1.4 Making a Business Effective
- Created by: pinkbeer
- Created on: 19-08-19 15:00
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- Making the Business Effective
- Limited Liability
- Entrepreneur and other investors risked their money
- Risk is limited to amount they have invested
- Personal assets cannot be used to pay businesses debts
- Known as incorporated less risky to investors
- Unlimited Liability
- Includes personal assets
- Entrepreneur has to pay debts using personal assets if businesses assets cant cover them
- Known as unincorporated
- Sole Trader
- One person sets up a business/ unlimited liability
- Easiest way of setting up a business as there are no legal requirements
- Must declare earnings too HMRC and pay income tax
- Partnership
- Two or more people join and set up a business
- Financial risk is shared
- Usually has unlimited liability
- Set up using a Deed of Partnership outlines who are the partners, amount invested by each, how profits are shared, voting rights and actions taken if partner wants to leave or bring a new one in
- Private Limited Company
- Limited liability owned by shareholders
- Shareholders must be known to entrepreneur
- 'Ltd' and must be registered at Companies House
- Submit memorandum of Association and Articles of Association
- Shareholders invited to AGM to vote on important decisions
- Franchise
- Franchisor giving permission to the entrepreneur to set up a business using its branding
- Franchisee pays franchisor an initial cost and ongoing share of profits
- Seen as a less risky option
- Franchisor provides help and support, training, key decisions and products
- Franchisee benefits from fact franchise is already successful
- Initial costs can be expensive
- Business Location
- Poor choice of location could result in failure
- If customers struggle to get to the business or don't know about it will have a major impact
- Business may want to be close or far way from market, labour, materials and competitors
- Proximity to Market
- Depends how important convenience is
- Customers more likely to travel further for specialist products
- Business may look at footfall and demographics
- Proximity to Labour
- Locate its self in an area with plenty of labour
- Proximity to materials
- Bulk-gaining- end product is bigger
- Better to locate near market to reduce transportation costs
- Bulk-reducing- end product is smaller
- More efficient to dispose of waste close to the souurce
- Bulk-gaining- end product is bigger
- Proximity to Competitors
- Convenience goods more likely yo stay away from competitors as market will be split
- Shopping good close to competitors offers wider choice for market
- Could be based on personal preference or located where it was first set up
- Internet has allowed businesses not to have a fixed premises
- E-Commerce
- Lower operating costs
- Reach a wider audience
- Able to trade 24/7
- Easy to change to changing customer needs
- Have both online and store presence to maximise number of customers
- Marketing Mix
- Price
- Amount of competition
- Customers opinion about products value
- Product
- Actual product the business is offering
- Promotion
- Range of activities undertaken by a business to make us aware of its products
- Place
- Where the customer can purchase the product
- Influenced by competitive environment, changes in consumer wants and changes in technology
- Undercut prices
- Product differentiation
- Brand loyalty
- Increase market share
- Launching new products
- Changing prices
- Opening more small local shops
- Price
- Promotional Mix
- Introducing e-commerce and m-commerce
- Using social media
- Changing product design
- Lowering prices cause of savings
- Changing prices
- Business Plan
- Encourages entrepreneur to collect relevant information
- Can use to use it to check their progress
- Minimising risk
- Makes them think through the problems that could arise
- Clear aims and objectives provide direction
- Market research help to make decisions
- Financial forecast can set budgets
- Cash flow forecast can identify when there may be negative cash balance
- Bank manager and investors will be able to see if the business can repay
- Limited Liability
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