1.5 Entrepreneurs and Leaders

Question 1

What is an entrepreneur?

Answer 1

A person who is willing to take a risk in setting up and growing their own businesses, they see opportunities to make money and meet the wants and needs of society, they solve problems and create wealth in the economy

Question 2

What are 4 things entrepreneurs do?

Answer 2

1) organise- pull together resources eg.capital, technology, and people to set up a business
2) make decisions- they’re decisive
3) take risks- willing to risk their career and financial security to make their idea work
4) innovate and invent- create new ideas, products, services

Question 3

Where do ideas come from?

Answer 3

Personal experience- hobbies, interests
Spotting a gap- see an opportunity in everyday life and decide they can meet this need
Lifestyle choice- be their own boss, work on their own terms
Business experience- experience from current job/profession
Skill- set up a business based on interpersonal, artistic, technical abilities

Question 4

What are 7 steps in setting up a business?

Answer 4

1) the idea
2) research
3) planning
4) Financing
5) Location
6) Resources
7) the launch

Question 5

Explain risk and reward?

Answer 5

Take the risk of setting up and potentially failing for the significant financial and personal rewards for an entrepreneur who creates a successful business

Question 6

What are objectives and why are they set?

Answer 6

Medium to long term plans that are established to coordinate the business and act as targets in order to provide quantifiable steps to achieve aims, clarify directions of the business, measure success against targets, motivate staff to achieve, reward staff

Question 7

In relation to objectives what does SMART mean?

Answer 7

Specific 
Measurable
Agreed
Realistic
Time related

Question 8

What are financial and non financial common business objectives?

Answer 8

Financial:
Survival, profitability, growth, market share, shareholder value, sales maximisation, cost efficiency
Non financial:
Personal satisfaction, brand recognition, sustainability, customer satisfaction, employee welfare, social objectives

Question 9

What are 5 influences on business objectives?

Answer 9

1) size- obj. may change as business grows. As they set out main aim is survival
2) sector- public sector organisations are driven by meeting customer needs, not profit
3) market- some markets are more competitive which determines obj. eg.targeting market share
4) ownership- a Plc must satisfy shareholders so will set obj. around shareholder value
5) owner- the owner may simply run the business for love of the job

Question 10

What is the importance of profit maximisation?

Answer 10

Profit is what’s left over after all costs have been deducted from revenue, it’s one of the main incentives of running a business which allows the owners of the business to reinvest the money into new projects and stimulates activity. It also secures long term success and helps the business grow and keep up with demands of the everchanging business environment

Question 11

Business forms- what is a sole trader?

Answer 11

Owned by self employed individuals
Easy to start up- no registration is needed
Requires a wide range of skills and flexibility
The owner can be their own boss but the hours are likely to be long
The owners keeps all profits
Unlimited liability

Question 12

Business forms- what is a partnership?

Answer 12

A business owned by two or more individuals
Joint ownership of running a business
A contract of relationship will be set up through a deed of partnership
These are common in professions such as solicitors
Similar issues faced by sole traders but with greater shared responsibility, risk and reward

Question 13

Business forms- what is a private limited company?

Answer 13

Owned by shareholders separate legal entity
Must go through the process of incorporation
Limited liability
Has a higher status than a sole trader
Will have wider access to capital

Question 14

Business forms- what is a public limited company?

Answer 14

Large publicly owned companies
Can raise capital through selling shares to the public
Size is measured by market capitalisation
Has the ability to take over other businesses
Can lose control of the business

Question 15

What is limited liability?

Answer 15

The liability of owners is detached from the company. Shareholders can lose their investment in the event of financial difficulties, but their personal belongings are safe, unlike unlimited liability where there is no distinction.

Question 16

What is a franchise?

Answer 16

A limited company that licenses that right for individuals or groups to set up an identical operation in a new region, it allows a business to expand without the owners taking direct responsibility for each branch/store/division

Question 17

What are the benefits and limitations of a franchise for a franchisor?

Answer 17

+ effective way to grow the business
+ get a setup fee and royalty payments
- risk of franchisee damaging the brand if not run effectively

Question 18

What are the benefits and limitations of a franchise for a franchisee?

Answer 18

+ receive a business in a box, plans, products, marketing and a recognised brand
+ provided with training and support from franchisor
- expensive setup fees and little freedom to change the business format
- royalty payments, a share of sales go back to the franchisor

Question 19

Evaluate a private limited company?

Answer 19

*Shares traded privately
+ shareholders have limited liability
+ easier to raise capital through internal shareholders
+ owners may pay less tax than if they operate as a sole trader
- harder to set up than a sole trader or partnership
- accounts published and publicly available
- can’t raise large amounts through selling shares publicly

Question 20

Evaluate a public limited company?

Answer 20

*Shares traded publicly
+ huge amounts of money can be made
+ finance easier to raise through issuing shares
+ size makes it easier to gain EOS
- accounts openly available to the public
- greater external pressures from the media and pressure groups
- board of directors is accountable to external shareholders

Question 21

What are 3 other forms of a business?

Answer 21

1) social enterprises- not-for-profit organisation , pay lower tax rates eg. charities
2) online businesses- provide goods solely through the internet-e-commerce, its a fast growing business sector
3) lifestyle businesses- run by a single person linked to an interest, skill, enthusiasm in order to sustain a particular lifestyle for its owner

Question 22

What is stock market flotation?

Answer 22

It occurs when a company goes public and becomes a Plc so that shares are offered on sale to the general public

Question 23

What are the steps in order to be listed on a stock market?

Answer 23

1) issue a prospectus advertising the company to the public
2) the prospectus and information on the company are reviewed by lawyers
3) a minimum of £50,000 share capital has to be provided up front
4) if successful a certificate to sell shares will be issued
5) the IPO goes live and the business can start trading on the stock market

Question 24

What happens when share prices fall?

Answer 24

The company becomes vulnerable to a takeover
Indicates poor performance
Company finds it harder to raise capital
Consumers with shares feel less confident to spend

Question 25

What happens when share prices rise?

Answer 25

Mangers receive a bonus
Company finds it easier to raise capital
Consumers with shares feel more confident to spend
The business may receive positive publicity

Question 26

Explain opportunity cost?

Answer 26

The benefit lost from the next best alternative

Question 27

Explain non-monetary opportunity cost?

Answer 27

If the choice has an impact on brand awareness, employee morale or goodwill

Question 28

Explain what is meant by a trade off?

Answer 28

Involves the loss or compromise of another option or factor. When making decisions a business will consider the trade offs it makes when taking strategic decisions

Question 29

What are 6 factors a business will consider/weigh up when making decisions?

Answer 29

1) investment appraisal
2) risk vs reward, avoid high risk strategies even if the reward is huge
3) gauging support, how popular a decision is may influence a certain course of action
4) balance short term gains with long term benefits
5) the probability of success
6) comparing advantages and disadvantages of each option based on the information available and research

Question 30

When will an entrepreneur become a leader?

Answer 30

When the small start up stops being a small business and become a larger company with an organisation structure and a number of employees

Question 31

What are the demands of becoming a leader?

Answer 31

Greater responsibility towards others
The need to motivate and inspire others
The need for strategic vision

Question 32

What are 4 difficulties of becoming a leader?

Answer 32

1) sharing ownership and control of their business
2) stress- larger businesses bring with them more responsibility
3) leaders need qualities eg. confidence, compassion, interpersonal skills
4) seeing themselves as a leader- need to accept the responsibility and adjust their mindset

Question 33

What are 4 approaches an entrepreneur may adopt to overcome the challenges of becoming a leader?

Answer 33

1) stress management- use approaches to reduce stress levels and find time to relax
2) education- complete leadership development courses and qualifications
3) mentor- gain advice and support from an experienced mentor
4) delegate and trust- utilise qualified employees to lighten their load and take responsibility for aspects of running the business

Question 34

Why may a business decide to stay small?

Answer 34

In order to benefit from the advantages and avoid many of the difficulties discussed previously

Question 35

What are the 6 functions of an entrepreneur?

Answer 35

1) financial management- raising capital, managing costs, profitability, cash flow
2) purchasing- liaising with suppliers, deliveries, logistics
3) administration- insurance, legal setup, tax, business records
4) marketing- research promotion, branding
5) production- goods, storage, quality management, delivery
6) managing people- recruitment, training, motivation, leading people

Question 36

What are 4 ways an entrepreneur can reduce risk and prepare for uncertainty?

Answer 36

1) carry out detailed research
2) producing detailed plans
3) analysing external influences
4) develop contingency plans

Question 37

What’s intrapreneurship?

Answer 37

When employees within a business have the freedom and opportunity to develop their ideas and use their creativity to innovate. They solve problems, create new/exciting products and keep big businesses moving forward. They add a huge amount of value, give a competitive advantage and motivate employees

Question 38

What are 7 barriers to success?

Answer 38

1) lack of finance
2) competition from large/established businesses
3) aversion to risk
4) lack of competitive/unique ideas
5) legal barriers
6) responsibility of becoming an employer
7) lack of entrepreneurial skills