1AS.1 ENTERPRISE

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.

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

BUSINESS ENVIRONMENT IS DYNAMIC

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.

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.

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

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

CHARACTERISTICS OF SUCCESSFUL ENTREPRENEURS

• Innovation

• Commitment and self-motivation

• Multi-skilled

• Leadership skills

• Self-confidence and an ability to ‘bounce back’

• Risk taking

MAJOR CHALLENGES FACED BY ENTREPRENEURS

• Identifying successful business opportunities

• Sourcing capital (finance)

• Determining a location

• Competition

• Building a customer base

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

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

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

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.

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.

WHY DO BUSINESSES OFTEN FAIL

Lack of record keeping

Lack of working capital

Poor management skills

Changes in the business environment

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.

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

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.

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

COMMON TYPES OF ENTREPRENEURIAL BUSINESSES

• Primary sector

• Fishing

• Market gardening

• Secondary sector

• Jewellery making

• Dress making

• Tertiary/service sector

• Hairdressing

• Car repairs

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.

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.

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

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.

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