Enterprise

-new businesses are started by people called entrepreneurs.

Entrepreneur- an individual who has an idea and for a new business and takes the
financial risk of starting up and managing it.
- the idea for an enterprise meaning a project or a business may be any of the
following;
 a new idea for a good or service
 offering an existing good or service in a way that has not been offered before
 offering an existing good or service in a new location
-there are several characteristics entrepreneurs share or might have in common for
them to succeed

Characteristics of a successful entrepreneur

 innovative- they are good at thinking of new ideas of goods and services or ways
of presenting existing goods and services
 self motivated and determined- they have a strong belief in their own ability
and ideas
 multi skilled- can handle several tasks at once up to its success
 strong leadership qualities- they have good communication skills, the ability to
motivate others and they are good decision makers
 initiative- they have the ability to spot opportunities and take advantage of them
and have the ability to make the first moves
 results driven- they are focused on achieving results and make sure products are
sold for profits
 risk taker- they are prepared to take risks, knowing that failure is a possibility
 good at networking- they are prepared to learn from others

Business plan
-Is a detailed written document outlining the purpose and aims of a business which is
often used to persuade lenders or investors to finance a business proposal.
- business plans are not only used for business start-ups but can also be used by
already existing businesses looking for investors to fund their expansion of other long
term projects.
Benefits of being an entrepreneur Disadvantages of being an entrepreneur

- independence- being able to chose how to use time -risk- many new entrepreneurs businesses fail especially
and money if there is poor planning
- able to put your ideas into practice - capital- entrepreneurs will have to put their own
money into the business or find other sources of finance
-may become famous and rich if the business grows - lack of knowledge and skills in starting and operating
the business
- may be profitable and the income might be higher than - opportunity cost- lost income from not being an
working as an employee of another business employee of another business
-able to make use of personal interests and skills

Importance of a business plan

i. the information provided can be used to persuade lenders such as banks and
investors to provide finance to the business
ii. it gives a business a sense of purpose and direction because it sets out the
resources required by the business such as number of employees, finance and
how the products or services will be marketed
iii. the objectives and financial forecasts provide the business with targets to aim at
and enable the business to monitor its progress

Business start-ups- is a newly formed business. They usually start small but some
might grow to become much bigger.
Why governments support business start-ups
i. Reduce unemployment- new businesses create jobs and reduce unemployment
ii. Increase competition- new businesses gives more consumers more choices or a
variety to choose from with already existing businesses
iii. increased output- the economy benefits from increased output of goods and
services
iv. benefit society- entrepreneurs can create social enterprises which offer benefits to
society other than jobs and profit. For example, supporting disadvantaged groups in
society
v. can grow further- start-up businesses begin life as a small business, but some will
grow and become large and the country will benefit from having the advantages larger
businesses bring to the economy
vi. Lower prices- Since start-ups are small it means they have lower costs and can
pass this on to the consumer through lower prices

Types of government support the government provides

i. grants and interest free or low interest loans
ii. lower taxation rates charged in the early years
iii. rent- free premises for a certain period of time
iv. free or subsidized training schemes for employees
v. information, advice and support from specialist agencies

Measuring business size

ways of measuring and comparing the size of businesses

i. Capital employed
-is the total value of all long-term finance invested in the business. It is used to buy
the things that a business needs before it can produce goods and services for example
machinery, inventory, and office buildings.
- a small business invests less capital than a large business in the same industry. For
example, a small baker will only need one shop, one food mixer, one oven and a small
inventory of raw materials but a large bread manufacturer would need production
lines, industrial mixers, large ovens and large inventories of raw materials.
-used to compare businesses in the same industry

ii. Value of output/sales

-usually used to compare businesses in the same industry
- it is the amount a business earns from selling their products. A small business will
have much lower revenue than a larger business. For example, a small general store
will have fewer customers that a large supermarket and therefore much lower sales
and revenue
iii. Number of employees
- large businesses need to produce a much greater output or provide services to a
larger market than small businesses
- they will also have more departments and managers therefore large businesses
employ more employees than small businesses in the same industry
-However, these two businesses can still produce the same output using less
employees through the use of machines or automated machinery

iv. Market share

- is the revenue of a business expressed as a percentage of the total market revenue.
The larger the total share of the total market, the larger the business. it is normally
used to compare firms in the same industry or market.

Limitations of the methods of measuring a businesses

-these methods can provide false comparisons if they are used to measure or compare
businesses from different industries and there is need to use more than one method
when measuring to compare businesses in different industries.
Reasons for business expansion or growth
i. Increase in profits- when a business grow, profits may also increase because
output would have increased, hence increased sales leads to increased revenue
which also leads to increased profits, that is if the business had a control on costs
ii. increase in market share- the more people using or buying a business products
over other businesses increases market share because there will be an increase in
the business revenue as a % to the total market revenue
iii. Economies of scale- the business will enjoy economies of scale as it grows
which is a reduction in its average costs
iv. Greater power to control the market- larger businesses in the market have
greater chances of controlling market activities. For example, they set the price
for all the other businesses in the industry to follow..
v. Protection from risk of takeover- the larger the company the more difficult and
expensive it is to be taken over, quite a number of shares needs to be bought.
Integration- is when one firm integrated into another one
Merger- is when the owners of two businesses agree to join their firms together to
form one business
Takeover/Acquisition- is when one business buys out the owners of another business
which then becomes part of the predator business [the firm which has taken it over].

Different ways businesses can grow

- businesses can grow in different either through internal growth also known as
organic growth or through external growth also known as integration.

Internal growth/Organic growth

- Occurs when a business expands its existing operations. It can be through;
i. increasing the number of goods it can produce. For example, by buying more or
better machinery
ii. developing new products
iii. finding new markets for it’s products or opening new branches in other areas
- this type of growth is funded by company profits for an existing business

External growth/Integration
- is when a business take over or merges with another business in the same or
different industry which is called integration. There are four types of integration and
these are;

i. Horizontal integration
-is when one firm merges or takeover another in the same industry and at the same
stage of production. For example, two wheat farmers in the primary sector or two
chocolate manufacturers in the secondary sector.

ii. Vertical integration

- is when one firm merges with or takes over another one in the same industry but at
different stages of production. It can be backward vertical integration or forward
vertical integration.
a. Forward vertical integration- brings together two firms in the same industry,
but one is a customer of the other. For example a shoe manufacturer and a shoe
 retailer or a car manufacturer takes over a car retail business or a potato farm
takes over Lays crisps.

b. Backward vertical integration- brings together two firms in the same industry,
but one is a supplier to the other. For example, a chocolate manufacture and a
coco producer or when Lays crisps takes over a potato farm.

iii. Conglomerate integration/Diversification- is bringing together two businesses

who are in completely different industries, for example a cosmetics manufacturer and
a soft drinks manufacturer.

Problem linked to business growth

i. internal growth is usually slow
ii. when businesses are brought together employees fear for the loss of their jobs
iii. if a business becomes too large then dis-economies of scale may occur. This will
increase the business’s average costs and and reduce its profit margins
iv. difference in the way they do things, pay structure, objectives, management styles
and working conditions. these differences could lead to a conflict between
management and its employees.
v. integration of two firms leads to loss of control between the two firms or freedom
to do things their way

Why other businesses remain small

i. Owner’s choice
- the owner does not want more responsibilities or more workload.
- owner wants to keep total control of the business
- the owner wants to maintain a close relationship with customers and that goes away
if the business grows
- the owner want to avoid the risk of looking for capital in which he/she is not sure
might have returns to pay it back
ii. Market size
- not all businesses have market size as an objective. For example businesses that
serve local markets such as hairdressers and taxi drivers serve customers from their
neighbourhood and they don’t want to expand more beyond serving their market.

iii. access and availability of capital

- access and availability of capital to finance the growth plans because it might not be
possible to access funding from lender such as banks etc

Why some businesses fail

i. Poor planning and lack of objectives- lack of a business plan or a sense of
purpose results in business failure
ii. Liquidity problems- there wont be enough money to cover for debts or day to
day business activities because some of the money is tied with debtors who will
pay at a later date.
iii. Poor choice of location- choosing the right location for a product or business is
crucial. for example, expensive products should be located in areas of people with
high incomes who can afford the product
iv. poor management- lack of experience and skills or some management
leadership styles might lead to the failure of businesses
v. failure to invest into new technologies- a business that does not invest into
latest technologies will find it hard to compete with relevant or up to date
businesses because of price, design and quality differences.
vi. poor marketing- marketing activities such as market research and promotional
activities are essential because businesses will know the needs and wants of the
market, and also communicate with consumers to know the existence of the
product and where to get it.
vii. lack of finance- new businesses often lack the finance they need to take full
advantage of opportunities available for them
viii. competition- tense competitors from rivals and businesses not adjusting with
competition levels.
ix. Economic influences- unemployment, high taxation, may reduce the amount of
money consumers have to spend on goods and services produced by businesses.
this will reduce business’s earnings from sales and profit
 Measuring business size

Ways businesses grow

Contents of a business plan

Characteristics of an entrepreneurs