1.5

Entrepreneur

Entrepreneur

a person who sets up a business and take risks in the hope of a profit, reward or for a social purpose

Entrepreneurial characteristic

the skill, quality or trait of the person starting the business

Entrepreneurial motive

factor that drives a person to start a business

Creativity

- characteristic   

   Entrepreneurs need to be creative people, it helps when designing or inventing new products or services

-              In dynamic markets the consumers are faced with a huge variety of products from trusted brand names

-              New products onto the market need to be more creative in the ways that they add value to stand out from the established products

 

Hard work

•    characteristic

   Starting a business can mean hard work.  Some entrepreneurs will put 100s of hours into their own business to get it off the group and may have to continue working long hours to get the business established

•       This can include time working on the website, on social media, selling to customers, developing products, or even just thinking about the next move

Resilience

•   characteristic

    Resilience means;  strong, hardy, tough, robust, durable, feisty, quick to recover. 

An entrepreneur may get many knock backs before their business is a success

Initiative

•  characteristic

     Initiative means;  inventiveness, enterprise, ingenuity, or resourcefulness 

•       Many entrepreneurs may start a business because they have a good idea and want to take it to market

Self - confidence

•      characteristic

Self-confidence is how an entrepreneur feels about their own abilities.

•       It is easy for an entrepreneur to become frustrated and give up if they lack self-confidence in their own ability and in their products and services

 

Risk taking

characteristic     

Entrepreneurs who want to start their own business will need to be able to take a risk

•       There is a risk of leaving a secure job to start up on your own

•       There is also a financial risk of losing any money that is put into the business, if the business fails

Communication

Skills

•       Entrepreneurs need to be good communicators

•       They may need to write exciting product descriptions on their websites

•       They may have to talk to customers or clients face to face or on the phone

•       They may need to negotiate deal with suppliers

Team working

skills

•       An entrepreneur may decide not to work alone but as part of a pair or a team

•       Working with others has advantages and disadvantages

•       The advantages are that there are more ideas and more capital in the business

Problem solving

skills

Entrepreneurs will come across many problems when setting up and running their business, they will need to be good at working out cost effective solutions that help to move the business forwards.

Organisation

skills

•       Entrepreneurs need to be organised

•       When first starting the business they will have to develop a range of systems for dealing with enquiries, suppliers and orders from customers

•       They may need to buy stock, sell to customers, make products all in the same day, which takes organisation skills

Numeracy

skill

•       Entrepreneurs will need to be numerate. 

•       They will need to complete their own tax returns when they first start.  They will have to balance sales books, keep records of goods and services purchased to keep the business running.   They will have to complete cash flow forecasts if they wish to attract more funding from lenders.

IT

skill

•       Entrepreneurs need to be IT literate

•       If the business is online they will need some web design skills

•       If the business is not online they may still need to know how to process an order, send and print invoices, keep databases of customers, process accounts on a spreadsheet etc.

profit maximisation

financial motive

An entrepreneur may aim to make the highest amount of profit possible, so they will seek to minimise costs and maximise revenue

-              The advantages to a sole trader are larger wages can be drawn from the profit

-              The advantages for a Ltd company and a PLC is dividends will be larger on shares, this may attract more investors

Profit satisfying

financial motives

- An entrepreneur may aim to make just enough profit to keep the business moving plus another aim at the same time

a business may want to make a profit and:

-              Reward employees with higher wages

-              Invest in environmental project

-              Serve the community in some way

Independence

non financial motives

For many entrepreneurs the idea that they can work for themselves and no longer have to commute to work for someone else is all the motivation that they need to set up their own business

flexibility

non financial motives

Many entrepreneurs seek to start their own business to gain flexibility in their life, It can be hard to balance the needs of a family with the requirements of work, This work life balance can better achieved if the entrepreneur can work from home or for themselves

ethical reasons

non financial motives

Some businesses may decide to trade in a more ethical way ( animal rights , body shop)

Social purpose

non financial motives

Social enterprises are businesses trading for social and environmental purposes. Many commercial businesses would consider themselves to have social objectives, but social enterprises are distinctive because their social and/or environmental purpose is absolutely central to what they do.

personal challenge

non financial motives

 Some entrepreneurs may find working for another business as boring and unchallenging.  They may decide to set up their own business instead. This should give them the daily challenge and excitement that they seek. Some entrepreneurs set up more than one business as they wish to keep challenging themselves

creating a business

-       A small business just needs a good idea and an entrepreneur who wants to make it work

1.     Market research, find out what customers want

2.     Start small at a marker stall or similar context if possible

3.     Draw up a business plan

4.     Grow the business

online business

-       A business can be set up online only and be very successful – Amazon

-       Sites like eBay and Esty mean that entrepreneurs don’t even need to have their own website they can sell through a third party

sole trader

online – register as self employed for tax, if its B2B then the customers mat ask to see evidence that they have registered with the unique. Tax reference code

Running a business

Once a business is started the entrepreneur will need to turn their attention to the daily running of the business, may include; completing finances, buying stock, listing stock for sale, contacting customers and chasing payment. 

Expanding

locations , licence the product, diversify, target other markets, merge with other businesses

intrepreneurship

innovation within a business

An employee within a larger business who thinks like an entrepreneur(risk, creative, solves problems, drives innovation, self- confident)

Entrepreneurial capacity

growing awareness of skills, knowledge and attitudes can be learned and in turn lead to the widespread development of entrepreneurial mind sets and culture which benefit individuals and society as a whole.

Access to finance

ack of funds, not enough savings or family they can ask to help, banks aren’t keen to lend start -ups because of a lack of historical data of sales – making them a risky investment

lack of training

lack knowledge of how to start, put people off who would like to start their own business, don’t know how to get started

Fear of failure

failure itself or the cost of failure which may put people off, especially if giving up salaried payed work.

Lack of confidence

 

overcome with training, information and marketing – when they are sure they have a product which will sell they may gain confidence

risk

the possibility that the business will have a lower than expected profit or loss - predictable

-       Financial -  risk to the owner, may put their own cash and other assets into a business – could loose personal assets if unlimited

-       Lack of security – regular job and decide to leave that job to open business = risk, may have a mortgage and other bills to pay, lack of sales with falling incomes

uncertainty

unable to predict external shocks

-       Tsunami/ earth quake -  JIT , without big costly inventories – Toyota

-       Health scares – consumer good or medical product, 1988 all Britain eggs = salmonella, sales of eggs dropped and farmers = slaughter chicken.

-       Commodity price shocks – raw material that can be bought and sold ( copper or coffee) – price shocks = impact on profit

-       Changes in exchange rates – value of one currency in terms of another- UK exporters benefit from a fall in the value of sterling- British firms importing raw material

-       Interest rates -  UK interest rate is the cost of borrowing to consumers – if it goes up then consumers are less likely to borrow for cars, houses, furniture , holidays. If they stop spending and start to save then the economy may enter a recession

-       Horse meat scandal – 2013 – horse meat, un declared beef – revealed by food standards.

Business objectives

A business objective is a goal or aim that a business wants to achieve.  The best objectives are SMART (specific, measurable, achievable, realistic, timely)  and not vague, so that everyone in the business knows what direction the business is going.

survival

-  Survival is a short-term objective of a business and is usually applied to a new business or start-up

•       Having an objectives helps the employees to focus on shared aims of the business

•       Different businesses have different objectives, it can depend on the product, service or industry and even on the goals of the entrepreneur starting the business

•       The business in the first year may just have survival as the objective while it builds a customer base and establishes itself in the market

•       The objective is to reach a sustainable level of sales that allows the business to reach its break-even point

•       This may involve penetration pricing of products or services at the outset to establish the business

•       This may not mean much profit at the start, but when the business starts to grow it will able to comfortably raise prices

 

Profit maximisation

Profit maximisation is when a business wants to make the most profit possible from a given amount of resources

-              Profit maximisation is important as an objective because it helps a business to recoup any research and development costs (R&D)

-              Profit maximisation is needed to help a business to maintain high levels of product development and innovation

 

sales maximisation

1.        Profit figures tend to be annually so sales figures can be examined on a daily, weekly or monthly basis, Managers find sales figures more satisfying as targets as profits go to owners and salaries are often linked to sales levels, Anyone interested in investing in the business may want to see the sales data and judge it as an indicator of performance. Estate agent.

 

Market share

Market share is the % of a market that a business has, either in revenue or in units sold, This may be an objective in a very competitive market where consumers switch between suppliers (supermarkets), Very important for investors to judge how a business is doing against competitors Loss in market share can be an indicator of long-term serious financial problems

 

cost efficiency

Paying minimum wage to unskilled workers, Subcontracting where economically viable, Lean production or construction where material, time and process waste is eliminated to save costs, Increase the perceived value of the product through strong branding, Lower the quality and the price of the product, Lowering the average costs means economies of scale

employee welfare

External examples: Medical insurance, housing, education for family, Internal examples: Canteen, crèche, toilets, uniform, Employees that are satisfied are loyal and hard working, they have increased morale, motivation and productivity, The business also benefits from an enhanced public image as a good place to work – which makes recruitment easier

Customer satisfaction

, Businesses who follow this objective wills eek to monitor customer service levels through surveys and will focus on quality, They will attempt to identify and understand what the customer wants and then provide this, They also aim to reduce the number of complaints, A customer centred approach will: Ensure repeat sales, Create brand loyalty to prevent customers from switching to similar brand, Satisfied customers will tell others and reputation and word of mouth are very cheap ways of highly effective marketing to improve sales

social objectives

Reducing impact on the environment, Fair wages in developing countries, Helping society , Compliance with laws to minimise externalities like operating sensible hours so not as to noise pollute the local community.

limited liability

-  Limited liability means that the owner of the business has no personal liability for business debts. The owner has a separate legal identity from the business and is NOT liable for payment of the debts from their own personal funds

unlimited liability

If a business gains debts, or goes bust or is sued this could be a problem for the owner, If there is no money in the business then the owner would need to pay using their own savings, finances, they may even have to remortage their home or even sell their car to pay the debts

sole trader

Business owned by one owner, but they can take on staff, Also known as a sole proprietor, Can employ people but they will not be involved in control of business, Tend to be small businesses, Has unlimited liability

- Examples include; small shops, accountants that work from home, online traders, plumbers etc

Advantages of a sole trader

Easy to set up – no complicated forms, Make decisions quickly , Less capital needed, All profits kept by the owner, Can offer personal attention to customers, Don’t have to make any information about the company public, They are their own boss

disadvantage software a sole trader

sole trader could lose their own assets like their savings, house or cars , Difficult to raise money – seen as a risk, Don’t have economies of scale (buying in bulk), No one to take over for ill-health or holidays

Partnerships

Two or more people – ie the partners - share the risks, costs and responsibilities of being in business, The profits and gains of the partnership are shared among the partners, unless the partnership agreement states otherwise, Each partner is personally responsible for paying tax on their share of the profits and gains, and for their National Insurance contributions, Partners raise money for the business out of their own assets and/or with loans , The partners themselves usually manage the business, although they can delegate certain responsibilities to employees, It is possible to have 'sleeping' partners who contribute capital investment to the business but are not involved in running the business

pros of partnerships

Easier than a sole trader to raise extra capital, as partners all have their own sources of finance e.g. savings, Profits go to partners, which is very motivating, Smaller business means good working relationships, No need to make public any information, Partners contribute with range of skills, Shared problems and decisions

cons of partnerships

LTD - private

•       LTDs can expand and grow by selling more shares, giving the business more capital, Friends and family can buy shares in the business, this will make them part owners, Shares cannot be bought by the public, LTDs owners have full control of who buys the shares, LTDs have the benefit of limited liability, those that own or buy shares in the business can only lose their original investment, their private assets remain safe

Pros of LTD

•Limited liability

•Can raise extra capital by selling more shares, to friends and family, making it  easier to expand

•Can employ managers to run business if  the owners don’t want to do it themselves

•Has its own legal status – separate from the shareholders

Cons of LTD

•Accounts of the company cannot be kept private

•Audited each year

•Copy sent to Registrar of Companies

•Available for public to see

•More difficult and expensive to set up  - more administration

•Cannot sell shares on stock exchange, which limits the amount of capital that it can raise