11COME MYE Definitions

Sole Trader

Aka Self employed individual or sole ownership, is a business structure which is owned and operated by one person, who is personally liable for the debts incurred by the business.

Partnership

A business structure that consists of two or more people who share in capital, investment and responsibilities of the business.

Private Limited Company

Business structure which is owned by shareholders, typically directors of the business. Shares cannot be offered to the general public.

Public Limited Company

A public limited company is owned by shareholders and run by directors. Shares can be bought by the general public via a stock exchange.

Franchises

An alternative to starting a business from scratch. It allows entrepreneurs to use a proven business model, brand, and products in exchange for an initial fee and ongoing royalties.

Advantages for a sole trader

Simple registration process, owner has complete control over decision making, owner keeps all the profits

Disadvantages for a sole trader

Unlimited liability, owner is unable to specialize in multiple areas of skill, often requires extensive work hours

Advantages for a partnership

Partners may specialise in different skills and knowledge, shared decision making, additional capital injected by each partner, reduces workload and working hours

Disadvantages for a partnership

Conflicts over key business decisions may arise, profits are shared, unlimited liability for partner, lose of independence in decision making, negative actions from one partner could affect both partners.

Advantages for a private limited company

Limited liability, separate legal identity, able to raise capital from sales of shares to family, original owner is still able to retain control of the business

Disadvantages for a private limited company

Capital cannot be raised by selling shares to the general public, companies must publicly disclose information, legal formalities involved in establishing the business.

Advantages for a public limited company

Limited liability, option to offer shares to the general public via the stock exchange, facilitating significant capital generation

Disadvantages for a public limited company

More legal requirements and paperwork, original owners may lose control if a majority of shareholders agree a takeover bid, share prices may fluctuate

Advantages for franchisor

They can expand the business quickly without needing to build every location themselves, earn initial fees and regular percentage of sales from the franchisees/

Advantages for franchisee

Franchisees benefit from the franchisors existing brand reputation and customer base, proven business systems and training minimise problems faced by most business startups, franchisors provide comprehensive training and ongoing support to franchises

Disadvantage for franchisor

Franchisor gives up some direct control over how each individual location is run, if a franchisee performs poorly, it can damage the reputation of the entire brand, support costs, potential disputes between the franchisor and franchisee

Disadvantages for franchisee

Franchise costs can be substantial, covering franchise rights and equipment, Franchises must pay a % of their profits to the franchisor and other fees for advertising and other services, franchisees must also adhere to the franchisors established business practices, reducing autonomy

Short term finance

Day-to-day operations, such as paying rent and wages, and purchasing stock. Less than 1 year.

Long term finance

Buying assets needed to run the business (computers, factory equipment, vehicles), a mortgage for business premises, or to update or expand the business. More than 1 year.

Internal finance

Generated within the business

External finance

Funds from outside sources

Bank Overdraft

Bank Loan

Long term external. When a business receives a set amount of money from the bank. The loan amount and repayment time depend on various factors.

Owners capital

Long term internal. A source of finance that comes directly into from the business owners personal funds or assets.

Trade credit

Short term external. Buying supplies from wholesalers on credit, with an agreement to pay the balance in full within a specified period.

Retained profits

Internal long term. Reinvesting a businesses net profit back into the business rather than distributing it to owners/shareholders.

Share capital

External long term. Selling shares in the business to investors for money.

Venture capital

External long term. Involves an investor (venture capitalists) investing money into the business in exchange for an agreed share in the business equity.

Crowdfunding

Long term external. Involves obtaining contributions from a wide range of people via internet platforms

Advantages of bank overdraft

Quick and easy to arrange, funds are available immediately, no charge for clearing balance early

Disadvantages of bank overdraft

Interest rates can vary, making it hard to predict costs, failure to repay on time can lead to high interest charges, business assets may be at risk

Advantages of bank loan

The amount borrowed, interest, and repayment schedule are known in advance, there are no additional charges if the loan agreement is followed, finance costs are typically lower than other options

Disadvantages of bank loan

Risk of losing assets/personal assets are at risk, fees are still charged for early repayment, interested on unused funds, arranging a loan is time consuming, and banks don't have to lend

Advantages of owners capital

Low risk, no debt or external obligations

Disadvantages of owners capital

Limited amount of funds, strain on personal finance

Advantages of trade credit

Easy to organize between business and supplier, funds are available immediately

Disadvantages of trade credit

Relationship between supplier and business may get damaged if business fails to pay on time.

Advantages of retained profits

Owners/shareholders have complete control on how the money is spent, no repayment is required, no additional charges like interest

Disadvantages of retained profits

Potential disagreements may arise on how profits should be shared or retained, upsetting shareholders, Retained profits are not a consistent source of finance, as profits are not guaranteed year on year

Advantages of share capital

No repayment required, no interest charged, The business controls the number of shares to sell, the price, and to whom they are sold (for private limited companies), Shareholders want the business to succeed and can support it with their skills and experience

Disadvantages of share capital

Selling more shares reduces the owner's share and control in the business, Shareholders share the profits of the business, reducing the amount of profit the initial owner takes

Advantages of venture capital

Widely available for businesses deemed riskier, where other forms of finance may not be available

Disadvantages of venture captial

Business owners typically have to exchange a high proportion of equity to secure funding, Many businesses get rejected after the initial review of their business plan, The process can take three to six months to secure funding, which is longer than many other sources of finance

Advantages of crowdfunding

Simple, accessible, and quick to set up, The business owner retains full control of the business, Creates a community of loyal fans who can provide feedback

Disadvantages of crowdfunding

The business may not receive any contributions due to intense competition, There is a risk of the idea being stolen, as it is available for the general public to see and potentially copy

Entrepreneur definition

An entrepreneur is a person who organizes, operates, and takes risks for a new business venture. They combine land, labor, and capital to produce goods/services, ultimately to earn a profit.

Resourcefulness

Being clever at finding out what they don’t know, making contacts and coming up with solutions

Resilience

The ability to cope with stress and to ‘bounce back’ from difficult circumstances; being unafraid of failure and open to learning from mistakes

Openness to advice

Willingness to seek advice and help when needed – from mentors, banks, government agencies, or other enterprising people.

Risk taker

Willing to take actions without having a total guarantee of success.

Motivation

Having the get-up-and-go to get a project started, acting before others do, and taking advantage of opportunities as they arise.

Passion

The advice to follow dreams and beliefs, by working hard and drawing on deep reserves of energy.

Determination

The ability to cope with stress and to ‘bounce back’ from difficult circumstances; being unafraid of failure and open to learning from mistakes.

Initiative

Being able to start something - to have get up and go.

Vision

Having confidence and a sense of self-worth.

Innovative

The practical application of new inventions into marketable products.

Stakeholders

Individuals or groups affected by an organization's actions, holding a vested interest in its operations.

Internal stakeholder

People whose interest in a company comes through a direct relationship from within the business.

External stakeholder

Those who do not directly work for the company but are affected in some way by the actions and outcomes of the business.

Owners/Shareholders

Owners of the business (by owning shares)
Objectives: To maximise profits and long term growth

Managers

Working directly for the business and are in charge of implementing the vision of the owners
Objectives: Good salary and opportunities for future career progression

Employees

Carry out day to day tasks to help the company function
Objectives: Good pay, jab satisfaction, job security, and career progression

Customers

Buy the products or services offered by the business
Objectives: Good quality products and a reasonable price

Suppliers

Responsible with providing the business with products or services.
Objectives: Paid on time and regular orders

Local Community

Anyone located near the business.
Objectives: Employment and local respect

Pressure groups

Increased awareness of their cause and influence on business decisions that further their goal.

Government

Can be both local or central
Objectives: Business to create more jobs and raise more money from taxes

Corporate Social Responsibility

A concept that accepts that business should consider the interest of society in its activities and decisions, beyond the legal obligations it has.

Kaitiakitanga

Guardianship In relation to natural resources such as land and sea. Sustainability and environmental protection are valued.