Chapter 1: Enterprise (AS LEVEL BUSINESS STUDIES)

Definitions to remember:

• Consumer Goods - the physical and tangible goods sold to the general public - they include durable consumer goods (such as cars), and non-durable consumer goods (such as food).
• Consumer Service - the non-tangible products sold to the general public (such as hotel accommodation, insurance services or train journeys).
• Capital Goods - the physical goods used by industry to aid in the production of other goods and services (such as machines). 
• Creating Value - increasing the difference between the cost of purchasing bought-in materials and the price the finished goods are sold for
• Added Value - the difference between the cost of purchasing bought-in materials and the price the finished goods are sold for.
• Opportunity Costs - the benefit of the next most desired option which is given up.
• Entrepreneur - someone who takes the financial risk of starting and managing a new venture.
• Social Enterprise - a business with mainly social objectives that reinvests most of its profits into benefiting society rather than maximising returns to owners.
• Triple Bottom Line - the three objectives of social enterprises: economic, social and environmental.
• Economic: make a profit to reinvest back into the business
• Social: provide jobs
• Environmental: protect the environment

Notes:

The purpose of business activity is to use resources to meet the needs of customers by providing a product or a service that they demand. 

Businesses identify the needs of consumers or other firms. Then they purchase resources - or factors of production - in order to produce goods and services that satisfy these needs, usually with the aim of making a profit.

Factors of Production:

• Land: the general term that includes not only land itself but all renewable and non-renewable resources of nature (such as coal, crude oil and timber)
• Labour: manual and skilled labour that make up the workforce of the business
• Capital: this defines all of the finance needed to set up the business and pay for its continuing operations and all of the man-made resources used in production (capital goods)
• Enterprise: this is the driving force, provided by entrepreneurs that combines the factors of production into a unit capable of producing goods and services.

The personal qualities and skills needed to make a success of a new business venture include:

• Innovative: the entrepreneur should be able to attract customers in innovative ways by carving out a new niche in the market and be able to present their business as being different from other businesses. This requires original ideas and the ability to do things differently.
• Committed and Self Motivated: there should be a willingness to work hard and have a keen ambition to succeed with energy and focus in order to set up and run your own business.
• Multi - skilled: different tasks in an entrepreneur's job involves to be able to have different qualities vital in running a business (such as create the product, promote it, sell it and keep all of the accounts). 
• Leadership Skills: the entrepreneur will have to lead by example and must have a personality that encourages people in the business to follow them and be motivated by them.
• Self - confidence and the ability to bounce back: Many business start-ups fail, but this would not discourage a true entrepreneur who would have such belief in themselves and their business idea that they would be able to bounce back from any setbacks.
• Risk Taking: entrepreneurs should be willing to take the risks involved in starting up a business in order to see the results (example of risk: investing their own savings into the business).

Major Challenges Faced By Entrepreneurs:

Identifying Successful Business Opportunities

Entrepreneurs should be able to identify a market need that will offer sufficient demand for their product to allow the business to be profitable.

Sourcing Capital (Finance)

After being able to find on a business idea or opportunity, there is the problem of not being able to find sufficient funds. Obtaining finance is a major problem for entrepreneurs due to a few main reasons:

• lack of sufficient own finance (due to very limited personal savings)
• lack of awareness of the financial support and grants available
• lack of any trading record to present to banks as evidence of past business success (a trading record would tend to give a bank confidence when deciding to lend money or not for a new venture).
• A poorly produced business plan that fails to convince potential investors of the chances of a business's success

Determining a Location

When finance is limited, it is very difficult to determine a good location. Finding a cheap and easy location to set up on may not be close to the area with the biggest market potential. 

Competition

A newly created business will often experience competition from older, more established businesses with more resources and more market knowledge.

Building a Customer Base

To survive, a new firm must establish itself in the market and build up customer numbers as quickly as possible. The long term strength of the business will depend on encouraging customers to return to purchase products again and again.

Reasons Why New Businesses Often Fail:

Lack of Record Keeping

Many entrepreneurs fail to pay sufficient attention to this need as either they believe that it is less important than meeting their customers' needs, or they think they can remember everything. 

Lack of Cash and Working Capital

Capital is needed for day-to-day cash, for the holding of inventories and to allow the giving of trade credit to customers, who then become trade receivables. Without sufficient working capital, the business may be unable to buy more supplies.

Poor Management Skills

Most entrepreneurs have had some form of work experience, but not necessarily at a management level (for example: an entrepreneur opening a restaurant may be an excellent chef, but may lack management skills). 

Changes in the Business Environment

Setting up a new business is risky because the business environment is dynamic, or constantly changing. The risk of change can make the original business idea much less successful. (Example of changes in the business environment: new competitors, economic changes leaving customers with less money to spend, technological changes making methods used by new business become old fashioned and expensive).

Impact of Enterprise on a Country's Economy

Employment Creation

In setting up a new business, an entrepreneur is employing not only themselves, but also, very often, employing other people. In creating such employment, the national level of unemployment will fall.

Economic Growth

Any increase in output of goods or services from a start-up business will increase the gross domestic product of the country. If enough small businesses are created, it will lead to increased living standards for the population. In addition, increased output and consumption will also lead to increased tax revenues for the government.

Firms' Survival and Growth

Although a high proportion of new firms fail, some survive and a few expand to become really important businesses. These will employ large numbers of workers and considerably add to the economic growth of the country.

Innovation and Technological Change

New businesses tend to be innovative and this creativity adds dynamism to an economy. This creativity can rub off on to other businesses and help to make the nation's business sector more competitive.

Exports

Most business start-ups tend to offer goods and services that meet the needs of local or regional markets. Some will expand their operations to the export market and this will increase the value of a nation's exports and improve its international competitiveness.

Personal Development

Starting and managing a successful business can set an example for others to follow which can lead to further successful new enterprises that will boost the economy still further

Increased Social Cohesion

Unemployment often leads to serious social problems (for example: crime) and these can be much reduced if there is a successful and expanding small business sector because it will create jobs and career opportunities and achieve social cohesion in the country. 

Social Enterprise

A social enterprise is a proper business that makes its money in socially responsible ways and uses most of any surplus made to benefit society. 

Features:

• directly produce goods or provide services
• have social aims and use ethical ways of achieving them
• need to make a surplus or profit to survive as they cannot rely on donations 

Objectives:

• economic - make a profit to reinvest back into the business and provide some return to owners
• social - provide jobs or support for local, often disadvantaged communities
• environmental - to protect the environment and to manage the business in an environmentally sustainable way.