Economics and Philosophy

Enterprise:
• Enterprise and Entrepreneur
• Risks and Rewards
• Opportunity cost
• Motives for becoming an entrepreneur
• Government support for enterprise and entrepreneur

Enterprise and Entrepreneur
*Enterprise- the ability to handle uncertainty and deal effectively with change.
- The combination of attitudes and skills to help an individual turn an idea into reality
(Enterprise is also one of the factors of production. Factors of production: Land, Labour, Capital, Enterprise)

*Entrepreneur – a person who starts and runs a business, and has responsibility for the risks involved. In addition, it has to be able to manage the factors of production effectively.

Characteristics of an entrepreneur:
• Market understanding: to know what consumers want and the actions of competitors.
• Initiative: self-confidence, the ability to cope with risk
• A networker: able to build relationships with the business people
• Persuasion: persuade others to do things trust
• Resilience and Determination: able to make a decisions effectively with changes and do not being a procrastinator

Risk and Rewards

A good entrepreneur consider the possibilities, for instance, a risk of closure, will happen next in the business. However the possibility should have been foreseen so that plan could be made. (Risk calendared: look at the risks, compare them with the possible rewards and make a cool decision )
Even there are may be high risks should be taken by an entrepreneur, he still believes the rewards are coming. Reward: money, satisfaction.

Opportunity cost (the next best alternative forgone)

An entrepreneur has given up the choice of the time, money and experience that spent in the business. They are the opportunity cost of being an entrepreneur.

Motives of becoming an entrepreneur.

Despite the financial reasons of being an entrepreneur. The main motive is the satisfaction of having met a challenge and overcome it.
Government support for enterprise and entrepreneur.

Government Grants: sums of money given to a business by the government, however, grants are usually required purpose= Innovation, Research and Development, Training, Economic regenerating, encouraging young people to start their own business.

Business link network: provide the information on grants, support networks.

Generating and protecting a business idea.

• Sources of business idea
• The identification of a product or market niche.
• Franchises
• Copyright, patents, and trademarks.

Sources of business ideas:

A good business idea is usually base on a good understanding of consumers’ tastes and needs of the retail trade.

The main sources of business ideas
• Observation from other ideas
• Using brainstorming: Comes up with different ideas, make a list and then analyze later.
• Thinking ahead: think about the world changes in the future.
• Personal ideas or business experience
• Innovations: new science, technology changes
• Surveys: research of the public

The identification of a product or market niche

Spotting new business opportunities, market mapping is necessary if thinking the changes to society and economic. Also the local living standards to help identifying a product or market niche.
Spotting a gap in the market:
• Less competitors
• Expertise in the market prime the mistakes
• Fill the gap in market niche

Franchises

Franchises is a business structure I which the owner of the business idea sells the right to use that idea to another person, usually in return for a fee and share in any profit makes.
The franchise process
• The franchise is permission to sell the product or brand, or to use the successful format.
• The franchisee buys into the success of the established business. It buys the use of its name, brand, advertising, reputation and support.
• The franchiser is the seller
Benefits:
• can expand their business very quickly
• revenue received from franchisees
• risk is shared as much as of the cost is met by the franchisees
• experience
Disadvantages:
• potential loss of control over the process of the product is presented
• coordination and communication problems may increase as frinchise network rise

Protecting Business Ideas
Intellectual property is the general term for assets that have been created by human ingenuity or creativity.

Patents provide the inventor of a technical breakthrough with the ability to stop anyone copying their idea for up to 20 years. After that the company has the monopoly power .

Copyright makes unlawful for people to copy an author’s original written work
Trade mark: any sign that can distinguish the goods and services of one trade from those of another.

Transforming resources into goods and services.

Inputs, outputs and the sectors of business activity

Inputs: contributes to the production of a product or service the

Outputs: occurs as a result of transformation of business inputs.
Primary production: the extraction of resources at the first stage of production, involving products such as land and raw materials
Secondary Production: transformation of resources to produce finished goods
Tertiary production: transformation of the resources to provide a service.
Adding value
Selling price- costs of raw materials= added value

Ways of adding value:
• advertising
• Branding
• Unique features
• Location
• Packaging
• Personal service
Benefits:
• Differentiation from competition
• Charging a higher price
• Higher profit margins
• Targeting product or service at different market segment
• Reducing the sensitivity of demand to changes in price

Developing business plans

The purpose and contents of business plans
A business plan is a document setting out the business idea and showing how it is to be financed marketed and put into practice. It helps to raise finance from outside sources such as bank.

Contents of business plans:
• Executive summary: brief highlights of a report
• Details of the good or service: features of your idea, explain it from the customer’s point of view
• The market: market trends and market size, also a brief analysis of key competitors
• Marketing plan: customers, prices, forecast of sales
• Organizational plan: people will be in the team, key managers
• Financial plan: a cash flow forecast, idea of the bank balances over the start up period.
• Conclusion: longer-term plans, e.g. exit strategy

The heart of the business plan should be based around competitors’ advantage such as a unique idea, a better good or service, a protection provided by a patent or copyright.

Benefits:
• Forces the entrepreneur to think carefully about every aspect of the start up, it should increase the chances of success.
• If something happened with the entrepreneur, other will keep going with a paper plan.

Problems:
• Over-focus in a plan may mean too little time in spent to do ther things
• High expectation made in a plan, poor result can come as a terrible shock
Sources of information and guidance:
• Banks
• Accountants
• Small business advisers
• Government Agencies

A business plan can help prevent a disorganized entrepreneur from making too many mistakes, however, it cannot substitute the enterprise skills needed for a business.
Conducting Start-up market research

• Primary and secondary market research.

Market research gathers information about consumers, competitors and distributors, to identify, anticipating and satisfying customers requirement profitability.
Secondary market research : gather the data already in existence that has not been collected specifically for the purpose of the entrepreneur.
Methods: - internet
- Trade press
- Government publications
Pros: free of charge; reduce costs, good overview of a market.
Cons: data may not be updated regularly; not tailored to your own needs
Primary market research: gathers information directly from people within your target market.
Methods: retailer research; observation; Surveys.

Qualitative and Quantitative research

Qualitative research seeks out the ‘why’, not the ‘how’ of its topic through the analysis of unstructured information – things like interview transcripts and recordings, emails, notes, feedback forms, photos and videos. It doesn’t just rely on statistics or numbers, which are the domain of quantitative researchers.
Qualitative research is used to gain insight into people's attitudes, behaviours, value systems, concerns, motivations, aspirations, culture or lifestyles. It’s used to inform business decisions, policy formation, communication and research. Focus groups, in-depth interviews, content analysis and semiotics are among the many formal approaches that are used, but qualitative research also involves the analysis of any unstructured material, including customer feedback forms, reports or media clips.
Quantitative research is used to measure how many people feel, think or act in a particular way. These surveys tend to include large samples - anything from 50 to any number of interviews

Sizes and types of sample

• Random sample- everyone in the population has an equal chance of being interviewed.
• Quota sample- selecting interviewers in proportion to the consumer profile within your target market.
• Stratified sample- interview only those key characteristic required for the sample.
• Sample size- the number of people interviewed. This should be large enough to give confidence that the findings are representative of the whole population.
However, using a large sample would cost at least ten thousand pounds, a star-up business definitely cannot afford
Market research will provide accurate sales forecasts for the business as you know the needs/wants of consumers though the findings, besides, it is important to understand the market, it helps you to improve your products or develop a new idea.

Understanding market

The nature and types of market.
Local market: customers are only a short distance away ( easy to duilt relationships, understanding the customers)
National Market: a geographically dispersed market where customers are spread over the large area.
Electronic market: does not have a physical presence, but exists in terms of a virtual presence via the internet.
The importance of demand
Demand- is the desire of consumer to buy a product or service, when backed by the ability to pay.

Factors affecting demand:
• Price
• Income
• Tastes
• Actions of competitors
• Seasonal factors
• Fashion

Types of market segmentation

Market segmentation broke the market down into smaller section with similar characteristics.
• Demographic segmentation: splitting the market in terms of age, gender and social class
• Geographic: looking the market on terms of region or location

Benefits: better understanding the needs of a segment of the market, increase sale revenue; less wasteful of resources; a way of differentiating a product or service from competition enable to charge a high price.
Market size, growth and share.
Market size is a measurement of all the sales by all the companies, with a marketplace.
Volume – quantity of goods sold
Value- price spent by customers

Market growth- the measurement of the change in the market size = New market size- initial market size/ initial market size.

Market share is the proportion of the total market held by one company or product.

Market share= the proportion a company held of the market/ market size * 100%

Choosing the right legal structure for the business:

Sole traders and partnerships.

A sole trader or sole owner is a business that is owned and run by one person. The main reason to be a sole trader is often independence. The main aim is profit. The owner raises the finances himself from personal sources or by borrowing.

Advantages:
• Your are your own boss
• Independence
• Better motivation
• Easy and cheap to start up

Disadvantages:
• Big risk and responsibility
• Difficult to make decisions
• Hard to extend

Closing a business
If she or he is unable to pay debts, the creditor can apply to a court to have the owner declared bankrupt.

Partnerships.

A partnership is a business that is owned by two or more people. So business can use more that one person’s experience. The owners have equal joint control of the business and receive any profit equally. Responsibility is shared among the partners.

Advantages:
• Easy to set up
• Partnership can be formalized by written an agreement known as the Deed of

Disadvantages:
• The decisions of one partner is binding on the others
• Have unlimited liability
• Business has no separate existence

Closing the business.
If any partner leaves, the business ceases to exist and must be re-formed. Partners can be also forced out of business.

Liability- is the responsibility of the owner for the debts of the business.
Activity: list advantages and disadvantages of sole trader and partnership.

Limited Liability Companies
• “Limited”-refers to the way in which the responsibility for debt is limited ti the amount that person initially put into a business.
• “Liability” refers to responsibility for the debts of a business.
• “Company” refers to the legal status of a business. It means that the business has been registered with companies House and is now separated.

Setting up
There must be a minimum two shareholders to register a business a company. Documents needed Memorandum of Association, Articles of Association, Certificate of Incorporation and a company number.

Advantages:
Business become companies to gain limited liability for their owners. This may help to raise capital.

Disadvantages:
It is more complicated to start up a company. The company’s account and finances are open to the public. Conflicts between shareholders.

Going public:
1. Private limited Company have LTD after their names
2. Public Limited Company have PLC after their name. They can sell shares to the publicThis is called floating a company. In the UK you must to have at least 50,000 pounds. And publish a company reports.

Franchises

Franchises occurs when a successful business decides to expand by selling the rights to use their ideas. A franchise is a way of starting, owning and operating a business without a high risk.

The franchise process
• The franchise is permission to sell the product or brand, or to use the successful format.
• The franchisee buys into the success of the established business. It buys the use of its name, brand, advertising, reputation and support.
• The franchiser is the seller

Advantages:
Franchises buy into a established business and may receive help with products, staff, training and sales materials. They may gain a territory without competitors

Disadvantages:
Franchisers charge a fee for the franchise. Franchiser can be quite restrictive.
Multinationals and holding companies

A multinational is a business that has operations in many countries around the world. It also tends to have a global brand.
• Holding company- a company that holds all most of the shares in other companies.
• Operating company- a company that produces and trades
• Parent company- another name for the top company in a group.
• Subsidiaries- businesses that are owned by holding companies
• Transnational- another word for multinational

Multinationals benefit from their size. They can buy a bulk. They can also locate operations to keep costs and taxation down.

Public sector businesses.

A public sector is the one that owned by the government.
There are some reasons to creating a public sector businesses such as:
• National security. Some services could be dangerous if in private hands. Such as army.
• Politics. Sometimes there are political reasons for keeping a particular businesses out of private hands.
• Social.
• Charging.
• Economics
• Monopolies

Who pays for public industry?
The public sector is funded from taxation in three main ways:
• General taxation
• Local taxation
• National Insurance contributions

Examples:
The health service, the civil service, social services, education etc.
Cooperatives, charities and voluntary groups.
Cooperative and mutual societies want to make sure that their members all get a fair
deals.

Charities want to maximize the amount of good that they can do.
Voluntary groups usually provide a service to the community.
Charity- a business that tries to do the most good for its chosen cause.
Cooperative- a group that shares in a business to ensure a fair deal for its members.

Raising Finance

Source of finance available to start abusiness
Internal sources of finance: come from the owners of the business
External Sources of Finance: come from outside the business
Short-term: under 7 years
• Bank Overdraft:
• Trade credit
Medium term: 2-4 years
• Bank loan
• Leasing
Long term: 5+ years
• Owners saving : the way to get a loan or overdraft from banks
• Sales of Shares: only for PLC and LTD
• Reinvested profits: most important sources of long- term finance
• Venture capital loans: high risk capital
• Government loans: grants and loans

However, after a business is operating fully and successfully, cash coming in from customers will provide all the finances.

Locating a business

Quantitative factors – financially related factors
• Cost of Land
• Space
• Accessibility of supply
• Labour
• Market
• Infrastructure
• Government investment

Qualitative factors
• Family link
• Personal reason

Nevertheless, the most important factor is the nature of business.
• Service business
• Manufacturing business
• Method of distribution
• Labour , cost of land