- Company must publish its accounts every year
- Can be expense to set up
- Must register with Companies House and follow relevant company law
What is franchising?
Paying a franchise owner for the right to use an established business name, branding and business methods. A franchiser grants a licence to a franchisee and they sign am agreement and give royalties to the franchisor.
What are the advantages of setting up as a franchisee?
- Saves hours on not having come up with original ideas
- Avoid having to pay for marketing
- Less risk
What are the disadvantages of setting up as a franchisee?
- Has to pay an initial fee
- A lot of responsibility
- Has to pay percentage of revenue
- Less freedom
- Impacted by the brand
What are the advantages of setting up as a franchisor?
- Gets a percentage of the revenue gained by the franchise
- In control of almost everything
- Faster growth
- Reduces expansion price
What are the disadvantages of setting up as a franchisor?
- Wastes time and money to help all franchises
- Has to pay for marketing
- Huge risk letting others run under his brand
- Less control
- Share profit
What are royalties?
A percentage of the sales revenue to be paid to the overall franchise owner
What factors influence business location?
- Proximity to customers/market
- Proximity to materials
- Proximity to labour
- Proximity to competitors
Which factor affecting location is more important?
Which location factors is most important to a business will depend on the type of business activity being carried out and the nature of the business
What are other location factors?
- E-commerce
- Transport links
- Proximity to where the entrepreneur lives
- Cost of premises
- Social factors (demographic, lifestyle, tastes, trends)
What is the marketing mix?
A blend between product, place, price and promotion that can help the business achieve its revenue targets
What influences the marketing mix?
- Impact of competitive environment
- Changing customer needs
- Changes in technology
