paper one practice questions

• Explain one advantage of starting a business as a private limited company.

  The owners would have limited liability (1). This means that any ebts are the responsibility of the business (1). Therefore, th ersonal possessions of the owners will not have to be sold to pay the debts of the business (1).
• Explain one way the internet may affect where a small business chooses to locate.

  The business could choose a cheaper location (1). This is because the business can use e-commerce (1). As a result, the business may not require a physical retail location (1).
• Explain one way a small business could become more competitive.

  A small business could gain an advantage by charging lower prices (1). This would mean customers are more likely to buy the product because it is cheaper than other products (1), Therefore, his would attract customers from its competitors as they want to save money (1).
• Explain one advantage to a small business of meeting its legal obligations.

  A small business would not get sued for breaking the law (1). This means the business would not have to face financial consequences such as a fine (1). This will prevent the business from having a negative image (1).
• Explain one disadvantage to a small business of not paying its employees on time.

  One disadvantage is that the employees will want to leave the business (1). This means the business may have to find new employees (1). This may increase the recruitment costs of the business (1).
• Explain one advantage to a small business from using retained profit as a source of finance.

  Retained profit is a cheap source of finance (1). This is because interest is not paid on retained profit (1). Therefore, the business would not experience an increase in costs (1).
• Explain one risk for an entrepreneur when starting a new business.

  An entrepreneur may take a financial risk when starting a business (1). This is because a new business will need financial investment to start up (1). If the business fails then the entrepreneur could lose this money (1).
• Explain one way a small business could add value to a product.

  One way that a business could add value is to improve the quality of its product (1). Customers would therefore be willing to pay a premium price for the product (1). This leads to a larger difference between the final price and costs of raw materials (1).
• Explain one disadvantage to a small business of using an overdraft as a source of business finance.

  Overdrafts can be an expensive source of finance (1). The bank may charge a high rate of interest for the overdraft facility (1). This will lead to an increase in costs for the business (1).
• Explain one impact on a small business of an increase in unemployment.

  A business could experience a fall in demand as unemployment rises (1). This is because customers will have less money to spend if they lose their job (1). This will lead to a reduction in sales for the business (1).
• Explain one way a small business could reduce its variable costs.

  One way to reduce variable costs is to find a cheaper supplier (1). This means a business will pay less for its raw materials (1). This will lead to a lower cost of production for each unit (1).
• Explain one advantage to a small business of meeting all employment legislation.

  Employees will feel that the business is taking care of them (1). This will increase their levels of motivation (1). Therefore, productivity could increase in the business (1).
• Explain one drawback to a business of having low levels of cash.

  A business with low levels of cash may not be able to pay suppliers (1). This would damage relationships with suppliers (1), which means the business may not have sufficient levels of raw materials (1).
• Explain one way an entrepreneur can reduce the risk of failure when starting a new business.

  One way that an entrepreneur could reduce risk is to carry out market research (1). Market research will allow the entrepreneur to understand the needs of the customer (1). Therefore, the entrepreneur can develop a product or service that customers want and are more likely to buy (1).
• Explain one reason why an entrepreneur may adapt an existing product to come up with a new business idea.

  The business already understands the market (1). Market research may have already been carried out for a previous product (1). This may lead to the business having a better understanding of customer needs (1).
• Explain one disadvantage to a small business of using a focus group to collect market research data.

  Focus groups can be expensive to arrange (1). A business may have to pay people to participate in the focus group (1). This will lead to an increase of market research costs for a small business (1).
• Explain one disadvantage to a small business of an increase in interest rates.

  One disadvantage is that the cost of borrowing will go up (1). This means a business will have to pay even more back if it borrows money (1). This will make it more difficult for the business to expand (1).
• Explain one disadvantage to a small business of manufacturing a high quality product.

  High quality products may be more expensive to produce (1). This is because the cost of raw materials may be high (1). Therefore, the business may have to charge a premium price that some customers cannot afford (1).
• Explain one benefit to a small business from having a unique selling point.

  A unique selling point will give a small business a competitive advantage (1). This would make customers more likely to buy from the business rather than from the competition (1). This means the business will benefit from increased market share (1).
• Explain one advantage to a small business of using trade credit as a source of finance.

  Trade credit will allow a small business to buy now and pay later (1). This means the business has a chance to sell the goods before it has to pay its supplier (1). This will improve the cash-flow of the small business (1)
• Explain one disadvantage of starting a small business as a partnership.

  There may be disagreements between the partners (1). This means it will be difficult to make business decisions (1). This will lead to the business not being able to meet the needs of its customers (1).
• Explain one way the marketing mix of a small business may change due to changing consumer needs.

  A small business may have to make changes to its product (1). This is because the lifestyle of consumers may require extra features on a product (1). Therefore, the design of the product may need to change to meet consumer needs (1).
• Explain one reason why new business ideas come about.

  A new business idea may come about because consumers want something new (1). Existing products may not meet customer needs (1). This can lead to an entrepreneur spotting a new business opportunity in the market (1).
• Explain one advantage to a small business of using market mapping.

  Market mapping will allow a small business to spot a gap in the market (1). This can lead to the business developing a product/service to help fill this gap (1). As a result, the small business may capture market share from competition (1).
• Explain one benefit to an entrepreneur of buying a franchise to start a business.

  An entrepreneur could receive support and training (1). This means they are less likely to make poor business decisions (1), which reduces the chance of business failure (1).
• Explain one way a small business could use market segmentation to target customers.

  A small business could segment a market using income (1). People with a higher level of income are more likely to buy luxury goods (1). This means a business could develop a higher quality product to target these customers (1).
• Explain one possible non-financial aim an entrepreneur may have when starting a small business.

  A non-financial aim could be independence (1). An entrepreneur is able to make their own decisions when running a business (1) instead of being told what to do as an employee (1).
• Explain one disadvantage to a small business of using qualitative data for market research.

  Qualitative data is mostly non-numeric (1). This makes it difficult to analyse the data (1). This can mean it is difficult to make decisions based on this data (1).
• Explain one benefit to a small business of understanding customer needs.

  One benefit to a small business of understanding customer needs is that it can set a suitable price (1). This means customers are more likely to buy the product (1). This will generate more revenue for the business (1).
• Explain one reason why it is importance to include financial information in a business plan.

  This will help minimise risk (1). Financial information such as a cash flow forecast can help identify potential problems (1). This will allow the business to plan for these problems in advance (1).