1) A sole trader is a one-person business. However, it can still employ other people. There is a significant amount of sole trader businesses throughout the UK. Firstly, since the law does not identify the owner and the business as being different, the owner of a sole trader business has unlimited liability. If the business goes bankrupt, the business will have to sell its assets in order to pay the creditors. Another feature is that all owners of a sole trader business are responsible for all actions the business makes and the sole trader will always make the final choice in the decision-making process. Finally, the sole trader keeps the entire profit earned for himself which is very advantageous, however the owner will also have to face the burden of any commercial failure.
2) A sole trader is a business owned by one-person. A partnership is a business in which 2 or more people agree to own it. The main difference between a partnership and a sole trader business is the number of owners. There is quite a lot of similarity between both business types. They both have unlimited liability, they are unincorporated, don’t require a lot of money to set up and the capital is provided by the owners. One benefit of a sole trader becoming a partnership is that partners will feel more confident to invest additional capital and spread the risk which leads to greater chances of the business expanding. For example, geographic expansion, product expansion or penetration strategies. Partners are also more motivated than a sole trader because they know that losses are shared by all of the partners so their individual liability is reduced. Finally, another benefit is that responsibilities, experiences and expertise are all shared within the business. This can help increase efficiency, strengthen leadership skills and reduce threats to the business.
3) Unlimited liability is when owners are liable for any debts incurred by the business, even if it requires selling all their assets and personal possessions leading to them becoming bankrupt. In other words, their liability is not limited to any investment they made in the business.
4) A private limited company (LTD) is a privately held small business entity. A partnership is a business in which 2 or more people agree to own it. Although partnerships are useful for industries such as a legal practice, they have certain disadvantages such as unlimited liability, they are unincorporated, capital is provided by partners and they could have disagreements. A local solicitor’s office would only require a small initial investment, on average £100 as start-up capital, to become a private limited company. In addition, LTD’s are very focused on maximising profit. Advantages of this type of business form are: shares can be sold to lots of people, meaning it will be easier to raise capital to support an expansion programme though e.g. a loan. All shareholders have limited liability. They are incorporated. Profits in partnerships are automatically subject to income tax. In a private limited company, corporation tax is incurred automatically at 20%, the owners of the company are only subject to income tax when they extract the profits and not beforehand. Such profits can be extracted for example by dividends. The main reason many law firms are making the change to become a “limited company” is due to tax benefits.
5) A business mission statement is a powerful one or two sentence statement which explains the business aims clearly as well as motivationally. Objectives are precise enough targets to allow either praise or blame for the person in charge. The mission statement is usually very broad and hard to be measured, whereas the objectives are too specific to provide an overall image of the business. When they are related, the mission statement and objectives provide a balance that together help to shape the business’s value proposition, operations and services.
6) – Profit optimisation (bottom line growth)
7) Business objectives are precise targets which can lead to praise or blame. For example, these objectives can be: survival, growth, market share, profit maximisation, etc. Objectives often change over time and can be modified in response to both internal factors and external factors. For example, a new small business might set survival as its first objective, however, if over time the business becomes successful objectives may change to focus on growth and generating greater revenue and profits. On the other hand, external factors such as economic recession may cause a decrease in output. This might force the business to change its objectives from growth to survival.
8) A partnership is an ownership type that often experiences conflict and disagreements throughout the business leading to less growth and expansion. Although they are easy to set up and do not require much finance, it is still a small business and all the capital is solely provided by the partners, therefore they often lack capital to be able to grow. They have unlimited liability provoking the owners to be cautious about expanding their business. A private limited company (LTD) will raise similar issues. The key difference is that, LTD’s have gone through a whole legal process to set themselves up and consequently must have long-term plans. When a business has long-term plans, they are normally focused on growth rather than short-term performance. This sort of business has limited liability. However, public limited companies, often have short term goals such as maximising profit instead of a long-term strategic plan. Therefore, they are not very focused on growth. The advantages of public limited companies are that they have limited liability and have the opportunity to raise significant sums of capital by selling shares to the public to then re-invest back into the business leading to growth and expansion.
9) Market conditions is one external factor that could have an effect on a manufacturer of luxury chocolate bars. The chocolate business should monitor, and be aware of factors linked to, market conditions and conduct regular SWOT analyses. For example, if the price of cacao doubled this would lead to lower profit margins due to higher unit costs, raw material and production costs. A manufacturer needs to protect its margins by keeping costs as low as possible. If not, it will cease to be as competitive and this may result in market share loss and decreased revenue. To compensate for increased unit costs, the business could decide to increase their consumer selling price. However, this would probably result in them capturing less market share. When market conditions are difficult, managing a business becomes much tougher. The business will need to be flexible and reactive in order to respond to external market conditions.
Household income is a second external factor which can effect economic demands. When income levels are high and inflation low, consumers have much more money to spend, especially on luxury items. When income levels are lower, consumers are much more aware and cautious about their spending. When incomes improve, sales of luxury goods will rise and the sales of cheaper goods may fall. Prices could be increased if the target consumer has enough income to pay for a luxury brand of chocolate bars. Therefore, it is vital that the chocolate manufacturer looks at household incomes as part of its strategic planning. By so doing, it will allow the business to perform optimally and generate higher profits to re-invest in growth strategies.
The relative importance of market conditions is higher than household income since the former tends to change very quickly and the impact will be greater and felt earlier.
10) Competition can impact a business in a number of ways. For an online luxury clothing business there are numerous means to gain competitive advantage. This can include elements of the marketing mix such as paid promotion through social media channels e.g. Twitter, Google, Facebook or sales promotions and discounting. Competition could for example offer luxury clothing brands at a significant discount for a limited period of time. Through artificial intelligence, Google can identify what customers are searching for and then propose articles that meet their need. The competitor who has invested in paid promotion on Google will appear at the top of the search list and be more visible to consumers. Competitors who offer a broad clothing product offering may achieve more hits on their website compared to their competitor who has a limited range of clothing products. Competition could take market share away from the market leader by offering free delivery, 24-hour delivery, or worldwide delivery. Website design should be clear, easy to use and attractive to customers. Customers who have a positive online experience are more likely to return for a repeat purchase thereby reducing any competitive threat.
A luxury online clothing business could use competitive pricing to limit competition. However, consumers might then perceive a lower quality item so messages around quality product and service should feature prominently on the website and related social channels.