2.3.
1 Planning a Business
4 Forms of Business
Retrieval Quiz
Quick quiz questions on the unit so far:
1) Is a government grant an internal or external method of finance?
external
2) Is crowdfunding the same as peer-to-peer funding?
no
3) Would a business plan contain a sales forecast?
yes
4) Would personal savings be an appropriate method of finance for a
small sole trader business that was looking to grow?
yes
5) When a business sells a machine or a van what is this source of
finance called?
Sale of assets
Definition: Business form
The Legal Structure that a business takes is called a business form. For
e.g. a sole trader, a partnership, a private limited company (ltd) or a
public limited company (plc) etc.
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What is a sole trader?
• A sole trader is a business owned by one owner
• They might hire employees or managers to run their business, but
there is only one owner
• They have full control over decision making in a business
• Mostly small businesses e.g.
A) handmade clothes, jewellery businesses etc.
B) small cafes
Advantages and disadvantages of sole traders
Advantages Disadvantages
• Easy to set up with no • Unlimited liability, this means
complicated forms that if the business has
• Less capital needed financial difficulties the sole
• All profits kept by the owner trader could lose their own
• Can offer personal attention to assets like their savings, house
customers or car
• Difficult to raise money, seen
as a risk by lenders
What is a business partnership?
• Two or more people, the partners share the risks, costs and
responsibilities of being in business
• The profits and gains of the partnership are shared among the
partners, unless the partnership agreement states otherwise
• Partners raise money for the business out of their own savings or
with loans
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Name 3 businesses that could be partnerships?
1 dentist
2 solicitor
3 vet
Partnership
Advantages Disadvantages
• Capital needed is small • Unlimited liability
• Easier to raise extra capital, • Partners may have
as partners all have family disagreements about:
they could ask
• Profits go to partners, which A control of business
is very motivating B sharing of profits
• Smaller business means C withdrawal from the
good working relationships partnership
• No need to make public any D inviting new partners into the
information business
• Partners contribute with
range of skills
Private limited
company (Ltd)
• A Private Limited Company is the most popular form of business
in the UK
• A Private Limited Company is also known as a Ltd
• Private limited companies can expand and grow by selling more
shares, giving the business more capital
• Friends and family can buy shares in the business; this will make
them part owners
• Shares cannot be bought by the public
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Advantages and disadvantages of private limited companies (Ltd)
Advantages Disadvantages
• Can raise extra capital by • Accounts of the company
selling more shares, to cannot be kept private
friends and family, making • More difficult and expensive
it easier to expand to set up, means more
• Can employ managers to administration
run the business if the
owners don’t want to do it
themselves
Definition: Franchise
• An established business name sells the right to market or trade under that name.
Permission is given for the right to sell a product or service using the logo, the
trademark and the brand name. E.g. Subway
What is a franchise?
• Imagine a company that has a great and successful business. It
wants to _______expand________ but it doesn’t want the
________________________ and expense of opening more stores, so it
sells the business idea
• If an entrepreneur buys a __________________________ it is a ‘business
in a box’, and as well as signage and training the franchisee
would get the support of a national company and a
__________________________________ that customers already know
How much does a coffee-bike franchise cost?
How does franchising work?
• An established business thinks it has a great idea and wants to
expand, but they don’t want all the problems of opening new
stores, this is the franchisor
• The franchisor then looks for good business people who will pay
to open stores for them, these are the franchisees
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Advantages and disadvantages of franchising (to the franchisee)
Advantages Disadvantages
• Company advertising on a • The business owner will have
national even a global basis to pay royalties to the
• Market research done at Head franchisor and will have to buy
Office level, the business will their product, the rest of the
get the benefit of the expenses would be there if
promotional activity and they bought a franchise or not
signage all done on a national
level
• Less competition as territories
are divided up
What is a social enterprise?
• Social enterprises are businesses which trade for a social or
environmental _______________________________
• The objectives of a social
enterprise are to benefit
_________________________ or the
planet in some way
• These are not charities which rely
on ______________________________,
instead the businesses trade to
further their
________________________________
Why is the Big Issue a social enterprise?
What is a ‘Lifestyle’ business
• The aim of a lifestyle business is to provide great quality of life
for the ______________________________________
• Owners start a business hoping to sustain a certain level of
________________________________
• The objective is to give the business owner a work-life
__________________________
• It allows an _______________________________ flexibility to live how they
want and still run a business
What is a work-life balance?
Online business
• An online business is one that is ________________________ on the
Internet
• It might sell goods or services
• It is predicted that by ___________________________ of purchases will
be online*
• There are lots of websites that entrepreneurs can use to make
their own site e.g. Shopify, __________________________
• Alternatively they could sell via a ___________________________ party
platform e.g. eBay
Public Limited Companies (PLC)
• Public Limited Companies are known as ________________________
• If a company grows and needs further ________________________,
which it cannot get from its current shareholders, it may consider
becoming a PLC
• To become a PLC it will need to ‘float’ shares on the stock
exchange making them available for the ____________________________
to buy
• This is an expensive and time _______________________________ process
used by large companies
What is the main difference between a Ltd and a PLC?
How does a Ltd business grow to a PLC?
• Once a private limited company (ltd) has grown in
__________________________ and needs further investment which it
cannot get from its current pool of owners it may
__________________________________ becoming a PLC
• This will help the business to secure more finance to share risks
and extend _______________________________________ making
Advantages and disadvantages of being a PLC
Advantages Disadvantages
• Limited liability shareholders • Going public is expensive:
are not responsible for the • Lawyers to draw up legal
company’s debts paperwork
• Can sell shares to the public to • Cost of accounting staff
raise capital to expand and • Yearly accounts have to
grow the business be prepared and then
• Shares can be traded on the published
stock market • Advertising and
administration costs
Plenary Quiz
Identify if these statements are true or false:
1. A lifestyle business is set up with the aim of making no more than
a set level of income TRUE / FALSE
2. A lifestyle business is set up for the owner to enjoy a particular
lifestyle TRUE / FALSE
3. A lifestyle business is one which allows the founders to sustain
their chosen lifestyle TRUE / FALSE
