Enterprise, Business structure & Size of business Flashcards
(45 cards)
Business
any organization that uses resources to meet the needs of customers by providing a product or service that they demand
Consumer Goods
the physical and tangible goods sold to the general public like cars, drinks, machines
Consumer Services
the non-tangible products sold to the general public like hotel accommodation, insurance services
Capital goods
the physical goods used by industry to aid in the production of other goods and services
Purpose of business activity
identify and satisfy the needs and wants of the people with the overall aim of earning profit.
Factors of production needed for business activity
Land: renewable and non-renewable resources of nature
Labour: manual and skilled workforce of the business
Capital: finances and man-made resources used in production like computers, machines (also called capital goods)
Enterprise: risk taking individuals that combine the other factors of production into a unit capable of producing goods or services
The concept of adding value
Creating Value: increasing the difference between the cost of purchasing raw materials and the price of the finished goods. Mainly customer focused businesses are successful in creating value as customers are prepared to pay high prices for products/services that exactly meet their needs
Added value: the difference between the cost of purchasing raw materials and the price of the finished goods
Increase Added Value by: developing the shop, increasing quality of service, attractive packaging, establish brand image.
Nature of economic activity, the problem of choice and opportunity cost
Economic problem: there are insufficient goods to satisfy all of our needs and wants at any one time
Opportunity Cost: The next most desired product given up becomes the ‘lost opportunity’ or opportunity cost
Dynamic business environment
Setting up a new business is risky because the business environment is dynamic, or constantly changing.
Changes in the business environment include:
-New competitors entering the market
-Legal changes: new safety regulations, or limits on who can buy the product
-Economic changes that leave customers with less money to spend
-Technological changes that make the products or the processes of the new business outdated
Why businesses succeed
-Efficient management of operations keeps costs under control
-Good understanding of customer needs – leads to sales targets being achieved
-Flexible decision-making to adapt to new situations – allows investment in new business opportunities
-Appropriate and sufficient sources of finance – prevents cash shortages and allows for expansion.
Why businesses Fail
-Lack of cash: Finance is needed for working capital, for the holding of inventories, and to give trade credit to customers, who then become debtors. Without this working capital, the business will be unable to buy more supplies, pay suppliers or offer credit to important customers. All these factors could lead to the business closing down.
-Cash flow problems: which arise from poor cash flow management through inexperienced or unknowledgeable individuals.
-Poor management skills: Lack of skills such as leadership and decision-making, will lead to the business to failure.
-Changes in the Business Environment: Business environment is dynamic (constantly changing) such as new competitors, legal changes, economic changes, technological changes (old fashioned)
How cash flow problems can be reduced
-Producing a cash Flow forecast and keeping up to date, thus the cash needs of the business can be assessed monthly
-Sufficient capital is injected into the business at start-up allowing it to operate during the first months when cash flow from customers may be slow to build up.
-Good relations are established with the bank so that short-term cash problems may be financed with an overdraft extension.
-There is effective credit control over customers’ accounts to make sure they pay on time.
How to prevent poor management skills from arising
A new entrepreneur could gain management experience beforehand through advice and training from a specialist organisation offering management support.
Alternatively, some entrepreneurs can employ individuals with management experience. However, as this can be expensive, many newly formed businesses cannot afford this option.
Differences between local, national, international and multinational businesses
Local businesses: operate in small, well-defined parts of a country. Their owners often do not aim to expand so do not make attempts to attract customers across the whole country.
National businesses: have branches or operations across a country. They make no attempt to establish Operations in other countries or to sell internationally.
International businesses: sell products in more than one country. This may be done by using foreign agents or online selling.
Multinational businesses: have operations in more than one country. This means they have an established base for either producing or selling products outside their own domestic economy.
Qualities enrepreneurs and intrapreneurs need for success
-Innovation: Attract customers invasively and promote their business, being unique and different from others in the same market
-Commitment and self-motivation: Requires energy, focus, willingness to work hard and be keen to have the ambition to succeed.
-Leadership skills: Must be able to motivate, encourage the workforce, and lead by example
-Risk Taking: Be willing to take risks to see results, ex: Investing own savings into the business.
The role of entrepreneurship in creating and starting up a business
-Have a suitable business idea
-Create a business plan
-Invest savings into the business
-Accept the responsibility of managing the business
-Accept the possible risks of failure.
The role of intrapreneurship in the ongoing success of a business
-Injecting creativity and innovation into the business – developing new products to increase sales or creating exciting ways of selling existing products.
-Developing new ways of doing business – creativity in solving problems such as low efficiency can be more successful than continuing to use the old ways.
-Creating a competitive advantage – by developing more innovative products.
Barriers to entrepreneurship:
-Lack of a business opportunity: Identifying successful business opportunities is one of the most important stages in becoming an effective entrepreneur.
-Obtaining sufficient capital (finance): obtaining finance is a major barrier for entrepreneurs, due to:
-insufficient savings – many entrepreneurs have limited personal savings
-no knowledge of the financial support and grants available
-a poor business plan that fails to convince potential investors and banks of the chances of a business’s success.
-Competition: A newly created business will often experience competition from established businesses with greater resources and market knowledge. Thus entrepreneurs must have good decision making skills and leadership skills.
-Lack of customer base:
A new business must establish itself in the market and gain customers quickly, in order to survive The long-term success of the business will depend on repeat purchase customers, by providing excellent customer service… This could be done by:
-Personal customer service
-Knowledgeable pre and after sale services
-Supplying one off customer requests that large firms may be reluctant to do.
Business risk and uncertainty:
Business decisions involve risks, business planning can be used to reduce risks, Business uncertainty cannot be foreseen, measured or calculated. (EX: covid)
Role of enterprise in a country’s economic development:
-Employment creation: When a new business creates jobs, the national level of unemployment will fall. If the business survives and expands, additional jobs are created in suppliers’ businesses.
-Economic growth: Any increase in output of goods or services from a start-up business will increase the gross domestic product of the country. Thus will lead to increased living standards for the population. Increased output and consumption will also result in higher tax revenue for the government
-Innovation and technological change: New businesses can be very innovative. This creativity adds dynamism to an economy. Technological improvement will lead to more competitive market.
-Exports: Some businesses will expand their operations to the export in other countries. This will increase the value of a nation’s exports and improve its international competitiveness.
Business plans
Business plans is used to encourage banks, venture capitalists and potential shareholders to invest money into a new business start up
Business plan key elements:
-Overview of the business and its strategy
-Description of the business opportunity ( nature of product, target market of product)
-Operations of the business (Premises operating in, it systems being used, Production facilities)
-Financial forecasts ( Profit and cash flow)
-Sales and marketing strategy
Benefits:
-Allows to obtain finance for a new business start up
-make finance application more likely to be successful
Limitations:
-Does not guarantee the success of the business.
Primary, secondary, tertiary and quaternary sectors and businesses within those sectors
Primary: It is the first stage of production. Businesses related with extraction of raw material from Mother Nature such as mining, fishing, farming, and quarrying.
Secondary: They convert raw materials into finished or semi-finished goods. Businesses which manufacture and process the raw materials which can be used by the end consumers.These include building, construction, shoes factories, textile factories etc.
Tertiary: Businesses which provide services and assist both the primary and secondary sector businesses. These include transportation, insurance, hospitals, educational institutes, showrooms etc.
Quaternary: Those industries providing information services, such as computing, ICT, Financial planning, and research and development.
Public sectors
Public sector business are originations that are owned and controlled by the government.
Advantages:
-Main aim is to benefit the local community, social objectives rather than solely profit objectives
-Easy to obtain finance, as its provided by the government.
Disadvantages:
-Possible inefficiency as there is lack of strict profit targets
-Government may interfere with business decisions due to political reasons.
Private sector businesses
Business owned and controlled by individuals or groups of individuals not by the government
Examples:
Sole traders, Partnerships, Limited companies (public, and private), Franchises, Joint venture, social enterprise, cooperatives.
