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1.4 Making the business effective, Paper 1 Topic 4 - Making the business…
1.4 Making the business effective
Unlimited liability
With unlimited liability, the business owner and the business are seen as the same legal entity. Business debts are the total responsibility of the owner.
Marketing Mix
Price
Place
Product
Promotion
The business needs to combine these 4Ps effectively in order to persuade customers to buy products and successful.
Types of ownership to start up a business
Partnership
- 2 or more owners who share the risk
Benefits
Each partner could contribute finance
Workload is shared between partners
Financial information is kept private
Disadvantages
Profits are shared between partners
Partners face unlimited liability
Private limited company (ltd)
-owned by shareholders
Benefits
Owners have limited liability
Easier to raise finance by selling shares
Disadvantages
Business' financial information is not private.
Overall control could be lost
Sole trader
- has only one owner
Benefits
Sole trader keeps all the profit
Sole trader makes all the decision
Financial information is kept private
Disadvantages
Sole trader faces unlimited liability
Difficult to raise finance
Franchise -
licence given by the franchisor allows the new owner to trade using the name, products & equipment of the franchisor
Benefits
Brand name is already established
Franchisor undertake advertisement & promotion
Franchisor provides training
Disadvantages
Expensive initial start up costs
Royalty fees must be payed to the franchisor regardless of profits made.
Business location
Factors influencing business location
Proximity to competitors - some business will choose to locate from competitors and others may choose to locate close to their rivals.
Proximity to materials - to keep costs (e.g. delivery costs) of raw materials or products down
Proximity to market - being close to where the customers are is the most important factor
Proximity to labour - a business may needs to locate where people are willing and able to work to keep costs low.
Business Plans
The purpose of business plan
Minimising risk
Obtaining finance
Role & importance of a business plan
to identify: the business idea; business aims and objectives; target market (market research); forecast revenue, cost and profit; cash-flow forecast; sources of finance; location; marketing mix
Limited liability
With limited liability - An entrepreneur is seen as separate from the business in the eyes of law. This means that the debts of the business are not regarded as personal debts of the owner. The entrepreneur is only liable for the amount of money that they have personally invested.
Paper 1
Topic 4 - Making the business effective
Must know how to explain each point