march 2021 revsion - Unit 1 Flashcards
Characteristics of an entrepreneur
- confidence
- creativity / shows initiative
- risk-taker
- determination
Purposes of business enterprise and entrepreneurship
- spotting an opportunity
- developing an idea
- satisfying customer needs
What is on a Business plan
- identify market ( age, gender, income)
- identifying resources ( workers, type of equipment/machinery)
- identify the finance needed to start up or grow the business ( selling shares, obtaining a loan or overdraft)
- achieve business’ aims & objectives (making profit, expected sales)
What objectives in business planning is also included?
SMART
- Specific - clearly state what is to be achieved
- measurable - how to measure success ( sales / profits )
- achievable - are the targets possible to achieve?
- realistic - appropriate ?
- timely - deadline to complete targets
Advantages of soletrader
- less forms to complete ( easy to set up )
- decision maker (easy to control )
- profits/information remain private
Disadvantages of being a sole trader
Continuity - stops when owner dies
Raising finance - Only 1 person to invest savings & banks may think they are risky to lend to. Cannot sell shares to raise finance
Liability - owner has unlimited liability
Advantages of partnerships
Easy to set up - only needs a deed of partnership
Easy to control - make decisions between themselves
Business info - info about profits remain private
- Workload is shared
- Many ideas
Disadvantages of partnership
- partners may disagree
- profits shared
- deed of partnership will be needed if someone leaves or joins
- banks think risky to lend to
- cannot sell shares to raise finance
- unlimited liability
- fewer the workers, the greater workload of each
Advantages of private limited company
Easy control - shareholders can restrict who can buy shares
Continuity - business continues if shareholders sell their shares or die
Raising finance - Banks are willing to lend. Larger amounts can be raised.
Level of liability - limited liability
Disadvantages of private limited companies
- easy to set up - Register of Companies requires legal documents , takes time
- Business info - public can see info
- workload - managers needed to make decisions
Advantages of public limited companies…
- continuity - business continues after shareholder dies or sell their shares
- raising finance - larger amounts of money can be raised, new shareholders can invest - bank willing to lend
- limited liability
Disadvantages of public limited companies
- easy to set up - The Register of Companies requires legal documents , time consuming
- easy control - anybody can buy shares (via Stock Exchange)
- Business info - public access info
- workload. - managers are employed
Suitability of a sole trader
- only need small amount of finance
- low financial risk
- require limited or non-specialist skills
Suitability of partnership
- larger amount of finance
- fairly low financial risk
- wider range of skills
- owners who want to keep control
Suitability of private limited company
- larger amount of finance
- increased / high financial risk
- owners who wish to keep control of business
Suitability of public limited company
- wishes to grow
- very large amounts of finance
- very high financial risk
What are the different business objectives
- survival
- profit
- growth
- providing a service
Summarise survival as a business objective
- business’ ability to trade in the long term
- may survive for a short period of time without making a profit
Summarise profit as a business objective
- reward to owners for taking a risk by investing their money into the business
- seek to maximise profits for the benefits of the owners
Summarise growth as a business objective
- increase sale or market share
- a way of increasing profits
Summarise providing a service as a business objective
- owners want satisfaction of giving customers a good service
- seen as making a profit as customers will return and new customers will use the business
Why will business’ objectives change?
- at a different stage of development
- owners have different motivation
- influenced by market conditions
- experiencing different economic conditions
Why will a business’ objective be survival?
- objective for new business , so that it can become established and secure by gaining customers and aim to make profit in the longer term
- during a downturn in economic activity or when a market is very competitive
Why will a business’ objective be profit
- new businesses may seek a minimum lvl of profits to help them survive
- established businesses may want to earn profits to reinvest and to expand a business
- good profits encourage new investors to put money in the business, helping it grow
Why will a business’ objective be growth
- new businesses may set objectives for the growth of sales or market share to help them survive
- established businesses may want to grow to gain more power in the market, reduce competition and increase profits
Why will a business’ objective bee providing a service
- good reputation enabling it to attract new customers as well as retain existing customers
- help a business survive or increase its profits
- some owners get satisfaction from running a business that is useful to its customers
Who are the internal stakeholders of a business
- owners
- employees
What is the role and objectives of owners
Role :
- provide finance to start & expand a business
- manage or run the business or employ managers to run on their behalf
Objective:
- make profits
What is the role and objectives of employees
Role:
- produce goods and services
Objectives:
- be treated fairly by employers
- satisfaction of having a job and earning income
- enjoyment of social aspects of working with colleagues
Who are the external stakeholders of a business
- customers
- suppliers
- government
- local community
What are the role and objectives of customers
Role: - buy goods and services Objectives: - pay affordable prices - enjoy the benefits provided by goods and services
What are the role and objectives of suppliers
Role: - sell goods for resale or components and materials needed to manufacture goods or provide a service Objectives: - make sales - earn profits
What are the roles and objectives of the government?
Role:
- help businesses, workers & communities
Objectives:
- encourage businesses (leads to high employment & prosperous communities)
- encourage businesses because this increases the taxes paid to the government
What are the roles and objectives of the local communities
Roles:
- provide workers
- monitor & influence business activities
Objectives:
- have a local area which is prosperous, healthy and safe
What are the benefits to the owner of business activity
earn profits is business is successful
What are the problems to the owner of business activity
may lose money invested if business fails
What are the benefits of business activity on employees
provides them a job which allows them to earn income from the business
what are the problems of business activity on employees
- may be made redundant if business is failing or replaced by automation
- employment conditions may be unfair, causing stress
what are the benefits of business activity on customers
obtain products & services at good prices that satisfy their wants
what are the problems of business activity on customers
- sold poor quality goods / services
- over-charged
- experience poor customer service
what are the benefits of business activity on suppliers
sell goods to another business and earn profits from doing this
what are the problems of business activity on suppliers
- may lose money if the business does not pay for the goods supplied
- cash flow problems in the business may mean that they delay payment to their suppliers
what are the benefits of business activity on the government
receive tax revenue from the owners, workers, suppliers and customers of the business
what are the problems of business activity on the government
very large companies can become ‘too big to fail’ - the government may be criticised if the business fails and the government does not step in to help it survive
what are the benefits of business activity on the local community
earn money from jobs with the business or because workers in the area have money to spend in their business
what are the problems of business activity on the local community
affected by negative externalities such as pollution and road congestion caused by the business
ways a business can grow organically
- increasing output
- gaining new customers
- increase market share
- develop new products
How does a business increase output
- use resources more efficiently, e.g using new technology or training workers
- use up spare capacity, e.g unused factory space
- increase capacity of the business, e.g building a new factory, opening new shops.
How does a business gain new customer?
- reduce its prices
- open new shops in different location
- better marketing, e.g a bigger, more effective advertising campaign
How does a business increase market share?
- increase its own sales
- taking business from other firms ( a firm could keep sales constant but its market share would rise if other businesses sell less)
How does a business develop new products?
- researching and developing
- copying the ideas of other businesses
- buying ideas from the other businesses
How can a business grow externally
- horizontal growth
- diversification
- backward vertical growth
- forward vertical growth
Benefits of horizontal growth (furniture manufacturer joins another furniture manufacturer)
- each factory can specialise in a particular type of furniture
- one factory could be closed if not needed, reducing costs
- it can gain economies of sale, reducing costs
Benefits of diversification (furniture manufacturer joins a perfume manufacturer)
- risk is spread, success does not rely only on furniture sales
Benefits of Backwards vertical growth (furniture manufacturer joins a timber merchant)
- it guarantees supply of wood to make the furniture
- the manufacturer can benefit from the timber merchant
Benefits of a forward vertical growth (furniture manufacturer joins a furniture retailer)
the manufacturer is guaranteed somewhere that will sell what it produces to consumers
