Making the Business Effective Flashcards
Limited Liability
-Limited liability means that the business owner or owners are only responsible for business debts up to the value of their financial investment in the business.
-This means that a creditor can only take assets or finances belonging to the company.
-Limited liability provides a layer of protection for business owners.
-This is because limited liability business has its own legal identity, meaning that its owners are not personally responsible for its debts.
Unlimited Liability
-Unlimited liability means that the business owner or owners are personally responsible for all of the debts of the business, no matter what the value.
-Unlimited liability can have big implications for business owners. Having unlimited liability gives business owners a greater amount of risk.
-An unlimited liability business does not have its own legal identity and the owners are personally responsible for all debts of the business.
Advantages of Sole Traders
-It is quick and easy to set up as a sole trader so great for start up businesses
-The business owner will have a lot of control over the business and its money
-It gives individuals the opportunity to be their own boss and make all the business decisions
-It has low set-up costs
Disadvantages of Sole Traders
-It has the risk of unlimited liability so the owner is responsible for paying back all debts if it fails.
-It can involve long work hours and stressful conditions
-There is a high level of responsibility for the owner as often the owner performs many different roles in the business
-It is unincorporated. This means the business does not have its own legal identity so if someone sues the business, the owner is sued personally.
-It can be hard to raise money as banks see sole traders as risky so it may be hard to get a loan
Advantages of Partnerships
-They are usually quick and easy to set up
-There is shared decision-making by the owners and more people to share the work
-There is shared responsibility for debt by the owners
-More owners means more ideas and a greater range of skills and expertise
-More owners means more capital can be put into the business so it can grow faster
Disadvantages of Partnerships
-Conflict amongst owners can occur
-There is the risk of unlimited liability
-Each partner is legally responsible for what other partners do
-The profits are shared between owners so an individual makes less money than they would on their own
Advantages of Private Limited Companies
-Any new shareholders need to be invited, which protects the business from outside influence
-The owners have limited liability so can’t lose more money than they have invested
-Easier to raise finance as shares in the business can be sold to raise money and banks trust them more
Disadvantages of Private Limited Companies
-They are more expensive and time consuming to set up because of all the legal paperwork
-The company is legally obliged to publish its accounts every year so others are able to view the business’ financial information
-The business may require outside professional help to manage its finances
Advantages of Franchising
-The franchisee is part of an established business. This means that customers will already recognise the brand.
-In turn, they are more likely to buy from the franchisee. This means there is less risk of the business failing.
-Franchises are less risky to set up than starting from scratch. This mean sit can be easier to get a bank loan to start up.
-The franchisor might provide the franchisee with training or help with management and accounting
Disadvantages of Franchising
-The franchisor might have strict rules about what the business can sell and how it can operate, so the franchisee’s freedom is limited
-The franchisee has to pay a large sum of money to start the franchise then pay regular royalties to the franchisor.
-These costs may mean franchisee ends up with less money than if they had started a business from scratch.
Influence on Location: Proximity to Market
-This means how close a business is to its customers. The importance of proximity to market will depend on how important convenience is to consumers.
-Before choosing to set up in a certain location, a business may research the footfall or demographics of the location to see if it matches their customers.
-Some businesses locate close to their market so people know about them and can easily get to them. It also helps to get sales through footfall/ passing trade.
Influence on Location: Proximity to Labour
-For most companies, it is important to be close to high-quality labour or to be located in an area to which employees are willing to travel.
-Built up areas and cities will often hold places of higher education which can provide businesses with higher skilled workers.
-Areas of high unemployment means a business can keep wages low as people will be more desperate for a job.
-It also means there will be a good selection of people to choose from and the firm should be able to find enough workers.
Influence on Location: Proximity to Materials
-For some products, being close to the raw materials is extremely important for saving money- this will lower transport costs.
-For bulk-gaining products a business might locate near its market so that it doesn’t have to transport the finished product very far.
In this situation, the raw materials are cheaper to transport than the final finished item.
-For bulk-reducing products a business might locate close to the raw materials. Transporting the product is more convenient than transporting each individual material.
-Therefore, being located close to its raw materials allows a business using bulk-reducing products to save on transportation costs.
Influence on Location: Proximity to Competition
-Being near competitors can be an advantage for some businesses.
-This is because it should be easy to find skilled labour, there are already local suppliers and customers will know where to come.
-Other businesses might prefer to locate away from competitors so they don’t lose sales or have to reduce prices to be more competitive.
Nature of Business Activity: Retail and Service
-Retail companies generally want to be located as close to their customers as possible.
-Retailers sell products directly to customers so are most likely to be located in busy areas and around other retail outlets.
-Services sometimes need to be located close to the market but can be located anywhere, dependant on the service they offer.
-Services often heavily rely on people so may look to locate close to a good supply of labour
Nature of Business Activity: Manufacturing and Distribution
-Manufacturing companies generally prefer locations with cheaper rent rather than being close to their customers.
-Many manufacturing companies transport products around the country or even further. Business location for these companies generally is decided by costs.
-Distribution companies may locate around ports or major roads for easy access nationally or globally.
