Unit 1 Business Activity

Question 1

Characteristics of a successful entrepreneur

Answer 1

Creative
Risk-taking
Determined
Confident
Learn from past mistakes

Question 2

Risks of starting a business

Answer 2

-Use your own savings
-Given up job with steady income
-Might be stressful
-Strain on personal relationships
-Changing consumer tastes

Question 3

Rewards of starting a business

Answer 3

• possibly higher wage than previous job
  -could sell business for profit if successful
  -being your own boss
  -personal satisfaction of success

Question 4

Reasons why people choose to start their own business

Answer 4

-to be their own boss
-to pursue own interests
-to earn income
-do something positive for society

Question 5

Components included in a business plan

Answer 5

-Aims + objectives (what you plan to achieve)
-Marketing plan (what market research, 4p’s, target audience etc.)
-Human resource plan (amount of employees, how will you recruit them, what their pay will be)
-Production plan (how will you make and ensure quality of product)
-Finance plan (how to raise capital, calc break even point)

Question 6

Why is it important to make a business plan?

Answer 6

-More likely to get investors as they can see your future
-Reduces risk of failure because decisions are made from research
-To identify what sources are needed

Question 7

Sole trader (business owned by one person)
Advantages

Answer 7

-Low startup cost
-Owner keeps 100% profit
-Owner makes all decisions
-Can keep finances private

Question 8

Sole trader (business owned by one person)
Disadvantages

Answer 8

-Unlimited liability
-Lack of continuity
-A lot of responsibility
-Skill shortage
-Shortage of captial

Question 9

Partnership (a business run by 2-20 people)
Advantages

Answer 9

-Low startup cost
-Each partner might have a different specialty
-Workload and debts can be shared amongst partners
-Easier to raise finance
-Owners can keep finances private

Question 10

Partnership (a business run by 2-20 people)
Disadvantages

Answer 10

-Unlimited liability
-Disagreements between partners
-Profit has to be shared
-Partners have less control
-Cannot raise as much finance as Ltd/Plc

Question 11

Private Limited Company/ Ltd (A business owned by shareholders. Shares are sold privately to friends and family)
Advantages

Answer 11

-Limited liability
-Finance can be raised by selling shares
-Continuity
-Control over share sale (can’t be taken over without agreement)

Question 12

Private Limited Company/ Ltd (A business owned by shareholders. Shares are sold privately to friends and family)
Disadvantages

Answer 12

-Profits need to be given to shareholders in dividends
-Has to publish accounts every year
-Higher set up costs than partnerships and sole traders
-Cannot sell as many shares as a Plc - finance limited

Question 13

Public Limited Company/ Plc (a business owned by shareholder. Shares sold on stock exchange)
Advantages

Answer 13

-Limited liability
-Finance can be raised by selling shares on stock exchange
-Continuity
-Business normally ran by experienced directors

Question 14

Public Limited Company/ Plc (a business owned by shareholder. Shares sold on stock exchange)
Disadvantages

Answer 14

-Profits have to be given to shareholders in dividends
-Business has to publish accounts every year
-Higher set up costs than any other business
-There is a threat of takeover if 51% or more of shares are bought by one person/group

Question 15

Main objectives of most businesses

Answer 15

-To survive
-To make profit
-To expand/growth
-Market share increase
-Providing a service

Question 16

Reasons why businesses should set objectives

Answer 16

-So that all employees are working towards common goal
-Help measure success of a business

Question 17

Different businesses different objectives

Answer 17

-A brand new shop’s objective would be to survive
-A medium sized business with 10 stores would look to expand and make profit
- A multinational business will want to maximise profits and achieve domination

Question 18

Why are people stakeholders?
(Employees, Customers, Suppliers)

Answer 18

-Employees (if a business does well, they may get increased pay)
-Customers (can boycott a business, if a new store opens up closer they wont have to travel)
-Suppliers (if a business does well they will need more stock)

Question 19

Why are people stakeholders?
(Government, Local Community, Owners)

Answer 19

-Government (they receive tax on profits businesses make)
-Local community (can provide jobs but also create pollution)
-Owners (if a business does well, they are rewarded with a share of profits)

Question 20

What are Internal and External Stakeholders?

Answer 20

Stakeholders- a group of individuals who have INTEREST in the business
Internal stakeholders- People who work in the business
External stakeholders- People outside of the business who are affected by their actions

Question 21

Methods of growing externally

Answer 21

-Horizontal takeover
-Backward vertical takeover
-Forward vertical takeover
-Diversification

Question 22

Methods of growing organically

Answer 22

-Increasing market share
-Developing new products
-Gaining customers in a new market

Question 23

What is economies of scale?

Answer 23

Refers to the reduction of cost per unit as a business grows in size.