Commerce (Semester 2) Flashcards
What is an entrepreneur?
someone who starts, operates and assumes the risk of a business venture in the hope of making a profit.
What are some of the skills that an entrepreneur should exhibit?
- Ability to set objectives and adjust according to market
- Have a vision
What are some of the characteristics that an entrepreneur should exhibit?
- Self motivated
- Risk taker
- Sets goals
- Leadership qualities
- Good communicator
- Willing to learn
- Desire to succeed
Why do people want to be self-employed?
You work for yourself, and have flexibility in controlling where and when you work.
What are some of the advantages of being self-employed?
- Independence: being your own boss
- Possibility of making a profit
- Challenge, reward and satisfaction
- Increase personal wealth
- Contribute to society
- Develop own creative ideas
- Overcome unemployment
- Achieve a better lifestyle
- Employ family members
- Possible tax advantages
What are some of the disadvantages to being self-employed?
- Hard work and long hours
- Other ‘bosses’ - customers, suppliers, financiers
- Income may fluctuate and be uncertain
- Risk of failure
- Stress and worry
- High levels of responsibility
- Constantly solving problems
- Difficulty in selling the business
How do you identify a business opportunity?
Market research
What does market research allow an entrepreneur to do?
Make better decisions by understanding customer behaviour
What are the 5 factors to consider when identifying business opportunities?
- Location
- Market research
- Demographics
- Competition
- Target market
Why consider location when identifying business opportunities?
The location that your business is in can determine consumer traffic.
Physical businesses need constant consumer traffic, so should be located in a SHOPPING CENTRE, MALL OR MAIN STREET.
Online businesses need a prominent virtual location such as a high Google rank.
Define market research.
the action or activity of gathering information about consumers’ needs and preferences and analysing it.
Why consider market research when identifying business opportunities?
It allows entrepreneurs to make better decisions for a consumer.
What methods may be used for market research?
- Surveys
- Questionnaires
- Interviews
What questions may market research seek to answer?
Who are our customers?
What are they like?
Why do they buy our product?
Define demographics.
population characteristics that affect customer spending
Why consider demographics when identifying business opportunities?
Examining a region’s demographic patterns can help you tailor your product to your customers.
Why consider competition when identifying business opportunities?
The bigger the market, the more competition.
Goods can be targeted at a mass market or niche market.
Why consider target market when identifying business opportunities?
Focusing marketing activities on a target market can drive more sales.
Outline the three ways you can classify businesses, and provide detail for each.
- Size
- small (including micro)
- medium
- large
- Industry
- Primary
- Secondary
- Tertiary
- Quaternary
- Quinary
- Legal structure
- Unincorporated
- Sole trader
- Partnership
- Incorporated
- Private company
- Public company
- Unincorporated
What are micro businesses? Provide an example of one.
a business that employs less than 5 people including the owner
What are small businesses? Provide detail and an example of one.
businesses that has less than 20 people.
EXAMPLE: corner stores, local mechanic, hairdressing salons
- Generally owned by one / two people, who act as managers (usually)
- Cheap to set up
- Owners contribute most of startup capital
- high rates of failure
What are the common legal structures of small / micro businesses?
Sole trader / partnership
What are medium businesses? Provide detail and an example of one.
businesses that has 20 - 199 employees
EXAMPLES: motel / hotel, manufacturing factory
- generally owned by a few people or private shareholders
- owners responsible for majority of decisions - may be slower to implement due to influence of directors
- Owners / shareholders contribute capital and easier to access loans
What are the common legal structures of medium businesses?
Partnership / private company
What are large businesses? Provide detail and an example of one.
businesses that have 200 or more employees.
EXAMPLES: Woolworths, Qantas, NAB
- Likely to be owned by thousands of public shareholders and managed by different people (etc. board of directors)
- Generally less risky = easier to attract finance
What is the common legal structure of large businesses?
Public company
What is a sole trader company?
a business that is owned and operated by one person
- usually only has one person’s name in business name (etc. Greg’s Electrical Shop)
What are the advantages and disadvantages of a sole trader company?
ADVANTAGES - simplest and cheapest structure - owner receives all profit DISADVANTAGES - owner suffers all losses - has unlimited liability - owner can be forced to sell personal assets to pay business debts
What is a proprietary (private) company?
a company with private ownership
- MUST HAVE PTY LTD AFTER NAME
What are the advantages and disadvantages of a proprietary (private) company?
ADVANTAGES - Shareholders have limited liability - only investment is lost if business goes under - tax at fixed rate DISADVANTAGES - increased record keeping - more regulations
What is a partnership company?
a business in which two or more partners share the profits and liabilities of the venture
- tends to have names of partners in business names: etc. Harries and Davidson Accountants
What are the advantages and disadvantages of a partnership company?
ADVANTAGES
- Partners share profits and losses equally
- More startup capital available
- easy to change legal structure later if circumstances change
DISADVANTAGES
- Unlimited liability for debts for partners
- each partner equally liable
- each partner is liable for actions by other partners
What is a public company?
a company whose shares are traded freely on a stock exchange
- MUST HAVE LIMITED / LTD AFTER NAME
What are the advantages and disadvantages of a public company?
ADVANTAGES
- company is incorporated enterprise
- if shareholder leaves, business can continue
- able to raise large amounts of capital
DISADVANTAGES
- many regulations to protect shareholders
- possible mismanagement when business expands
- owners may lose control of the original company in the event of a dispute
What are the two main types of financing for businesses?
- Debt finance
2. Equity finance
Contrast debt finance and equity finance.
Debt finance: money obtained through loans
Equity finance: money received from raising capital
What are the advantages and disadvantages for debt finance?
ADVANTAGES
- Don’t have to sell ownership in business
- Taxation advantages: tax deductible
- Easier planning
DISADVANTAGES
- Need good credit rating
- Discipline
- Must not be overly dependent on debt, and make repayments on time
- Collateral
- Business assets may be at risk
- Personally guaranteeing loan puts your own assets at risk
What are the advantages and disadvantages for equity finance?
- Advantages
- No loan to repay
- Equity partners can expand your network
- No need for credit rating
- Disadvantages
- Cede some control to shareholders
- Profit must be shared
What are some of the issues that need to be considered when assessing finance for a business?
- if you have sufficient startup capital, so you can use equity finance
- if you need to borrow money, in which case you must find a loan with a low interest rate
What is the difference between a private company and a public company?
A private company is privately held by the shareholders. A public company lists some of its stock on the public market.
How can you identify if a company is public or private?
Private company: has Pty Ltd after name
Public company: has Ltd after name
Define incorporation.
when the company has become a separate legal entity from its owners (shareholders)
Define goodwill.
the monetary value of a business’s reputation
Define limited liability.
if the business cannot pay its debts, a shareholder generally loses only the money he or she invested in the business
Define niche market.
a very small segment of the total market