establishing a business Flashcards
Define an entrepreneur
is a person who identifies business opportunities and utilizes creativity while assuming risks to provide goods and services for prospective customers.
Define entreneurship
Entrepreneurship is a process through which individuals identifies opportunities, allocate resources and create
value through business ownership.
Reasons for establishing/starting a business include:
To gain financial independence – when a person is employed in a business, they are paid a salary. However, when you operate a business, you have control of the profits earned. Therefore, you pay yourself and this will be to your advantage.
To achieve self-actualization- some persons have always wanted to start their own business. Thus, a person would self-actualize when they get the opportunity to start and manage a business of their own. This gives them a sense of achievement.
To create wealth – people are driven by their ability to generate income by offering products and services. A person who establishes a business has the opportunity to determine their wealth.
To fully utilize skills and talents – there are many highly skilled and talented people that are unemployed. These persons could get the chance to utilize their skills and talents while at the same time earning an income.
Roles of an entrepreneur include:
Conceptualizing – developing the concept of the business.
Planning – setting out a series of potential steps needed to bring the business concept to reality.
Accessing funds – raising the capital needed to start the business.
Organizing – organizing people, funds and equipment to put the business plan into operation.
Operating – running the business effectively and efficiently.
Evaluating performance – keeping watch on the strengths and weaknesses of the business.
Qualities/ Characteristics of an entrepreneur include:
Creative and innovative – entrepreneurs must be able to develop new ideas, new concepts and new ways of
doing things.
Flexible – entrepreneur must be prepared to change their approach when necessary.
Problem solving – when there is a problem the entrepreneur must find a way to deal with it.
Goal oriented – an entrepreneur must always be clear about the aims of the business and works to achieve
those aims.
Persistent and persevering – entrepreneurs are not easily discouraged and keep going in the face of difficulties.
Steps in establishing a business include:
Step 1 – conceptualization – this is developing the business idea.
Step 2 – research or market probe – carrying out initial research. How many people are likely to want the product or service? What are the strengths and weaknesses of competing products?
Step 3 – identifying resources – what resources will be needed to establish and run the business (human resources, material resources and financial resources).
Step 4 – a feasibility study – this is an initial outline study, to decide whether the business concept looks like a potential proposition.
Step 5 – a business plan – this is a detailed plan setting out the objectives of a business over a stated period.
Step 6 – accessing funds – this outlines how the business intends to access funds to establish the business (from investors, banks or other sources).
Step 7 – operation – this is where the business plan is put into operation and becomes a reality.
Sources of capital available to an entrepreneur include:
Personal savings – for a very small business, the entrepreneur may provide start-up capital from personal savings.
Equity capital – equity capital comes from other investors. They put money into a business as partners or shareholders and hope to share in future profits.
Loan from a financial institution – the most common source of a business loan is a bank. Most loans carry a fixed rate of interest.
Borrowing from family and friends – the entrepreneur may borrow from his/her family and friends who may offer loans at a lower rate of interest than a commercial bank.
Venture capital – this combines some features of a loan and equity capital. It is designed to help start-up businesses or rescue a business which is in trouble.
advantages/disadvantages
Advantages of an entrepreneur include:
Successful entrepreneurs can control their own financial future.
Entrepreneurs does not have to take instructions ‘they are their own boss”.
The profits from running an independent business may be more than the entrepreneur could earn as an employee.
Entrepreneurs feel a sense of achievement.
Disadvantages of an entrepreneur include:
When a business is getting started, the entrepreneur may have to work much harder than an employee.
The entrepreneur may earn less while the business is getting established. Profits must be reinvested in thebusiness, or used to pay off the bank and other lenders.
When the business is getting established, the entrepreneur may feel weighed down by obligations to the bank,
suppliers, tax authorities, etc.
When a business is in difficulties, it becomes a source of stress and worry. Business failure may lead to serious emotions or family problems, even to mental illness.
problems/solutions
Challenges/ Problems faced by entrepreneurs include:
Entrepreneurs may face stiff competition from more established firms.
Entrepreneurs may face difficulties in obtaining finance/capital from financial institutions.
Solutions to problems faced by entrepreneurs include:
Entrepreneurs may have to spend heavily in advertising in order to compete with more established firms.
Entrepreneurs may use collateral in order to increase their chance of obtaining finance/capital from financial
institutions.
Role of an entrepreneur in economic growth and development
Collaborating – entrepreneurs can communicate with other business and government to help boost the economy financially and in providing the availability of more resources in the country.
Providing goods and services – by having more resources invested into the economy there would be an increase in the production of goods and services to satisfy citizens’ needs and wants.
Creating jobs – entrepreneurs contribute to employment of an economy as more independent businesses are established. There is always the demand for labour, therefore, creating more jobs in society.
Contributing to nation building – it contributes to the building of the nation as there is more capital circulating in the economy as well as more persons being employed and may lead to lower criminal activity.
COLLATERAL
Collateral may be defines as assets pledged as security on a loan e.g. house and land. Money in fixed deposit, etc.
Benefit of collateral to the borrower include:
It increases the borrower’s chance of getting the loan.
Benefit of collateral to the lender include:
It establishes the financial position of the borrower.
BUSINESS PLAN
Features of a business plan include:
It summarizes the operational and financial objectives of a business.
It serves as an instrument to demonstrate how the planned outcomes may meet the requirement of the investors.
It tells us what a business is going to do and how it is going to be done.
Reasons for a business plan include:
To thoroughly investigate the market in order to determine if any opportunities may exist.
To aid in long-term strategic planning for the business.
To gain the confidence and commitment of board members in committing capital to the project.
As a means of impressing and so attracting investors.
In order to convince other firms to form strategic alliances with him/her.
Elements/Components of a business plan include:
Executive summary- It is
summary of all the other sections of the business plan and provides the lender or investor a quick synopsis of the business and its layout.
Elements/Features of an executive summary include:
It summarizes the technical, marketing, financial and managerial details.
It must include an exit strategy.
It must indicate where the business stands at present and which elements are critical for success in the future.
It must be able to convince the reader that the new venture is a worthy investment.
2. Company History
the company history is basically a business description of when the business starts, what it is about and where it intends to go.
3. Marketing Strategy
The marketing strategy involves generating an industry overview, giving a clear indication of the current situation, market trends and industrial characteristics.
4. Product and Operational Plan
This is sometimes referred to as the production plan and is simply a description of the proposed product or service that is going to be provided, its cost of production and where the resources are going to be sourced.
5. Manufacturing Plan
This outlines the method by which the product is going to be produced.
6. Financial Plan
this highlights how the company is going to make money financial resources have to be carefully
managed and spent and so earn a good return on investment.
7. Organizational and Management Plan
This states the various positions that will be needed, qualifications of the employees and management team, and a clearly developed chain of command.
8. Exit strategy
The exit strategy refers to the means by which a venture capitalist may be able to get out their money.
