Unit 1 AOS 2 KK4

Question 1

Establishing a new business

Answer 1

The common reason for starting a business is a gap in the market, development of new goods and services

Question 2

Goodwill

Answer 2

The value a company gets from its brand, customer base and reputation associated with its intellectual property
Eg strong customer relations, loyalty and staff satisfaction

Although goodwill is intangible , it cannot be bought or sold separately from the business. Without the business, this goodwill does not exist.

Question 3

New business advantages

Answer 3

complete autonomy and control over the business and its operations
avoid the cost of goodwill and can start on a smaller scale
avoid buying into other peoples mistakes
owner sets the pace of growth and change
original ideas and concepts will belong and be associated with the business
initial costs can be lower as ‘intangible assets’ do not need to be purchased

Question 4

New business disadvantages

Answer 4

• Greater degree of unsuccess
  
  • More work initial to establish operating activities, systems, procedures
  • Greater time and energy required to establish a good name
  • Difficulty to obtain finance and investment
  • Need to find a secure suitable location and resource the business needs
  • More scope for errors given everything is new and unproven

Question 5

Other considerations New business

Answer 5

• Locating and securing a suitable premises
  
  • Registered a new business name, relevant licensing and other legislative requirements
  • Establishing relationships with reliable suppliers
  • Employing and training staff
    Registration and securing intellectual property.

Question 6

Purchasing an existing business

Answer 6

The business is already operating and everything associated with the business is included

Question 7

Existing business advantage

Answer 7

• Can be much simpler in legal view
  
  • Access to financial history making financial operations easier
  • Able to get cash immediately
  • Practices and procedures already set
    Existing goodwill

Question 8

Existing business disadvantage

Answer 8

• Assets being purchased can be difficult to value
  
  • Risk of buying legacy issues not readily with the business
    Past success may be linked to the prior owner’s knowledge and expertise