Susan has recently left college. She plans to start up a business as a sole trader making and selling cushions and curtains. She will be using a rented shop near her home.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2012). The mark or mark type is shown in brackets.

1. [4] (a) Any one advantage and any one disadvantage x 2 marks each - own business so she can make decisions as she wishes, keeps all the profits as she is the sole owner, easy to set up with no legal formalities to complete, family members may be able to help so saving costs, only a small amount of capital needed to set up – may use own savings, unlimited liability so she is liable for any losses and her personal assets are at risk, may have no one to share the work with and so may be overworked, may find it difficult to borrow and so may find it difficult to expand, small turnover and low profit margins may make it difficult to compete against large firms, may be shortage of certain skills – so inefficient management, any other relevant point
2. [2] (b) Any two promotional methods x 1 mark each - special displays/special offers or discounts on certain styles/special credit terms, advertising or advertising media (1 mark max)/good after sales service/demonstrations, free delivery and fitting, any other relevant promotional method
3. [4] (c) Any two points explained x 2 marks each to show whether or not Susan should sell online - selling online will widen the possible market for Susan's business giving her more customers, selling online may mean that she does not need a rented shop so can save costs, selling online will mean that she has to set up a website and maintain it, selling online may not be suitable as Susan gives a personal service to her customers and will have to visit their homes, Susan's business is small-scale and by selling online she may be expanding too quickly, any other relevant point
4. [4] (d) (i) Any four points x 1 mark each or two well explained points x 2 marks each - NB no marks for general banking services, provide overdraft facility on her current account so that she pays interest on the amount overdrawn, consider a bank loan a fixed amount for a specific purpose, grant a mortgage if Susan wishes to purchase a property instead of renting, any other relevant point
5. [6] (d) (ii) Level 2 (4–6 marks) Has discussed whether or not to convert to a private limited company and has given a reasoned answer. (If a candidate considers only one side of the argument award 4 marks max). If Susan were to convert her business to a private limited company she would have the benefit of limited liability and so her personal assets would not be at risk. She would also have access to more capital as family and others could be invited to invest money in her business. Her business would be a legal entity, owned by the shareholders, so she would not be personally responsible for any problems that occurred. It would also have continuity of existence. On the other hand, some other people would be involved in the business – often share- holders are also directors and so Susan would have less freedom to make her own decisions. Her business has just started and is likely to be very small and she may need the time to prove that it is worthwhile. Setting up a private limited company may be expensive, and, unless she has family members keen to invest for little or no dividends, perhaps this is something that should be considered later on. The shares are not freely transferable and any share transfer would have to be approved by existing shareholders. On balance, it is likely that setting up a private limited company would be beneficial to Susan's business when it is a little more established. Susan may find out very quickly that the business is not going to be successful or she may wish to change to something else. I would recommend that she operates as a sole trader for the short term. Level 1 (1–3 marks) Has commented on the advantages/disadvantages of forming a private limited company with/without an opinion. Susan should stay as a sole trader. She is her own boss. If she converts to a private limited company, other people will be involved. They may put in capital. They may want to have a say in how the business is run. She will have to give them dividends.