1.5 entrepreneurs and leaders Flashcards
What are the forms of business
Sole trader Partnerships Private limited company Public limited company Franchise Social enterprise Online businesses Lifestyle businesses
Explain about sole traders
- easy to set up- no registration needed
- requires a wide range of skills and flexibility
- the owner can be their own boss but the hours are likely to be long
- the owner keeps all profits
- unlimited liability
Explain about partnerships
- joint ownership of running a business
- a contract of relationship will be set up through a deed of partnership
- these are common in professions such as solicitors
- similar issues faced by sole traders but with greater shared responsibility, risk and reward
Explain about private limited companies
- must go through the process of incorporation
- limited liability
- has a higher status than a sole trader
- will have wider access to capital
Explain about public limited companies
- Can raise capital through selling shares to the public
- size is measured by market capitalisation
- has the ability to take over other businesses
- can lose control of the business
- registration to turn into PLC is long and complex-> need specialist lawyers and solicitors
Advantages of public limited companies
- ability to raise large amounts of share capital and doesn’t need to be paid back
- limited liability-> only lose what you invest
- huge amounts of money can be made through stock market flotation
- size makes it easier to gain economies of scale
Disadvantages of public limited companies
- massive pressure to profit maximise so shareholders are increasing their wealth in hopes shareholders will get dividends
- Registration to turn into a plc is long and complex so need lots of specialised lawyers and solicitors
- accounts and info about business has to be disclosed so less privacy
- greater external pressure from the media and pressure groups
- board of directors is accountable to external shareholders
Advantages of sole traders
- most straightforward option
- owner owns all profits
- owner directs all decisions
Disadvantages of sole traders
- unlimited liability so personally liable for the debts of the business
- capacity to raise capital is limited
- lack of continuity
- limited funds
Advantages of partnerships
- share equally in the profits, entitlement to receive salaries and other benefits like cars or healthcare
- easy to get started
- ownership and control combined
- more knowledge and expertise
Disadvantages of partnerships
- unlimited liability so partners are liable for any debts
- limited access to capital
- potential for conflict leading to slower decision making -> ruins competitiveness
- lack of continuity
Advantages of private limited companies
- limited liability so personal wealth of shareholders is protected
- easier to raise finance through internal shareholders
- stable form of structure
- provides more privacy of information than a plc
- owners may pay less tax if they operate as a sole trader
Disadvantages of private limited companies
- greater admin costs but cheaper than a plc
- pressure to profit maximise
- pay dividends to shareholders
- shareholders don’t get involved in day to day running of business so there’s a divorce between ownership and control
- harder to set up than sole traders or partnership
- accounts published and publicly available
- cannot raise large amounts through selling shares publicly
What’s a franchise
A limited company that licenses the right for individuals or groups to set up an identical operation in a new region
Advantages to a franchisor
- Effective way to grow the business
* Franchisor gets a setup fee and royalty payments
Disadvantages to a franchisor
• risk of franchisee damaging brand if not run effectively
Advantages to a franchisee
- Receive a ‘business in a box’- plans, products, marketing and a recognised brand
- franchisor offers support and training
- easier to get customers and finance as it’s an established business
Disadvantages to a franchisee
- Expensive set up fees and little freedom to change business format
- royalty payments so a share of sales go back to the franchisor
What’s a social enterprise
Not for profit organisations including cooperatives and mutual organisations.
May pay lower tax rates.
Have primary social objectives
Surpluses are principally reinvested in the business or community
Advantages of social enterprises
- use social skills and life experience
- target specific parts of a community
- good brand image
Disadvantages of social enterprises
Need experts with specific skills, knowledge and expertise
May be difficult to make profit
Lack of public exposure and recognition
Have to compete in the commercial market and gave the same challenges and risks common to all businesses
What’s an online business
Providing products and services solely through the internet. Internet based businesses are the fastest growing business sector
Advantages of online businesses
Less overheads as no stores to rent, just need a warehouse
Accessible 24/7 so constant sales output
World wide access
Disadvantages of online businesses
Some people like to try before they buy
Not everyone has internet access
What’s a lifestyle business
A business run in order to sustain a particular lifestyle for its owners. Often run by a single person and linked to an interest, skill or enthusiasm
What’s an entrepreneur
A person who is willing to take a risk in setting up and growing their own business. Entrepreneurs see business opportunities to make money and to meet the wants and needs of society
What are the roles of an entrepreneur
Innovate and invent - create new ideas, products and services
Take risks- often willing to risk their career and financial security to make their idea work
Organise- they pull together resources such as capital, technology and people to set up a business
Make decisions- entrepreneurs are decisive and make decisions
Why might an entrepreneur decide to set up their own business
Business experience - some start a new business using the experience of their current job or profession
Personal experience- a business may be based on a hobby or interest
Lifestyle choice- some people may set ip a business in order to be their own boss and work on their own terms
Spotting a gap- some people see an opportunity in everyday life and decide that they can meet this need
Skills- some people set up a business based on their interpersonal, artistic or technical abilities
What is risk
The probability of something having a negative outcome that can be planned for
What stages do entrepreneurs go through to set up a business
The idea- may come from a moment of inspiration
Research- into the market, customer needs, competition, profitability and potential suppliers
Planning- business plan
Financing- explore internal and external sources of finance
Location- for some this is a key strategic decision but not so much for online retailers
Resources- suppliers, HR, legal issues, utilities, manufacturing and marketing
The launch- may involve an opening event to create good public relations or activities to create awareness of the new business
What are the functions that an entrepreneur must coordinate to run, expand and develop their business
Financial management- raising capital, managing costs, profitability and cash flow
Purchasing- loading with suppliers, deliveries, logistics
Administration- insurance, legal setup, tax and business records
Marketing- research, promotion and branding
Production- production of goods, storage, quality management and delivery
Managing people- recruitment, training, motivation and leading people
What’s intrapreneurship
Refers to employees within a business who have the freedom and opportunity to develop their ideas and use their creativity to innovate
What do intrapreneurial employees do
Solve problems, create new and exciting products and keep big businesses moving forward.
These employees add a huge amount of value and often give business a competitive advantage.
It is important for businesses to motivate and give employees the opportunity to develop these traits
How can entrepreneurs reduce risk and prepare for uncertainty
Carry out detailed research
Produce detailed plans
Analyse external influences
Develop contingency plans
What are the barriers to success
Lack of finance
Competition from large, established businesses
Risk aversion
Lack of ideas - not easy to find a competitive and unique business idea
Lack of entrepreneurial skills
Responsibility of becoming an employer
Legal barriers
What are the characteristics of an entrepreneur
Self confidence- believe they can succeed
Self determination- drive to keep going despite problems
Self starter- willing to work independently and make decisions
Initiative- proactive and adapt to change
Commitment- entrepreneurs commit to the project and put in time to make it work, often working night and day
Skills of an entrepreneur
Organisation- lots of coordinate when setting up alone
Financial management- cash flow management can be challenging for small businesses
Managing and communicating with people
Negotiating- negotiating deals and contracts with suppliers and customers
Financial incentives for setting up a business
Profit maximisation- to generate as much wealth as possible
Profit satisfying- to generate enough income to live a comfortable lifestyle
Non financial incentives for setting up a business
Ethical stance- running a business to support their ethical principles
Social enterprise- running a business for a social or environmental cause- not for profit
Independence and home working- entrepreneurs often want the control and flexibility of running their own business
Why do businesses set objectives
Provide quantifiable steps to achieve aims
Clarify direction of the business
Measure success against targets
Motivate employees to achieve
Reward employees
What are the financial objectives of a business
Survival Profitability Growth Market share Shareholder value Sales maximisation Cost efficiency
Non financial objectives of a business
Personal satisfaction Brand recognition Sustainability Customer satisfaction Employee welfare Social objectives
What are the influences on business objectives
Size- objectives may change as a business grows and becomes more successful
Sector- public sector organisations are driven by meeting customer needs, not profit
Market- some markets are more competitive than others and this will determine objectives e.g targeting market share
Ownership- a plc must satisfy shareholders and so will set objectives around shareholder value
Owner- the owner may simply run the business for love of the job
What’s the importance of profit maximisation
Profit is one of the main incentives of running a business. The wealth created through profit allows the owners of a business to reinvest the money into new projects and stimulate economic activity.
Profit is also important because it secures the long term success of a business
Profits can be reinvested to help the business grow and keep up with the demands of the ever changing business environment
What does SMART stand for when talking about the appropriateness of an objective
Specific Measurable Agreed Realistic Time related
What’s a stock market flotation
When a company goes public and becomes a plc. This means that the company’s shares are offered on sale to the general public
As these shares can now be traded it has a significant impact on how the company operates
What are the steps to be listed on a stock market
Issue a prospectus advertising the company to the public
Prospectus and info on company reviewed by lawyers
Minimum of £50,000 share capital has to be provided upfront
If successful, a certificate to sell shares will be issued
The initial public offering (IPO) goes live and the business can start trading on the stock market
What’s bad about the process to be listed on the stock market
Expensive
Time consuming
Examples of factors that may affect share price
Company’s performance
Business environment in which it trades
Fears for its future
Increase or decrease in profits
Job losses
Dividends
Takeover bids
Economic downturns- investors feel nervous and demand for shares falls leading to a fall in price
What happens when share prices rise
Managers may receive a bonus
The company finds it easier to raise capital
Consumers with shares feel more confident To spend
The business may receive positive publicity
What happens when share prices fall
The company may become vulnerable to a takeover
Price fall gives an indication of poor performance
The company finds it harder to raise capital
Consumers with shares feel less confident to spend
What is opportunity cost
The benefit lost from the next best alternative
Examples of opportunity cost
The benefits lost from launching a new advertising campaign instead of investing in employee training
The benefits lost from developing a new product instead of increasing production of an existing successful product
The benefits lost from purchasing a new vehicle instead of upgrading IT facilities
What’s non monetary opportunity cost
Often opportunity cost cannot be calculated in financial terms
It’s frequently not possible to calculate the monetary value of a decision if the choose has an impact on brand awareness, employee morale or goodwill
What are trade offs
A trade off will often involve the loss of compromise of another option or factor
For example improving productivity in a factory may lower the quality of the products being made e.g. increasing number of defects
When making decisions a business will consider the trade offs it makes when taking strategic decisions e.g. selling high volumes of low quality products vs selling low volumes of high quality products
What factors will a business consider when making decisions
Investment appraisal
Risk vs reward- some businesses may avoid high risk strategies even if the rewards are huge, other may be more willing to take them
Gauging support - how popular a decision is may influence a certain course of action
Comparing advantages and disadvantages of each option based on the information available and research
Balance short term gains with long term benefits
The probability of success
What will successful entrepreneurs do
Create and develop their business ideas
Experience growth
Eventually will be a large company with an organisational structure and a number of employees
At this point the entrepreneur has to become a leader of people
What demands will an entrepreneur face when becoming a leader
Greater responsibility towards others
The need to motivate and inspire others
The need for strategic vision
What are the difficulties of becoming a leader
Seeing themselves as a leader- entrepreneurs must accept the responsibility and adjust their mindset
Leaders need qualities like confidence, compassion and interpersonal skills
Sharing ownership and control of their business
Stress- larger businesses bring with them more responsibility
What approaches may entrepreneurs adopt to over come the difficulties of becoming a leader
Stress management- use approaches to reduce stress levels and find time to relax
Education- complete leadership development courses and qualifications
Mentor- gain advice and support from a mentor
Delegate and trust- utilise qualified employees to lighten their load and take responsibility for aspects of running the business
Why might some businesses prefer to remain small
To avoid many difficulties
