Unit 1.4
Making the Startup Effective
10 Questions
The Marketing Mix
Customer Service
Downside
Patent
Enterprise
Innovation
Blue Skies Thinking
Market Research
Unique Selling Point (USP)
Trademark
Sizing up the business
Businesses vary in
size, from your small
local corner shop or
butchers…
…to multinational
chains such as Tesco
and McDonald’s.
The size of a business tends to be related to its
type of ownership.
Small business ownership
There are two types of small private business ownership:
the sole trader or proprietor
– the ‘one person’ business;
the partnership – between
two and twenty people sharing
ownership of a business.
Sole Traders
Sole traders are the most common form of business.
In Britain, 63% of all businesses are owned and run by one
person. Sometimes the sole trader, or proprietor, will need to
employ other people, but often they work alone.
Sole trader businesses
typically include plumbers,
florists, hairdressers,
newsagents, electricians
and photographers.
The factors of production
Choosing a trading name
Sole traders can use their own name, or make up a trading
name under which their business will be known. The name
does not have to be registered, but it must be original.
What’s in a name?
Do you know the origins of the names of these famous British
companies?
Imagine you are setting up as a sole trader in one of these
areas. Think of an original, suitable name for the business:
Picture framing
Photography
Plumbing
Hairdressing
Cake-making
Floristry
Voice Data Fone:
Provision of voice and data
services by mobile phone
His Master's Voice:
The name was coined in 1899 as
the title of a painting of a Jack
Russell Terrier dog Nipper listening
to a wind-up gramophone.
Tesco:
Name after the founders:
T E Stockwell and
Jack Cohen
A risky business?
In law, there is no distinction between a sole trader and their
business; they are regarded as one and the same thing.
The sole trader is therefore personally responsible for all
activities and debts of the business.
Sole traders have what is known
as unlimited liability.
This means that if their business
fails, they would have to sell their
personal belongings if necessary
in order to pay off debts owed by
the business.
What do you think business debts might include?
A risky business?
Debts incurred in a business could include:
capital borrowed from the bank
money owed to suppliers
employee wages.
If these debts are not repaid, the
sole trader can be taken to court
and made bankrupt.
Small-business owners therefore
stand the greatest risk by putting
their own money into the business.
However, if the business is a success, it is
the sole owner who gets all the profits!
Sole trader advantages and
disadvantages
Small Business Ownership
Sole Trader
1.
2.
A sole trader business is owned by ……..
Typical sole trader businesses include plumbers, …… and ……..
Advantages
Disadvantages
They can make their own decisions
They have to work long hours
They keep all the profit they make
It may be difficult to raise the money needed to start up
They have unlimited liability: they are responsible for all debts
It is easy to set up
Business Name Origins
Fred has just been made
redundant. He has £10,000
of savings and decides to
set up his own business.
He calculates
this is not enough
to start-up his
own firm.
Unlimited
liability
He sets up as
a sole trader
and borrows
£5,000 from
his bank.
He sets up “Removals R Us” and
prospers for the first 5 years.
Each year Fred keeps all the profit
he makes.
Then the housing market
slumps and the firm starts
to make a loss. Fred owes
money to his suppliers
the suppliers want paying!
He has to close his business and
sell all his business assets in order
to pay the debts.
Unlimited
liability
Unlimited
But, there still isn’t enough money liability
to pay all the debts. Mr Grumpy
supplier is still wanting his money
and there isn’t any!
So what happens?
Mr Grumpy supplier
can then get paid!
Fred’s family possessions
HAVE to be used to pay
off the debts.
But poor old
Fred is back
to square
one.
Unlimited Liability
Unlimited liability means that the owner of the
business is responsible for paying the
business debts.
Using the information provided, answer the following
question:
What would happen if a sole trader could
not pay the business debts?
•
•
•
•
Business closes down
Business assets are sold
Money used to pay debts
If not enough, personal possessions used
Small business ownership
There are two types of small private business ownership:
the sole trader or proprietor
– the ‘one person’ business;
the partnership – between
two and twenty people sharing
ownership of a business.
Partners usually sign a “Deed
of Partnership”
Partnership
1.
2.
A partnership business is owned by ……..
To identify how the profit and debts are shared, partners usually
sign a ………
Advantages
Disadvantages
They share the decisions
They have to share the profit they make
The partners may disagree
They have unlimited liability
It is easy to set up
They share the workload
Examination Questions
1.
a)
b)
c)
d)
2.
Alfie is a gardener and has run up debts of £50,000. In
addition, he owes £10,000 to the bank. He invested
£75,000 in his business. How much of the business
debt is he responsible for paying?
£75,000
£50,000
£60,000
£10,000
1 Mark
Would you recommend setting up as a sole trader
business? Give reasons for your decision and discuss
the advantages and disadvantages in your answer.
7 Marks
Large business types
Along a typical high street there will be many different types
of large businesses and organizations, including franchises,
limited companies, co-operatives and businesses in the
public sector.
Each of these large business types involve different
responsibilities and involvement for the owners.
Limited companies
Limited companies are very different from partnerships and
sole traders. With a sole trader, the owner is the business.
In contrast, limited companies are:
owned by shareholders – people who
invest money in shares of the company;
run by directors – people appointed by
shareholders to control and make the
strategic decisions for that company.
A limited company is therefore set up as a
separate body from its owners.
Limited liability
Owners and shareholders in a limited company are protected
by limited liability.
This means that they have limited
responsibility for the business debts.
They cannot lose any more money
than they have invested in the
company, and cannot have their
personal possessions claimed in
order to pay back debts that are
owed.
For this reason, setting up a limited
company is relatively low risk.
How is this different from the responsibilities in
sole proprietorships and partnerships?
Setting up a limited company
Unlike sole proprietorships and partnerships, which are
simple to set up, limited companies must produce
paperwork and follow certain procedures when setting up.
All limited companies in the UK have to register
with the Registrar of Companies at Companies
House. In return, they are issued with a
Certificate of Incorporation. This is an
official document which shows that the
company has come into existence.
In addition, a limited company must produce:
a Memorandum of Association, which states who
they are, where they are based and what they do.
Articles of Association – an internal ‘rulebook’,
which sets out how the business will be run.
Documentation
Types of limited companies
Have you ever seen the letters ‘Ltd’ or ‘PLC’ after a
company’s name? Do you know what they stand for?
There are two types of limited company:
‘Ltd’ or ‘Limited’ after a company’s name tells you it is a
private limited company.
‘PLC’ after a company’s name tells you it is public limited
company.
Types of limited companies
The difference between a private and public limited company
lies in the ownership of their shares.
In a private limited company there is
restricted ownership. Shares in the
company can only be sold if all the
shareholders agree to it.
Shares in public limited companies are
sold on the London Stock Exchange
and can be bought by members of the
general public.
A private limited company can start up with as little as £1
in share capital, whereas a public limited company must
have at least £50,000 worth of shares to begin trading.
Private limited companies
Private limited companies tend to be smaller than public
limited companies. The main shareholders in a private limited
company are often also the directors of the company.
Private limited companies
typically include recruitment
consultants, building firms,
estate agents and caterers.
Many private limited
companies are family-run
businesses.
Why might people setting up a business decide to
become a private limited company rather than
form a partnership?
Limited Companies
1. Limited Companies are owned by ………………...
2. The shareholders elect a …………….. to run the
company.
3. Every year the directors hold an ……………..
4. Limited companies can be private (Ltd) or public
(PLC).
5. A private limited company usually sells shares to
………………………..
6. A public limited company sells shares on the Stock
Exchange to the ………………….
Annual General Meeting
Friends and family
Board of Directors
Shareholders
General public
Fred has just been made
redundant. He has £10,000
of savings and decides to
set up his own company.
He calculates
this is not enough
to start-up his
own firm.
He persuades
his friends to
invest in his
company. They
all buy £5,000
of shares each.
He sets up “Removals Ltd” and
prospers for the first 5 years. Each
year the shareholders receive a
share of the profit. Fred gets 2/5 and
his friends get 1/5 each.
Then the housing market
slumps and the firm starts
to make a loss. The company
owes money to their suppliers
the suppliers want paying!
He has to sell all his company’s
assets in order to pay the debts
But, there still isn’t enough money
to pay all the debts. Mr Grumpy
supplier is still wanting his money
and there isn’t any!
So what happens?
Mr Grumpy supplier
doesn’t get paid!
Fred’s family possessions
are safe – they cannot
be used to pay off
the debts.
Limited Liability
Limited liability means that the owner of the
business is NOT responsible for paying the
business debts. The most they can lose is
their investment.
Using the information provided, answer the
following question:
What would happen if a private limited
company could not pay the business
debts?
•
•
•
•
Business closes down
Business assets are sold
Money used to pay debts
If not enough, debts are
not paid
Private limited companies: pros
and cons
Starter Activity …
Sort the statements into three columns:
Sole Trader
Partnership
Limited Company
Complete the business
ownership table and stick
it in your exercise book
Unlimited Liability and
Limited Liability
• If a business cannot pay their debts, the
business goes into administration and the
business assets are sold in order to pay the
debts
• If there is not enough money to pay the debts, a
sole trader or a partnership must use their own
savings to pay the debts (unlimited liability)
• Shareholders in a company have limited liability
and do not lose their personal possession
Example: Sole Trader
Unlimited Liability
• £220,000 is owed by the
sole trader
• Assets are sold and
£50,000 is available to pay
the business debts
• Sole trader will still owe
£170,000
• The sole trader’s personal
possessions must be sold
to pay the £170,000 debt
Example: Limited Company
Limited Liability
• £220,000 is owed by the
limited company
• Assets are sold and
£50,000 is available to
pay the business debts
• The company will still
owe £170,000
• The shareholders’
personal possessions
cannot be sold to pay the
debts
Being a shareholder in a limited
company reduces the risk
compared to being a sole trader
or partnership.
You could lose your investment,
but you will never lose your
personal possessions.
People that might be owed
money by the company
Unsecured
Bank Loan
£10,000
Supplier
£8,000
Assets are sold and
£50,000 is available to
pay the debts. Who
gets paid?
Utility Bills
£2,000
Secured Bank Loan
eg Mortgage
£200,000
Shareholders
Who gets paid first?
• Secured bank loan
• Unsecured bank loan
• Utility bills: gas, electric, water
• Suppliers
• Shareholders (if there is any money left)
Page 98 and 106: Multiple
choice questions
Page 99: Read the case study
and answer questions 1-3.
10 Questions
Shareholder
Dividend
One person
Board of Directors
PLC
2-20 partners
Ltd
Limited Liability
Unlimited liability
AGM (Annual General Meeting)
Legal Start-up Issues and Tax
Lesson Objectives
• Understand the need to create a
suitable name
• Understand the need for a new
business to keep careful records
• Understand the implications for a small
business: VAT, income tax, national
insurance and corporation tax
Business Names
• The name should be different from any
other business
• The name should promote the business
• A limited company must register their
name and the name must be unique
• A private limited company must put “Ltd”
after their name – this is a warning to other
businesses that the shareholders have
limited liability.
Sole Traders:
Limited Companies:
Create a
positive
impression …
Think of an Innovative
Business Name:
1.
2.
3.
4.
5.
6.
A Chinese restaurant
A plumbing company
A mobile disco
A travel agency
A butchers
A hairdressers/barbers
Your group has 3 minutes to think of a name
When you set
up a new
business, you
must register
with HMRC
(Her Majesty’s
Revenue &
Customs).
Keeping Records
Legally a business must register their business with
HMRC (Her Majesty’s Revenue & Customs) and
must keep the following records:
• Details of revenue from customers
• Details of all business costs
A business must pay tax and how much they pay
depends on:
• The amount of sales each year
• Whether or not employees work for the
business
• Whether the business is a sole trader or limited
company
Taxes are used to fund the
Government owned Public Sector
Public Sector Services
•
•
•
•
•
•
•
Education
The National Health Service
Defence: Army, Navy, Air Force
Police Force
Prisons
Roads
Payment of social security
benefits
Examples of Benefits
•
•
•
•
•
Unemployment benefit/Job Seeker’s Allowance
Child benefit
Pensions
Incapacity benefit (disabled)
Statutory sick pay (paid when you are ill)
These are paid for through the National Insurance
Contributions system – deductions are made from your
wage/salary each month. Self employed people must
also make National Insurance Contributions.
The Public Sector and Benefits
They are paid for by collecting taxes, eg:
Petrol Tax
Tax on cigarettes
and cigars
Stamp Duty
Tax on alcohol
Where taxpayers’ money is spent
Match the amount to the heading
1. NHS
2. Defence
3. Social security payments
4. Education
5. Law and order
£153 billion
£96 billion
£31 billion
£32 billion
£71 billion
Where taxpayers’ money is spent
1. NHS
£96 billion
2. Defence
£32 billion
3. Social security payments
£153 billion
4. Education
£71 billion
5. Law and order
£31 billion
Where the taxes come from
Match the amount to the heading
1. VAT
2. National Insurance
3. Corporation Tax
4. Excise duties (cigarettes and
alcohol)
5. Income Tax
£146 billion
£48 billion
£89 billion
£76 billion
£40 billion
Where the taxes come from
1. VAT
£76 billion
2. National Insurance
£89 billion
3. Corporation Tax
£48 billion
4. Excise Duties
£40 billion
5. Income Tax
£146 billion
Income Tax
• Sole traders and partners pay income tax on their
earnings
• All employees must have income tax deducted under the
PAYE (Pay as you Earn) scheme
Corporation Tax
• Limited companies must pay corporation tax on the
profit they make
VAT (Value Added Tax)
• Businesses must register for VAT if their sales are more
than £68k a year
• They must then charge 20% VAT on their prices
National Insurance Contributions
• Most employees must pay NICs to the government –
this pays for the benefit system
• Employers must make a contribution for every
employee they have working for them
Tax
Mrs Wright’s Salary
Total Pay
£4,079
Tax
National Insurance Contribution
Teacher’s Pension Contribution
£694
£307
£261
£1,262
Net Pay
£2,817
Revision: Legal and Tax Issues
Which ONE is a tax on earnings?
Which is added on the price of goods and services?
Which is a tax on profits and paid by companies?
Which ONE pays for the benefits system?
Which ONE his when 20% is added to the price of
goods and services
Which TWO taxes are deducted from Mrs Wright’s pay?
Which ONE uses the PAYE system?
Which ONE is a tax on company profits?
Which ONE is a tax on income/earnings paid by sole
traders and partnerships?
Which ONE do sole traders, partnerships and limited
companies have to pay if their sales turnover is more
than £68,000?
Which THREE are paid by Mrs Wright?
Legal Issues: Revision
Income Tax
A tax deducted from employee’s wages. It is also
paid by sole traders and partnerships.
VAT
A tax added on to the price of most goods and
services.
National Insurance Contributions
A deduction from employee’s wages.
It is used to help pay for the benefits system.
Corporation Tax
A tax on profits paid by all limited companies.
The money collect from taxes is used to pay for the
public sector and the benefits system.
Complete the questions on
pages 102 and 103
P. 103: Lara York
(Royal Kare Computers)
Question 1:
Explain the type of tax and what the money is used
for. Explain who will have to pay this tax in the
business.
Question 2: “Analyse”:
Explain the advantages and disadvantages:
Why is accurate record keeping essential?
What are the disadvantages for Lara?
Question 3:
Give your opinion, then justify your opinion –
explain all the advantages and disadvantages.
Recruitment, Training and
Motivating Staff
• Staff may need to be recruited
• Small businesses must appoint the most
suitable staff
• Staff must be trained to do their job
properly
• Staff must be motivated – they must want
to work well for the business at all times
Watch the DVD:
“Talking Heads”
Rank the 5/6 people in order of
who you think will get the job.
What stages are involved in
recruiting a new member of staff?
The Recruitment Process
Person
Job Description and
Person Specification
• Job Description
– Detailed explanation of roles and responsibilities of
the post advertised
– Refers to post available rather than person
• Person Specification
– Sets out qualifications, skills, experience and
personal attributes a successful candidate should
possess
– Vital tool in assessing suitability of job applicants
– Refers to person rather than post
In pairs:
Produce a Job Description and Person
Specification for a Business Studies Teacher
Job Description
Person Specification
Work they have to do
every day
Work they have to do at
home
Qualifications required
Characteristics required
Experience required
Business Studies Teacher
Job Description
•
•
•
•
•
•
•
•
Plans lesson
Marks students’ work
Attends parents evenings
Registers students every day
Cover absent staff
Prepare students for examinations
Take part in extra curricular activities
Take on the role of a form tutor
Business Studies Teacher
Person Specification
Essential
• Teaching qualification
• Degree in Business Studies
• Ability to teach GCSE and A
Level
• Good communicator
• Good discipline
• Well organised
• Excellent attendance and
punctuality
• Gets on with pupils
• Good ICT skills
Desirable
• Further degree
• Ability to teach ICT or
another subject
• Ability to offer extra curricular
activities
• Has a driving licence
• Experience of teaching
vocational subjects
• Can inspire pupils
• Would organise and help
with trips
Job
Description
Sky TV
Documents used when
applying for jobs
Application Form (produced by the business)
• Personal details
• Work experience
CV (Curriculum Vitae) (produced by the applicant)
• Personal details
• Work experience
• Names of two referees
Letter of Application (produced by the applicant)
• Details of why you want the job
Short Listing and Interviews
• Applicants need to be assessed for their
suitability for the job
• Employers usually interview approximately
6 people
• Interviews can be:
 face-to-face
 involve a test
 involve role play
Laws Protecting Applicants
Businesses cannot discriminate against
people because of their:
•
•
•
•
•
Gender
Disability
Race
Age
Sexual persuasion
Training Staff
Induction
• Training an employee when they start a new job.
Eg tour of the building, meeting staff, explanation
of equipment, health & safety procedures.
On-the-job Training
• Training that takes place in the workplace eg work
shadowing. Eg mentoring, coaching.
Off-the-job Training
• Training that takes place outside the workplace eg
college course. Eg college course, conference at a
hotel.
Headed Notepaper:
Your address, telephone
number, e mail, mobile
phone number etc
You start here
Format for
Letter of
Application
Test your Knowledge
The tax that consumers have to pay on
goods and services is called:
a)
b)
c)
d)
Income tax
Corporation tax
VAT
National Insurance Contributions
Test your Knowledge
The TWO taxes that employees have
deducted from their wage/salary are:
a)
b)
c)
d)
Income tax
Corporation tax
VAT
National Insurance Contributions
Test Your Knowledge
What is the name of the tax that companies
have to pay based on the profit they
make?
a) Income tax
b) Corporation tax
c) VAT
d) National Insurance Contributions
Test your Knowledge
When a business is responsible for paying
all their debts, they may have to sell their
personal possessions to pay the
business debts. This is called:
a) Unlimited liability
b) Limited liability
c) Liquidation
d) Bank loan
Test your Knowledge
The owners of a private limited company are
called:
a)
b)
c)
d)
Sole traders
Stakeholders
Directors
Shareholders
Test your Knowledge
A private limited company must, by law, do
which TWO of the following:
a)
b)
c)
d)
Hold an AGM (Annual General Meeting)
Put their prices up
Take out a bank loan
Produce an annual report for their
shareholders
Test your Knowledge
The TWO most likely sources of finance for
a sole trader setting up their business
would be:
a)
b)
c)
d)
Venture capital
Bank loan
Retained profit
Using own savings