Introudction To Business 2 Flashcards
Entrepreneur
Someone who sets up and runs a new business and takes on the risks associated with the business.
Enterprise
The process by which new businesses are formed in order to offer products and services in a market.
4 factors of production:
- Land
- Labour
- Capital
- Enterprise
Importance to the economy of entrepreneurship and enterprise (x4)
- Drives economic growth
- Creates new jobs
- Encourages innovation
- Contributes to social change
Decisions made by an entrepreneur (x4)
- What is made
- How the product is produced
- Finds the finance to fund the business
- What price the product will be sold at
Primary sector
Industries relating to the production of primary resources.
Secondary sector
The section of the economy that manufactures and assembles products from raw materials.
Tertiary sector
(Also known as the service sector)
Includes businesses that provide services rather than physical products.
Private sector
The section of the economy that is not under state control.
Public sector
The part of the economy that is controlled by the state.
Third sector
- The third sector is not about making a profit but rather making a difference to society.
- Third sector organisations are categorised into: charities and community groups, social enterprises.
Local market
The buyers and sellers are limited to the local region or area.
National market
Demand for goods is limited to one specific country.
International market
When the demand for the product is international and the goods are traded internationally.
Difference between national and multinational businesses.
National - Operates in one country but may sell abroad.
Multinational - Operates and sells in multiple countries.
Sole trader
A one-person business with unlimited liability for the debts of that business.
Advantages of being a sole trader (x4)
- Quick and easy to set up
- Simple to run
- Minimal paperwork
- Easy to close / shut down
Disadvantages of being a sole trader (x4)
- Unlimited liability
- Harder to raise finance
- The business is the owner (the business suffers if the owner becomes ill, loses interest etc)
- Can pay a higher tax rate than a company
Partnership
A business where there are 2 or more owners of the enterprise.
Advantages of a partnership (x4)
- Spreads the risk
- Partner may bring money and resources
- Shared skills and ideas
- Increased credibility with potential customers and suppliers
Disadvantages of a partnership (x4)
- Have to share the profits
- Less control of the business for the individual
- Disputes over workload
- Problems if partners disagree over the direction of the business
Private limited company
A business that is owned by its shareholders, run by directors and has limited liability.
Advantages of private limited companies (x4)
- Limited liability
- Additional capital can easily be raised by selling shares
- The company can continue to trade even if one of its members dies
- Incorporated - separate legal entity
Disadvantages of a private limited company (x3)
- Public financial records
- More expensive and time consuming to set up (you must be incorporated with Companies House)
- Separation of ownership and control - the owners no longer make all decisions
Public limited company
A company that is able to offer its shares to the public.
Advantages of a public limited company (x4)
- Better access to capital
- Liquidity - shareholders are able to buy and sell their shares
- The opportunity to more easily make acquisitions
- Gives a company a more prestigious profile
Disadvantages of a public limited company (x4)
- Volatile stock markets (if the company receives negative media attention, this often has a negative impact to the company’s share price)
- Potential for a loss of control
- Strict regulations
- Increased scrutiny (public financial records - a loss could cause negative media attention, causing share price to fall)
Limited liability
- Shareholders are only liable for the money they have invested into the business.
- It separates and protects personal assets from business assets.
Unlimited liability
Being personally liable for the debts of the business.
Franchise
When a franchisor grants a licence to a franchisee to allow it to trade using the brand / business format.
Benefits to the franchisor of using franchising (x2)
- Enables quicker growth for a relatively low investment
- Capital investment by franchisees is an important source of growth finance
Benefits to the franchisee of franchising (x4)
- Support from the franchisor (e.g marketing and staff training)
- Being part of a well-known organisation with an established anem, format and product
- Less investment is required at the start up stage
- Less risk
Disadvantage to the franchisee of franchising (x3)
- Can be expensive to buy a franchise
- Have to pay royalty fees to the franchisor (% of revenue)
- Less flexible (have to follow the franchise model)
Disadvantages to the franchisor of franchising (x4)
- Loss of control
- Providing training and support requires time and resources
- Managing poorly preforming franchises
- Managing growth
