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ENTERPRISE:
An entrepreneur is a person who organizes and operates a business. But what makes an entrepreneur successful? Being:
Hard working
Risk taker
Creative
Optimistic
Self-confident
Innovative
Independent
Effective communicator
BUSINESS PLAN:
A business plan is a document containing the business' objectives and important details about the operation.
ADVANTAGES:
The business becomes much easier to run
Low chance of losing site of the mission
Helps motivate employees
Helps the business get a loan/financial help from banks
But what does the plan contain?
DESCRIPTION:
Provides a brief history and objectives of the business
PRODUCTS AND SERVICES:
Describes what the business sells/delivers
Details of the product + how it is manufactured and produced
THE MARKET:
Describes the market the business is targeting which includes: total market size, predicted market growth, target market, analysis of competitors, predicted changes, and forecast sales revenue from the product
BUSINESS LOCATION:
Describes physical location, internet sales, or mail orders
Basically HOW the product is delivered to customers
ORGANIZATIONAL STRUCTURE:
Describes the organizational structure, management, details of employees needed
Usually includes number and level of skills needed for employees
FINANCIAL INFORMATION:
Projected future financial accounting statements (income + financial position)
Sources of capital, predicted costs (fixed/variable), forecast cash flow, and profitability
BUSINESS STRATEGY:
Explains how businesses intend to satisfy customer needs and gain brand loyalty (will be discussed more in section 3)
GOVERNMENT SUPPORT:
WHY DO THEY SUPPORT BUSINESSES?
Reduce unemployment
Increase competition
Increase output
Benefit society by increasing standard of living
The business can grow further so more tax income
HOW DOES THE GOVERNMENT HELP?
Organizing training for entrepreneurs that give advice for the business and offer help
'Enterprise zones' that provide low-cost premises to start a business
Loans for small businesses at low interest rates and grants if the business is opened in a depressed area
Grants to small businesses to train employees and increase productivity of labor
Encouraging universities to make research facilities available to new entrepreneurs
BUSINESS SIZE:
It can be measured in several ways including: number of people employed, number of capital employed, value of output, and value of sales
It is useful to governments, investors, banks, workers, and competitors
NEVER MEASURE THE SIZE OF THE BUSINESS BY PROFIT!!!! Profit measures success and not size.
BUSINESS GROWTH:
WHY GROW?
Possibility of higher profits
More status and privilege for owners (higher salaries)
Lower average costs
Larger share of its marker (consumers are attracted to "big names")
But how can businesses grow? There are 2 ways: internal and external.
INTERNAL GROWTH:
Grows by its own by opening up different branches; growth paid by the profit of the existing business. It is a very slow process but easy
Example: a floral shop opening up another shop in another town
EXTERNAL GROWTH:
Takes over/merges with another business
Horizontal merger (integration): when 1 firm merges/takes over another firm in the same industry and same production stage (example: 2 car manufacturing business)
Advantages:
Merger reduces number of competitors
Opportunity for economies of scale
Combined businesses have more share of total market
Vertical merger (integration): When 1 business merges/takes over another in the same industry but different production stage. It can forward (closer to consumer. example: fisherman merges with canning industry) or backward (earlier production stage. Example: canning industry merges with fisherman).
Advantages for forward vertical:
merger gives assured outlet for production
retailer is prevented from selling competitor's goods
information about consumer needs is obtained by manufacturer
Advantages for backward vertical:
merger gives an assured supply
supplier is prevented from supplying other businesses (competitors)
Conglomerate merger (integration) aka diversification: when 1 business merges/takes over another business in a different industry (example: business that builds houses merges with clothing business)
Advantages:
Business spreads risk
Transfer of ideas
DRAWBACKS OF GROWTH:
Larger business are harder to control but that can be solved by operating the business in smaller units
Larger business has poor communication but that can be solved by operating the business in smaller units
Expansion is expensive but if a business expands slowly and ensures long-term finance, it should not be a problem
Integrating is difficult but by having good communication, the problem is solved
However, some businesses remain small. Why is that?
SMALL BUSINESSES:
TYPE OF INDUSTRY:
Include hair dressing, car repairs, etc. (person services)
If they grow too large, it would be difficult to offer the close and personal demand
MARKET SIZE:
If the market (number of customers) is small then it remains small
OWNER'S PREFERENCES:
Owners might prefer a small business where they know their staff and customers and avoid stress
WHAT CAUSES BUSINESS FAILURE?
LACK OF MANAGEMENT:
Lack of experience can lead to bad decisions. For example, locating in an area with high cost but low demand.
BUSINESS ENVIRONMENT CHANGE:
Failure to plan adds to the risk and uncertainty of operating a business, new technology, and powerful competitors.
LIQUIDITY ISSUES:
Lack/shortage of cash (used to pay day-to-day expenses) where the workers cannot get paid
OVER-EXPANSION:
If a business expands too quickly, this leads to management and financial problems
Note: newer businesses are at a higher risk of failing due to the lack of finance, poor planning, inadequate research, as well as bad decisions and lack of experience.
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