1.5 entrepreneurs and leaders Flashcards
what’s an unincorporated business?
- no legal distinction between owner and business
what liability does a unincorporated business have?
- unlimited liability
what’s an incorporated business?
- business is a separate legal identity
what liability does a incorporated business have?
- limited liability
who owns an incorporated business?
- shareholders
what are advantages of operating a limited company?
- limited liability
- easier to raise finance
- stable form of structure
- may have tax advantages
what are disadvantages of operating as a limited company?
- greater admin costs
- public disclosure of company information
- profits shared between shareholders
what is a sole trader?
- one owner but can employ any number of people
what are legal responsibilities of a sole trader?
- pay income tax
- pay national insurance contribution
- must register for VAT after turnover reaches certain point
what liability does a sole trader have?
what does this mean?
- unlimited
- they can lose more money than was originally invested
what are advantages of operating as a sole trader?
- owner keeps all profits
- owner has complete control
- simple to set up
- can be flexible
- offer a personal service
what are disadvantages of operating as a sole trader?
- owner has unlimited liability
- may struggle to raise finance
- usually to small to exploit economies of scale
what are aspects of a partnership?
- more than one owner
- owners share responsibility and profits
- usually specialise
what are advantages of operating as a partnership?
- easy to set up and run
- can specialise
- more owners can raise more capital
- doesn’t have to publish financial information
what are disadvantages of operating as a partnership?
- unlimited liability
- share the profits
- partners may disagree and fall out
- limited growth potential
what is a limited partnership?
- where some partners provide capital but take no part in management
- limited liability
what are characteristics of a limited company?
- separate legal identity
- limited liability
- capital raised through shares
- pay corporation tax
what is an IPO when does this occur?
- initial public offering
- when a private limited company wants to go public they ‘float’ shares on the stock market
what is a franchise?
- the ability to sell under another businesses name
what is franchising?
- franchisor grants a licence (franchisor) to another business (franchisee) to allow it to trade using the brand/businesses format
what are advantages of running a franchise?
- still your own business
- franchisee gets advice and training
- easier to raise finance
- easier to build a customer base
what are disadvantages of running as a franchise?
- not cheap
- restrictions on marketing activities
- ## risk that the franchisor will go out of business
what are advantages for a franchisor?
- growth strategy
- cream of ‘above normal’ profits
what is liability?
- the extent to which someone is liable for the debts of the business
what are advantages of operating as a public limited company?
- limited liability
- large amounts of money can be raised
- tend to have lower production costs
- may be able to create barriers to entry
- easier to raise finance
what are disadvantages of running as a public limited company?
- start up costs can be expensive
- an outsider could take over the company by buying out majority shares
- competitors can inspect companies accounts
- difficult to deal with customers at a personal level
- under lots of regulations
what is a shareholder?
- someone who invests capital in exchange for a part ownership in a company
what’s a dividend?
- a share of profits allocated to shareholders
what’s a mission?
- a quantitative statement of the businesses aims
what’s an aim?
- a long term plan from which business objectives are divided
what’s an objective?
- a target which must be achieved in order to realise the stated aim
what are business objectives?
- specific intended outcomes of business strategy
- targets which the business adopts in order to achieve its primary goal
what’s the hierarchy of objectives?
- mission
- corporate/strategic
- functional
- team
- individual
what does the higher up in the objectives hierarchy mean?
- increasingly strategic
what is strategy?
- long term success of a company
what is the basis for business objectives?
S- specific M- measurable A- achievable R- relevant T- time-bound
what percentage of start up business fail within the first few years?
- 60%
what is cost efficiency?
- aims to achieve the most cost effective way of delivering goods and services to the required level of quantity
what are benefits of cost efficiency?
- low unit costs
- higher gross profit margin
- higher operating profit
- improved cash flow
- higher return on investments
what does KPI stand for?
- key performance indicator
what are profit objectives?
- specific level of profit
- profitability %
- profit maximisation
- exceed industry of market profit margins
what are business objectives related to revenue?`
- revenue growth
- sales maximisation
- market share
what resources are often scarce?
- finance
- time
- capacity
- skills/capabilities
what is an opportunity cost?
- measures the cost of an action in terms of the next best alternative foregone or sacrificed
what is a trade off?
- where having more of one thing potentially results in having less of another
what is a risk-reward trade off?
- if encouraged to take higher risks they need to be offered higher rates of potential return
what is liquidity?
- how easily assets can be made into cash
- cash is the most liquid asset
what is corporate social responsibilities (CSR)?
- when companies integrate social and environmental concerns into their business operations
why do firms embrace CSR?
- being a good citizen
- contracting benefits
