Business Handout One

• What are SMEs ?

  small to medium sized enterprise, turnover of less than £50million.
• What is meant by enterprise?

  describes actions of someone who shows initiative by taking a risk of setting up and running a business.
• What is an entrepreneur?

  someone who starts and runs a business.
• identify the four business oppurtunities...

  need and wants and providing goods and services.
• what is meant by needs and wants?

  Needs: essential things required for survival and well-being. Wants: desires or preferences that are not necessary for survival but can enhance quality of life.
• what is meant by goods and services?

  goods are physical items business sells can be durable (TV)or non durable (food) anf services are business activities that people pay for e.g. hairdressing, gym.
• explain two roles of entrepreneur when setting up and running a business?

  setting up and owning it will need finance, organisation and planning like what machinery will need and hiring staff.
• what are the financial motives of an entrepreneur

  financial reward - may earn more money than just a salary

  lack of employment oppurtunities - may have more incentive

  government incentives - e.g. grants or reduced rent
• what are the non financial motives of an entrepreneur

  independence - flexibility of own working hours, own decisions

  job satisfaction - pursue interests

  some people prefer to work by themselves
• what are some charecteristics of an entrepreneur

  risk taker - risk capital and their own time

  initiative - do not let events overwhelm them dont panic

  organiser - undertake many activities, buying supplies, hiring staff

  creativity - have a unique selling point

  commited, motivated and hardworking
• what is meant by the primary sector

  extraction and production of raw materials e.g. coal mining
• what is meant by the secondary sector

  transformation fo raw materials into goods, provides us with consumer goods e.g. cars, electronics and clothes
• what is meant by the tertiary sector

  provision of services to consumers and businesses, e.g. cinemas, banking and gyms
• what is the importance of entrepreneurs/SMEs to UK economy

  job creators - high levels of employment

  wealth creators - new products, high demand, boosts economic growth

  society builders - charity, give to local community

  exports - products sold abroad brings revenue to UK economy

  innovators - bring new ideas and technology
• what are some limitations of entrepreneurs/SMEs to economy

  small scale more likely to fail in recession and harship, suffer more

  place smaller orders dont obtain economies of scale

  less recognition and harder to compete with bigger businesses

  small funds, difficult to invest in R and D, technology, marketing
• what is meant by stakeholders

  individuals or groups that are affected by the business and have an interest in its activities
• what is the business stakeholder main interest

  repeat sales, customer loyalty, market growth, high brand reputation, increased revenue and profits
• what is the employees stakeholder main interest

  job security, safe working conditions, promotions, fringe benefits
• what is the suppliers, customers, government stakeholder main interest

  suppliers -fair price for products and high demand

  customers - needs met, competitive prices, high quality

  government - higher employment and increased tax revenue
• what is meant by a business plan and what is the purpose

  statement that outlines the way a business will achieve its aims and objectives

  provides a sense of direction

  allows strengths and weaknesses to be fully assesed

  convince creditors, lendors, investors they have a good chance of being repaid so they should invest
• what are the main components of a business plan

  executive summary - describe business idea, aims and objectives

  marketing plan

  operations plan

  human resources plan

  financial plan
• what are the advantages of a business plan

  looks at all aspects of a business

  convinces lenders that loans can be repaid

  can be used as a monitoring tool, ensure business meets objectives
• what are the disadvantages of a business plan

  not always accurate, can be little use if poorly constructed

  can become outdated external factors may cause change

  can not account for all unexpected downturns

  doesnt gurantee success
• what are the main sources of information available to entrepreneurs

  bank managers - loans, overdrafts

  accountants - taxes, financial accounts

  small business advisors

  local enterprise agencies
• what is meant by the private sector

  made up of organisations that are owned by private individuals or shareholders, sole traders, partnerships, limited companies e.g virgin, tesco or non profit organisations e.g. charities.
• what is meant by the public sector

  owned or funded by local national government, includes public services such as NHS, libraries.
• what are the aims of a private sector

  make a profit - maximising brand value, minimising costs

  survival - gaining customers, high reputation

  growth - increasing market share

  ethics - environmental friendly
• what are the aims of a public sector

  maintain and improve standard living of Uk citizens

  allow people to live safely

  provide entertainment and activities
• what is meant by public goods

  goods which are non rival and non excludable, provided by government as there is no incentive for private sector to provide these goods e.g. street lighting and police
• what is merit goods

  these are goods that if they where left solely to private sector they would be underconsumed thats why government steps in e.g NHS and state cools instead of private schools and private healthcare provided by private sector
• what is meant by a sole trader and what are the pros and cons

  simply just owned by one person.

  relatively quick and easy to set up, no lengthy procedures. do not share with business partners all profit made is kept by owner, owner is in complete all control, all decisions and flexibility of hours.

  have unlimited liability, responsible for all debts incured, difficult to raise finance, tend to be small and therefore more risky. limited range of skills available.
• what is the difference between limited and unlimited liability

  limited liability is you only lose whatever you put in the bank and unlimited liability is person is responsible for all debts incurred and any other assets owned by entreprenuer may be at risk.
• what is partnership and DEED OF PARTNERSHIP

  between 2 and 20 people own a business, share responsibility for running business and share profits. partners may draw a DEED OF PARTNERSHIP which is a legal document whish states parters right in case of dispute, covers issues such as how much capital each partner will contribute, how profits and losses wil be shared, procedure for ending partnership.
• what are the advantages and disadvantages of a partnership

  wider range of skills available, share ideas and make key decisions together. more finance can be raised, can share workload, cover during illness or holidays.

  decision making may be slower as all partners need consulting, partners may disagree causes disputes and conflict, profits have to be shared, unlimited liability equally liable for debts and assets can be at risk
• what are private limited companies

  often a small busines, shares can only be transffered privately and not available to others, have limited liability, tend to have LTD after their name e.g. plumbers, hairdressers, dentists
• what are the pros and cons of a public limited company

  limited liability, do not risk their personal assets, more people are prepared to invest thier money as risk is lower, more capital raised business can sell shares easier access to loans from banks, control of company cant be lost to outsiders.

  legal procedure to set up business takes up time and money, firms arent allowed to advertise shares to public, profits haved to be shared between partners
• in order to set up a limited company what two documents need to be produced

  memorandum of association - gives details of company

  articles of association - details of running the company, rights of shareholders and procedures for dierctors
• what is an annual general meeting

  if companys peformance doesnt live up to shareholders expectations directors can be voted out at AGM
• what are public limited companies and what third document must the provide

  Businesses which are owned by shareholders who have limited liability. Their shares are available to others by selling to the general public often on the Stock Exchange. They are generally recognised with plc after the business name.

  statutory declaration - states that all requirements of all company acts must be met
• what are the pros and cons of a public limited company


  huge amounts of money can be raised from sales of shares to public which can be used to fund expansion, dominate market production cost may be lower as they achieve economies of scale, easier to raise finance and loans from bank as they have a proven track record

  lack of ownership and control as owners dont make day to day decisions leads to interests of owners being ignored, very expensive to set up plc, company accounts can be inspected by members of public