1.4 Making the Business Effective Flashcards
All 30 cards in this deck
What is unlimited liability?
The owner is personally responsible for all the debts of the business — there is no legal separation between the owner and the business.
What is limited liability?
The business is a separate legal identity, so owners can only lose the money they have invested in it, not their personal possessions.
What is a sole trader?
A business owned and controlled by one person, who has unlimited liability. They may still employ staff.
What is a partnership?
A business owned by two or more partners who share the decisions and the profits, usually with unlimited liability. A deed of partnership sets out the terms.
What is a private limited company (Ltd)?
A business owned by shareholders whose shares cannot be sold to the public; it is a separate legal identity and the shareholders have limited liability.
True or false? A sole trader keeps all of the profit the business makes.
True. But they also carry all of the risk, because they have unlimited liability.
Give one disadvantage of setting up as a private limited company rather than as a sole trader.
More paperwork and cost — accounts must be filed and published at Companies House, and the business is more complex to set up.
What is a franchise?
An arrangement where the franchisee buys the right to trade using an established brand's name, products and business format, paying a fee and royalties to the franchisor.
Give one advantage for a franchisee of running a franchise operation.
Lower risk — the brand is already known and has customers, and the franchisor provides training and support.
Give one disadvantage for a franchisee of running a franchise operation.
They must pay fees and royalties to the franchisor and follow its rules, so they have little freedom over how the business is run.
Why might a business locate close to its market?
Customers can reach it easily, so it gains passing trade and sales — important for shops and services.
Why might a business locate close to a supply of labour?
Workers with the right skills are easier and cheaper to recruit, and staff have a shorter journey to work.
Why might a business locate close to its materials?
It cuts transport costs and time — important where materials are heavy, bulky or perishable.
How does proximity to competitors affect a location decision?
Locating near competitors can attract customers who want to compare products, but locating away from them avoids losing customers to rivals.
How does the nature of the business activity affect where a business locates?
Different activities need different sites — a manufacturer needs a large, cheap site with good transport links, while a hairdresser needs a high-street site near customers.
How does e-commerce affect a small business's location decision?
It can sell nationally from cheap premises or from home instead of paying high rent for fixed premises, so being near the market matters less.
What are the steps to recommend and justify a location for a small business?
e.g. a new sandwich shop choosing between the town centre and an industrial estate
- Identify the key location factors for that business: passing trade and proximity to market.
- Use the evidence given, e.g. footfall figures and the rent of each site.
- Choose one and justify it against the alternative: town centre, as high footfall outweighs the higher rent.
What is the marketing mix?
The combination of price, product, promotion and place (the four Ps) that a business uses to market its product.
What does 'place' mean in the marketing mix?
How and where the product gets to the customer, e.g. a shop, a website or a delivery service.
What does 'promotion' mean in the marketing mix?
How a business communicates with customers to make them aware of the product and persuade them to buy it.
Give one way a small business could use price to become more competitive, and its effect.
Charge lower prices — customers are more likely to buy because it is cheaper than other products, attracting customers away from competitors.
What is the impact of e-commerce on a small business's marketing mix?
It changes place — the business can sell 24/7 to customers anywhere, and may lower prices because costs of premises are lower.
What is the impact of digital communication on a small business's marketing mix?
It changes promotion — social media, email and websites reach a wide audience cheaply and allow quick feedback from customers.
True or false? If the product is good enough, the other elements of the marketing mix do not matter.
False. All four elements must be balanced and work together, or customers will not find, afford or hear about the product.
What is a business plan?
A document setting out the business idea and how the business will be run, marketed and financed.
Name four sections normally found in a business plan.
Any four of: the business idea; aims and objectives; target market (market research); forecast revenue, costs and profit; cash-flow forecast; sources of finance; location; marketing mix.
How does a business plan help a business obtain finance?
It shows lenders and investors the research, forecasts and sources of finance, giving evidence the business can repay them.
How does a business plan help to minimise risk?
It forces the owner to research the market and forecast revenue, costs and cash flow, so problems are spotted before money is spent.
True or false? Writing a business plan guarantees that a start-up will succeed.
False. It reduces risk, but forecasts may be wrong and the plan must be reviewed and updated as conditions change.
How do changing consumer needs affect a small business's marketing mix?
e.g. a café's customers increasingly want vegan food
The business must adapt elements of the mix to keep meeting customer needs — the café adds vegan dishes to its product range and promotes them to attract those customers.