creating a business Flashcards
what is entrepreneurship
the term enterprise or entrepreneurship refers to the management skills needed to bring all other business resources together and make them work to produce goods and services successfully
what is an entrepreneur
a person who has a business idea and is willing to take a risk in order to make it work e.g. Bill Gates, Richard Branson
entrepreneurial characteristics
H - hard work and determination
E - enthusiasm and innovation
R - risk taking
O - organised and planned
E - effective leadership
S - self belief
why does the government encourage enterprise
- reduces unemployment
- competition ensures a healthier business environment
- leads to economic development which generates wealth in the economy
- new ideas may succeed and provide fresh opportunities
what is risk
risk is about taking sensible or calculated chances, not all chances will work out well
nature of risk taking
losing money: the entrepreneur will have invested considerable sums of money in a new product or business, if the venture fails, the money is lost and could bankrupt the entrepreneur
losing time: the entrepreneur will have invested long periods of time designing the new product or planning the new business, if the venture fails, that time is wasted
personal stress: the entrepreneur will experience worry that the new idea may not be successful and may be stressed by long hours and lack of sleep
reward of risk taking
making profit: a successful business with successful products can earn large profits for the entrepreneur, this usually leads to increased sales with further opportunities for profit making which means the business could also be sold for a large sum of money
satisfaction: success brings a high level of satisfaction and sense of achievement, for some, the buss and excitement make the risk worthwhile
independence: some people may want to be independent, to their own business, make their own decisions and be their own boss, independence is a reward for taking a risk
what are business resources
the resources needed to produce goods and services, it is important to combine all the resources of a business successful to make a product customers are willing to buy
what are 4 business resources
C - capital
E - enterprise
L - land
L - labour
fixed capital
the capital invested by the company in procuring the fixed assets required for the business’s working
working capital
the company’s working capital is required to finance its day to day operations
enterprise
an entrepreneur is someone who organizes the factors of productions, they take the risk and have the ideas e.g. Richard Branson
land
natural resources which businesses need to operate, this would include land for buildings and natural resources like trees
labour
people who work for the business, these are needed to make the products, sell the products, deal with money and advertise
what is business ownership
business ownership refers to legal control over a business which gives the owner the legal right to make certain business decisions
why does a business start
entrepreneurs usually start businesses because they have a good idea for a product which they think will sell
how does a business start
the entrepreneur will have to design a business plan, decide on the product and carry out market research to produce and original/unique idea
micro business
1-9 staff
up to £1.7 million turnover
sole traders, partnerships or private limited companies
small business
10-49 staff
up to £5.6 million turnover
sole traders, partnerships or private limited companies
medium business
50-249 staff
up to £22.8 million turnover
private limited companies
large business
250+ staff
greater than £22.8 million turnover
private limited companies and public limited companies
what does cccl stand for
control, capital, continuity, liability
what is a sole trader
a business that is owned by one person, this person may employ other people but they remain the owner and decision maker
characteristics of sole traders
1 owner
up to 49 staff
the owner makes and controls the decisions
start-up capital from personal savings or a bank loan
micro/small business
sole traders are responsible for all the losses in their business - unlimited liability
trading locally
unlimited liability
this means that if they do not have enough money in their business to pay their debts, they have to use their private funds to meet them (e.g. their car, house etc.)
advantages of sole trader
- low start up costs: cheaply and easily formed without legal procedures
- you are your own boss and can make all your own decisions: because the business is usually small - the sole trader has very close links with the customers and employees (LCB)
- you can set your own working hours and holidays: the owner can make all the decisions and can make them quickly without having to call committee meetings
- you can keep all your profits: the owner can make and keep all the profits made in the business
- your accounts are kept private so no one can see how much profit you have made
disadvantages of sole trader
- you have to work long hours: the business is very dependent on one person, the sole trader in a shop e.g. expected to have expertise in sales, purchasing, advertising and accounting
- it is harder to raise the money to set up the business by yourself: sole traders have to raise all their own capital, the amount of capital they have is limited so their businesses are likely to be small
- if your business makes a loss then you have to pay all the debts back
- unlimited liability
what is a partnership
a partnership consists of two people up to a maximum of 20 partners
characteristics of partnerships
2-20 owners (partners)
0-any number of employees
sleeping partners
ordinary partners have unlimited liability so they can lose their investment and personal belongings if the business runs into debt
deed of partnership
private sector
what is a sleeping partner
someone who invests money but takes no part in the day to day running
what is a deed of partnership
a deed of partnership lays out rules for running and dissolution of the partnership e.g. sharing of profits
advantages of a partnership
- partners can share decision making
- there more people who can put money in to set up the business
- there are only a small number of legal requirements
- each partner may have their own set of kills to contribute to the business (specialisation)
disadvantages of a partnership
- if the business gets into debt, then the owners are legally liable which means they will lose personal items e.g. a car or house
- profits are shared meaning less money for each person
- partners may have disagreements
- if one partner dies then the business ceases to exist
what is a private limited company
this is a business that has a separate legal identity from its owners and it has raised its start-up costs/capital by selling shares to family and friends, they tend to be small/medium sized
what is a shareholder
a separate legal entity that prevents individuals from being liable for the company’s financial losses and debt liabilities, they only lose money that has been invested - not their personal possessions (limited liability)
characteristics of a private limited company
- has LTD after its name
- owners are called shareholders
- shareholders are family and friends
- the company has a separate legal identity from its owners
- normally controlled by directors
advantages of an LTD
- lenders are more likely to lend larger sums of money to LTD’s rather than sole traders
- shareholders are only personally liable for their investment, their personal assets are not at risk
- private limited companies have a separate legal identity from their shareholders, it can sure and be sued in its own right
- LTD’s cannot sell their shares without permission are so protected from unwanted takeovers
what does the memorandum of association include
- name of the company
- country in which the company is situated
- type of company (PLC/LTD)
- the work of the company
- the amount of share capital invested
what do the articles of association include
- voting rights of shareholders
- how profits will be divided
- the method of electing the directors
- how meetings will be conducted
- the duties of the direction
where do businesses sell shares in order to grow
the stock market
characteristics of a PLC
- has PLC after its name
- they are called public limited companies as anybody in the general public can now buy shares in the company through the stock market (IMPORTANT)
- PLC’s are normally bigger than LTD’s because they can raise more money by selling shares to anyone whilst LTD’s can only sell shares to family and friends
- largest type of public sector organisation
- although its name is public, it is in the private sector because it is owned by private people
advantages of a PLC
- the shareholders have limited liability
- shares can be sold on the stock exchange and so it is much easier for a PLC to raise large sums of money to expand, being bigger also allows a PLC to benefit from Economies of Scale
- the business can continue trading even if a shareholder dies
- PLC’s are usually thought of as having more status than LTD’s, this can impress and attract consumers
disadvantages of a PLC
- because anyone can buy shares in a PLC through the stock exchange, there is a risk that it could be bought by another company, this is called a takeover
- the media are more interested in PLC’s and will jump on any stories of bad things that they have done e.g. the BP oil disaster
- many legal documents have to be prepared before a business can start trading as a PLC, takes time and money
- the financial info about the PLC must be published every year so that shareholders or even competitors can see it
- the business must have a share capital of £50,000 already before it can apply to become a PLC, this stops small businesses from becoming one
what is a franchise
a franchise is a business idea that has been developed by one business and is then leased to another business for use, operates in the private sector
what is a franchisee
a person or company who has bought the local rights to use the name, logos and training methods of another company (the franchisor)
what is a franchisor
the business providing the franchise
what is a royalty payment
the franchisee has to pay a percentage of its profits to the franchisor
advantages for franchisee (BATS)
- brand: it has been tried and tested and should succeed
- access to finance: finance is easier to obtain as deemed less risky
- territory: the area of which the business is placed, advice and guidance available
- support: from the franchisor
disadvantages for franchisee
- income: share of profits goes to franchisor
- loss of control: only franchisor products can be sold
- interdependency: success is very dependent on popularity of the product
advantages for franchisor
- growth: increased opportunities for expansion
- profits: as they receive a percentage of the profit from all sales in that particular shop
- management: they have the outlet run and managed for them
disadvantages for franchisor
- brand: it is linked to all franchises, if one gets a bad reputation it could lead to a negative for all
- control: loses the day to day running of the outlet
- interdependency: success is very dependent on popularity of the product and relies on the success of all other franchises
what is the private sector (give examples)
organisations that are owned by individuals, these businesses are driven by profit, the profit from private sector organisations benefits the owners e.g. sole traders, partnerships, franchises
what is the public sector (give examples)
any business which is owned by the country as a whole and run on behalf of the people is known as a public sector business e.g. law and order/defence/NHS/education (if these services were left in private ownership, it could be that they are too expensive and not everyone would have access to them)
what is a mixed economy
the UK and Ireland has a mixed economy, this means that ownership and control is divided between the private sector or public sector
aims, control and finance in a private sector business
- aims: to make a profit
- control: run by the owners of the owners (ownership)
- finance: capital is invested by private people
aims, control and finance in a public sector business
- aims: provide a service
- control: controlled by the government on behalf of the people
- finance: comes from taxes
what is a social enterprise
a business set up for the benefit of the people, a social enterprise marries the social mission of a non-profit programme with the market driven approach of a business
why do social enterprises exist
they are established in order to dress certain environmental and/or social needs through the operation of their business:
- consumers want ethical products and services
- to fill a gap in the market
- to fulfil social or environmental needs
- social enterprises need to be as good as competing businesses that are working for profit maximisation
what factors need to be considered when choosing the location of a business
- availability and price of land
- government influences
- communication
- transport infrastructure
- parking
- price of land
- competition
- proximity to market
- proximity to raw materials
explain proximity to raw materials
in examples of manufacturing businesses where the raw material is heavy, it makes economic sense to place the business near raw materials e.g. timber firms
explain proximity to markets
shops and offices need to be located centrally in towns and cities which are popular with shoppers to get more customers e.g. supermarkets
explain availability and price of land
the cost of land varies from area to area and the success of a business (new) could seriously be affected by this capital cost e.g. florists
explain government influences
some parts of the country suffer from unemployment as a result of traditional industries, the government tries to cure employment black spots and even out wealth and resources in NI e.g. warehouses
explain transport infrastructure
having these in place would assist the business to deliver goods more quickly to its customers and would also help it to receive its deliveries more easily e.g. service stations
explain parking
car parking facilities are also important for manufacturing businesses in order to accommodate the large numbers of employees, delivery vehicles, visitors and trade representatives e.g. doctors surgery
what is an aim
an aim is something that a business will set in the long term, an objective is a short-term goal that will help achieve the overall aim
why is it important to have a target/aim
1 - defines what the business is and where it wants to be, this serves as a guide for the business in the future
2 - provides targets for the business to work towards, acts as a measurement standard of how well its doing
how can a mission statement help a business
- it provides the business with a sense of purpose
- it can be used to set objectives and aims
- it informs customers what the business is about
- it can act as a motivator
SMART aims
- S: specific
- M: measurable
- A: attainable
- R: realistic
- T: timed
explain survival
- a business is most likely to have this aim when it first starts up or during difficult economic conditions
- many businesses at the minute who have previously made high profits are now aiming to survive
explain profit and turnover
- allows the owners to have a certain standard of living
- improves one year to the next
- profit is the amount of money that the business has left after all of its expenses have been paid (including wages)
- businesses need to be better than the competition and give friendly customer service to make a profit
explain growth
- more likely when the business has been established in the current market and is making sufficient profits to finance the expansion
- businesses achieve growth by selling more products, employing more staff etc
explain corporate image
- a business will want to be viewed in a positive light by customers, suppliers etc
- having a positive corporate image should lead to customer loyalty, increased sales and profit
explain concern for the environment
- businesses have legal obligations not to damage the environment
- this can be achieved by recycling, using reusable bags, encouraging customers to recycle etc
explain social responsibility
- businesses aims to be caring in their communities and socially responsible
- they give back to their communities in some way
what do conflicting aims mean
- often firms have more than one aim
- sometimes these aims might actually conflict with each other i.e. by achieving a certain aim may actually work against another aim being achieved
what affect does survival have on business activity
1 - having to stay afloat with limited money
2 - having to reduce prices in order to maintain sales
what affect does growth have on business activity
1 - opening more factories
2 - recruiting more staff
what affect does profit have on business activity
1 - raising prices to secure profits
2 - increasing advertsing
what affect does corporate image have on business activity
1 - support local charities
2 - take part in sponsorship
what affect does environmental concern have on business activity
1 - recycle
2 - replace plastic packaging
why does a stakeholder have interest in a business
because they can affect and be affected by the business
what are customers interested in
- sales service
- quality
- value for money
what are employees interested in
- fair wages
- good working conditions
what are shareholders interested in
- good return on their investment
what are the local community interested in
- employment for local people
what are the government interested in
- payment of tax
- high levels of employment
different types of stakeholders
- owners
- shareholders
- directors
- managers
- producers
- consumers
- lenders
- employees
- pressure groups
what is an internal stakeholder
a stakeholder inside the business e.g. owners and managers
what is an external stakeholder
a stakeholder outside the business e.g. suppliers and customers
