1.4 Making the business effective

• sole trader

  an individual owning the business on his/her own. e.g: hairdresser, plumbers, etc. Can employ people but they don't share ownership
• sole trader advantages

  quick and easy to set up, get to make all decisions, get to keep all profits, minimal paper work.
• sole trader disadvantages

  unlimited liability, may lack skills needed to handle certain areas of business, making all decisions can be stressful, can be difficult to raise finance, heavy workload
• partnership

  when business is started by more than 1 person; e.g. doctors, vets, solicitors; legally called "Partnership Agreement" sets out how the partnership is run and how profits are divided up.
• partnership: pro: simple to form business, minimal paperwork, jobs can be shared, greater potential to rais finance, any losses will be shared
• partnership: con: unlimited liability, partners have to live with others decisions, harder to raise finance than a company, profits are shared, partnership ends if other partner leaves or dies
• unlimited liability


  owners have to use personal funds to pay for any debts, they have to have enough money to do so. Liable for any debts that business incurs
• limited companies: set up to have a separate legal identity, shareholders (who have shares in company)receive profits aka dividends as a reward, will be run by a Board of Directors (chosen or are shareholders) who run company on day-to-day basis and make important decisions
• private limited companies (PLC)


  raise funds from investors (friends, families, etc.) but not from the general public as its shares are not listed on the stock exchange
• limited liability

  shareholders are not responsible for the company's debt. May loose money they have invested to help pay off any outstanding debts or liabilities. Liability of shareholders is limited to the value of their investment into the company's shares.
• PLC advantages

  limited liability - protects personal wealth of shareholders; easier to raise finance as can sell shares; stable form of structures - company continues to exist even when shareholders leave; original owners are likely to retain control
• PLC disadvantages

  shareholders have to agree about how profits are distributed; greater administrative costs, finance limited to "friends and family"; less privacy - public disclosure of company information; directors legal duties are stricter
• choosing suitable legal structure: size of business (often start as sole traders), type of business (risks, partners, expertise, etc.), lender requirements (banks and loans, etc.)
• choosing suitable legal structure: investment protection (investors and limited liability), control (who has total or most control of business), growth (becoming plc allows large amount of finance to be raised)
• franchisor grants a licence (franchise) to another business (franchisee) to allow it trade using the brand / business format
• success franchise

  proven format, distinctive image & brand, possible to pass on the business format, potential for enough profit for both franchisor and franchisee
• setting up as a franchise advantage

  still own business, tested/developed format & brand, advice / support / training provided, easier to raise finance, no industry expertise required, buying power of franchisor, lower risk method of market entry + lower failure rate.
• setting up as a frachise disadvantage?

  Not cheap (have to pay substantial initial fees/ongoing royalties + commission), restructions on marketing activities (e.g. selling the business), risk that the franchisor will go out of business, franchise needs to earn enough profit to satisfy both franchisee +franchisor.
• upside for the franchisor?

  Classic growth strategy for a proven service business format. Enables rapid geograohical growth for a minimum investment. Still have an option to open solo branches. Cream-off the "above normal" profits.
• (where to locate) importance of location: new business?

  Should it be based at home or located in an office, shop, or industrial unit? City centre or outside? Online or physical premises?
• (where to locate) importance of location: existing business?

  should they stay where they are? Do they need bigger premises? Would it be and advantage to relocate (e.g. another country,)? Online or physical premises?
• Factors influencing location decision: raw materials, nature of business activity, proximity to market, costs, competition, labour.
• (location) close to raw materials: may depend on supplies of particular raw material, so costs will be lower if the business is located near the supplier (e.g. where raw material is grown). More important for primary + manufactoring businesses.
• (location) Proximity to market: may need to be located near particular centres of population. More important for businesses in tertiary sector -- provide a service. Less important for online businesses as access is via website.
• (location) competition: if "gap in market", my be good idea to relocate. Might mean not profitable location for any businesses. May benefit to be near competitor. Customers may go to competitors, but clients see another business nearby.
• (location) costs: start-up business will have low costs so not many competitors. Having premises will mean that a business wil have to pay rates, insurance, other ongoing costs (+ rental/purchase). Varies in different locations (e.g. in city centres or out.)
• (location) labour: need to hire employees (skilled staff are important). Often locate in areas with low wages or higher employment. May need specific skills so locate to nearer availability of this skill --less significant if the business uses a lot of machinery instead of labour.
• impact of the internet on location decisions?

  E commerce: process of selling products/services online, has provided numerous opportunities for budding entrepreneurs.

  New businesses launch exclusively online (faster & cheaper & 24/7). New businesses operate their online businesses at home, reduces the need to invest in or rent busiess premises.
• start-ups based at home, advantage?

  costs are lower, fixed costs are higher, the entrepreneur can work more hours, makes it easier to recruit skilled staff.
• the marketing mix?


  how a business combines its product and its price, and uses promotion and the place of sale in order to be successful.
• different aspects of using the marketing mix?

  elements of the marketing mix; impacts of changing customer needs; balancing the marketing mix; impacts of technology on the marketing mix.
• marketing mix elements?


  successfully sell the product to customer a business will need to use marketing. Elements that make up this marketing mix are often as the 4Ps
• 4P's


  product: the good/service that the customer obtains

  price: how much customer is paying for the product

  promotion: how customer is found/persuaded to buy product

  place: how the product is distributed to the customer
• linking 4P's?


  each element affects the other elements. High quality materials used in a product can mean that a higher price is obtained. New/improved product needs promotion so customers are aware. In most cases the failure to addredd any one of the elements will lead to the failure of the product.
• no competition?


  business will be trying to reach a situation where it has no competition. May be the only business in a small area or they may be the only business allowed to produce a product. Benefits + drawbacks of this situation & affects on their marketing policy.
• competition?


  if business if successful will make a profit. Makes a lot of profit then other bsuinesses will want a share and will look to enter the market. Other small businesses often they may be large national and multi-national firms with considerable resources.
• consumer trends?


  Marketing will change as the needs of the consumer change. Not only the products/services they demanded changed, but so will the way they find out about and make their purchases.
• digital technology: where businesses use computer based tools, systems, devices & resources to generate, store or process data. Has man aspects including social media, online multimedia, productivity, applications, cloud computing, e-commerce & communication.
• e-commerce: buying & selling goods and services using the internet. More recent development is m-commerce, uses wireless handheld (mobile) devices, such as smartphones.
• digital marketing: all elements of the marketing mix have been affected by digital technology.