1.3. ENTERPRISE, BUSINESS GROWTH AND SIZE Flashcards
Entrepreneur
is a person who ORGANISES, OPERATE and TAKES THE RISK for a new business venture.
Benefits of being an entrepreneur
- INDEPENDENCE = able to choose how to use TIME and MONEY.
- able to put OWN IDEAS into PRACTICE.
- may become FAMOUS and SUCCESSFUL if the business grows.
- may be PROFITABLE and income might be HIGHER than working as an employee for other business.
Disadvantages of being an entrepreneur
- RISK - many new entrepreneur’s business fail, especially if there is poor planning.
- CAPITAL - entrepreneur have to put their own money into business and, possibly, find other sources of capital.
- Lack of knowledge and experience in starting and operating a business.
- OPPORTUNITY COST - lost income from not being an employee of another business
Characteristic of successful entrepreneur
- hard working
- risk taker
- creative
- optimistic
- self-confident
- innovative
- independent
- effective communicator
Why do governments want to help new start-ups?
- They provide employment to a lot of people
- They contribute to the growth of the economy
- They can also, if they grow to be successful, contribute to the exports of the country
- Start-ups often introduce fresh ideas and technologies into business and industry
How do governments support businesses?
- provide business advice to potential entrepreneurs, giving them information useful in staring a venture, including legal and bureaucratic ones
- Provide low cost premises
- Provide loans at low interest rates
- Give grants for capital
- Give grants for training
- Give tax breaks/ holidays
how can we classify a business as big or small?
Business size can be measured in the following ways:
- Number of employees: larger firms have larger workforce employed
- Value of output: larger firms are likely to produce more than smaller ones
- Value of capital employed: larger businesses are likely to employ much more capital than smaller ones
However, these methods have their limitations and are not always accurate.
Problem of business growth and how to overcome
- Difficult to control ==> so operate business in small units
- Lack of funds ==> so expand more slowly.
- different way to do things ==>have a good communication with the workforce.
Why businesses stay small
- type of industry: some firms remain small due to the industry they operate in. Examples of these are hairdressers, car repairs, catering, etc, which give personal services and therefore cannot grow.
- Market size: if the firm operates in areas where the total number of customers is small, such as in rural areas, there is no need for the firm to grow and thus stays small.
- Owners’ objectives: not all owners want to increase the size of their firms and profits. Some of them prefer keeping their businesses small and having a personal contact with all of their employees and customers, having flexibility in controlling and running the business, having more control over decision-making, and to keep it less stressful.
Why businesses fail
- Poor management: this is a common cause of business failure for new firms. The main reason is lack of experience and planning which could lead to bad decision making. New entrepreneurs could make mistakes when choosing the location of the firm, the raw materials to be used for production, etc, all resulting in failure
- Over-expansion: this could lead to diseconomies of scale and greatly increase costs, if a firms expands too quickly or over their optimum level
-Failure to plan for change: the demands of customers keep changing with change in tastes and fashion. Due to this, firms must always be ready to change their products to meet the demand of their customers.
Failure to do so could result in losing customers and loss. They also won’t be ready to quickly keep up with changes the competitors are making, and changes in laws and regulations
Poor financial management: if the owner of the firm does not manage his finances properly, it could result in cash shortages. This will mean that the employees cannot be paid and enough goods cannot be produced. Poor cash flow can therefore also cause businesses to fail
Why new businesses are at a greater risk of failure
- Less experience: a lack of experience in the market or in business gets a lot of firms easily pushed out of the market
- New to the market: they may still not understand the nuances and trends of the market, that existing competitors will have mastered
- Don’t a lot of sales yet: only by increasing sales, can new firms grow and find their foothold in the market. At a stage when they’re not selling much, they are at a greater risk of failing
- Don’t have a lot of money to support the business yet: financial issues can quickly get the better of new firms if they aren’t very careful with their cash flows. It is only after they make considerable sales and start making a profit, can they reinvest in the business and support it
