Why start a business?
- Challenge: Some people will become restless working for someone else, want more of a challenge
- Profit: Setting up the business offers the chance of earning profits
- New Ideas/Inventions:
- Circumstances: People can be forced to set up their business due to unforeseeable circumstances e.g A redundant worker with a sum of money
Problems in setting up a business:
- Right Product: getting the right product that will satisfy the needs for the customer fully e.g. Value for money
- Cash Flow: new starts ups often fail because cash flow issues i.e. run out of cash
- Premises: finding the right location
- Legal Requirement: such as complying with planning laws, registering for tax and setting up the business legally.
- Start-Up Finance: difficult to convince investors to risk their money on your new idea
- Distribution: getting the product into the hands of the consumers. E.g. For a retail product, retailers often will be reluctant to waste valuable shelf space for an unknown product.
- Competition: competing with long establishes brands (consumer loyalty), many large businesses benefit from economies of scale and hence can produce and sell their products cheaply.
- Staff: finding the right staff with qualifications and experience
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Ownership Structures
- Sole Trader
- Partnership
- Private Limited Company
- Co-operative
- Public Limited Company
Sole Trader
- Both owns and runs the business
- No formalities
- Doesn’t need to share control or profits
- Details are confidential
- Unlimited Liability
Partnership
- 2-20 people involves in the business
- Share ownership, Profits and decision making
- Rights and duties are set out in legal document called “Partnership Deed/Agreement”
- Unlimited Liability
- Share Profits
- Disagreements can arise
Private Limited Company
- Limited Liability
- 1-149 Shareholders, who elects the Board of Directors
- Governed by Companies Act 2014
- LTD’s have access to more capital by the issuance of shares
- Control/Profits are shared
- Details of business are public (annual profits and balance sheets)
- Lots of Regulation ‘redtape”
Co-operative
- Owned by members/shareholders
- Shared profits and control
- Must share a common bond e.g. a firm’s workers, suppliers or customers, people living within a certain area
Public Limited Company
- Offer Shares to the general public, can have any number of shareholders
- A lot of regulations. Governed by more regulations than even a private limited company
- Complex and costly to set-up