Entrepreneurship and Business Plan

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Questions and Answers

Which of the following best describes an entrepreneur?

  • A person who organizes, operates, and takes risks for a new business venture. (correct)
  • A person who solely invests capital in established ventures.
  • A person who manages existing businesses without taking risks.
  • A person who avoids innovation and prefers traditional business models.

A business plan primarily serves as a historical record of past financial performance rather than a forward-looking strategic document.

False (B)

What fundamental aspect regarding the target market should a business plan detail to demonstrate thorough market understanding?

market research

A document containing the business objectives and important details about the operations, finance, and owners of the new business is called a ______.

<p>business plan</p> Signup and view all the answers

Match the content components to their respective descriptions within a business plan:

<p>Executive Summary = Brief summary of key features of the business and the plan. The Market = Description of market research, prospective customers, and competitors. Premises and Equipment = Details of planning regulations, costs of premises, and the need for equipment. Advertising and Promotion = How the business will be advertised and details of estimated marketing costs.</p> Signup and view all the answers

Which of the following is the most significant benefit of creating a business plan before starting a business?

<p>It reduces the chance of losing sight of the mission and vision. (B)</p> Signup and view all the answers

According to startup.com, a startup typically has an unlimited number of founders to ensure diverse expertise and comprehensive oversight.

<p>False (B)</p> Signup and view all the answers

Beyond contributing to the economy, what role do successful start-ups play in international trade?

<p>contribute to the exports of the country</p> Signup and view all the answers

Governments support businesses by providing land at low cost or low rent for new firms, otherwise known as ______.

<p>low cost premises</p> Signup and view all the answers

Match government support initiatives with their descriptions:

<p>Organise advice = Provide business advice to potential entrepreneurs. Give grants for capital = Provide financial aid to new firms for investment. Give tax breaks/holidays = Withdraw or lower taxation for new firms. Provide loans at low interest rates = Loans for new firms at a rate below the market average.</p> Signup and view all the answers

Which method of measuring business size might be inaccurate for a capital-intensive firm?

<p>Number of employees (D)</p> Signup and view all the answers

Business growth invariably leads to increased profitability due to economies of scale, regardless of how it is managed.

<p>False (B)</p> Signup and view all the answers

What is the primary characteristic differentiating internal growth from external growth strategies for a business?

<p>expanding its existing operations</p> Signup and view all the answers

When a firm expands its existing operations, this is called ______.

<p>internal growth</p> Signup and view all the answers

Match external growth types with their descriptions:

<p>Horizontal Merger = Firm merges with another in the same industry at the same stage of production. Vertical Merger = Firm merges with another in the same industry but at a different stage of production. Conglomerate Merger = Firm merges with one in a completely different industry.</p> Signup and view all the answers

What is the primary benefit of vertical integration?

<p>Assured supply of essential components. (C)</p> Signup and view all the answers

Diseconomies of scale result in lower average costs as a firm grows beyond a certain size.

<p>False (B)</p> Signup and view all the answers

What specific aspect of staffing becomes more difficult to manage as a business grows, leading to reduced efficiency?

<p>control staff</p> Signup and view all the answers

The term used to describe how average costs of a firm tends to increase as it grows beyond a point, reducing profitability, is ______.

<p>diseconomies of scale</p> Signup and view all the answers

Match the causes of business failure with ways to prevent them:

<p>Poor management = Lack of experience and planning which could lead to bad decision making. Over-expansion = Expanding too quickly or over optimum level. Failure to plan for change = Not adapting when the demands of customers keep changing. Poor financial management = Not managing finances properly.</p> Signup and view all the answers

Which of the following is a primary reason why some businesses choose to remain small?

<p>Owners' personal objectives prioritize flexibility. (A)</p> Signup and view all the answers

Businesses in all industries have an equal capacity for growth, regardless of the nature of their services or products.

<p>False (B)</p> Signup and view all the answers

What external market dynamic must firms continuously monitor and adapt to in order to prevent failure?

<p>changes in laws and regulations</p> Signup and view all the answers

Business can fail as a result of expanding, because firms expand too quickly or over their optimum level. This is known as ______.

<p>over-expansion</p> Signup and view all the answers

Match the reasons why businesses might fail with their causes:

<p>Less Experience = Lack of experience in the market or in business. New to the market = Not understanding the nuances and trends of the market. Don't a lot of sales yet = They're not selling much. Don't have a lot of money to support the business yet = Financial issues can quickly get the better of new firms.</p> Signup and view all the answers

One reason new businesses are at a greater risk of failure is because businesses have [blank].

<p>don't have a lot of sales yet (B)</p> Signup and view all the answers

Having significant financial reserves immediately guarantees a new business's success, eliminating any risk of failure.

<p>False (B)</p> Signup and view all the answers

Besides financial capital, what other crucial resource is commonly lacking in new firms, significantly increasing risks?

<p>experience</p> Signup and view all the answers

According to this text, ______ can also cause businesses to fail.

<p>poor cash flow</p> Signup and view all the answers

How do you classify internal and External business growth?

<p>Internal = expanding its existing operations External = takes over or merges with another business</p> Signup and view all the answers

Flashcards

Entrepreneur

Someone who organizes, operates, and takes risks for a new business venture, bringing together various factors of production.

Business Plan

A document outlining the business objectives and important details about the operations, finance, and owners of a new business.

Benefits of New Start-ups

Providing jobs, contributing to economic growth, boosting exports, and introducing fresh ideas and technologies.

Government Support for Businesses

Provision of business advice, low-cost premises, loans at low interest, grants for capital or training, and tax breaks or holidays.

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Business Size

Measured by number of employees, value of output, and value of capital employed.

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Reasons for Business Growth

Helps reduce average costs, develop increased market share, and allows them produce and sell to new markets.

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Internal Growth

When a business expands its existing operations, like a fast-food chain opening a new branch.

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External Growth

When a business takes over or merges with another business, also known as integration.

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Horizontal Merger/Integration

Merging or taking over another firm in the same industry at the same stage of production

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Vertical Merger/Integration

Occurs when one firm merges with or takes over another firm in the same industry but at a different stage of production.

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Conglomerate Merger/Integration

When a firm merges with or takes over a firm in a completely different industry.

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Drawbacks of Growth

Difficult to control staff, lack of funds, lack of expertise and diseconomies of scale.

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Reasons Businesses Stay Small

Type of industry, market size and owner's objectives.

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Reasons Businesses Fail

Poor management, over-expansion, failure to plan for change, and poor financial management.

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Why New Businesses are at Greater Risk

Lack of experience, new to the market, not enough sales, limited money.

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Study Notes

Entrepreneurship

  • An entrepreneur organizes, operates, and takes risks in a new business venture
  • Entrepreneurs bring together various factors of production to produce goods or services
  • Characteristics of successful entrepreneurs include:
    • Risk taker
    • Creative
    • Optimistic
    • Self-confident
    • Innovative
    • Independent
    • Effective communicator
    • Hard working

Business Plan

  • A business plan contains the business' objectives with details about operations, finances, and owners
  • It describes the business plans for the first few years
  • A business plan explains what the business does and who will buy the product or service
  • It provides financial forecasts demonstrating viability
  • A business plan indicates available finance and explains the financial requirements to start and operate the business
  • Standard business plan contents:
    • Executive summary: key business and plan features
    • The owner: educational background and experience
    • The business: name, address, product/service description, production details, target audience, and quantities
    • The market: market research, customer and competitor details
    • Advertising and promotion: methods and costs
    • Premises and equipment: regulations, costs, and needs
    • Business organization: business formation structure
    • Costs: production cost and proposed prices
    • Finance: breakdown of capital sources (savings vs. borrowings)
    • Cash flow: forecast of income and expenditures for the first year
    • Expansion: outline of future plans

Benefits of Business Plan

  • Documenting business details helps owners manage it.
  • Writing down objectives minimizes loss of sight of the mission and vision
  • Clear objectives motivate employees
  • It becomes easier to secure a loan or overdraft

Government Support for Startups

  • A startup is a company in its early stages, typically started by 1-3 founders, focusing on developing a viable product, service, or platform based on perceived market demand
  • Governments support new startups because:
  • They provide employment
  • They contribute to the economy's growth
  • Successful ones contribute to the country's exports
  • They Often introduce fresh ideas and technologies into business and industry.
  • Governmental support includes:
  • Advice for potential entrepreneurs
  • Low-cost premises
  • Low-interest loans
  • Grants for capital and training
  • Tax breaks/holidays

Measuring Business Size

  • Methods to measure the business size include:
    • Number of employees: larger firms typically have more employees
    • Value of output: larger firms likely produce more
    • Value of capital employed: larger businesses employ more capital

Limitations of Measuring Busines Size

  • Number of employees is not accurate for capital intensive firms
  • The value of capital employed is unreliable when comparing capital-intensive vs labor-intensive firms Value of output is unreliable because different types of products are valued differently, and the size of the firm doesn't depend on this

Business Growth

  • Businesses want to grow to: reduce average costs, increase market share and reach new markets
  • Two types of business growth: internal and external

Internal Growth

  • Internal growth occurs when a business expands its existing operations
  • Example: opening a new branch
  • Internal growth is slower than external growth, but easier to manage

External Growth

  • External growth happens when a business takes over or merges with another
  • It is also called integration
  • Merger: the owners of two businesses agree to join their firms
  • Takeover: one business buys out the owners of another, becoming the "predator" business

Types of External Growth

  • Horizontal merger/integration: firms merge in the same industry and production stage
    • Benefits: reduces competitors, economies of scale, bigger market share
  • Vertical merger/integration: firms merge in the same industry but at different production stages,
    • Backward vertical integration: merging with a firm "behind" in production
      • Benefits: secure supply, absorbed profit margin, preventing supplies to competitors
    • Forward vertical integration: merging with a firm "ahead" in production
      • Benefits: assured outlet, absorbed profit margin, prevent the retailer from selling competitors products
  • Conglomerate merger/integration: merging with a firm in a completely different industry, also known as 'diversification'
  • Benefits: business activities that enable firms spread risks, there could be a transfer of ideas between the two businesses even though they are in different industries

Drawbacks of Growth

  • Difficult to control staff due to bigger organization
  • It requires more capital
  • It requires expertise
  • Diseconomies of scale: rising average costs reduce profitability in a larger organization

Reasons Why Businesses Stay Small

  • The industry may be limited - personal services like hairdressers
  • Market size may be limited
  • Owners may prefer to stay small and have better control

Reasons Why Businesses Fail

  • Poor management
  • Over-expansion
  • Failure to plan for change
  • Poor financial management

Risk of Failure for New Businesses

  • Less experience
  • New to the market
  • Low sales
  • Lack of money to reinvest

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