1.5 Entrepreneurs & Leaders Flashcards
What is an entrepreneur?
An individual that takes risks who takes on risk to hopefully gain a reward.
( No guarantee Of Success )
( Rewards can be Profit or Help Society )
Risk = Loose Money or Become Insolvent
Insolvent for Company = Liquidation = Limited Liability Protection
Insolvent for Individual = Bankrupt = Unlimited Liability Not Protected
Opportunity Cost = the sacrifise when an alternative is chosen
e.g. Sole Trader 🠮 Private Limited Company
Reward = ↑ Finance to expand
Sacrifise = OPP. Cost 🠮 Legally Publish Accounts = More admin is Oppotunity Cost = Risk ↑ Labour Costs
Barriers to Entrepreneurship
Entrepreneurial capacity:
- Entrepreneurial capacity refers to an individual’s ability to think creatively, take risks, and identify and seize business opportunities
Access to Finance:
- Many aspiring entrepreneurs struggle to secure the funding necessary to start or grow their businesses
- Lack of access to finance is a major barrier to entrepreneurship, especially for those from disadvantaged backgrounds
Lack of training / know-how:
- Starting and growing a successful business requires a range of skills, including marketing, finance, management, and leadership
- Aspiring entrepreneurs may struggle to develop a viable business plan, attract customers, or manage their finances effectively
Fear of failure/lack of confidence:
- Entrepreneurs may hold back for fear offailure or a lack of confidence
- They may worry about the financial risks involved in starting a business or fear the stigma of failure
Aims and Objectives
Aim: The Main Goal Of The Business
( Can be Financal or Non - Financial )
Financial Aims:
- Maximise Profits
- Grow Market Share
- Maximise Sales
- Survival
Non Financial Aims:
- Be Ethical
- Independence
- Challange
- Pesonal Satisfaction
Objectives: Helps Achieve The Aim
- Common to have several
- Tend to be specific
- Tend to be mesurable
- May have for each Function
EVALUATION:
Consumer Law, Employment Law, Technology, Ethical/Environment,
Consumer Spending, Intrest Rates, Exchange Rates, Globalisation
Changes in Aims & Objectives
Aim = Main Goal of Business
Objective = Support the aim to enable the business to achieve it.
The Aims & Objectives can change due to Business Evolving or Business Reacting
Internal Factors:
- Performance of Business
- Influence of Stakeholders
- Leadership / Senior Management
External Factors:
- State Of The Economy
- Leval of Competition
- Technology Improvement
- New Legislation Laws
Business Reactions: SPEW
Survival / Growth Focus
Product Range ⬍
Enter or exit a specific market
Workforce ⬍
Sole Traders
PROS / CONS
Sole Trader : A business that is owned by one individual who retains all the profits genarated by the business
- Allowed to employ people
- single owner
PROS:
- Simple Set Up Process ➙ Cheap / Quick ➙ Sales immediately
- No need to publish accounts ➙ Private finances
- Retain All Profits ➙ No Shareholders
- Complete control over the business
CONS:
- Unlimited Liability ➙ Personal assets are at risk if business fails
- Fewer sources of finance ➙ cant issue shares & expansion is harder
- Need to be multi skilled
- Difficult to take holiday
SOLE TRADER ➙ PRIVATE LIMITED COMPANY: PLUMS
Profits 100% as ST vs. 🡓% as an expanding Ltd.
Limited liability➙ limited liability to Unlimited liability
Unlimited liability➙ think about if you have personal assets at risk
Management & Control
Source Of Finance = Need for finance?
Unlimited liability
Unlimited liability = Owners are fully responsible for all business debts
Limited liability
Limited liability = Owners are only responsible for the business’s debts up to the amount they invested. Their personal assets are protected
Partnership
PROS / CONS
Two or more people join together to form a business who agree to Deed of Partnership to show how
- Profits Are Distributed
- Control is Distributed
PROS :
- Easy to set up and inexpensive
- Potential for more finance
- Shared Workload
- More skills and knowledge are available
- Increased access to finance and capital
CONS:
- Partners have unlimited liability
- Shared profits
- Potential for disputes between partners
- Shared decision making and control
SOLE TRADER ➙ PARTERSHIP : PLUMS
Profits 100% as ST vs. 🡓% but expanding Business.
Limited liability ➙ N/A still be limited liability
Unlimited liability ➙ N/A still be limited liability
Management & Control
Source Of Finance = Need for finance?
Private Limited Companies ( Ltd )
PROS / CONS
Ltd is a company that is owned by its shareholders and managed by a dircetor. Shareholder choose the director
- These shares can be sold by the owner, usually to friends and family or to venture capitalists
- Shares are not sold on the stock exchange
PROS:
- Limited Liability = Encourage Investments
- Additional source of finance = by selling shares ∴ debt + equity available
- Control who shareholders are ∴ less risk of conflict between owners and managers
- Higher prestige vs. Sole Traider
CONS:
- No access to Stock Exchange ∴ Smaller volume of finance available
- Shared Profits ∴ many shareholders means diluted Profits
-Legal Requirement To Publish Financial Accounts ∴ ( Competitors can see )
- More admin vs. Sole Trader ( Corporation Tax, Company Accounts, Companys House, In Land Revenue )
LTD ➙ PLC : PLUMS ( Flotation )
Profit ➙ Will profit be higher? Able to expland ∴ Higher Profits
Limited liability ➙ N/A still be limited liability
Unlimited liability ➙ N/A still be limited liability
Managemant & Control ➙ Devorce of ownership and control
Source of Finance ➙ want access to stock market
Public Limited Companies ( PLC)
PROS / CONS
A company that commonly offers its shares to the genaral public via. the Stock Exchange
- Abbreviated to PLC in UK
- Type of limited company ∴ Limited Liability
- Must raise a minimum of $50,000 Share Capital
- Minimum of two directors and one company secretary
PROS:
- Can raise large amounts of capital through the sale of shares.
- Limited liability for shareholders.
CONS:
- High costs to set up and maintain
- Legal Requirement To Publish Financial Accounts ∴ ( Competitors can see )
Flotation
PROS / CONS
The process of a private limited company offering shares for sale on the stock market to therefore become a public limited company
PROS:
- Raise stock exchange
- Enormous amounts of finance can be raised
- Means expansion / projects can be financed by share capital raised from flotation rather than using other source of finance
- Stable business ownership structure
- Higher Prestige ∴ ↑ Exposure = ↑ Sales = ↑ Revenue
- Shareholders Retain Limited liability
- Become Larger
CONS:
- Flotation is expensive ➙ investment bank Lead Process ➙ Investment bank Underwrite Flotation ➙ Legal Fees
- Anyone can buy shares = No control of who shareholders are
- Risk of Take over or Conflict between owners and managers
- Increased legal requirement
- Short sighted shareholders = motivated by dividends not investments
Franchising
PROS / CONS
Franchisor ➙ Licenses ➙ Franchisee
Franchisor:
- Gets Initial Fee
- Gets ongoing royalty ( % of Profits )
- Pays for Training and marketing
Licenses:
- Business Idea / Method
- Trademark
- Systems
Franchisee:
- Independent business
- Levarage / make use of established brand
- receive initial training from franchisor
- Support with marketing
PROS:
- Cheeper way to grow
* Franchisee pays setup cost
* Fixtures and Fittings to lower capital investment
- Allows business to grow faster
CONS:
- Hard to ensure consistent quality across all Franchisees
more Franchisee = more complex
- Unethical / Poor behaviour by one Franchisee impacts the entire brands reputaton
increases risks + need for contingency Planning
Social enterprises
A business that has the primary purpose to create social or environmental impact (in addition to generating profits)
Profits are usually reinvested back into the business or used to create positive social change or address an environmental issue
Lifestyle businesses
Lifestyle businesses are typically small, owner-operated businesses that prioritise a specific lifestyle or personal interest of the owner over profits or growth
These businesses are often run from home or in a location that allows the owner to maintain a particular lifestyle or work-life balance
Online businesses
Online businesses often have low overhead costs and can operate from anywhere
These businesses are still required to have a legal structure, such as a sole trader or private limited company
