Unit 1 Content only Flashcards
Business Structures
- Sole Trader
- Partnerships
- Private Limited and Public listed company
Evaluate Sole Trader
Advantages:
-Complete Control
- low cost of entry
Disadvantages:
-Unlimited liability
-Difficult to operate if sick
Evaluate Partnerships
Advantages:
* Shared responsibility and workload
* On death of one partner, business can keep going
Disadvantages:
* Unlimited Liability
* Divided loyalty and authority
* Difficulty in finding a suitable partner
Evaluate Companies
Advantages:
* Company tax rate lower than personal income tax rate
* Long life - perpetual succession
Disadvantages:
* Cost of formation
* Double taxation(company and personal)
Business Locations
-Shopping Centres
-reatil shopping strips
-Online Presence
-Home-based businesses
Discuss Shopping centres
Advantages:
* More likely to be successful with no exisisting competitors
* They have parking for several hundred cars, allows for more customers and enables customer convenience.
Disadvantages:
* Leasing a store in a shopping centre
* A business may also need to rely on the centre renewing its lease. If this does not occur, the business will be forced to move elsewhere
Discuss retail shopping strips
Advantages:
* High visibility for passing traffic
* The costs of locating in a retail shopping centre
Disadvantages:
* Limited protection from the weather, which can reduce foot traffic
*Most retail shopping strips suffer from a lack of parking
Discuss Online Presence
Advantages:
* Avoids expenses associated with rent, saving money
* Increased access to new customers
Disadvantages:
* Customers and businesses owners should always be careful to protect personal information
* Costs of planning, designing and maintaining an online presence are significant
Discuss Home-based businesses
Advantages:
*Does not face any substantial expenditure on renting or purchasing premises
* Locating a business at home provides flexibility around when the owner works and therefore reduces commuting time
Disadvantages:
* It can be difficult for the owner to keep work and home life seperate
* The owner may also feel isolated from other people and miss social interaction
Factors affecting choice of business location
- Visiblity
- Cost
- Proximity to customers and suppliers
- Proximity to competitors and complementary businesses
Visibility
A business wanting high visibility would locate in a prime shopping area, such as a shopping centre or main street. Whereas manufacturing businesses, which arrange to transport their goods to various retail outlets do not need a highly visible location to attract customers.
Cost
Leasing or purchasing a central location in a busy shopping centre will be far more expensive than a location with lower levels of passing traffic. The business owner will need to be confident of generating sufficient business to justify the higher cost.
Example - If the business is a cafe or food outlet, passing traffic is a major source of customers, so cutting costs by selecting a less visible location may be counterproductive
Proximity to customers and suppliers
Ideally, all businesses would choose to locate close to customers and suppliers, both for customer convenience and to minimise the costs of transportation from suppliers.
Retail businesses must be convenient for their customers, so shopping centres or shopping strips with off-street parking will be the primary choice for businesses like butchers, florists etc.
- Proximity to customers is generally not an issue for a manufacturing customers. Access to transport networks is more important for the movement of raw materials from suppliers, as well as to allow for distribution of completed goods to retailers
Proximity to competitors and complementary businesses
Competitiors - Being the first to establish a particular type of business in a shopping centre, or otherwise ensuring there are no lcal competitors, is likely to increase the chance of success.
Complementary businesses - The proximity of complementary businesses can assist in bringing customers to a new business. Complementary businesses offer goods or services aimed at the same customers.
Sources of Finance available to establish a business
Internal:
* Self-funding
* Family or friends
* Private investors
* Shares
* Crowd Funding
External:
* Debt finance
* short term borrowing
* long term borrowing
Self-funding
Self-funding is when the owner of the business uses their personal finance to fund the business. A self-funded business means that the owner will not need to share ownership with anyone else. However, there is a risk that the owner will lose all of their investment should the business fail.
Private investors
A prospective business owner may be able to find private investors for their business if an attractive idea and strong business plan can be presented. The investors may contribute funds to the business in return for a share in the business’s profit and equity.
Shares
A business may be able to raise finances by selling shares. Although, this is not only for public companies. Private companies may sell their shares to individuals that are approved by the business only, whereas the general public may be able to buy the shares of a public company.
Crowd Funding
A method of raising finance through appeals for donations via social media and the internet. This can be a quick way to raise finance with few fees allows the business owner to connect to potential customers and receive feedback, as well as gain some guidance on how to improve the business or product.
Debt Finance
- Short term borrowing
- Long term borrowing
Not gonna be on exam other than loan
Short term borrowing
Bank overdraft: When a bank allows a business to overdraw its account to a agreed limit.Bank overdrafts assist business with short term liquidity problems and the costs of bank overdrafts are minimal and interest rates are normally lower than on other forms of borrowing.
Long term borrowing
Loan: Borrowing money from a bank that is to be paid back with interest. A secured loan may come with a lower interest rate, but the owner will need to offer up another asset as security against the loan. An unsecured loan does not require collateral, but it might have a higher interest rate.
Factors affecting the type and source of finance chosen
- Terms of finance
- The business structure
- Overall cost
- Flexibility
- Level of control
Terms of finance
Come back
The amount of the payments and the frequency at which they are made.
The business structure
Large businesses have more opportunities for equity capital than small businesses. Most small businesses have to raise equity from private sources or by taking on a partner.
Overall cost
The business needs to calculate the projected costs of each source of finance in order to make a well-informed decision when planning for its financial needs. An owner must project the future profits and value of the business in order to determine what a share of the business is worth.
Flexibility
A business’s circumstances can change quite rapidly, and these changes may often be completely outside of its control. In such instances a business would benefit from having the flexibility to adjust the terms of the financial agreement or having the option of exiting the agreement entirely
Level of control
Businesses are often a reflection of the owner’s character and personality and, as such, most owners wish to retain as much control over their business as possible. This level of control can often be undermined if the business sources its finances externally. Partners and investors who wish to see a greater return on their investment may have other ideas about how the business should run, and this can be a source of conflict that can undermine the owner’s level of control over the business.
Discuss Technological considerations
Advantages:
- A business can reach customers all over the world due to the internet, and new communication and information technologies.
Disadvantages:
- Less employees due to new technologies replacing them
- product life cycles are shorter and products have to be contuinlsy updated
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Outline suppliers of business resources and considerations regarding the supply chain
Things that a business owner should consider when choosing a supplier are; price, quality, reliability and CSR
