Introudction To Business 2

Question 1

Entrepreneur

Answer 1

Someone who sets up and runs a new business and takes on the risks associated with the business.

Question 2

Enterprise

Answer 2

The process by which new businesses are formed in order to offer products and services in a market.

Question 3

4 factors of production:

Answer 3

• Land
• Labour
• Capital
• Enterprise

Question 4

Importance to the economy of entrepreneurship and enterprise (x4)

Answer 4

• Drives economic growth
• Creates new jobs
• Encourages innovation
• Contributes to social change

Question 5

Decisions made by an entrepreneur (x4)

Answer 5

• What is made
• How the product is produced
• Finds the finance to fund the business
• What price the product will be sold at

Question 6

Primary sector

Answer 6

Industries relating to the production of primary resources.

Question 7

Secondary sector

Answer 7

The section of the economy that manufactures and assembles products from raw materials.

Question 8

Tertiary sector

Answer 8

(Also known as the service sector)
Includes businesses that provide services rather than physical products.

Question 9

Private sector

Answer 9

The section of the economy that is not under state control.

Question 10

Public sector

Answer 10

The part of the economy that is controlled by the state.

Question 11

Third sector

Answer 11

• The third sector is not about making a profit but rather making a difference to society.
• Third sector organisations are categorised into: charities and community groups, social enterprises.

Question 12

Local market

Answer 12

The buyers and sellers are limited to the local region or area.

Question 13

National market

Answer 13

Demand for goods is limited to one specific country.

Question 14

International market

Answer 14

When the demand for the product is international and the goods are traded internationally.

Question 15

Difference between national and multinational businesses.

Answer 15

National - Operates in one country but may sell abroad.
Multinational - Operates and sells in multiple countries.

Question 16

Sole trader

Answer 16

A one-person business with unlimited liability for the debts of that business.

Question 17

Advantages of being a sole trader (x4)

Answer 17

• Quick and easy to set up
• Simple to run
• Minimal paperwork
• Easy to close / shut down

Question 18

Disadvantages of being a sole trader (x4)

Answer 18

• Unlimited liability
• Harder to raise finance
• The business is the owner (the business suffers if the owner becomes ill, loses interest etc)
• Can pay a higher tax rate than a company

Question 19

Partnership

Answer 19

A business where there are 2 or more owners of the enterprise.

Question 20

Advantages of a partnership (x4)

Answer 20

• Spreads the risk
• Partner may bring money and resources
• Shared skills and ideas
• Increased credibility with potential customers and suppliers

Question 21

Disadvantages of a partnership (x4)

Answer 21

• Have to share the profits
• Less control of the business for the individual
• Disputes over workload
• Problems if partners disagree over the direction of the business

Question 22

Private limited company

Answer 22

A business that is owned by its shareholders, run by directors and has limited liability.

Question 23

Advantages of private limited companies (x4)

Answer 23

• Limited liability
• Additional capital can easily be raised by selling shares
• The company can continue to trade even if one of its members dies
• Incorporated - separate legal entity

Question 24

Disadvantages of a private limited company (x3)

Answer 24

• Public financial records
• More expensive and time consuming to set up (you must be incorporated with Companies House)
• Separation of ownership and control - the owners no longer make all decisions

Question 25

Public limited company

Answer 25

A company that is able to offer its shares to the public.

Question 26

Advantages of a public limited company (x4)

Answer 26

- Better access to capital - Liquidity - shareholders are able to buy and sell their shares - The opportunity to more easily make acquisitions - Gives a company a more prestigious profile

Question 27

Disadvantages of a public limited company (x4)

Answer 27

- Volatile stock markets (if the company receives negative media attention, this often has a negative impact to the company’s share price) - Potential for a loss of control - Strict regulations - Increased scrutiny (public financial records - a loss could cause negative media attention, causing share price to fall)

Question 28

Limited liability

Answer 28

- Shareholders are only liable for the money they have invested into the business. - It separates and protects personal assets from business assets.

Question 29

Unlimited liability

Answer 29

Being personally liable for the debts of the business.

Question 30

Franchise

Answer 30

When a franchisor grants a licence to a franchisee to allow it to trade using the brand / business format.

Question 31

Benefits to the franchisor of using franchising (x2)

Answer 31

- Enables quicker growth for a relatively low investment - Capital investment by franchisees is an important source of growth finance

Question 32

Benefits to the franchisee of franchising (x4)

Answer 32

- Support from the franchisor (e.g marketing and staff training) - Being part of a well-known organisation with an established anem, format and product - Less investment is required at the start up stage - Less risk

Question 33

Disadvantage to the franchisee of franchising (x3)

Answer 33

- Can be expensive to buy a franchise - Have to pay royalty fees to the franchisor (% of revenue) - Less flexible (have to follow the franchise model)

Question 34

Disadvantages to the franchisor of franchising (x4)

Answer 34

- Loss of control - Providing training and support requires time and resources - Managing poorly preforming franchises - Managing growth