Introduction to Business

Question 1

What is the definition of a sole trader?

Answer 1

A sole trader describes any business that is owned and controlled by one person. However, although the business is owned by one person, it does not stop it from employing others to work in the business.

Question 2

What are the characteristics of a sole trader and why would they want to work for themselves?

Answer 2

Organised
Independent
Risk takers
Motivated

Own ideas are taken forward
Freedom of decisions
Keep own profits

Question 3

What are the advantages of being a sole trader?

Answer 3

Suitability to many business types
Easy and cheap to set up
Can be set up with very little capital 
Owner has complete control
Financial information is kept private 
All profits are kept

Question 4

What are the disadvantages vow being a sole trader?

Answer 4

Shortage of capital (to grow or set up)
Illness- it will not be active while your ill
Hours of work may be long
Continuity- if owner dies it ceases to exist
Shortage of skills
Unlimited liability

Question 5

What is unlimited liability?

Answer 5

The owner of the business risks losing all of his/her personal possessions to pay off their business debts if it fails.

Question 6

What is the definition of a partnership?

Answer 6

A business which has a minimum of 2 and a maximum of 20 owners.

Question 7

What are the advantages of being in a partnership?

Answer 7

Different skills to offer
More capital can be raised
Workload can be shared
Business activity continues if a partner is ill
Easy and cheap to set up
Financial information is private
Can admit more partners

Question 8

What are the disadvantages of being in a partnership?

Answer 8

Profit has to be shared
Partners have unlimited liability
There may be disagreements
There may be a shortage of capital

Question 9

What is the deed of partnership?

Answer 9

Legal document which lays out the rules of running as partnership.
It includes how jobs are split, how profits/loses are split, capital contributed and the personal details of each partner.

Question 10

What is a sleeping partner?

Answer 10

Somebody who invests money but takes no part in the day to day running off the business

Question 11

What is a plc?

Answer 11

Public limited company

Question 12

What is an ltd?

Answer 12

Private limited company

Question 13

What is a shareholder?

Answer 13

Those who own capital in a business

Question 14

What is the difference between a plc and an ltd?

Answer 14

A plc can sell shares on the stock market to members of the public.
A ltd can only sell shares to family or friends.

Question 15

What is limited liability?

Answer 15

The owner of both types of limited company will not be responsible for any debts that the business may have. They can only loose the amount of capital that they have invested.

Question 16

What are the advantages of being a ltd?

Answer 16

Easy to raise capital as shares can be sold to friends and family
Limited liability
Cheap and easy to set up

Question 17

What are the disadvantages of being in a ltd?

Answer 17

Financial information must be made public

Dividends must be paid to the shareholders

Question 18

What are the advantages of being in a plc?

Answer 18

Limited liability
Flexible shareholders meaning capital can be raised easily
Economies of scale due to the size of the business

Question 19

What are the disadvantages of being in a plc?

Answer 19

Loss of individual control due to shares being sold to the public
Dividends must be paid to shareholders
Financial information must be published

Question 20

What is a dividend?

Answer 20

Annual payment made to the shareholders which is a share of the businesses profits

Question 21

What are the advantages of gong from private to public?

Answer 21

Greater ability to gain finance

Better publicity

Question 22

What are the disadvantages of going from private to public?

Answer 22

Share price might drop leading to bad publicity

Greater threat of takeovers

Question 23

What is the definition of public sector?

Answer 23

All businesses that are controlled by the government. These include public corporations (BBC), health, education and fire services.

Provides a service as an objective
Funded by taxes

Question 24

What is the definition of private sector?

Answer 24

All businesses owned by private individuals not the government.

Make profit as an objective
Funded by profits from selling goods

Question 25

What is a franchise?

Answer 25

Paying a fee to trade under another businesses name

Question 26

What is a royalty payment?

Answer 26

A payment made to the franchisors based on the sales revenue or profit of the franchise.

Question 27

What are the advantages of being in a franchise?

Answer 27

Advertising done by a well founded company
Purchasing power
Get a well known product to the market fast and easily
Sells an established product
Staff trading and marketing is paid for by franchisor
Designated area- no competitors
Running a tried and tested business

Question 28

What are the disadvantages of being in a franchise?

Answer 28

Cosmetic- no ‘name in lights’
Must sell what you are told too
Must follow the business
If they gain a poor reputation, you lose out
Anual royalty payments
All supplies must be bought at the told price
Large amount of initial capital needed

Question 29

What is privatisation?

Answer 29

When public sector enterprises are sold by the government to businesses which are owned by private shareholders: British Gas, British airways, Telecom and British rail.

Question 30

Reasons for selling to private sector:

Answer 30

Government don't need to invest 
Private firms are more efficient- motive to raise money
Ends subsidies 
Source of revenue 
Competition

Question 31

Reasons against selling to private sector:

Answer 31

Government should be forced to make it efficient
Public sector charge less so there will be higher prices for customers
Reduction in services in rural areas as it is less profitable
Private firms may still be inefficient

Question 32

What is nationalisation?

Answer 32

When private sector enterprises are bought/taken over by the government. The business becomes a government owned/controlled business.

Question 33

What is a mission statement and what is its purpose?

Answer 33

Overall purpose of the business
Inspire employees
Promote the company
Unique selling point

Question 34

What is an aim?

Answer 34

What a business is trying to achieve overtime

Question 35

What is an objective?

Answer 35

More specific and short term goal

Question 36

What is the difference between strategic and tactical aims?

Answer 36

Strategic- long term

Tactical- short term

Question 37

Aims must be SMART, what does this mean?

Answer 37

Specific
Measurable
Achievable
Realistic
Timed

Question 38

What are examples of business objectives?

PIGSS

Answer 38

Profit
Increased market share
Growth
Service
Survival

Question 39

What is a stakeholder?

Answer 39

An individual or group of people who have an interest in a business and its activities. There may be conflicts between stakeholders.

Question 40

What is a co-operative?

Answer 40

A business which is owned by its members that seeks to provide a service that it’s members need.
The members will get a percentage of the profits.
Members seek to keep prices affordable.

Question 41

What is a social enterprise?

Answer 41

This is a business which exists to help other people. It is often called the third sector.

Question 42

What are the four factors of production?

Answer 42

Land (natural resources)
Labour
Capital (technology)
Enterprise