Business Coursebook Flashcards

Poor Management Skills

• Many entrepreneurs have work experience but lack management skills in leadership, decision-making, cash handling, planning, coordinating, communication, marketing, promotion, and selling.

• Enthusiasm and hard work are insufficient for success; management skills are crucial.

• Entrepreneurs may learn management skills quickly, but it's risky. Gaining experience beforehand or seeking advice from specialist organizations is recommended.

• Employing experienced managers can be expensive for new businesses.

Local, National, and International Businesses

• Local Businesses:

  • Operate in small, defined areas; owners don't aim for national expansion.

  • Examples: small building firms, single-branch shops.

• National Businesses:

  • Have branches across a country but don't operate internationally.

  • Examples: large car-retailing firms, national banks.

• International Businesses:

  • Sell products in multiple countries via foreign agents or online.

• Multinational Businesses:

  • Operate in multiple countries with established bases for production or sales.

  • Multinational Business (Key Term): A business with headquarters in one country and operations in other countries.

The Role of Entrepreneurs and Intrapreneurs

• Enthusiasm and creativity are vital for new business ideas.

• Intrapreneur (Key Term): An employee who takes responsibility for turning an idea into a profitable venture.

• New ventures can be based on:

  • Innovative product ideas.

  • New ways of offering a service.

  • New locations for existing businesses.

• Role of the Entrepreneur:

  • Have a new business idea.

  • Create a business plan.

  • Invest personal savings.

  • Manage the business.

  • Accept risks of failure.

Qualities of Successful Entrepreneurs and Intrapreneurs

• Innovation:

  • Identify and fill market gaps.

  • Attract customers innovatively.

  • Promote business distinctively.

• Commitment and Self-Motivation:

  • Willingness to work hard with energy and focus, and ambition to succeed.

• Multi-Skilled:

  • Ability to handle various tasks: production, promotion, sales, and accounting.

  • Good interpersonal and technical skills, and adept at handling money.

• Leadership Skills:

  • Lead by example and motivate workers.

• Self-Confidence and Resilience:

  • Ability to recover from setbacks.

• Risk-Taking:

  • Willing to take risks and invest savings.

  • Key Concept Link: Innovation is essential for new enterprise success. Offering identical goods/services may not lead to great success.

Barriers to Entrepreneurship

• Lack of Business Opportunity:

  • Identifying opportunities is crucial.

  • Ideas come from skills, hobbies, experience, conferences, and market research.

• Industries for new enterprises:

  • Fishing, market gardening, craft work, building trades, hairdressing, computer repairs, cafes, and childminding.

• Obtaining Sufficient Capital (Finance):

  • Lack of finance is a major difficulty.

  • Reasons: insufficient savings, lack of knowledge of support/grants, no trading record, poor business plan.

• Cost of Good Locations:

  • Limited finance means avoiding expensive locations.

  • Operating from home is common but has drawbacks: market access, status, family tensions, work-life separation.

  • Consumer service businesses need strategic locations for customer access.

• Competition:

  • New businesses face competition from established ones.

  • Entrepreneurs must offer unique products or better service.

• Lack of Customer Base:

  • Establish a customer base quickly.

  • Good customer service is essential for repeat purchases.

• Business Risk and Uncertainty:

  • Business decisions involve risk (e.g., failure rate of clothing retailers).

  • Business planning reduces risk by learning from failures.

  • Business uncertainty cannot be foreseen or measured (e.g., COVID-19).

Role of Enterprise in a Country's Economic Development

• Governments encourage entrepreneurship for economic benefits.

  • Employment Creation: new businesses employ not only the entrepreneurs but also other people, which decreases national unemployment.

  • Economic Growth: increased output from start-ups increases the gross domestic product, leading to higher living standards.

  • Business Survival and Growth: some businesses, especially in tourism, do well which balances out the decline of other businesses.

  • Innovation and Technological Change: creativity adds dynamism and competitiveness to the economy.

  • Exports: expansion to export markets increases a nation's export value and international competitiveness.

  • Personal Development: managing a successful business aids in skill development.

Entrepreneur

• Entrepreneur Key Term: An individual with a new business idea who starts it, takes risks, and benefits from rewards.

The Nature of Business Activity

• Business activity aims to satisfy people’s needs using resources.

• Businesses add value to resources to meet needs.

Purpose of Business Activity

• Businesses use resources to meet customer needs by providing products or services.

• Business activity adds value to resources, making them more desirable.

• Without business activity, self-sufficiency would be the only option.

• Businesses use scarce resources to improve living standards.

What do businesses do?

• Businesses identify customer needs.

• They purchase resources for production.

• They produce goods and services to satisfy needs, usually for profit

Adding value

• Value added is not the same as profit, as other costs need to be paid for.

• Increase in profits results from adding value, without increasing cost.

• Examples of adding value include:

  • Jewellery Shop: shop display, fittings, well-dressed shop assistants, pretty packaging that might allow for an increase in jewellery prices.

  • Sweet manufacturer: advertising campaigns, easily recognized brand identity, attractive packaging that might allow for an increase in sweets prices.

  • Branding (Key Term): Differentiating a product by developing a symbol, name, image, or trademark.

Economic Activity and the Problem of Choice

• Wealth and scarcity coexist.

• Insufficient goods to satisfy all needs and wants.

• Economic problem: shortage of products and limited resources.

• Economic activity aims to fulfill as many wants as possible.

• Shortages force choices, prioritizing greatest benefit.

• All economic decision-makers (consumers, governments, businesses) must make choices.

Opportunity Cost

• Choosing one item means giving up others.

• Opportunity cost: The next most desired option that is given up.

• Consumers, businesses, and governments face opportunity costs.

The Dynamic Business Environment

• New businesses are risky due to constant change.

• Dynamic Business Environment (Key Concept Link): A major cause of change within businesses.

• Risk of changes such as new competitors, legal changes, economic changes, technological changes.

• Poor record-keeping contributes to business failure.

Why Do Some Businesses Succeed?

• Businesses thrive by:

  • Good understanding of customer needs.

  • Efficient management of operations.

  • Flexible decision-making.

  • Appropriate and sufficient finances.

Why Do Some Businesses Fail?

• Reasons for business failure include:

  • Lack of cash (working capital).

  • Poor record keeping.

  • Poor management Skills.

Cash Flow Problems

• Businesses often fail due to lack of cash.
  Finance is needed for day-to-day cash flow, holding inventories, and giving trade credit to customers.

• Cash flow problems can be reduced by:

  • Making a cash flow forecast & keep it up to date.

    • Assess cash needs.

    • Inject capital into the business.

    • Establish good relations with the bank.

    • Effective credit control.

The Achievement of wider aims

• Achievement of wider goals (other successes): personal satisfaction and can aid to further successful new enterprises that also boost the economy.

• Social cohesion: By creating jobs and opportunities and by setting a good example, entrepreneurship can help to achieve social cohesion.

The Role of Intrapreneurship

• Aims to allow people to take risks and show initiative just as entrepreneurs do - even when the business is established.

• Large companies must be innovative and keep up with technology

• Intrapreneurship: Encouraging risk-taking and enterprise by employees within a business to help create and develop new opportunities.

• Intrapreneur: people who have the same qualities as entrepreneurs

• Differences between entrepreneurs and intrapreneurs:

  • entrepreneurs start up a new business while intrapreneurs come up with an innovative product or project within a business.

  • Entrepreneurs take the risk while the business takes the risk for intrapreneurs.

  • rewards for entrepreneurs are to themselves while the rewards for intrapreneurs are to the business.

Benefits of intrapreneurship to existing businesses

• Inject creativity and innovation into the business.

• Develop new ways of doing business.

• Innovation in solving problems.

• Driving innovation and change

• Creates a competitive advantage.

• Encourages original thinkers and innovators to stay

Purpose and Key Elements of Business Plans

• Bankers, venture capitalists, and potential shareholders need evidence of planning before investing.

• Business Plan (Key Term): Written document describing a business, its objectives, strategies, market, and financial forecasts.

• Main Elements:

  • Executive summary: overview of the business and strategies.

  • Description of the business opportunity: details of skills, experience, product, and target market.

  • Marketing and sales strategy: reasons customers will buy and how the business will sell.

  • Management team and personnel: details of skills, experience, and recruitment plans.

  • Operations: premises, production facilities, IT systems.

  • Financial forecasts: projections of sales, profit, and cash flow.

Benefits of Business Plans

• Most important when setting up a new business.

• Main purpose is to obtain finance for start-up.

• Provides evidence to investors and lenders.

• Also, forces the owner to think seriously about the proposal and gives them a clear plan of action.

Limitations of Business Plans

• Does not guarantee success.

• Can create a false sense of certainty.

• Must be detailed and supported by evidence (e.g., market research).

• Plan might lead entrepreneurs to be inflexible. If the dynamic business world throws up new opportunities that are not in the plan, these could be rejected

Key Terms

• Consumer: individual who purchases goods/services for personal use.

• Consumer Goods: physical goods sold to consumers (durable and non-durable).

• Consumer Services: non-tangible products sold to consumers.

• Factors of Production: resources needed by businesses (Land, Labour, Capital, Enterprise).

• Capital Goods: physical goods used to aid production.

• Enterprise: initiative to take the risk to set up a business.

• Adding Value: increasing the difference between bought-in inputs and the selling price.

• Added Value: the difference between the cost of purchasing inputs and the selling price.