1.5 Entrepreneurs and leaders Knowledge check

State two features of a partnership

owned by two or more partners

must sign a Deed of Partnership

unlimited liability

pay income tax

Give three examples of entrepreneurial roles

Creating and setting up a business
Running and expanding a business
Intrapreneurship / Innovation within a business
Anticipating risk and uncertainty in the business environment

Give two examples of barriers to entrepreneurship

Access to finance
Lack of entrepreneurial knowledge/skills
Aversion to risk

List three important entrepreneurial characteristics

Hard-working
Determined
Resilient
Creative
Calculated risk taker

List three important entrepreneurial skills

Communication
Teamwork
Organisation
Numeracy
IT

List two financial and two non-financial entrepreneurial motives

Financial: profit maximising or profit satisficing

Non-financial motives: ethical or social or lifestyle

State two possible challenges of transitioning from entrepreneur to leader

Decision-Making - they must delegate and trust others

Managing People – may need to make changes to the organisational structure and corporate culture

Strategic Vision - Need to let go of operational tasks to focus on long-term strategic goals.

List four of the eight business objectives listed in your specification

Survival, Profit maximisation, Sales maximisation, Market share, Cost efficiency, Employee welfare, Customer satisfaction, Social objectives

State two reasons why businesses set objectives

To provide direction to guide decision-making

To increase motivation by creating a sense of purpose

To allow measurement of success/adapt strategy and tactics

What is 'opportunity cost'? Give two examples of how it might relate to business.

The benefit lost from the next best alternative given up.
Comparing investment options
Weighing up spending decisions
Entrepreneurs, comparing profit potential against lost salary

What is meant by the term 'trade off'? Give two examples of how it might relate to business.

Accepting less of one thing in order to gain more of something else.
Profit versus Ethics
Promotion versus Innovation spend
Production efficiency versus customisation

State two reasons for starting a business by buying a franchise.

Established brand and reputation > easier to enter the market
Proven business model > reduces risk > easier access to financing
Training and Support / Marketing Assistance / Group Purchasing Power

State two drawbacks of buying a franchise rather than starting a business independently

High initial costs / Ongoing royalties
Limited independence
Risk of exposure to problems with the wider franchise

State two reasons why an entrepreneur might decide to grow their business by franchising (instead of opening more outlets themselves)

Rapid Expansion (franchisee contributes capital) > builds brand quickly / reduces financial risk

Motivated entrepreneurs > financially invested / may have more local knowledge.

State two risks/difficulties of growing your business via franchising rather than opening more outlets independently

Loss of control
Lower reward
Need to investment in support infrastructure
Risk of market saturation/cannibalisation

Which two types of business organisations offer their owners no limited liability?

Sole trader and Partnership

State three features of a sole trader

only one owner of the business

owner makes all decisions

owner keeps all profit

limited liability

pays income tax

State two advantages of being a sole trader

Sole owner > total control > can make decisions quickly/be responsive to change

Gets to keep all profit > can mean a good return on the capital invested/can control over how much profit to reinvest

Quick and easy to set up > don't need to incorporate > can just start trading

State two disadvantages of being a sole trader

Unincorporated > unlimited liability

May be hard to raise capital > the sole trader will have to contribute this his/herself / cannot sell shares

May pay more tax than LTD, depending on the level of profit.

State two advantages of being a partnership

Shared responsibility > can lead to better decision – making > especially if the partners have different areas of expertise.

Easier to raise finance than for sole trader > e.g. partner's savings

Quick and easy to set up > don't need to incorporate > just need to draw up a Deed of Partnership and start trading.

State two disadvantages of being a partnership

Profit needs to be shared as agreed in the Deed of Partnership.

Disputes can occur > may slow down decision-making

Unincorporated > unlimited liability >

Harder to raise finance than for a company > can’t sell shares

Partners MAY pay more tax than an incorporated business.

State two features of a private limited company

owners of known as shareholders.

are separate legal entities to the owners.

often have a small number of shareholders; even just one

run by the company directors (often be shareholders too)

can only sell shares privately.

pay corporation tax on company profit.

State two reasons why owners of unincorporated businesses might decide to convert to an LTD

limited liability> protects the private assets of the owners

Access to more finance > can sell shares

Corporation tax payable may be lower than income tax.

As shares are sold privately, founders can control who else becomes a shareholder, reducing the risk of conflict.

State two disadvantages of unincorporated businesses converting to an LTD

Loss of control as shareholders have voting rights

Some loss ownership > must share profit

shares sold privately, > difficult for shareholders to exit

Limited liability > may be harder to get a bank loan if the business has few assets to offer as collateral

Finances cannot be kept private as some financial accounts have to be published (although far less than if the company were a PLC).

State three reasons why major shareholders/ the Board of Directors of a PLC might decide to convert to an LTD

Fewer shareholders > gives owners more control

Easier to focus on long-term growth > removing the need to pay satisfactory dividends

Increased privacy > LTDs do not have to make as much financial information public as PLCs

State two disadvantages of a PLC converting to an LTD

No longer able to sell shares to the public – may be harder to raise large amounts of capital

Harder for shareholders to exit > shares can only be sold privately

Harder to use employee share ownership schemes

State two features of a public limited company

Owned by shareholders - often thousands of them
Run by the Board of Directors
Can raise large amounts by selling shares to the public
Second-hand shares can be traded on a stock exchange, > shareholders can sell shares easily
Shareholders are paid dividends from the PLC's profit
Corporation tax is paid on company profit

State two advantages of becoming a PLC

Ability to raise large amounts of finance

Easier for shareholders to sell shares > can be easier to attract investment / gives founders/owners an exit strategy

Can help with future takeovers – shares can used to help buy another business via stock swap

Financial incentives - PLCs can use share schemes for recruitment/retention and motivation.

State two disadvantages of becoming a PLC

Dilutes ownership and control > important for two main reasons: conflict over decision-making / pressure to make enough profit to deliver dividends

Risk of short-termism - institutional investors tend to be risk averse.

Market scrutiny share prices can vary > managers have to spend time explaining changes > opportunity cost

Risk of a hostile takeover

have to comply with specific regulations and publish more financial information t