Unit 1 Content only

Question 1

Business Structures

Answer 1

• Sole Trader
• Partnerships
• Private Limited and Public listed company

Question 2

Evaluate Sole Trader

Answer 2

Advantages:
-Complete Control
- low cost of entry
Disadvantages:
-Unlimited liability
-Difficult to operate if sick

Question 3

Evaluate Partnerships

Answer 3

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

Question 4

Evaluate Companies

Answer 4

Advantages:
* Company tax rate lower than personal income tax rate
* Long life - perpetual succession
Disadvantages:
* Cost of formation
* Double taxation(company and personal)

Question 5

Business Locations

Answer 5

-Shopping Centres
-reatil shopping strips
-Online Presence
-Home-based businesses

Question 6

Discuss Shopping centres

Answer 6

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

Question 7

Discuss retail shopping strips

Answer 7

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

Question 8

Discuss Online Presence

Answer 8

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

Question 9

Discuss Home-based businesses

Answer 9

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

Question 10

Factors affecting choice of business location

Answer 10

• Visiblity
• Cost
• Proximity to customers and suppliers
• Proximity to competitors and complementary businesses

Question 11

Visibility

Answer 11

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.

Question 12

Cost

Answer 12

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

Question 13

Proximity to customers and suppliers

Answer 13

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

Question 14

Proximity to competitors and complementary businesses

Answer 14

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.

Question 15

Sources of Finance available to establish a business

Answer 15

Internal:
* Self-funding
* Family or friends
* Private investors
* Shares
* Crowd Funding
External:
* Debt finance
* short term borrowing
* long term borrowing

Question 16

Self-funding

Answer 16

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.

Question 17

Private investors

Answer 17

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.

Question 18

Shares

Answer 18

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.

Question 19

Crowd Funding

Answer 19

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.

Question 20

Debt Finance

Answer 20

• Short term borrowing
• Long term borrowing

Not gonna be on exam other than loan

Question 21

Short term borrowing

Answer 21

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.

Question 22

Long term borrowing

Answer 22

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.

Question 23

Factors affecting the type and source of finance chosen

Answer 23

• Terms of finance
• The business structure
• Overall cost
• Flexibility
• Level of control

Question 24

Terms of finance

Come back

Answer 24

The amount of the payments and the frequency at which they are made.

Question 25

The business structure

Answer 25

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.

Question 26

Overall cost

Answer 26

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.

Question 27

Flexibility

Answer 27

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

Question 28

Level of control

Answer 28

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.

Question 29

Discuss Technological considerations

Answer 29

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 -

Question 30

Outline suppliers of business resources and considerations regarding the supply chain

Answer 30

Things that a business owner should consider when choosing a supplier are; price, quality, reliability and CSR