Unit 1: Business and its environment Chapter 1: Enterprise (AS Level) A. Define the terms (2 marks) 1) Entrepreneur: An individual who has the idea for a new business, starts it up and carries most of the risk but benefits from the rewards. 2) Intrapreneur: A business employee who takes direct responsibility for turning an idea into a profitable new product or business venture. 3) Enterprise: The action of showing initiative to take the risk to set up a business. 4) Customer: An individual consumer or organisation that purchases goods or services from a business. 5) Consumer: An individual who purchases goods and services for personal use. 6) Consumer goods: The physical and tangible goods sold to consumers that are not intended for resale. These include durable consumer goods, such as cars and washing machines, and nondurable consumer goods, such as food, drinks and sweets that can be used only once. 7) Consumer services: The non-tangible products sold to consumers that are not intended for resale. These include hotel accommodation, insurance services and train journeys. 8) Capital goods: The physical goods used by industry to aid in the production of other goods and services, such as machines and commercial vehicles. 9) Factors of production: The resources needed by business to produce goods or services. 10) Adding value: Increasing the difference between the cost of bought-in inputs (materials) and the selling price of the finished goods. 11) Added value: The difference between the cost of purchasing bought-in inputs (materials) and the selling price of the finished goods. Added Value = Selling Price – Cost of bought-in materials. 12) Opportunity cost: The next most desired option that is given up. 13) Branding: the process of differentiating a product by developing a symbol, name, image, or trademark for it. 14) Multinational business: A business organisation that has its headquarters in one country, but with operating branches, factories and assembly plants in other countries. 15) Business plan: A written document that describes a business, its objectives, its strategies, the market it is in and its financial forecast. 16) Purpose of business activity: A business is an organisation that uses resources to meet the needs of customers by providing a product or a service that they demand. B. Notes: a. What do businesses do? ● Businesses identify the needs and wants of customers. ● They purchase necessary resources to allow production to take place. ● They produce goods and services which satisfy customers’ needs, usually with the aim of making a profit. b. Factors of production FOP Land Labour Capital Enterprise Reward Rent Salaries/ wages Interest Profit c. Why do some businesses succeed? ● ● ● ● Good understanding of customer needs Efficient management of operations Flexible decision-making to adapt to new situations Appropriate and sufficient source of finance d. Why do some businesses fail? ● Poor record - keeping (finance, order, debtors, creditors records not maintained) ● Lack of cash (inaccurate cash flow forecast, ineffective credit control with debtors and creditors, lack of relations with bank for procuring immediate finance) ● Poor management skills (poor planning, coordination, communication, leadership, decisionmaking skills) e. Role of entrepreneur when creating and starting-up a new business: ● ● ● ● ● Have an idea for a new business Create a business plan Invest some of their own Savings and capital Accept the responsibility of managing the business Accept the possible risks of failure f. Qualities of successful entrepreneur and intrapreneur ● ● ● ● ● ● Innovation Commitment and self-motivation Multi-skilled Leadership skill Self-confidence and ability to bounce back Risk-taking Why is it important for an entrepreneur to see a gap in the market? Does the success of an entrepreneur depend more on their ambition or on their business knowledge? Analyse three barriers that entrepreneur must overcome before setting up their new business. Key concepts The dynamic business environment is a major cause of change within business. Decision making by entrepreneurs is often focused on responding to change. Changes in the business environment include; new competitors, legal changes, economic changes, and technological changes. Innovation is important for the success of any new enterprise. Offering the same goods or services as existing business might not lead to great success. This does not mean inventing products or services in the traditional sense, but to be able to identify market gap.
