1.4 Making the business effective Flashcards
(32 cards)
What are the advantages of being a sole trader in a business?
1) They’re easy to set up, which means they’re great to start up a business.
2) You get to be your own boss.
3) you alone decide what happens to any profit.
What are the disadvantages of being a sole trader?
1) You might have to work long hours and may not get many holidays.
2) You’re unincorporated. This means the business doesn’t have its own legal identity. So, if anyone sues the business, they’ll sue you personally.
3) You have unlimited liability. This means you are liable (legally responsible) for paying back all the business’s debts if it goes bust. As you aren’t legally separate from the business, your personal finances are at risk e.g., you might have to sell everything you own to pay the debts.
What are partnerships?
Partnerships are like two or more sole traders.
What are the advantages of partnerships in a business?
1) More owners means more ideas and a greater range of skills and expertise e.g. one partner might be great at sales while another is good at planning.
2) It also means more people to share the work
3) More owners means more capital (money) can be put into the business, so it can grow faster.
What are the disadvantages of partnerships?
1) Each partner is legally responsible for what all of the other partners do.
2) Like sole traders most partnerships have unlimited liability.
3) More owners means more disagreements. You’re not the only boss. If the partners disagree about which direction the business should go in and how much time to put in, it can get unpleasant.
4) The profits are shared between the partners. so if a sole trader decides to go into partnership with another person they could end up with less money for themselves.
What are the two types of limited companies?
Private and public
How is a limited company different from sole traders and partnerships?
A limited company is incorporated - it has a separate legal identity from the owners. so, any money, property, tax bills, etc. in the company’s name belong to the company, not the owners.
What does it mean by being incorporated?
Being incorporated means the owners have limited liability. If anything goes wrong (e.g. somebody sues the company, or it gets bust) it’s the company that’s liable not the owners. The owners only risk losing the money they have invested.
Who is a limited company mostly owned by?
It is owned by shareholders. The more shares you own, the more control you get.
What does it mean by private in a limited company?
Private means that shares can only be sold if all the shareholders agree. The shareholders are often all members of the same family. Private limited companies have ltd. after their name.
What are the advantages of private limited companies?
1) The big advantage over sole traders and partnerships is limited liability you can’t lose more than you invest.
2) It’s easier for a ltd. company to get a loan or mortgage than it is for a sold=e trader or partnership.
What are the disadvantages of private limited companies?
1) They’re more expensive to set up than partnerships because of the legal paperwork.
2) Unlike sole traders or partnerships, the company is legally obliged to publish its accounts every year (although they don’t have to be made public).
What are the advantages of franchises?
1) Customers will already recognise the franchisor’s brand so are more likely to buy from the franchise. This means there’s less risk of failing.
2) As franchises are less risky than starting a business from a scratch, it can be easier to get a bank loan to start up.
3) The franchisor might provide the franchisee with training or help with things like management and accounting.
What are the disadvantages of a franchise?
1) The franchisor might have strict rules about what the business can sell and how it can operate so the franchisee’s freedom is limited.
2) The franchisee usually has to pay a lot of money to start the franchise and then make regular payments to the franchisor. These costs may mean they end up with less money than if they started a business from scratch.
What 5 things should the business look for when they are choosing a location?
1) Location of raw materials
2) Labour supply
3) Competition
4) Location of the market
5) Using the internet
Why is labour supply important when choosing a location for a business?
Why is labour supply important when choosing a location for a business?
1) If The location is close to an area of high unemployment this will help to keep the wages low.
2) It also means there’ll be a good selection of people to choose from and the firm should be able to find enough workers.
Why is it important to look at the competition when choosing a location for a business?
To see if there are similar businesses nearby because being near competitors can be an advantage.
For example, it should be easy to find skilled labour there are already local suppliers and customers will know to come.(other businesses might prefer to be away from competitors so they don’t lose sales or don’t have to reduce their prices to become more competitive.
Why is it important to look at the competition when choosing a location for a business?
To see if there are similar businesses nearby because being near competitors can be an advantage.
For example, it should be easy to find skilled labour there are already local suppliers and customers will know to come. (Other businesses might prefer to be away from competitors so they don’t lose sales or don’t have to reduce their prices to become more competitive.
Why is it important to consider the location of the market when choosing a location for the business?
1) Some firms pay more to transport their finished products than their raw materials. These types of firms find it cheapest to locate near their customers.
2) Some businesses locate near to their market so people know about them and can easily get to them. It also helps them to get sales through passing trade (e.g., from people who walk past the business)
Why is it important to use the internet when choosing a location for the business?
1) The internet means that the location of some firms is more flexible.
2) For example, trading over the internet (e-commerce) means manufacturers can locate further from their market, but closer to their raw materials. It may also mean they don’t need fixed premises (e.g. a shop) To sell their products from.
3) Documents can also be accessed over the internet which means some businesses no longer need fixed premises for offices. Instead, their employees can work from home and the business can potentially employ people all over the world.
What are the 4Ps in the marketing mix?
Product, Price, Place and promotion.
What should the firm do when choosing a product for the marketing mix?
The firm must first identify customer needs (or wants). Then it needs to come up with a product that will fulfil some (or one) Of these needs. So, spinach-flavoured sweets, for example, probably wouldn’t sell that well.
What should the firm do when choosing a price for a product in the marketing mix?
The price must be one that the customer thinks is good value for money. This isn’t the same as being cheap. You might be prepared to pay a lot of money for a brand new, 50-inch plasma screen TV, but you’d expect an old basic 12-inch model to be much cheaper.
