Entrepreneurs And Leaders 1.5 Flashcards
1
Q
Definition of an entrepreneur:
A
Someone who takes a restless look at the business opportunities that exist and then turns a business idea into action.
2
Q
What is small budget research?
A
Not spending a lot of money, but understanding the market before becoming an entrepreneur.
3
Q
What are the main sources of business ideas? (4)
A
- Observation
- Brain storming
- Thinking ahead
- Ideas from personal or business experience
Innovations
4
Q
How to spot a business opportunity? (4)
A
- Think about changes to society
- Think about changes to the economy
- Think about the local housing market- people moving into or out of your area
- Small budget research
5
Q
How to run a business successfully? (4)
A
- Ability to obtain and listen to objective measures of its performance - look at both positives and negatives
- Eye for detail
- Be able to step back from day to day issues and think strategically - long term plans for the company
- You need to love what you’re doing
6
Q
3 reasons to think about before a business should expand:
A
- Establishing that extra demand exists
- Ensure the finance is in place
- Ensure the right people are in the right place
7
Q
2 barriers to entrepreneurship for small businesses:
A
- Banks have become much less willing to lend to small firms after the 2009 financial crisis - see them as risky and unprofitable
- Small businesses tend to pay proportionately higher rates of tax than large firms
8
Q
What is an intrapreneur?
A
An intrapreneur has the personal characteristics of an entrepreneur but works within a large organisation. The are willing to take risks and think creatively
9
Q
Factors which determine the differences between companies who celebrate intrapreneurs and those who mistrust are: (3)
A
- High tech vs low tech. High tech need new bright ideas to keep them ahead
- Stage in a companies life cycle - new companies want new ideas to keep the growth going but when they become big they are likely to want to avoid making mistakes so don’t want intrapreneurs
- Leadership - personal characteristics of the leader is important as some will encourage ideas whereas autocratic leaders prefer to keep ideas at the top.
10
Q
Why may brainstorming be a useful way to come up with a business idea?
A
Because it encourages creative ideas that may later be whittled down to what makes sense
11
Q
Why might a business do better located near to competitors rather than far away?
A
Clusters attract customers.
12
Q
Why might it be risky to expand a small business rapidly?
A
Expansion puts pressure on a firms cash and Human Resources, the expansion may outstrip the entrepreneurs capacity to handle these pressures
13
Q
Why might a business want to restrain potential intrapreneurs?
A
Senior managers may be wary of initiates which unsettle stable income streams
14
Q
Why might a woman be less likely to start a business than men?
A
The reasons might be practical (less physical strength) or psychological (may have less arrogance/ confidence)
15
Q
How might a future government help small firms to expand safely?
A
They may offer a tax window, postponing extra taxes on national insurance and profits until beyond an agreed 2-3 year expansion period
16
Q
Franchise definition
A
A business that sells the rights to the use of its name and trading methods to local businesses
17
Q
What is geographical mapping?
A
Plotting on a map the locations of all the existing businesses in your market, to show where all competitors are
18
Q
Innovations definition
A
New ideas brought to the market
19
Q
Line manager definition
A
A manager responsible for meeting specific business targets and responsible for specific staff
20
Q
Market map definition
A
A grid plotting where each existing brand sits on scales based on two important features of a market
21
Q
Niche market definition
A
A gap in the market
22
Q
Characteristics of a successful entrepreneur: (5)
A
- Understanding of the market
- Determination to succeed
- Passion
- Resilience
- Ability to cope with risk
23
Q
Skills required to be a successful entrepreneur (4)
A
- Financial skills - e.g. To understand the cash flow forecast
- Persuasive abilities - persuade others to do what they want
- Problem solving skills - come up with a solution from a problem
- Networking skills - maybe to benefit from network based crowdfunding
24
Q
2 financial motives for becoming an entrepreneur
A
- Profit maximisation
2. Profit satisficing
25
What is profit maximisation?
Entrepreneurs thinking of how to maximise their profit. Usually short term when a business isn't necessarily thinking about the future
26
What is profit satisficing?
It is the idea to find the right profit rather than the biggest. This is best for small businesses who want long term profit
27
4 non financial motives for becoming an entrepreneur:
1. Independence
2. Homeworking
3. Ethical stance
4. Social entrepreneurship - claiming to have something like health benefits
28
Why might determination be more important to a successful startup than talent?
Untalented people with a good idea can make it if they are determined, without this however much talent they won't succeed
29
Why might profit maximisation be a better target than satisficing?
It is more challenging and therefore may be a more effective motivator.
30
How may networking help a young entrepreneur?
By providing the connections to people with capital or to potential customers
31
Crowdfunding definition:
Obtaining external finance from many individual, small investments, usually through a web based appeal.
32
Piece rate definition:
Paying workers per piece they produce
33
Corporate objectives definition
The goals set for the business as a whole
34
What is marketings function?
This department advises the business on consumer trends and the attitudes and purchasing habits of customers - and decides how to advertise and promote new and existing brands
35
What is Human Resources function?
Managers of the firms staff (HR) plan for and deal with recruitment, training, financial incentives, equal opportunities and also redundancy and dismissals
36
What is finances function?
Finance helps to identify what can be afforded and therefore what budgets to set for each of the other functions. It also monitors spending levels to make sure costs are kept under control
37
What operations function?
Manages the supply chain that starts with buying materials and components, then manufacturers a finished product and delivers it to the customer
38
What is a mission statement for a business?
The aim for the business that is settled upon by the boss or by the board of directors. It is a general statement of where the business is heading
39
Why is an aim made into a motivational statement?
To try and excite customers and staff alike - make them feel part of the project
40
SMART objectives from an aim or mission:
```
S - specific
M - measurable
A - achievable
R - realistic
T - timebound
```
41
What are 8 common business objectives?
1. Survival
2. Profit maximisation
3. Sales maximisation
4. Market share
5. Cost efficiency
6. Employee welfare
7. Customer satisfaction
8. Social objectives
42
Why is survival as a common business objective a priority for some? (3)
1. Are caught out by a sudden change in the economy
2. Have over expanded - probably using using bank finance and are struggling from the interest payments
3. Have a major competitor
43
Budgets definition
An agreed maximum on the monthly spending by any department or manager
44
Delegation definition
Passing authority down the hierarchy to allow more junior employees some decision making power
45
Mission definition
A business aim expressed to make it seem especially purposeful and motivating
46
Mission statement definition
A short, powerfully expressed sentence or two which explain the business aims clearly yet motivating.
47
Objectives definition
Targets precise enough to allow praise or blame for the person in charge
48
Shareholder value definition
The mix of shareholder dividends and a rising share price which stem from high and rising profits,
49
Strategy definition
A medium to long term plan for meeting your objectives
50
Why may social objectives be easy to boast about but hard to carry through?
Boasts about doing well on a website, but may be ignored by bosses intent on high profits and high bonuses
51
Why do objectives need to be smart?
They would have no motivating force if they are clear to understand so hard to measure whether they have been achieved or not
52
What is unlimited liability?
Means that the finance ps of the business are treated as inseparable from the finances of the business owner. The creditors can get the individual owners to pay up if something goes wrong.
53
Describe a sole trader:
A sole trader is an individual who owns and operates their business. The owner may have other employees but they make all decisions and if the business fails then this is on the owner. They have unlimited liability, so if there are debts then the personal assets can be seized by the court
54
Some negatives of being a sole trader: (4)
Limited sources of finance available
Long hours of work
Difficultly of running the business during periods of ill health
Unlimited liability
55
Some positives of being a sole trader: (4)
Little finance required to set up and run the business
No administrative costs to pay
In charge of your own business - and easier to control
Wage bill is low as lack of employees
56
Describe a partnership:
When two or more people start a business without forming a company. The have unlimited liability for any costs/debts
57
What are the four main types of partnerships?
1. Active partners- participates int he day to day operations of the business
2. Dormant partners - participates by contributing capital. They generally supply funds to the business and do not work in the business daily
3. Nominal partners - only let the business use their name, they have no interest in the company. They are liable to third parties
4. Minor partners - only share the profit of the business. They can be part of the business but only under certain restrictions
58
Definition of deeds of partnership
A legal document that contains an agreement which details the rights and obligations of each partner participating in the venture. It states the process that will happen if a partner wants to leave
59
What is limited liability?
The condition by which shareholders is legally responsible for the debts of a company only to the extent of the nominal value of their shares.
60
What are the advantages of being in a partnership? (4)
1. More flexibility/ contribution
2. Different strengths which complement each other
3. Someone to consult business decisions to
4. Advice and support available if a partner needs it
61
What are the disadvantages of being in a partnership? (3)
1. Profits have to be split between all partners
2. Unlimited liability
3. Complicates/ lengthens decision making
62
Advantages of forming a limited company: (2)
1. Shareholders experience the benefits of limited liability
| 2. A limited company is able to gain access to a wider range of borrowing opportunities
63
Disadvantages of forming a limited company: (2)
1. Limited companies must make financial information available public at companies house
2. Limited companies have to follow more rules than unlimited liability businesses
64
What is a private limited company - ltd?
A business which is owned by shareholder but cannot be sold on the stock market, shares are only traded privately when majority of shareholders agree. The owners are always involved with the running of the business.
65
Advantages of an ltd (6)
1. Have limited liability
2. More privacy than a plc
3. Easier to raise finance- sale of shares
4. Employees are often shareholder too, which motivates them to pursue objectives of the company
5. The owners keep control of the company
6. Protect trade secrets which don't want to be sold to competitors
66
Disadvantages of a ltd: (3)
1. Can't sell shares on stock exchange
2. Restrictive rules with their accounts
3. High admin costs
67
What are the three main differences between public and private limited companies?
1. Public company can raise finance from general public, whilst the private limited company is prohibited from doing so
2. The minimum capital requirement of a public company is £50,000. There is no minimum for a private limited company
3. Public companies must publish more detailed accounts than private companies
68
Advantages of a franchisor: (5)
1. Get regular payments from franchisee
2. Business expands quickly without having to control the franchisees firm
3. Gain more customers through the franchisee setting up
4. Increase in market share due to franchisee getting more sales
5. Choose who they want to be a franchisee
69
Negatives of a franchisor: (4)
1. Reputation reliant on franchisees as if they make a mistake it will have a negative affect on the franchisor
2. May have to offer training to franchisee
3. Franchisee may become dependant on franchisor to make decisions
4. Expanding means it is harder to get products introduced to all stores as communication is distorted
70
Advantages of a franchisee: (4)
1. Reduced risk, business will already be well known and therefore already have customers coming into the business
2. Franchising allows franchisee to take advantage of economies of scale (e.g. Bulk buying)
3. Get training from franchisor so familiar with the business and gain experience
4. Franchisee can take advantage of name and reputation so more likely to be successful
71
Disadvantages of franchisee: (4)
1. Have to pay regular royalty payments to franchisor which means they earn less profit
2. Have to run business the way the franchisor wants so have limited control over what you can do
3. If the franchisor fails then it can have a knock on effect on the franchisee
4. If franchisee feels they have a good new product, but the franchisor doesn't like it then it won't be introduced
72
Franchisor definition:
The business who sells their rights to another business
73
Franchisee definition:
The business/ person who buys the rights of the business to setup the same business in another location
74
What is an advantage to having a plc business? (4)
1. Better access to capital - able to obtain more of it at a quicker rate
2. Cash flow - shareholders are able to buy and sell shares
3. Opportunity to easily buy more parts of something through offering shares to shareholders of a target firm
4. Gives a company more publicity so it can generally become bigger and more well known
75
What is a disadvantage to a plc business? (3)
1. Accounts are more accessible to public - share price is known
2. Legal formalities to starting a public limited company - must have 2 shareholders before it can be formed
3. Original owners lose control and originality of the business
76
What is flotation?
Flotation is the process of changing a private company into a public company by issuing shares and allowing the public to buy them. It allows companies to obtain finance from outside the company instead of using retained profit.
77
What are the benefits of stock market flotation? (5)
1. Giving access to new capital to develop the business
2. Allowing businesses to offer employees extra incentives by granting share options - this can encourage and motivate employees to work for a long term goal
3. Increasing the businesses public profile
4. Creating a market for the companies shares
5. Giving an opportunity for someone to buy a share
78
What is a social enterprise?
It's a business which claims to do good, but the good for whom it isn't stated. It's a business which trades in order to benefit the community. They have social and an environmental purpose. They aren't a charity but achieve a social aim through donations and grants
79
What is a lifestyle business?
To provide a great quality of life for the owner, or exploit a hobby/ interest. They want to do something they really enjoy, it allows an entrepreneur to live how they want and run a business. It gives freedom, and means that there is less pressure/ commitment as it something which you enjoy.
80
Why might an entrepreneur choose to be a sole trader instead of forming a private limited company?
To minimise administration costs and also as there is less risks involved in the business
81
Why might a growing business turn itself into a plc and then float its shares on the stock market?
To raise extra capital for expansion and/or to allow the early stage investors to sell part of their own holding (maybe making them millions)
82
Why might the divorce of an ownership and control matter to an investor?
It may mean that senior management are more interested in money/ power for themselves than building up the business in the long term
83
Why has limited liability been a benefit?
It means that firms have felt less threatened by big debts, limited liability helps firms to take reasonable risks to expand.
84
Bankrupt definition:
When an individual is unable to meet personal liabilities, some of all which can be a consequence of business activities
85
Creditors definition:
Those owed money by a business
86
Incorporation definition:
Establishing a business as a separate legal entity from its owners and therefore giving the owners limited liability
87
For a new start up business, what are the most important opportunity cost issues? (3)
1. Don't tie up too much finance in stock (inventory) as this cash could be used elsewhere
2. Do not overstretch yourself: good decisions take time
3. Take care with every decision that uses up cash
88
What is an opportunity cost?
The cost of missing out on the next best alternative when making a decision. The alternative is forgone or sacrificed.
89
How can estimates of the potential sales be estimated for each idea?
1. Market research
| 2. The expertise of the entrepreneur
90
What are some examples of trade offs from business choices? (3)
1. When starting in the first place, trading off the startup against a years international travel, or trading a startup against going to university
2. Trading off the aspects of the business you enjoy most against those that prove the most profitable for the business
3. Trading off time today and tomorrow, but may be able to retire young, which is long term not short term
91
What is a trade off?
Accepting less of one thing to achieve more of another. (E.g. Slightly lower quality for a cheaper price)
92
Why is opportunity cost involved in every business decision?
Because every decision commits Resources that cannot be used for other things
93
Why might an increase in interest rates be relevant to opportunity cost?
Because spending on assets such as inventories or machinery requires taking cash out of the bank so it won't be earning interest, the higher the interest rate the higher the opportunity cost of that withdrawal.
94
Why might opportunity cost be especially important for a new startup business?
It will almost certainly have very little spare capital and less management time, do wrong decisions and overspending has damaging knock on effects.
95
Delegation definition:
Passing authority down the hierarchy to allow more junior employees some decision making power
96
Liquidity definition:
The ability of a business to pay its bills on time, which all depends upon having enough cash in the bank
97
Overtrading definition:
When a business expands at a rate that cannot be sustained by its capital base
98
What are business effects of forecast rapid growth? (4)
1. Compare the sales estimate with the available production capacity
2. Budget for any necessary increases in capacity and staffing
3. Produce a cash flow forecast to anticipate any short term financing shortfalls
4. Discuss how to raise any extra capital needed
99
What can happen when a business experiences rapid growth (3 examples)
1. Increased workload for staff for extra stock
2. May put pressure on accounting system
3. The cash flow can worsen from laid paid bills and invoices
100
What must happen as a business grows?
The management structure must change, the boss may delegate workload. New layers of management may be added, or new departments started
101
Why might rapid growth cause problems with management control?
Rapid growth implies more staff and therefore more management layers, causing confusion over roles and responsibilities.
102
How might a growing business check that it is not overtrading?
Regularly check the companies cash balances, liquidity and debt levels
