1.4: making the business effective

• limited liability


  financial responsibility of business owners only for what they invested in a business
• unlimited liability


  requirement that an owner is personally and fully responsible for all losses and debts of a business
• private limited company (Ltd)

  a business owned by shareholders with limited liability but whose shares cannot be bought by or sold to the general public
• private limited company (Ltd) advantages

  - limited liability

  - shares only sold if all shareholders agree

  - capital raised through increasing shareholders

  - business continues if one owner dies
• private limited company (Ltd) disadvantages

  - expensive and time-consuming to set up

  - have to share profit through dividends

  - accounts must be publicised

  - shares can't be sold on stock market
• sole trader


  a business in which one person provides the permanent finance with unlimited liability and, in return, has full control of the business and is able to keep all of the profits
• sole trader advantages


  - easy to set up

  - ownership is not diluted

  - owner keeps all profits
• sole trader disadvantages


  - unlimited liability

  - no shared work

  - limited funds

  - business dies if owner dies
• partnership


  a business organization owned by two to twenty people who agree on a specific division of responsibilities and profits with unlimited liability
• partnership advantages


  - more capital

  - workload shared

  - easy to set up
• partnership disadvantages


  - unlimited liability

  - joint decisions can result in conflict

  - shared profits
• franchise


  a business established or operated under an authorization to sell or distribute a company's goods or services in a particular area
• franchise advantages


  - business is already established

  - free training provided

  - lower risk
• franchise disadvantages


  - start-up initial fee

  - ongoing royalty payments

  - management rules and restrictions
• franchisee


  an individual or business that is granted the right to sell another party's product
• franchisor


  an individual or business that develops a product concept and sells others the rights to make and sell the products
• what factors influence business location

  - proximity to market

  - proximity to labour

  - proximity to competitors

  - proximity to raw materials
• proximity to market


  when businesses locate with consideration to where their customers are
• what kind of businesses would want to locate close to customers?

  businesses such as takeaways, corner shops, clothes shops, pop-up food businesses and hairdressers; these businesses were not close to their market, they would miss out on sales as they would not be easily accessible to their target market
• what kind of businesses do not need to locate close to customers?

  online businesses, clothing manufacturers and car manufacturers; they are able to sell their products anywhere and they can usually deliver to the customer's house or a local car dealership
• proximity to labour


  when businesses locate with consideration to where workers are - generally linked to the skill requirement for the job
• how is business location important for jobs requiring a high level of skill?

  for roles that require a high level of skill, such as a design engineer, computer scientist or solicitor, businesses may need to be located close to big cities, university towns or other areas that attract more highly-skilled people
• how is business location important for jobs requiring a low level of skill?

  for roles with a low requirement for skills, a business would just need to be located near any populated area to ensure it can hire employees
• proximity to competitors


  when businesses locate with consideration to where their competitors are
• what kind of businesses would want to locate close to competitors?

  car dealerships and clothing shops; customers are likely to shop around when purchasing a car or item of clothing and being close to competition means customers will have a more convenient shopping experience and these businesses are more likely to be considered by people making a purchase
• what kind of businesses do not need to locate close to competitors?

  petrol stations, corner shops and barber shops; these types of business like to be far away from competitors because customers are only likely to visit one of that type of business, often the one closest to their home or in the most convenient location
• proximity to raw materials

  when businesses locate with consideration to the source of raw materials and suppliers
• why would a business want to locate close to raw materials?

  for bulk-gaining products, it makes sense for a business to be located 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
• why would a business not need to locate close to raw materials?

  for bulk-reducing products, it makes sense for a business to be located close to the raw materials - in this situation, transporting bottles of smoothie is more convenient than transporting all of the individual raw materials therefore, being located close to its raw materials allows a business using bulk-reducing products to save on transportation costs.
• bulk-gaining products


  products that are larger than the raw materials used to produce them (e.g. a bike)
• bulk-reducing products


  products that are smaller than the raw materials used to produce them (e.g. paper)
• retail business


  a business that sells goods or services directly to the public, so they would want to locate as close as possible to customers and be in busy, competitive areas
• manufacturing business


  a business that makes finished goods from raw materials by hand or machinery and would choose a location with cheap rent over market proximity
• servicing business


  a business that provides services instead of products to the public, so they would want to be as close as possible to customers
• what does having a fixed premises mean?

  when a business operates in a physical store which customers visit
• e-commerce


  electronic business or exchange conducted over the internet
• benefits of e-commerce


  - lower costs

  - flexible working hours

  - access to a much larger market of potential customers

  - ability to be open 24 hours a day, seven days a week

  - relatively low-price marketing and promotion
• how has online shopping affected the demand for fixed premises?

  because online shopping tends to be more convenient for the customer as they can shop from home or wherever they are and there is usually more choice, which is easier to browse online
• marketing mix


  the set of tactical marketing tools - product, price, place, and promotion - that the firm blends to produce the response it wants in the target market
• product in the marketing mix

  consumers require the right product: this might be an existing product, an adaptation of an existing product or a newly developed one