cambridge topic 1 as level - enterprise
TRANSCRIPT
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1AS.1 ENTERPRISE
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THE NATURE OF BUSINESS ACTIVITYPURPOSE OF BUSINESS ACTIVITY
• An organisation that uses resources to meet the needs of
customers by providing a product or service that is in
demand.
• There are several stages in the production of finished goods
involving adding value to resources, such as raw materials
and semi finished goods, and making them more desirable
the buyer.
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WHAT A BUSINESS NEEDS TO SUCCEED
A business needs
Land
Raw materials
Site for building
Capital
Finance
Factories/offices
machines
Customers
Suppliers
LabourSkilled
UnskilledTemporary
permanent
Enterprise
Risk takers
Decision makers
coordinators
government
Roads/rails/airport
Law and order
Schools/colleges
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BUSINESS ENVIRONMENT IS DYNAMIC
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WHAT DO BUSINESSES DO?
• They identify needs
• They purchase factors of production, produce those
goods in order to satisfy the needs of consumers and
make a profit.
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WHAT DO BUSINESSES NEED TO PRODUCE GOODS AND SERVICES?
• Land- includes land, renewable and non-renewable
resources such as coal, crude oil and timber.
• labour- manual and skilled labour.
• Capital- finance, man-made resources such as computers,
machines, factories, offices and vehicles.
• Enterprise- driving force, combining the factors of
production into a driving force, it provides a managing,
decision-making and coordination role.
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THE CONCEPT OF ADDING VALUE(ADDED VALUE)
• Value is added to raw materials it uses to produce goods and
services.
• It is a key objective in a business.
• Consumers who pay the price that is more than raw
materials used to produce the goods has been successful in
adding value
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ROLE OF THE ENTREPRENEUR
• Someone who takes the financial risk of starting and managing a new
venture
• Entrepreneurs have:
• An idea for a new business
• Invested some of their own savings and capital
• Accepted the responsibility of managing the business
• Accepted the possible risks of failure
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CHARACTERISTICS OF SUCCESSFUL ENTREPRENEURS
• Innovation
• Commitment and self-motivation
• Multi-skilled
• Leadership skills
• Self-confidence and an ability to ‘bounce back’
• Risk taking
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MAJOR CHALLENGES FACED BY ENTREPRENEURS
• Identifying successful business opportunities
• Sourcing capital (finance)
• Determining a location
• Competition
• Building a customer base
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IDENTIFYING SUCCESSFUL BUSINESS OPPORTUNITIES
Ideas for new businesses come from:
• Own skills or hobbies
• Previous employment experience
• Franchising conferences and exhibitions
• Small-budget market research
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SOURCING CAPITAL (FINANCE)
• After an idea has been decided on, an entrepreneur has to raise the necessary
capital.
Why is obtaining finance such a major problem for entrepreneurs?
• Lack of sufficient own finance
• Lack of awareness of the financial support and grants available
• Lack of trading record to present to banks as evidence of past business success
• A poorly produced business plan that fails to convince potential investors of
the chance of a business’s success
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DETERMINING A LOCATION
• When choosing a location, you must minimise fixed costs
Drawbacks:
• It may not be close to the area with the biggest market potential
• It lacks status - a business with its own prestigious premises tends to
generate confidence
• It may cause family tensions
• It may be difficult to separate private life from working life
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COMPETITION
• New businesses experience competition from older
established businesses
• Entrepreneurs have to offer better customer services to
overcome the cost and pricing advantages that bigger
businesses offer.
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BUILDING A CUSTOMER BASE
• Long term strength of a business depends on the customers who
return to purchase goods.
Small business try to offer a better service than larger businesses such
as:
• Personal customer service
• Knowledgeable pre- and after – sales services
• Providing for one-off customer requests that larger firms may be
reluctant to provide for.
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WHY DO BUSINESSES OFTEN FAIL
Lack of record keeping
Lack of working capital
Poor management skills
Changes in the business environment
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LACK OF RECORD KEEPING
• Some entrepreneurs fail to pay sufficient attention
to this as they believe it is less important than
meeting the needs of customers’.
• Some businesses keep records on computers and it is
important to keep them on paper too.
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LACK OF WORKING CAPITAL
Capital is needed for day-to-day business affairs. Capital deficiencies
can be avoided if certain steps can be taken when establishing a
business:
• Construct a cash flow forecast so that liquidity and working capital
needs of the business can be assessed monthly.
• Inject sufficient capital into the business at start-up to last for a few
months of business.
• Establish good relations with the bank so that short term problem can
be overcome with an overdraft extension.
• Use effective credit control over customers’ accounts
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POOR MANAGEMENT SKILLS
Some entrepreneurs have work experience, not always at management level, they
may not have gained experience of:
• Leadership skills
• Cash handling and cash management skills
• Planning and coordinating skills
• Decision-making skills
• Communication skills
• Marketing, promotion and selling skills
Potential entrepreneurs are encouraged to attend training courses to gain some of
these skills.
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CHANGES IN THE BUSINESS ENVIRONMENT
Businesses may fail if any of the following changes occur:
• New competitors
• Legal changes
• Economic changes that leave customers with much less
money to spend
• Technological changes that make the methods used by the
new business, old-fashioned and expensive
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COMMON TYPES OF ENTREPRENEURIAL BUSINESSES
• Primary sector
• Fishing
• Market gardening
• Secondary sector
• Jewellery making
• Dress making
• Tertiary/service sector
• Hairdressing
• Car repairs
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IMPACT OF ENTERPRISE ON A COUNTRY’S ECONOMY
What are the claimed benefits to the economy of business enterprise?
• Employment creation
• Economic growth- an increase in the output of goods/services will increase the gross domestic
product of a country.
• Firms’ survival and growth
• Innovation and technological change- new businesses tend to be innovative and this adds
dynamism to an economy.
• Exports- expanding to the export market will increase the value of a nation’s exports and improve
its international competitiveness.
• Personal development- can encourage others to follow and lead to further successful enterprises
that will further boost the economy.
• Increased social cohesion- entrepreneurship can help to achieve social cohesion in a country.
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SOCIAL ENTERPRISE
• Social enterprise is a proper business that makes its money in socially
responsible ways and uses most of any surplus made to benefit society.
• Use business principles to achieve social objectives.
Most social enterprises have these common features:
• They directly produce goods or provide services
• They have social aims and use ethical ways of achieving them
• They need to make a surplus or profit to survive as they cannot rely
on donations as charities do.
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SOCIAL ENTERPRISE - 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
and environmentally sustainable way.
This is called the triple bottom line
This means that profit is not the main objective
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ECONOMIC ACTIVITY AND THE PROBLEM OF CHOICE
• Poor people are unable to obtain the very basic requirements of life and have
many unsatisfied needs and wants.
• Not all rich people can afford to satisfy their wants for luxury goods and services.
• There are insufficient goods to satisfy all of our needs and wants at any time.
• It is the purpose of economic activity to provide for as many of our wants as
possible.
• This need to choose is not exclusive to people as consumers.
• All economic units have to make choices- governments, businesses, workers,
charities, etc.
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OPPORTUNITY COST
• In deciding to purchase or obtain one item, we must give up
other goods as they cannot all be purchased.
• The benefit of the next most desired option which is given
up