1.5 Flashcards
what is a business?
any organisation that makes goods or provides services
what is an entrepreneur?
an individual who takes a risk to create or start a new business or project
what is an enterprise?
the skills needed to make a new idea work
what skills might be included in enterprise?
-risk taking
-showing initiative and make things happen
-undertaking new ventures
what are roles of an entrepreneur?
-creating and setting up a business
-generating business ideas
-spotting opportunities
-carry out research
-running expanding businesses
-intrapreneurship
generating business ideas:
-heart of successful entrepreneurship is spotting a good idea
-usually based on good understanding of consumer tastes and/ or their needs
what are the main sources for ideas?
-brainstorming
-thinking ahead
-observation
-personal ideas or experience
spotting an opportunity:
-innovation
what does innovation mean?
a new idea and bringing it to the market
how do you spot new opportunities?
-changes in society
-changes in the housing market
-changes in the economy
-carrying out small budget research
most entrepreneurs carry out small budget research before carrying out ideas
what is included in small budget research?
-check competitors prices within local area
-spend a day at a competitors
-produce a market map
-geographic mapping
what is geographic mapping?
plotting on a map the locations of all existing businesses in your market
-shows where competitors are
what is needed to run a business successfully?
-ability to obtain and listen to objective measures of its performance
-an obsessive eye for detail
-able to keep track and step back from day to day skills and think strategically
-need to love what you’re doing and love making customers happy
what 3 factors are needed to help a business expand successfully?
-establishing that extra demand exits
-ensuring the finance is in place
-ensuring the people are in place
what is an intrapreneur?
-an inteapreneur has the personal characteristics of an entrepreneur, but works with a large organisation
what are some barriers to entrepreneurship?
-lack of personal finance
-public sectors/employees don’t trust entrepreneurs
-gender (genetics, women are nurturers and men are risk takers)
-banks not willing to lend
what is the role of an entrepreneur?
-generate idea
-create and set up
-organising resources
-leadership
-running the buisness
-expanding the business
-innovate
what are characteristics?
-personality traits
-distinguishing feature or quality
what are the characteristics a successful entrepreneur will need?
-understanding of the market
-creativity
-determination
-passion
-resilience
-ability to cope with risk
what are skills?
the ability, coming from one’s knowledge, practice, aptitude etc, to do something well
what skills will a successful entrepreneur need?
-financial skills
-persuasive abilities
-problem solving skills
-networking skills
what are motives?
the reason for doing something
what are the financial motives for being an entrepreneur?
-profit maximisation
-profit satisficing (to satisfice means to find the ideal blend between different pressures)
what are non financial motives of an entrepreneur?
-independence
-home working
-ethical stance
-social entrepreneurship
moving form entrepreneur to leader
-although start up is hardest time for entrepreneur, many small firms find themselves struggling during periods of rapid growth
business effects of forecast rapid growth
-in certain circumstances managers can anticipate a period of rapid growth
-may be temporary or seem likely to be permanent
-most successful firms will be those that will devise a plan that is detailed enough to help in a practical way and is flexible to allow differences between forecasts & reality
when rapid growth is forecasted, firms can what?
-compare the sales estimate with available production capacity
-budget for any necessary increases in capacity & staffing
-produce a cash flow forecast to anticipate any short term financing shortfall
-discuss how to raise any extra capital needed
-timescales are important
-error can include
-increased work load on staff
-extra sales accounting staff
-warehouse manager
-cash flow worsens
what is overtrading?
the situation where a business expands at a rate that cannot be sustained by its capital base
risks of overtrading?
-business can run into liquidity problems
-inadequate funding is one of the most common reasons why apparently successful businesses end up failing
what is adequate finance ?
having access to sufficient levels of funding to meet firms needs
-adequate resources (incl finance) need to be available to respond to an unexpected upsurge in orders and unwanted fall in sales
-especially important to firms looking to expand
what are problems of adjustment from entrepreneur to leader?
-able to cope with additional workload
-staff find it hard to accept a new manager
-delegation is necessary
what is delegation?
means giving tasks and responsibilities to others in team / organisation, so you don’t have to do everything yourself
-helps get work done more efficiently
change in management structure or hierarchy:
-as business grows this has to change
-new staff recruitment, induction and training
-constant change in personnel and their relationships
-can be disconcerning for customers and suppliers and strong relationships are hard to build = customer loyalty hard to achieve
-with all these changes team spirit may be hard to establish
-spend too much time looking at promotion
-potential for inefficiency or chaos
-too many new staff may = too many mistakes
-if customer relations are weak, could result in loss of business
small business growth
-although start up is hardest time for entrepreneur, many small firms find themselves struggling during periods of rapid growth
risk of loss of direction and control:
-entrepreneurs who get sweeps by the success of the business are those whose firms will fail to sustain their growth
-may become side tracked by attractions of expense account living or become excited by success so open up several different businesses
-focus on what you’re good at
sometimes people are entrepreneurs not bosses
why does growth put a strain on a firms cash flow?
-new staff
-more produce to meet extra growth
-raw materials
why might rapid growth cause problems with management control?
-more layers of management needed
-have to employ new people
why might rapid growth turn into overtrading?
-businesses may expand at rate that cannot be sustained by capital base
why might entrepreneurs make poor leaders?
-can’t handle the pressure
-too much responsibility
how might a growing company check that is is not overtrading?
-cash balance
-liquidity
-debt
why might an entrepreneur need to move from being entrepreneur to leader?
-business expanding
-more people to manage
-more responsibilities
difficulties in developing from entrepreneur to leader?
-adapt mindset
-lack of trust from employees
-lack of leadership
-more people to manage
the strategy of objectives will have to involve what four functions?
-marketing
-finance
-operations
-human resources
what are external factors that can get in the way of success?
-competitors
-economy
-government
-legislation
-society
-technology
-environment etc
what is a mission statement?
a mission statement communicates the corporate aims of the firm to the stakeholders
ie it sets out the businesses purpose, principle business aims, identity, policies and values
mission statements should make decision making easier when faced with a series of options managers can compare them in relation to the overall objectives of the business
mission statements can motivate people, they know exactly where they are and what the business wants to achieve
some mission statements are so unrealistic that employees pay little attention to them, they may lose faith
from the mission statement comes objectives
what are business objectives?
the medium to long term goals established to coordinate the business that help the business meet its overall aim/mission
objectives should be _______ and have a ______ ____ ___
quantified
stated time scale
to be effective objectives must be SMART
what does SMART stand for?
S- specific
M- measurable
A- agreed
R- realistic
T- time specific
businesses have a number of objectives
what are they?
-survival
-profit maximisation
-sales maximisation
-market share
-cost efficiency
-employee welfare
-customer satisfaction
-social objectives
what is unlimited liability?
the owner is personally responsible for the debts of the business and there is no limit to this responsibility
-may have to sell personal possessions to pay off any debts
what is limited liability?
the legal duty to pay the debts of the business stays within the business itself
-owners and shareholders only loose what they put into the business
who has unlimited liability?
-sole trader
-partnerships
who has limited liability?
-private limited companies (ltd)
-public limited companies (plc)
what are some traders?
when individuals set up in bus beds on their own
-do work for themselves , can hire people to work for them
-sole trader remains responsible for the overall business
-sole trader is actively involved in the running of the business
What does it take to become a sole trader?
You will need to be?
-someone who is willing to work on their own
-confident to take their own decisions
-able to turn their hand to almost any aspect of the business
-skills & flexibility
-able to work hard
-good at managing stress
-self disciplined and motivated
what are advantages of being a sole trader?
-independence, have full ownership of the business, can be highly motivating
-you get all of the profit
less people to disagree with ( rapid decision making, respond quickly to change)
-finance is private
-really easy to set up
what are disadvantages of being a sole trader?
-unlimited liability
-pressure
-decisions may not always be accurate
-more difficult to raise finance due to banks not liking sole traders
-business is unincorporated
-long hours
what does incorporated mean?
you have separate identity to your business
what does unincorporated mean?
you do not have separate identity to your business
what is a partnership?
a business made up of between 2-20 owners
-partners contribute capital of business
-partners have a say in the running of business
-shared profits
what is a deed of partnership or a partner agreement ?
a written agreement between partners
-without this document, partners may disagree on who put most money/capital into the business or who it’s entitled to more of the profits
what does a deed of partnership set out?
-who are the partners?
-how much money (capital) each patented has put into the partnership?
-how profits should be shared out?
-how many votes each partner has in any partnership meeting?
-how to resolve disputes if the number of voting for and against an issue are equal
-what happens if any partners want to withdraw from the business or if new partners are brought in?
If there is no deed of partnership, the law says that every partner is ______, each partner gets _____ ______ of the profit and has the same voting power as any other partner
-equal
-equal share
what are advantages of being a partnership?
-easier to raise finance
-finance is private
-different skill sets
what are disadvantages of a being a partnership?
-unlimited liability
-have to share profits & decision making
-can be disagreements over decision making
-unincorporated
what is a company?
a type of business owned by shareholders
-each share that is owned represents a pet of the company
-the more shares a person holds the more the coalition belongs to them
-to set up a company individuals have to complete documents and register the business at the COMPANIES HOUSE
-this process is know as INCORPORATION
once a business is incorporated is has its own _____ ______, separate from its ______
-legal identity
-owners
a company having limited liability is essential for companies to be able to raise money by selling shares
having company status means what?
-the business must pay to have its accounts checked annually by an independent accountant (auditor)
-the company accounts must be made public
what are advantages of being a company?
-limited liability
-able to raise finance from selling shares
-often perceived as being more established than some traders
what are disadvantages of being a company?
-must pay the costs of registering
-has to make its financial accounts public
-has to pay for its accounts to be audited each year
-has to disclose information eg this years profit, what the business owns
-is subject to company law
why become a shareholder?
-become owners of a business, if business is successful the value of their shares should increase
-receive profits of the business
-can influence the policy of the business
-most types of shares grant owners voting rights, each share is worth one vote, if someone owns more than 51% of the shares they can control the business and decide company policy
what are dividends?
the part of the profits paid out to shareholders
-the more shares a person has the more dividends they receive in total
all companies must have an ______ _____ _______ (AGM) to which the shareholders are invited and every shareholder must receive a copy of the company’s annual report
-report reviews performance of business over the last year
-at AGM directors and managers give an overview of the company’s position and respond to any questions the shareholder might have
what are private limited companies (Ltds) ?
they are owned by shareholders and the owners can place restrictions on who the shares are sold to in the future
-can be wholly owned by one person but other people can be brought in as investors
-company is NOT LISTED ON THE STOCK MARKET, so remains under close control
-unlikely to be taken over
-much harder to raise finance
-most ltds are owned by families or small groups of friends
what are public limited companies (plcs) ?
owned by shareholders but restrictions cannot be placed on the sale of these shares as the shares of these companies are sold on the stock exchange
-this can take place when a ltd expands to the pint of having share capital of more than £50,000 (ltd can choose wether it wants to be floated on the stock market
-easier to raise finance
-firms can be liable to a takeover as any member of the general public can but shares
what is a franchise?
occurs when one business (franchisor) sells the right to use & sell its products / services to another business / person (franchisee)
how to franchises work?
what are the basic elements of franchise agreements?
- franchisor sells the right to the product in return for an initial fee & % of franchisees turnover
-franchisee receives right to the name & the systems used by franchisor, may include access to materials & training
buying a franchise:
-if you are buying a product that has already been on sale & therefore has a sales record
-this means you can see wether it works
-can also learn from other franchisees
what are advantages of the franchise to the franchisor?
-able to expand the business quickly
-will earn revenue from franchisees turnover
-franchisee may have great entrepreneurial skills = greater revenue
-risk is shared
what are disadvantages of the franchise to the franchisor?
-loss of control over how the product/service is presented
-some franchisees become powerful as they may acquire a number of franchises
-coordination & control problems as the franchise network grows
-difficult to control quality
what are advantages of the franchise to franchisee?
-able to sell a recognised brand & product
-central services are provided eg training
-franchisor has experience in market & provide advice & guidance
what are disadvantages of the franchise to the franchisee?
-some of your revenue is paid to the franchisor
-right to operate the franchise can easily be withdrawn
-franchisee may not feel like the business is their own
what is a social enterprise?
-claims to “do good” for society, but good for whom is not stated
examples
-one water
-co operatives (worker owned business)
john lewis / waitrose
what is a lifestyle business?
-created based on the needs of the entrepreneur
-with this type of business, usually rules about objectives etc might not apply
for example:
-a business may target plenty of customers above plenty of revenue
what is an online business?
-decided on a structure like any other, only difference is the risks & rewards
-usually require less financial less financial outlay at the start up but may require a lot more time
business choices must be made bearing in mind _______ _____
opportunity cost
what is an opportunity cost?
the cost of missing out on the next best alternative when making a decision
this concept of opportunity cost is highly important within business, as it is the _____ __ ______ ______ _______
heart of every business decision
for a new business, two of the mosh important resources are ______ and _____, both have an opportunity cost
money
time
for a new start up business what are the most important factors?
-do not tie up too much cash in stock
-do not overstretch yourself
-take care with every decision that requires cash
what are personal opportunity costs?
-your own money investment
-loss of income from a previous job
-long working hours & pressurised decision making = stress
-time from family & friends
what is an opportunity cost of developing one business idea opposed to another?
-an entrepreneur will need to follow only one business idea as two will be impossible to manage
successful entrepreneurs are ones that can make ________ _______
successful decisions
what factors are crucial when deciding between business start up opportunities?
-estimating potential sales that could be achieved by each idea
-considering carefully the cash requirements of each idea
-deciding whether the time is right
-decking whether the skills needed for your own set of skills
in business there are many occasions when one factor has to be _____ ___ against another
traded off
the key success will be to clear about what you want from the business
