1.5 Entrepreneurs and Leaders Flashcards

Question

Why would an entrepreneur need financial management skills?

Answer 1

- involves people is often budgeting, cash-flow forecasting, chasing debts, keeping up-to-date financial records - the main aim is to make sure the business has enough money whenever it is needed

Answer 2

- most are low-level, day-to-day decision like what stock needs ordering - Some are strategic, which are important and have a long-term effects on the business e.g. whether to more premise to a new location - decision making and problem solving require entrepreneurs to process, analyse and evaluate information

Answer 3

- agreeing the terms of a contract such as agreeing a price for undertake some work or completing an order for a customer, negotiating with supplier and employees - They need to be able to get their point across in a calm and assertive manner, develop arguments with reasoning, know when to compromise and try to arrive at a settlement that is agreeable to both parties

Answer 4

- Entrepreneurs will be able to run their business more efficiently if they have good I.T. skills - e.g. setting up filing systems, emailing stakeholders, using spreadsheets to prepare budget and cash-flow forecast etc.

Answer 5

- Financial motives --> profit is the driving force behind many entrepreneurs and most businesses would not exist if it wasn't for the likelihood of making profit - Non-financial motives --> some people set up businesses for other motives they see as important or even more important then money, they need money for the business to operate however the main driving force is non-financial

Answer 6

- profit maximization --> some entrepreneurs try to make as much profit as they possibly can in a given period of time --> main motivator is money and main focus is financial returns --> more willing to take bigger risks and try to marginalize the needs of other stake holders - Profit satisfying --> aim to make enough profit to maintain their interest in the business, dont go for maximum profits as they dont want the responsibility of expanding the business --> run a lifestyle business, this allows the entrepreneur to pursue other areas of their life e.g. family

Answer 7

- Ethical stance --> to support their moral belief they possess e.g. vegetarian setting up a vegetarian - Social Enterprise --> trade with the aim of improving human and environmental well-being (non-profit organisation) e.g. Fair trade - Independence --> many people want to be their own boss, freedom to make their own decision - Home working --> benefits include time and expense spent travelling to work is elimated and they also enjoy more flexibility e.g. take breaks when you want

Answer 8

a document that provides details of the internal running of a limited company

Answer 9

a document that declares a business is allowed to trade as a limited company

Answer 10

a business organisation owned by its members, who have equal voting rights

Answer 11

a binding legal document that states the formal right of partners

Answer 12

a business model in which a business (the franchisor) allows another operator ( the franchisee) to trade under their name

Answer 13

a business that aims to make enough money and provide the flexibility needed to support a particular lifestyle for the owner

Answer 14

a legal status which means that a business owner is only liable for the original amount of money invested in the business

Answer 15

a partnership where some members contribute capital and enjoy a share of the profit, but do not participate in the running of the business. at least one partner must have unlimited liability

Answer 16

a document that sets out the constitution and states key external details about a limited company

Answer 17

a business owned by its members which are customers not stakeholders

Answer 18

a business that uses the global communications infrastructure of the internet as a trading base

Answer 19

a business organisation that is usually owned by between 2-20 people

Answer 20

production involving the extraction of raw materials from the Earth

Answer 21

production involving the conversion of raw materials into finished and semi-finished goods

Answer 22

a partner that contributes capital and enjoys a share of the profit but takes no active role in running the business

Answer 23

a business that trades with the objective of improving human environmental well being - charities and work;s co-operatives for example

Answer 24

a business organisation which a singe owner

Answer 25

the production of service in the economy

Answer 26

on legal status which means that the owners of a business is personally liable for all debts of a business

Answer 27

- one owner --> who can employ any number of people - Primary sector --> farmer, fisherman - Secondary sector --> small building or manufacturing businesses - MOST tertiary sector --> retailers, web design, tutoring, hairdressing - Easy set up --> no legal formalities - Have some legal responsibilities - Unlimited Liability

Answer 28

- they may have to pay income tax and National Insurance Contributions - Once their turnover reaches a certain level they must register for VAT, Some choose to register as they can claim back VAT even though they do not charge it - Licence to trade e.g. alcohol, taxi service - planning permission - comply with legislation aimed at business practice e.g. legally required to provide safe working environment

Answer 29

- the owner keeps all the profit - Independent, owner has complete control - set-up is simple with no legal requirements - Flexible and can adapt to change quickly - Offer a personal service as it is small - may qualify for government help

Answer 30

- Unlimited liability - Struggle to raise finance - lenders may see them as too risky to offer credit (unlimited) - independence may be a burden --> owner is ill - Owners and employees work very hard, long hours - too small to exploit economic of scale - no continuity if the owner passes away

Answer 31

- 2-20 owners (usually) --> share responsibility and profit - accountants, doctors, estate agents, solicitors, veterinary surgeon - partners are usually specialized e.g. sales, finance, production - No legal formalities to set up however partners may draw up a Deed of Partnership --> states the rights of the partners in the event of a dispute - if there is no deed of partnership the partners will be subject to the Partnership Act e.g. dispute over profit --> act states it should be equally shared

Answer 32

- how much capital each partner will contribute - how profits (and losses) will be shared amongst the partners - the procedure for ending the partnerships - how much control each partner has - rules for taking on a new partner

Answer 33

- Easy to set up and run, with no legal formalities - Partners can specialize in their area of expertise - Share the burden of running the business - more owners can raise more capital - the partnership does not have to publish financial information

Answer 34

- Unlimited liability - Share profits - may disagree, fall out etc, slow decision making - One partners decision is legally binding on all other partners - Partnerships have limited growth potential

Answer 35

- Limited Partnership Act 1903 - allows limited partnerships (rare) - This is where some partners provide capital but have no part in the running of the business - These partners have limited liabilities - They are referred to as 'sleeping partners' - The limited liability Partnership Act 2000 allows the set up of limited liability partnerships --> all owners have limited liability - However have to comply with a number of regulations e.g filing annual reports to the Registrar of Companies

Answer 36

- have separate legal identities from its owner. The company can own assets, form contracts, employ people, sue people and be sued - Capital is raised by selling shares. Shareholders own a number of shares and are owners of the business, entitles to vote on important business decisions and get dividend paid from profits - Shareholders have limited liability - Ran by directors who who are elected by the shareholders. The board of directors, headed by a chairperson is accountable to shareholders and run the business as the shareholders wish - Pay corporation tax

Answer 37

- It is necessary to follow legal procedure. This involves sending important documents to the Registrar of companies - these are the 'Memorandum of Association' and the Articles of Association' - if the documents are acceptable the company gets a Certificate of Incorporation - This allows it to trade as a limited company, shareholders have a legal right to attend Annual General Meetings (AGM) and must be told the data and venue in writing - Can be set up online which make the process easier as some websites offer the specific service

Answer 38

- sets out constitution and gives details about the company - must include: - name of the company - name and address of the company's registered office - objectives of the company and the nature of its activities - amount of capital to be raised and the number of shares to be issued

Answer 39

- internal running of the company must include: - right of shareholders depending on the type of share they hold - procedures for appointing directors - length of time directors should serve before re-election - timing and frequency of company meetings - arrangement for auditing company account

Answer 40

- Most are small/medium sized businesses. Some large LTD companies can be similar in size to some PLC - Private limited companies share the following features: - there business name ends in limited or ltd - share can only be transferred privately from the individual to another, all shareholders must agree on the transfer - they are often often family businesses owned by family members or close friends - the director of the company tends to be a shareholder and is involved in the running of the business

Answer 41

- Shareholders have limited liability - More capital can be raised by issuing shares - control over the business cannot be lost to outsiders - the owners have tax advantages - may pay less tax - consider to have a higher status than other business like sole traders

Answer 42

- have to publish their financial information - setting - up costs have to be met - profits are shared between more members - it takes time to transfer shares to new owners - cannot raise large amounts of money like PLC

Answer 43

- starting a your own business involves lots of risk - one way to possibly reduce this risk is to buy a franchise. - The franchisor is a company which owns the franchises allows another business, the franchise to sue it s business ideas and methods in return for a variety of fees

Answer 44

- license to make a product which tried and tested - provides a recognized brand name which customers should recognizes and trust - provide a start-up package - help and advice about setting up, provide equipment, help find a bank to lend money - materials to make the product - provide market support - ongoing training - to maintain standards, sales and new products - exclusive area contracts - the brand should be developed by the franchisor e.g. new products

Answer 45

- initial start-up costs includes franchisors advice or perhaps providing equipment - percentages of sales - for ongoing management services - profit on the supplies they sell directly to their franchisors - one-of-fees charged for training etc

Answer 46

- the organisation trade with the aim of improving human and environmental well-being, rather than making profit for external owners. - they are sometimes referred to as 'not-for-profit' organisation - have a clear social and/or environmental mission - generate most of their income through trade or donations - reinvest most of their profits - are not connected to the government - are majority controlled in the interest of the social mission - are accountable and transparent

Answer 47

- Co-operatives - Workers co-operatives - mutual organisations - charities

Answer 48

they are owned and controlled by their members - members can purchase shares that entitle them to a vote at annual general meetings (AGM's) - the members elect a board of directors to make overall business decisions and appoint mangers to run day-to-day business - any surplus made by the co-operative is distributed to members as a dividend according to levels of spending

Answer 49

- these are businesses jointly owned by their employees, Examples might be a wine growing co-operative or a co-operative of farmers producing milk, In a worker co-operative, employees are likely too: - contribute to production and be involved in decision making - share in the profit (usually on an equal basis) - provide some capital when buying a share in the business

Answer 50

- they are owned by their customers - or members as they are known - rather than by shareholders - they offer a wide range of financial services such as mortgages and saving products. - profits are returned to members in the form of better and cheaper products

Answer 51

- These exist to raise money for various causes and draw attention to the needs of disadvantaged groups in society - -rely on donations

Answer 52

- a person running a lifestyle business aims to make enough money and provide the flexibility needed to sustain a particular lifestyle - the business will often be small and is likely to have just one owner - the personal interests the entrepreneur are likely to have influence the nature of the business so that time spent working is enjoyable - the business is likely to be home-based - they are likely to have similar advantages and disadvantages to those of sole traders - lifestyle businesses are sometimes considered an alternative to retirement

Answer 53

-customers access the business via the internet. All online businesses have a website which gives information about their products, their prices and general information about the company - Online businesses collect payment for goods and services electronically -these are no formal procedures to follow or legal requirement when starting an online online businesses have low set-up costs - many online businesses, paid for or sponsored advertising is their main sources

Answer 54

a business usually owned by private individuals backed by financial institutions

Answer 55

a company owned by shareholders where the shares can be traded openly on the stock market

Answer 56

a market for second-hand shares

Answer 57

the process of company 'going public' - making shares aviailble to the public for the first time

Answer 58

- this usually because larger businesses enjoy a higher profile in the market place, larger revenues, lower unit costs due to economies of scales and higher profits. - Larger businesses also feel more secure and find it easier to raise money - many entrepreneurs may dream of owning a huge business they built from scratch

Answer 59

- a stock market flotation occurs when a company 'goes public'. - the process is also called an initial public offering (IPO), which means that a company's shares are offered to the public for the first time - one of the first jobs when undertaking an IPO is to publish a prospectus

Answer 60

-brief history of the business -a list of the directors and other key personnel - a description of its operations -an outline of how the money raised will be spent -the company's future strategy -Some financial details such as historic accounts -details of any pending legal action details of possible risks to investors -clear information about how to buy shares - including key dates for example - an application form to buy

Answer 61

- huge amounts of moeny can be raised from the sale of shares to the public - production costs may be lower as firms may gain economies of scale - public limited companies are expected to grow and as they get bigger unit cost is likely to fall - because of their size public limited companies can often dominate the market, most PLCs aim to grow and may eventually exercise some control - it becomes easier to raise finance as financial institutions are more willing to lend to public limited companies, A PLC financial institutions to protect loans larger plc also have a wider range of capital sources to choose from - pressures from the media and financial analysts, as well as the danger that the PLC might be taken over by another company

Answer 62

- the setting-up costs for public limited companies can be very expensive - running into millions of pounds in some cases - as anyone can buy their shares, it is possible for an outsider to exert control on the company, At worst it is possible for outsiders to take control of company if they buy enough shares - members of the public can inspect all of the company's accounts, competitors may be able to use some of this information to their advantages - because of their size it is more difficult to deal with customers at a personal level, some customers do not like dealing with giant 'faceless corporations - the way they operate is controlled by various Company Acts, which aim to protect shareholders. Compliance with company legislation will use company resources - it is argued that some very large public limited companies are inflexible due to their size - there may be a divorce of ownership and control. this means that the shareholders are not able to exert enough pressure on those that end up running the company, the senior managers

Answer 63

when choosing between different alternatives, the opportunity cost is the benefit lost from the next best alternative to the one that has been chosen

Answer 64

in business, deciding between alternative uses of resources

Answer 65

in business, where a decision-maker faces a compromise between two different alternatives, for example, between paying dividend to shareholders and re-investing profits in the business

Answer 66

- -independence --> as owners are in complete control and free free to make all decisions - Flexibility --> as owners can choose a life balance between work and leisure that suits them - the chance to make more money than might be earned in employment - job satisfaction and a sense of achievement in building something from scratch - the chance of becoming rich --> some entrepreneurs become millionaires

Answer 67

- Owners of small businesses are responsible for all day-to-day operations, have to avaible whenever the business is open - the demand of running a business may result in a lack of freee time - business owners need a variety of skills to be successful --> advertising, marketing interviewing, hiring, management - give financal security that is a regular salary from employment often affords --> also offering sic leave, health insurance, employee pensions

Answer 68

- holding liquid assets and investing more in productive assets such as machinery --> by ruducing the amount of liquid assets held, there is a risk of cash-flow problems , however investing more in productive assets may increase profitability - Directors of public limited limited companies have to find the right balance when distributing corporate profits , re-invest = future profitability however shareholders may prefer higher current dividends - firms might choose to take a more ethical stance in their operations, however this is likely to come at a cost - A common trade-off is that between higher profits margins or higher turnover

Answer 69

- The need for formality - The need for shared ownership - greater responsibility to others - the need for motivation and inspirations - the need for strategy and vision

Answer 70

- small business can be run informally --> - no need for regular structured meetings,detailed documents -- decisions can be made made swiftly because the entrepreneur is always at hand - In a large business --> entrepreneurs need to become leaders --> communications between thousands of employees requires systems and formal structure, the business will be split up into departments or divisions - there will have formal communication channels, formal organisation structure so that the business can be in controlled and employees brought to account, the entrepreneur may become a chairperson or a senior executive

Answer 71

- businesses need to grow - they need capital to fund expansions - to obtain funding it is sometimes necessary to invite new owners to contribute capital, for vary large corporations this usually means selling shares and operating as a plc. - entrepreneurs start as sole traders but as they expand they need to share ownership e.g. with financial institutions such as pensions funds and insurance companies, as well as many very small investors

Answer 72

- an entrepeneur running a small business is only likely to have responsibility for a small number of employees. - However, when a business grows into a corporation of the number of people employed could be tens of thousands or more, - the likelihood of these people will often rest on the decisions made by the leader, this is an enormous responsibility - a leader may also have responsibility to other stakeholders, such as shareholders and a far larger number of suppliers and customers

Answer 73

as the size of the business grows there is a need t focus more on the workforce this is because there are lot more people manage -as entrepreneurs develop into leaders there is a greater need for motivational skill. Some people are self-motivated but most people need encouragement and well-defined goal which leaders have to provide worker are likely to look to the leader for support and inspiration

Answer 74

- in a small business the owner is likely to be involved in production and other business functions such as marketing finance and administration - however, as the business expands, specialists undertakes most of these task, the leader becomes more concerned and designing business strategies, and providing a vision for the future direction of the company

Answer 75

- Adapting the mindset - Stress - Sharing ownership and control - Trust - Lack of leadership qualities

Answer 76

- entrepreneur usually have a desire for greater control over their life, career and destiny, they want more autonomy and to do things in their own way - Need a different mindset when the business is expanding - leaders need to relinquish some control and learn to delegate and focus on different things - they have to believe that specialist will do a better job in certain fields and they cant do everything - they may have doubts, fear and a lack of trust that could hinder devleopement

Answer 77

- running a business is stressful, the livelihood of entrepreneurs and their families depend upon the success of the business - There is the constant worry that the business 'won't provide' and what will happen if the business collapse - one major cause of stress i s the worry that debtors will fail to pay what they owe - when a business grows more stress comes as there is more at stake - conflict is a common cause of stress in larger organisation, some stakeholders have different needs that might cause conflict

Answer 78

- As entrepreneurs develop as leaders, they may have problems trusting people - as the business grows there is a need to delegate and employ specialists - Some leader find it difficult to delegate and may become suspicious of new senior staff - where specialists are appointed, the leader may feel that the specialists know more than them - the leader may feel threatened and concerned that they are being kept in the dark or manipulated - if the leader doesnt trust the new owners and staff there may be problems

Answer 79

- inviting partners, business angels or shareholders to contribute capital means that business ownership is shared. it also means that future profits have to be shared - Some entrepreneurs may also find it difficult to share control and resent other influencing the shape and direction of a business that they set up from scratch - They may feel that their leadership is being undermined, which may cause ocnflict

Answer 80

- As entrepreneurs take on more leadership duties there may be concern that they lack the necessary leadership skills and qualities. - These might include management, communication, problem solving decision making and organisational skills - it is true that entrepreneurs also need these skills to be successful - when the business grows theses skills have to be applied on a different scale - the problems are likely to be larger decisions more important and communication more complex - such demands may cause problems for some entrepreneurs as they develop into leaders

Answer 81

- delegation and trust - Earn respect - Maturity and experience - Education - Reduce stress

Answer 82

- a successful business leader must be comfortable with delegation - the delegation of tasks to specialists and experts will improve the performance of the business - a good leader will surround themselves with talented, honest and trustworthy people - leaders can reduce the risk in the recruitment if they employ a thorough and effective recruitment

Answer 83

- many of the difficulties outlined on the previous page can be overcome if a leader can earn respect from all stakeholders - people will be more trustworthy, effective and flexible if they are treated well - this means meeting their needs at work, praising them when they excel, being fair but tough, open and honest. Respect might also be earned if organisational culture is open, positive and accepted

Answer 84

- Some people are born leaders - they fine leadership natural and have the charisma and leadership qualities needed to be successful - However, other may develop into good leaders through maturity, experience, rive and learning from mistakes - they can overcome any difficulties they may encounter - the transition from entrepreneurs to corporate leader may be lengthy

Answer 85

- some of the leadership skills can be learnt by attending specialist courses - there are countless courses designed to help business people improve management, negotiation, communication and decision-making skills - Additional languages can be taught, as can report writing and IT skills

Answer 86

- having a balanced diet - taking regular exercise - resting - having a balanced work/leisure lifestyle - Avoiding alcohol, drugs and tobacco - maintaining a sense of humor - sharing feelings