Starting a Business

Mark & Marie are going to use Mark’s computer but still face certain start up costs. These include:

• Buying the software to make the thumbnails
• Advertise the service

Explain which cost you think is most important and why?                 (6 marks)

Kn: 2 (state the point)

App: 2 (develop the point – using examples of that particular business)

An: 2 (develop the point – what impact or benefit will it have to the business)

Model answer

I think the most important cost for Mark and Marie is to buy the software to make the product, this is the product idea and if the business spent money on advertising but were unable to supply the product then this would lead to dissatisfied customers and the money spent on the advertising will be wasted. It is important that they get their product right and that the quality of the product is high before encouraging potential customers to buy the product. If the customers are happy with the product they are more likely going to recommend the product to other people.

Compare the two forms of ownership and advise the friends which would be more suitable. Give reasons for your judgement.                                                         (9 marks)

Kn: 1 mark (state points)

App: 2 mark (apply to the business, using examples that are relevant)

An & Ev: 6 marks (offer a judgement with justification)

A partnership is a business with unlimited liability; it is run by two or more people. A private limited company is a business that is run by shareholders and it has limited liability. A private limited company may be better as limited liability is good for the reputation of the business and provides some protection for Mark and Marie terms of debt in case the business idea was not successful, unlike a partnership whereby the owners of the business are responsible for the debts of the business up to the whole extent that they are able to pay. Although partnerships are easier and cheaper to set up, private limited companies are seen less risky to a bank and they are able to secure loans much more easily. To conclude although partnerships have many benefits such as shared responsibility and relatively easy to set up the limited liability achieved from a private limited company could be very important to both Mark and Marie in the future.