1.5 Entrepreneurs and Leaders (Done) Flashcards
What are some characteristics of entrepreneurs?
- Self-confidence.
- Self-determination.
- Being a self-starter (independent and decision-maker).
- Judgement.
- Commitment.
- Perseverance (get through bad times and setbacks).
- Initiative (proactive and dynamic).
What are the skills required by entrepreneurs?
- Organising (have to plan, schedule, manage time etc)
- Financial management (involves budgeting,arranging overdrafts etc)
- Communication (interacting with different stakeholders)
- Managing people (recruiting the ‘right people’, leadership etc)
- Decision making (solving problems etc)
- Negotiating (needed when dealing with suppliers and employees)
- IT skills (will be able to run business more efficiently)
What are the financial motives for why people setup businesses?
- Profit maximisation (try to make as much profit as possible in a given time period)
- Profit satisficing (aim to make enough profit to maintain their interest in the business)
What are the non-financial motives for why people setup businesses?
- Ethical stance (a minority of people setup a business in support of a moral belief)
- Social enterprise (trade with the aim of improving human and environmental well-being)
- Independence (want to be ‘their own boss’)
- Home-working (enjoy more flexibility with hours)
What is a social enterprise?
A social enterprise (aka not-for-profit organisation) focuses on improving human and environmental well-being
What are the two benefits of home-working?
- The time and expense spent to and from work is eliminated
- They enjoy more flexibility (e.g. hours can fit around meals and breaks)
What are three methods used to cut costs?
- Lay off staff to cut labour costs.
- Find new suppliers to get cheaper resources.
- Develop new working practises that use fewer resources.
What are two drawbacks of cutting costs?
- product quality may get worse.
- customer service might suffer.
How can businesses aim to exceed customer expectations (to win their loyalty)?
- Providing a platform for customer feedback.
- Interacting with customers using social media.
- Dealing with customer complaints promptly and effectively.
What do businesses need to do to have effective customer service?
They need to know what customers want, provide them with it on a consistent basis and receive feedback on how the business is doing.
How can a business develop a strong relationship with the local community? (3) By:
- maintaining sensible open hours.
- demonstrating responsibility for the environment, by minimising pollution for example.
- providing employment for local people.
Give an example of a sole trader in the:
A) Primary sector
B) Secondary sector
C) Tertiary sector
A) fisherman.
B) small manufacturing business
C) tutor.
What is a sole trader?
A business that has a single owner.
What is the tertiary sector?
The production of services in the economy.
What is the primary sector?
Production involving the extraction of raw materials from the Earth.
What is the secondary sector?
Production involving the conversion of raw materials into finished or semi-finished products.
What is unlimited liability?
A legal status meaning the owner of a business is personally liable for all business debts.
What is a partnership?
A business that is owned by 2 or more people.
What is limited liability?
A legal status meaning a business owner is only liable for the original amount of money invested in the business.
What is a franchise?
A business model in which a business allows another operator to trade under their name.
Do sole traders have limited or unlimited liability?
Unlimited liability
What are three advantages of being a sole trader?
- The owner keeps all the profit.
- The business is simple to set up, with no legal requirements.
- The business can be flexible and can adapt to change quickly.
What are three disadvantages of being a sole trader?
- The owner has unlimited liability.
- The business is usually too small to exploit economies of scale.
- Independence may be a burden, e.g. if the owner is ill.
What are three advantages of being in a partnership?
- The partnership is easy to set up and run, with no legal formalities.
- Partners can specialise in their area of expertise.
- More owners can raise more capital.
What are three disadvantages of being in a partnership?
- Partners have unlimited liability.
- Partners have to share the profit.
- Partners may disagree or fall out with one another (could disrupt communication channels in the business).
What is a deed of partnership?
A legal document which states partners’ rights in the event of a dispute.
What happens if a deed of partnership has not been drawn up?
The arrangements between partners will be subject to the Partnership Act.
What are two examples of partners’ rights in the Deed of Partnership?
1) how profits/losses are shared.
2) how much control each partner has (equity).
What does a limited partnership involve?
-There is one or more sleeping partners (only provide capital) who
have limited liability.
-There is at least one partner with unlimited liability.
What is a limited company?
A limited company is a company that has a separate legal identity from its owners.
What are three common features to limited companies?
- Capital is raised by selling shares.
- The owners (shareholders) have limited liability.
- Unlike sole traders and partnerships who pay income tax on profits, limited companies pay corporation tax.
What common features do private limited companies share?
- Business name ends in Limited or Ltd.
- Shares can only be transferred privately from one individual to another.
- Often family businesses owned by family members or close friends.
- The directors tend to be shareholders and are involved in the running of the business.
What is a private limited company?
A company owned by individuals who have privately bought shares. This form of company is usually owned by family members or close friends.
What are three advantages of private limited companies?
- Shareholders have limited liability.
- More capital can be raised by issuing shares.
- Control over the business cannot be lost to outsiders.
What are three disadvantages of private limited companies?
- Profits may be shared between more members.
- It takes time to transfer shares to new owners.
- Ltd’s cannot raise large amounts of capital/finance like plc’s.
What is the difference between a franchisor and a franchisee?
The franchisor is a company which owns a franchise.
The franchisee is the business which uses the franchisors ideas and methods for a variety of fees.
What services does the franchisor provide to its franchisees? (5)
- It gives the franchisee a licence to make a product which is already tried and tested in the market place.
- Provides a recognised brand name that customers trust.
- Provides a start-up package, including help and advice about setting up the business.
- Ongoing training, linked to maintaining standards, sales and new products.
- Many franchises operate exclusive area contracts—> prevents competition between franchises and so helps sales.
What fees do the franchisees have to pay for the services? (3)
- There will be an initial start-up fee for advice, franchise name and equipment provided.
- Most franchisors charge a percentage of sales for ongoing management services and the ongoing right to use the brand name.
- There may be on-off fees charged for management services such as training.
What are three advantages to franchisees of franchising?
- Franchises are lower risk (idea has been tried and tested).
- Franchisees get support from the franchisor.
- Franchisees can benefit from national marketing campaigns organised by the franchisor.
What are the three disadvantages to franchisees of franchising?
- A franchisee’s profit is shared with the franchisor.
- Setting up a franchise can be expensive.
- Franchisees lack independence and must abide by strict operating rules.
What are three advantages to franchisors of franchising?
- Franchising is a fast method of growth.
- Franchising is a cheaper method of growth- franchisees take some of the financial risk.
- Franchisees are more motivated than employees.
What are three disadvantages to franchisors of franchising?
- Potential profit is shared with franchisees.
- Poor franchisees may damage the brand’s reputation.
- The cost of supporting franchisees may be high.
What are four characteristics of social enterprises?
- They have a clear social and/or environmental mission.
- They generate most of their income from trade or donations.
- They reinvest most of their profits.
- They are majority controlled in the interests of the social mission.
What are the four forms of social enterprises?
- Co-operatives.
- Worker co-operatives.
- Mutual organisations.
- Charities.
Why do charities exist?
They exist to raise money for various causes and draw attention to the needs of disadvantaged groups in society.
In a worker co-operative, what are employees likely to do? (3)
- 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.
What are three characteristics of co-operatives?
- Owned and controlled by their owners.
- Members can purchase shares that entitle them to a vote at annual general meetings (AGM’s).
- Run in the interest of their members.
What do mutual organisations offer?
A wide range of affordable financial services, such as saving schemes, etc.
Who owns:
A) Co-operatives?
B) Worker co-operatives?
C) Mutual organisations?
A) owned and controlled by their owners.
B) businesses jointly owned by their employees.
C) owned by their customers (aka members).
What do lifestyle businesses aim to do?
They aim to make enough money and provide the flexibility needed to sustain a particular lifestyle.
What are three examples of lifestyle businesses?
- plumbers and electricians.
- web design.
- coaching.
What are some features of lifestyle businesses? (4)
- often a small business with one owner.
- the business is likely to be home-based.
- running the business is likely to be much less stressful.
- the personal interests of the entrepreneur are likely to influence the nature of the business, so that time spent working is enjoyable.
What are two examples of large online businesses and two examples of much smaller online businesses? (4)
Large online businesses: Amazon.com, eBay.
Small online businesses: retailers, bloggers.
What are some common features in all online businesses? (4)
- customers access the business via the internet.
- collect payment for goods and services electronically, e.g. PayPal and credit cards.
- online businesses have low set-up costs.
- paid-for or sponsored advertising is their main source of revenue, e.g. Facebook.
What do the majority of online businesses have on their websites? (4)
- info on company history.
- info on company aims.
- info on products and services.
- contact details.
What does growth give a business? (4)
- High profile in the market place.
- larger revenue.
- lower unit costs due to the exploitation of economies of scale.
- higher profits.
What are three features of public limited companies?
- owned by shareholders.
- run by a board of directors under the supervision of a chairperson who is accountable to the shareholders.
- shares can be bought and sold on the stock market.
What is a stock market flotation (aka initial public offering)?
When a company’s shares are offered to the public for the first time.
What are two disadvantages of stock market flotation (aka IPO)?
- time-consuming.
- expensive.
What is one of the first jobs when undertaking an IPO?
To publish a PROSPECTUS (a detailed document that advertises the company to potential investors and invites them to buy shares before the day of the flotation).
What are three things a prospectus is likely to contain?
- a brief history of the business.
- a description of its operation.
- an application form to buy shares.
Why is ‘going public’ expensive? (2 reasons)
- advertising and administrative expenses.
- minimum of £50,000 share capital.
- etc.
What are four advantages of plc’s?
- Huge amounts of money can be raised from the sales of shares to the public.
- Production costs may be lower as firms may gain Economies of Scale.
- Because of their size, plc’s can often dominate the market, e.g. may be able to create barriers to entry—> preventing competition.
- Easier to raise finance (financial institutions are more willing to lend to plc’s).
What are four disadvantages of plc’s?
- Setting-up costs for plc’s can be very expensive- could be millions.
- As anyone can buy their shares, it’s possible for an ‘outsider’ to exert control on the company- could even take complete control.
- Members of the public can inspect all of the company’s accounts so competitors may be able to use this information to their advantage.
- Because of their size, it is more difficult to deal with customers at a personal level.
What are five areas of growth when a business becomes successful and expands?
- number of employees.
- number and size of financial transactions.
- number and size of customers.
- quantity of resources used.
- level and range of communication needed.
