What Is a Business? Flashcards

Question

Entrepreneur Characteristics

Answer 1

- Visionaries - Owners and/or operators of business organisations - Takes calculated risks - Rewarded with profit - Takes responsibility for the workforce (labour) - Failure incurs personal costs - Distinctive in temperament

Answer 2

- Lack of finance -> small business owners/start-up firms don't have credentials to secure sufficient funding without challenges, to purchase fixed assets, e.g. premises/machinery. Even if entrepreneurs are able to borrow money, funds may be insufficient/have relatively high interest charges, seriously affecting cash flow position of business. As such, new sole traders often must remortgage their homes, to raise finance needed, offering their lender more collateral (financial security) if they fail to repay the loan. - Unestablished customer base -> won't have broad/loyal customer base, intensified through competitors already operating in the market. Loyalty built over long period of time, may require knowledge in marketing and large amounts of money. - Cash flow problems -> financing working capital (day to day operations) is a challenge for start ups, as they may have lot of stock such as raw materials, semi finished outputs or finished goods that it can't easily turn into cash. Customers may demand a lengthy credit period (typically 30-60 days), enabling them to buy and pay later, so business doesn't receive cash until credit period ends. During this period, business must still pay for on going costs such as wages, rent, utility bills, taxes and loans. - Marketing problems -> arise when business fails to meet customer needs, resulting in poor sales and lack of profitability. Supplying right products to right customers at right price is crucial for new business. However, small and new businesses might lack expertise to do this, as quite often the key to success to identify a niche (gap in market) and fill it. E.g. Amazon identified need for using internet as channel of book distribution. - People management problems -> starts ups may lack experience in hiring right staff with all necessary skills, leading to poor level of labour productivity, and need to retain staff or rehire people, which is expensive and time consuming. Moreover, new business may not know ideal organisational structure, practical methods, or staff motivation best suiting organisational needs. - Production problems -> can be challenging for business start ups to accurately forecast levels of demand so they are more likely to over/under produce. Overproduction leads to stockpiling, wastage and increased costs. Under leads to dissatisfied customers, loss of potential sales. - Legalities -> necessary for business to comply with all necessary legislation, including business registration procedures, insurance cover for staff and buildings, consumer protection laws and rules about intellectual property such as copyright/patents/trademarks. Paperwork/legal requirements can be time consuming, expensive, confusing, and oversights can result in business having to pay compensation or financial penalties, damaging already vulnerable cash flow position of business start ups. - High production costs -> new businesses likely to have high set up costs, running costs due to large amount of money needed to purchase/pay for cap equipment, machinery, stocks, rent. Small bus will be at cost disadvantage, cannot benefit from economies of scale - which would allow for more established bus to benefit from lower average costs of production due to size of operations, getting discounts from suppliers for bulk orders, borrowing money at low interest because of larger size and financial collateral. - Poor location -> busy areas = high potential no. Of customers, but premises cost more. Fixed cost, e.g. rent and mortgage account for large % of total costs for many bus. Aim for new bus, is to reach BE ASAP, keeping fixed costs down. One reason why many entrepreneurs set up small bus operating initially from their own homes, plus provides tax advantage. E.g. Bezos set up Amazon bus in garage, may not be suitable for businesses in which location is survival factor - External influences -> irrespective of size/length of operation, bus prone to exogenous shocks, creating challenging trading environment, such as global financial crisis, pandemic. Larger/more established tend to be better resourced to handle influences, hence new bus face challenge being more vulnerable to external shocks, meaning potential for business failure is greater.

Answer 3

- Buildings - alterations, fixtures, fittings, insurance - Capital equipment - office furniture, telephones, computers, wifi, machinery, tools, motor vehicles - HR - recruitment, induction, training costs - Legal/professional fees -> costs of solicitors, licences and permits - Marketing costs - market research, advertising, promotional campaigns - Premises - purchase costs, mortgage, deposit payment, rental deposit costs

Answer 4

- Growth (capital) through appreciation of business, especially property (common for capital growth of business to be worth more than value of owners salaries). - Financial Security to children - Earnings as returns may outweigh costs, transfer such as passing on/inheritance of company - Challenge - driving them to satisfaction. - Autonomy, creating freedom and flexibility. - Security as they can accumulate personal wealth (financial security) and be able to secure retirement funds earlier than others. - Hobbies can be turned into their businesses, allowing for their work to be related to their personal interests, allowing for them to have passion in the work that they do