1. Characteristics of Successful Entrepreneurs Flashcards
what is opportunity cost?
an opportunity cost of something is the cost in terms of the next best alternative
what is an unincorporated business structure?
The business is legally indistinguishable from its owner or owners
this includes a sole trader or partnership
what are the advantages and disadvantages of being a sole trader?
advantages:
- no overheads
- full control
- don’t split profits
disadvantages:
- less people it = few ideas
- funds are limited so there is restricted finance -reliant on personal savings
- bank loans: might be on willing to lend because new businesses are high risk
- unlimited liability so the debts sole trader is personally liable for
what are the advantages and disadvantages of a partnership business structure?
advantages:
- more finance available
- shared decision-making and workload
- may bring different skills
disadvantages
- decision-making is slower because you have to consult more people
- unlimited liability so the partnership are personally liable for debts
describe an incorporated business structure and give three examples of it
- the business has a separate legal identity from its owners
- if the business fails they have limited liability so the only lose what they invested into the business
- their personal possessions are not at risk
- the owners or shareholders, they only share of the profits of received in the form of dividends
- have to pay corporation tax to the government, then remaining profits can be distributed to shareholders or invested back into the business as plough back profit
- includes: private limited company (ltd), public limited company (plc), and limited liability partnership (llp)
what is a private limited company? what are the advantages and disadvantages?
-can only sell shares to people they know: there is a limit to how much capital they can raise this way
advantages
- they can raise more money from people they know and trust
- easier to raise money from banks
- if the business fails there is no public backlash
- if the business fails they have limited liability
disadvantages
- risking the money of people you know
- share the profits
- shareholder interference because you have to consult them and they may withdraw investors money if they are not happy with the decisions
- more regulations and partnerships or sold traders–>more admin–> more costly
- limit to how much money they can raise because they are not on the stock exchange
what is a public limited company? what are the advantages and disadvantages of it?
- they can sell shares to the public- they must originally raise at least £50,000 in this way
- they have to publish their accounts every year
advantages
- sell to more people–> more money
- limited liability
- very easy for them to grow
disadvantages
- interference from shareholders… the public has voting rights but may not have a lot of knowledge
- susceptible to takeovers: other people can buy large numbers of shares to try and take over the company
what is a limited liability partnership? how is it different/ similar to a partnership?
- they provide partners with the benefits of limited liability
- it reduces the risks of partnership
- liability is limited to the amount of capital they have invested in the business
- the LLP has its own legal identity: it’s responsible for debts not the individual members
- the internal structure of the business operates as a traditional partnership which is very to be cheap and easy to set up
- they must publish their accounts
- accounts must be independently audited
- they must produce an income statement and balance sheet but don’t have to report as much information as a limited company
- an LLP meets the needs of professional partnerships such as law, architecture, and accountancy
- they are not allowed to form limited companies because of the restrictions of their professional associations
-LLPs need a higher level of admin and financial reporting… more time consuming and costly
what is a trade-off?
- it can exist between risk and profit
- a high-risk business venture may result in a loss… or alternatively, a high profit
- going for low-risk venture: the entrepreneur may forego the potential to earn excessive profits
- by not taking a risk, profits are compromised
what is leadership?
influencing others to work willingly towards an organisation’s goals
what is a democratic leadership style? what are the advantages and disadvantages?
- joint decision making between leaders and employees
- decisions are made by managers and are explained to the employees
- roles are delegated
advantages
- people are valued–>motivated
- encourages teamwork–> more efficient
- allows workers to develop leadership skills and promotion
disadvantages
- decision-making is much slower–> time consuming
- disagreements and conflicts
- sometimes the consultation is persuasive so the leader has already made the decision and is trying to convince the employees that it was the best decision
what are Maslows five levels of human needs?
physiological, safety, love/ belonging. esteem self actualisation
what is a theory X leader?
these are autocratic leaders
believe that workers dislike working
only work for money
financial award is the only motivator for employees
what is the theory Y leader?
A more democratic style
- workers seek responsibility and involvement in the workplace
- self-fulfilment and self actualisation are important
- Hertzberg’s motivators
what are the factors affecting leadership style?
- The nature of the business
- the task involved
- leaders personality and style
- risk involved
- size of the workforce
