Starting a business

Question 1

What does Enterprise mean?

Answer 1

Enterprise is the process of setting up and running a business. It is the individual(s) who risk their money and have the “know how” to make a business work.

Question 2

what does Land mean?

Answer 2

Land is the areas of land and raw materials. All natural resources.

Question 3

What does labour mean?

Answer 3

Labour is the workforce. Manual worker, office workers and managers. All human resources.

Question 4

What does capital mean?

Answer 4

Capital is the buildings, equipment, machinery and money used to produce goods and services. All man-made resources.

Question 5

Where do business ideas come from?

Answer 5

• Observation
• Forward planning
• Personal experience
• innovations

Question 6

Sole trader

Answer 6

This is the easiest form of business organisation to set up, you don’t need to do anything more than begin trading. Most small businesses are sole traders, for example hairdressers, plumbers and window cleaners.

Question 7

Advantages of sole trader:

Answer 7

• Easy to set up
• Total control
• Quick decision making
• No sharing of profit
• Very little capital is needed to set up.

Question 8

Disadvantages of sole trader:

Answer 8

• Unlimited Liability
• Can’t specialise
• Can’t buy in bulk as much
• Difficult to expand
• Sole trader is tied to the business

Question 9

What is a partnership?

Answer 9

A partnership happens when two or more individuals come together to jointly own a business. Each of the partners has unlimited liability.

Question 10

What is a sleeping partner?

Answer 10

A sleeping partner can also be known as a limited partner and is an individual who invests in the business but plays no part in the running of the business. They have limited liability

Question 11

Advantages of being a partnership:

Answer 11

• Easy to set up
• Easy to bring in extra capital from new partners.
• “2 people are better than 1”
• New ideas can be brought in.
• Privacy- none of the financial details of the business need to be made public.
• Specialisation- different partners will have different skills.

Question 12

Disadvantages of being a partnership:

Answer 12

• Unlimited Liability
• Easy to run short of capital
• Differences and disagreements can cause lots of problems including the end of a partnership.
• If a partner dies the partnership dissolves.
• It is difficult and complicated to get out of a partnership

Question 13

The two types of limited companies:

Answer 13

Private Limited Companies(Ltd) and Public Limited Companies(Plc)

Question 14

What is a Private Limited Company?

Answer 14

In a private limited company ownership is restricted. Shares in this type of company can only be sold if all shareholders agree. Often, private limited companies are owned by families.

Question 15

What is a Public limited company?

Answer 15

In a public limited company anybody (with enough money) can own shares. Shares are sold on the stock exchange.

Question 16

Both limited companies have:

Answer 16

• Both businesses are incorporated, this means that the company has a separate legal identity from the owner(s).
• They have limited liability so the owners are only risking the money which they have invested in the business.
• They must both have a Memorandum of Association and Article of Association which they have to send to Companies’ House.
• They are owned by shareholders, so the more shares you own, the more control you have.

Question 17

What does the Article of Memorandum state?

Answer 17

The Article of Memorandum states how the business will be run.

Question 18

What does the Article of Association state?

Answer 18

The Article of Association states who the business is and where it is based.

Question 19

Advantages of being a limited company:

Answer 19

• They have limited liability.
• They can continue after a shareholder dies.
• Incorporation provides a separate legal identity- so the firm is sued not the individual.

Question 20

Disadvantages of being a limited company:

Answer 20

• Expensive to set up due to legal documents.

- Legally obliged to publish its accounts every year.

Question 21

What is a stakeholder?

Answer 21

A stakeholder is any individual or group of individuals which is affected by a company’s actions or any individual or group which has an effect on a company.

Question 22

Aims and objectives:

Answer 22

Just like people have personal objectives, a business has to have its own objectives. These will change and develop as the company grows and as the environment in which it operates changes over time.

Question 23

What is a mission statement?

Answer 23

A mission statement is a general statement of what an organisation stands for. It states a point of view that can be shared by all people involved in the organisation. It is often quite short, and may form the basis for the firms more detailed objectives.

Question 24

What do “SMART” objectives stand for?

Answer 24

S-pecific
M-easurable
A-chievable
R-ealistic
T-ime bound

Question 25

What is business plan?

Answer 25

A business plan sets out in detail what a business is going to do in a given time. It includes forecasts of sales, and budget for all the main costs.

Question 26

Why would a business create a business plan?

Answer 26

A business might create a business plan so that:

• it would give the business a sense of direction and something to judge success against.
• the entrepreneur can convince people to invest in the business