1.5 Flashcards
What entrepreneurs do
Set up a business take on risks for financial reward
Innovate/invent: Create new ideas/products/services
Take risks: Risk career/financial security for their idea
Organise: Put together resources
Barriers to entrepreneurship
- Inability to access finance
- Lack of human capital
- Lack of social capital
- Discrimination
Financial/non-financial motivators for being an entrepreneur
Financial: Profit maximisation and profit satisfying
Non-financial: Ethical stance, social entrepreneurship, independence and home working
Objectives
Gives business a clearly defined target
Types of objectives
- Sales maximisation
- Marketshare
- Cost efficiency
- Employee welfare
- Customer satisfaction
- Social objectives
Opportunity cost
Opportunity cost = Opportunity lost
It is missing out on the next best thing. It represents the benefits they could have been gained by making a different decision
Measures the cost of a choice made in terms of the next best alternative foregone or sacrificed
Examples:
- Work-leisure choices
- Government spending priorities
- Use scarce forming land
Trade-offs
Often involve the loss or compromise of another opinion or factor
The higher the cost the lower the profit
But higher cost = better quality
Lower cost = higher profit
Sole trader
- Unlimited liability
- Self-employed, runs their own business
- They can employ others
- Easy to set up, no legislation needed
- Full control, gets to keep all profits
- Financial information is private
- Flexible working hours/holidays
Partnership
- Unlimited liability
- Between 2 and 20 owners
- Agree on rules (‘deeds of partnership’)
- Owners pay tax on their earnings
- Quick and easy to set up
- Could cause conflict between owners
Limited and unlimited liability
Limited:
- Liability of owners is detached from company
- Only assets within the business can be lost
Unlimited:
- No distinction in law between the individual and the business
- If the business goes under, personal assets can be lost
Private and public limited companies
Private:
- Up to 50 shareholders who all know each other
- Shares can’t be bought by the public
- Higher status than sole traders
- Wider access to growth/development
- Profits are shared (Dividends)
- 51% shares, owners keep control
Stock market floatation
Money raised when a business becomes a PLC (public limited company) by offering shares to the public to buy
Financial and non-financial objectives
Financial:
- Survival, keep business running
- Profitability
- Growth - expand business
- Sales maximisation - Gaining purchases
- Market share %
- Shareholder value
Non-financial:
- Employee welfare - staff treatment
- Sustainability
- Social - society awareness
Soletrader pros and cons
Advantages of being a sole trader:
- You’re the boss.
- You keep all the profits.
- Start-up costs are low.
Disadvantages of being a sole trader:
- You have unlimited liability
- All the responsibility for making day-to-day business decisions is yours.
- Retaining high-caliber employees can be difficult
Franchising
Franchise: Limited company that licences the right for individuals/groups to set up an identical operation in a new region. Given the right to use an established name/brand.
Franchisee: Small business owner who buys the right to use the franchisor’s business
Franchisor: Large business who are selling the right for the franchisee to use their business
+ Effective way to expand a business
+ Receive set up fee royalty payment and they get a share in the profits made
+ Products/methods already proved to be successful
+ Franchisor provides support/training
- Risk that the franchisee will damage the brand if the business is not can effectively
- Set up fees are expensive fr franchisees
- Franchisees have little freedom to change format
