1. Enterprise Flashcards
Chapter 1
The nature of business activity
1.1
Business activity aim to satisfy people’s needs. In order to do this, it requires resources.
The role of the entrepreneur when creating and starting up a new business
1.2
- have an idea for a new business
- create a business plan
- invest some of their own savings and capital
- accept the responsibility of managing the business
- accept the possible risk of failure
Qualitites of successful entrepreneurs
1.2
- Innovation: able to identify and fill gap in the market, attract customers in innovative ways and differentiating their business. This requires original ideas and ability to do things differently.
- Commitment: Energy, focus, willingnes to work hard.
- Multi-skilled: An entrepreneur will have to make the product, promote it, sell it and keep accounts.
- Leadership skills: the entrepreneur must lead by example and have a personality that encourages and motivates workers.
- Self-confidence: Many business start ups fail, yet this should not discourage entrepreneur to be able to bounce back from any setback.
- Risk-taking: Willingness to take risk in order to see the results.
Purpose of business activity
* What happens without business activity?
* Advantages of business activity.
1.1
A business is an organisation that uses resources to meet the needs of customers by providing a product or service that they demand.
Business activity at all stages involve adding value to resources, such as raw materials, and making them more desirable to - and valued by - the final purchaser.
Without business activity, we would all be entirely dependent on the goods that we could make or grow ourselves. Business activity uses resources of our planet to produce goods and services that allow us to enjoy much higher standarts of living.
What do business do?
3 actions
1.1
- Business identify the needs of customers
- They purchase necessary resources to allow production take place
- They produce goods and services which satisfy customers’ needs, usually with the aim of making a profit.
The factors of production needed by businesses
1.1
- Land- includes not only land itself but all the renewable and non-renewable resources of nature, such as coal, crude oil and timber.
- Labour - manual and skilled labour make up the workforce of the business.
- Capital - not only finance that needed to set up a business and pay for its day-to-day expenses, but also all the manufactured goods used in business, capital goods, for example, computers, machines, factories, offices and vehicles.
- Enterprise - this is initiative and coordination provided by risk- taking individuals called entrepreneurs. They combine factors of production into a unit capable of producing goods.
The concept of adding value
- What is it?
- How we know added value is successful?
- What happens without added value?
1.1
Business activity at all stages involve adding value to resources, such as raw materials, and making them more desirable to - and valued by - the final purchaser.
If customers are prepared to pay a price that is greater than the cost of production than business has been successful in adding value.
Without adding value, a business will not be able to survive as other costs have to be paid investors also expect a financial return.
Example of how value is added by an jewellery shop
1.1
So the starting point is that company pays cost to by jewellery. A well-designed shop window display, attractive shop fittings, well-dressed and knowledgeable shop assistants, and beautiful packaging for each jewellery item. These features might allow for an increases in price greater than the extra cost involved as customers will be prepared to pay this price.
Economic activity and the problem of choice
1.1
The purpose of economic activity is to efficiently allocate resources in the economy.
There are limited resources and unlimited wants. As we cannot satisfy all of our wants, we must choose those which will give us the greatest benefit, leaving out those that provide less benefit.
All participants in economic activity have to make choices.
Opportunity cost
1.1
In deciding to purchase or obtain one item, we must give up other goods as they cannot all be afforded. The next most desired product which is given up becomes opportunity cost.
The dynamic business environment:
* The problem of dynamic business environment
* What kind of changes business environment include?
1.1
Setting up a business is risky because the business environment is constantly changing. This may be a problem for a start up as changes can make original business idea less successful. This can be made worse if the business plan is too inflexible to deal with changes.
Changes include:
* New competitors entering the market
* Legal changes - f. e. new safety regulations or selling limits
* Economic changes that affects disposable income of customers
* Technological changes that can make the products or process of business outdated.
Why do some businesses succeed?
1.1
- Good understanding of customer needs - leads to sales target being achieved.
- Efficient management of operations - keeps cost under control.
- Flexible decision-making to adapt to new situations - allows investment in new business opportunities.
- Appropriate and sufficient sources of finance - prevents cash shortages and allows for expansion
Why do some business fail? (And solutions for the problem)
1.1
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Poor record-keeping
The lack of accurate records. Many small businesses pay little attention to record-keeping. They believe that it is less important than meeting customer needs and think they can remember everything.
With falling cost of computing power, most business keep records on computer. It is always advisable to also keep** hold of paper records**, such as reciepts from suppliers, or details. Paper records act as a check or back up system if computer should fail.
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Lack of cash
Running short of cash so that day-to-day business operations become difficult. Without working capital, the business will be unable to buy supplies, pay its employees, or offer trade credit to important customers.
Cash flow problems can be reduced if:
* A cash flow forecast is made and kept up-to-date.
* Sufficient capital is injected into the business
* Good relations are established with the bank so that short-term cash problems may be financed with an overdraft extension.
* Effective credit control over customers making sure they pay on time.
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Poor management skills
Entrepreneurs may have had work experience but not at management level. They may lack of skills like:
* leadership and decision-making
cash handling and cash management
- leadership and decision-making
cash handling and cash management - planning, coordinating and communication
marketing, promotion and selling - planning, coordinating and communication
marketing, promotion and selling
A new entrepreneur could gain experience beforehand through employment or obtain advice and training from a specialist organisation offering management support. Alternatively, some enterpreneurs buy in experience by employing managers. But usually newly established start ups can not afford this option, as this can be expensive.
Local, national and international businesses
Clarify differences between them
1.1
- Local businesses operate in a small, well defined parts of a country. Their owners often do not aim to expand. F. e. single-branch shops, carpentry, hairdressing
- National businesses have branches or operations across a country. F. e. national banks or car-retailing firms.
- International businesses sell products in more than one country. This may be done by using foreign agents or online selling.
- International businesses have operations in more than one country. This a business that has its headquarters in one country, but with operating branches, factories and assembly plants in other countries.
Barriers to entrepreneurship
Lack of business opportunity
Identifying successful business opportunities is one of the most important stages.
The original idea for most new businesses comes from:
* An entrepreneurs own skills and hobbies
* Previous employment experience
* Franchising and exhibition conferences offering a wide range of new start up ideas
* small-budget market reserach: f. e. browsing internet to see how many businesses are offering certain goods or services in the local area
Obtaining sufficient capital (finance)
This happens due to:
1. insufficient savings
2. No knowledge of the financial support and grants available
3. No trading record to present to banks as evidence of past business success
4. A poor business plan that fails to convience potential investors.
Cost of goods locations
When finance is limited, it is costly to establish business in market potential areas, so small business mostly operate from home to increase chances of survival but it has drawbacks:
* It mat be close to the area with the biggest market potential
* It lacks status
* It may cause family tensions
Competition
A business will experience competition from established businesses with greater resources and market knowledge.
Lack of customer base
People will not be aware of the newly established business, therefore will be a bit curious of consuming their product.
