Unit 1 Business Activity Flashcards
Characteristics of a successful entrepreneur
Creative
Risk-taking
Determined
Confident
Learn from past mistakes
Risks of starting a business
-Use your own savings
-Given up job with steady income
-Might be stressful
-Strain on personal relationships
-Changing consumer tastes
Rewards of starting a business
- possibly higher wage than previous job
-could sell business for profit if successful
-being your own boss
-personal satisfaction of success
Reasons why people choose to start their own business
-to be their own boss
-to pursue own interests
-to earn income
-do something positive for society
Components included in a business plan
-Aims + objectives (what you plan to achieve)
-Marketing plan (what market research, 4p’s, target audience etc.)
-Human resource plan (amount of employees, how will you recruit them, what their pay will be)
-Production plan (how will you make and ensure quality of product)
-Finance plan (how to raise capital, calc break even point)
Why is it important to make a business plan?
-More likely to get investors as they can see your future
-Reduces risk of failure because decisions are made from research
-To identify what sources are needed
Sole trader (business owned by one person)
Advantages
-Low startup cost
-Owner keeps 100% profit
-Owner makes all decisions
-Can keep finances private
Sole trader (business owned by one person)
Disadvantages
-Unlimited liability
-Lack of continuity
-A lot of responsibility
-Skill shortage
-Shortage of captial
Partnership (a business run by 2-20 people)
Advantages
-Low startup cost
-Each partner might have a different specialty
-Workload and debts can be shared amongst partners
-Easier to raise finance
-Owners can keep finances private
Partnership (a business run by 2-20 people)
Disadvantages
-Unlimited liability
-Disagreements between partners
-Profit has to be shared
-Partners have less control
-Cannot raise as much finance as Ltd/Plc
Private Limited Company/ Ltd (A business owned by shareholders. Shares are sold privately to friends and family)
Advantages
-Limited liability
-Finance can be raised by selling shares
-Continuity
-Control over share sale (can’t be taken over without agreement)
-Provides more privacy of information than a public limited company
-Prevented from a hostile takeover
Private Limited Company/ Ltd (A business owned by shareholders. Shares are sold privately to friends and family)
Disadvantages
-Profits need to be given to shareholders in dividends
-Has to publish accounts every year
-Higher set up costs than partnerships and sole traders
-Cannot sell as many shares as a Plc - finance limited
Public Limited Company/ Plc (a business owned by shareholder. Shares sold on stock exchange)
Advantages
-Limited liability
-Finance can be raised by selling shares on stock exchange
-Continuity
-Business normally ran by experienced directors
Public Limited Company/ Plc (a business owned by shareholder. Shares sold on stock exchange)
Disadvantages
-Profits have to be given to shareholders in dividends
-Business has to publish accounts every year
-Higher set up costs than any other business
-There is a threat of takeover if 51% or more of shares are bought by one person/group
Main objectives of most businesses
-To survive
-To make profit
-To expand/growth
-Market share increase
-Providing a service
Reasons why businesses should set objectives
-So that all employees are working towards common goal
-Help measure success of a business
Different businesses different objectives
-A brand new shop’s objective would be to survive
-A medium sized business with 10 stores would look to expand and make profit
- A multinational business will want to maximise profits and achieve domination
Why are people stakeholders?
(Employees, Customers, Suppliers)
-Employees (if a business does well, they may get increased pay)
-Customers (can boycott a business, if a new store opens up closer they wont have to travel)
-Suppliers (if a business does well they will need more stock)
Why are people stakeholders?
(Government, Local Community, Owners)
-Government (they receive tax on profits businesses make)
-Local community (can provide jobs but also create pollution)
-Owners (if a business does well, they are rewarded with a share of profits)
What are Internal and External Stakeholders?
Stakeholders- a group of individuals who have INTEREST in the business
Internal stakeholders- People who work in the business
External stakeholders- People outside of the business who are affected by their actions
Methods of growing externally
-Horizontal takeover
-Backward vertical takeover
-Forward vertical takeover
-Diversification
Methods of growing organically
-Increasing market share
-Developing new products
-Gaining customers in a new market
What is economies of scale?
Refers to the reduction of cost per unit as a business grows in size.
