Enterprise -1

  • Created by: MartynaZ
  • Created on: 05-03-19 00:05

Enterprise

Business- small organisation that works to fulfil a common purpose 

SME -a small to a meium sized enterprise

Enterprise - describes the actions of someone who shows some initiative by taking a risk by setting up, investing in and running a business.

Entrepreneur - someone who starts and runs a business 

Servives - intangiable business activities that people are prepared to pay for  

Roles of entrepreneurs in a business      

  • Setting up and owning/leading   
  • Organising/managing/planning           
  • Risk taking                         
  • Decision making   
  • Creating employment                                                                                                     
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Motives of Entrepreneurs

Financial Motives of Entrepreneurs

  • Financial Reward - Earn more owning their own business rather than a wage 
  • Lack of Emplyoment Opportunities - If unable to find work may have more incentive to start a business
  • Government Incentives - Governent may sometimes offer small incentives to encourage small business start ups
  • Gap Exploitation - If there is a gap in the market an entrepreneur might sell a product to fill it 

Non-Financial Motives of Entrepreneurs             

  • Independence - Some people want the flexiility to dictate their own working hours and to decide what type of work they undertake
  • Job Satisfaction - Some people may wish to pursue a given interest or passion and therefore pursue work they enjoy
  • Independence - Some people prefer working alone opposed to being a part of a team
  • Changed in Personal Life - Marriage , Illness
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Characteristics and skills of entrepreneurs

  • Being a risk taker
  • Taking the initiative and being proactive
  • Understanding the market
  • Being an effective organiser
  • Having creativity and being innovative 
  • Commited / determined / motivated
  • Cope well with stress
  • Good judge of people 

The 3 Sectors

Primary Sector - Extraction and production of raw materials e.g. coal,wood,steel

Secondary Sector - Involves the transformation of raw materials into goods e.g. cars,clothes,food

Tertiary Sector - Provision of services to consumers and businesses e,g, gyms

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Entrepreneurs and the Economy

Importance of Entrepreneurs to the UK Economy 

  • Wealth Creators - Boosts economic growth by providing new products => demand increase => spending increase.   HOWEVER SMEs have smaller orders placed therefore dont obtain economies of scale like large businesses .
  • Job Creators - Business needs employees so therefore jobs are created .  HOWEVER SMEs are small scale and more likely to fail in times of recession 
  • Society Builders - Often entrepreneurs give back to the society e.g. through charities or work wit local community 
  • Exports - Services are sold abroad then this brings revenue into the UK
  • Tax - All businesses pay tax .  HOWEVER less recognition means its harder to gain big profits 
  • Innovators - Entrepreneurs bring new ideas to the market and drive forward new technologies. HOWEVER the small budget cant fund or compete with larger organisations in research & development
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Stakeholders

Stakeholders - Any individual or group which is affected by the business and so has an interest in its activities 

Shareholders - owners of a limited company

Some examples of shareholders are :

  • Directors and managers
  • Employees customers 
  • Suppliers
  • Government 
  • Local community
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Business Plans

Business Plan - statement outlining the ways that a business will achieve its aims and objectives

The Purpose of a Business Plan may be :

  • To provide a sense of direction or purpose 
  • To allow for the strengths and weaknesses of the business venture to be fully assessed 
  • To convince creditors that they have a good chance of being repaid , by providing details of the market and financial info such as profit forecasts 
  • To convince investors that there is a good market for the product/service and so they have a good chance of recieving a return on theri investment

Sources of Information Available to Entrepreneurs 

  • Bank Managers - Provide business plan templates
  • Accountants - Support with business plan writing and setting appropriate targets 
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Elements of a Business Plan

Key elements of a business plan

  • The overview or executive summary - describes the business idea
  • The marketing plan - market research is carried out to establish the size of the market , the needs of customers and the level of competition 
  • The operations plan - includes info about costs of production and where supplies will be bought
  • The human resources plan - the numbver of employees and the skills,experience and qualifications they require will be outlined 
  • The financial plan - variety of forecasting indicating available start up capital ,profit and loss balance forecast, forecast indicating potential revenues .
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Advantages and Limitations of a Business Plan

Advantages of a Business Plan

  • Allows to identify and address any weaknesses before the business starts to trade 
  • Essential when convincing lenders that loans can be repaid 
  • Can be used to ensure the business is on course to meet their objectives e.g. comparing financial forecasts 

Limitations of a Business Plan 

  • Business plan will be of little use if poorly constructed and based on inaccurate information
  • Business plans can quickly become outdated 
  • Only useful if figures are realisitc 
  • A business plan cannot account for exogenous shocks e.g. recession
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Business Structure

Private Sector - Made up of all organisations that are owned by private individuals or shareholders. Majority of private sector organisations are made for profit e.g. Tesco. However they can also be not for profit organisations such as charities or churches .

Private Sector Aims 

  • To make profit
  • Increase shareholder value
  • Survival & growth (gaining market share)
  • Ethics

Public Sector - Made up of organisations and activities that are owned/funded by Government . This includes public services such as the NHS ,libraries . 

Public Sector Aims 

  • Provide goods/services to maintain and improve standard of living
  • To grow uk economy at a sustainable rate and achieve rising prosperity 
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Sole Trader

Sole Traders - A small business , owned and operated by one person

Advantages

  • Total control
  • Makes all the decisions (fast)
  • Cheap and easy to set up
  • Keep all the profit 
  • Flexible 
  • Business affairs are private 

Disadvantages 

  • Unlimited liability 
  • Lack of continuality if ill/on holiday
  • Difficult to raise finance alone
  • Limited range of skills
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Partnership

Partnership - Where between 2-20 people own a business and usually share responsability for running the business.

Advantages

  • more skills and finance
  • more people to share burden of debt with if in difficulty 
  • increased credability with potential suppliers (less risky than just a sole trader)

Disadvantages

  • Have to share profits 
  • problems if partners disagree which can lead to disputes over work 
  • less control over business

Deed of partnership - legal documents which state partners rights in an event of a dispute. It covers issues such as : 1,How much capital each partner will contribute   2,How profits and losses will be shared amongst partners   3,procedures for ending the partnership   4, How much control each partner has    5,Rules for taking on new partners 

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Private Limited Companies LTD

Private Limited Company - Small/medium business .Shares do not trade on the stock exchange and are sold by invitation only.

Limited companies are run by directors who are appointed by the shareholders.In order to set up a limited company two documents need to be produced :

  • memorandum of Association
  • Articles of Association 

Advantages

  • More capital can be raised
  • Easier to access loans from banks
  • Control over company cannot be lost to outsiders

Disadvantages

  • Legal procedures to set up (time consuming + expensive)
  • Not allowed to advertise shares to public(restricts amount of caoital which could be raised)
  • Profits have to be shared over a much larger group
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Public Limited Companies PLC

Public Limited Companies - Larger, well known businesses.Shares trade on the stock exchange available to purchase by members of the public.

Advantages

  • Huge amounts of money can be raised through the sale of shares to the public
  • Economies of scale can be used because of the size of PLCs they can dominate the market(CoP decrease)
  • Easier to raise finance and bank loans as their accounts are published and may be seen as lower risk 
  • Limited liability 

Disadvantages

  • Diseconomies of scale may occur
  • Company accounts can be inspected by competitors and used to their advantage
  • Very expensive to set up as a PLC (50k)
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Factors Affecting Legal Structure Choice

  • Objectives of owners e.g. growth , profit maximisation ,social purpose , control over working life
  • Finance available 
  • Stage in business lifecycle 
  • Target Market 
  • Skills needed (partnership may sometimes be more suitable )
  • Need for finance
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