Entrepreneur: An entrepreneur is a person who organizes, operates, and takes risks for a new

business venture. The entrepreneurship brings together the various factors of production to
produce goods or services

Benefits of being an entrepreneur:

● Independence - able to choose how to use time and money
● Able to put own ideas into practice
● May become famous and successful if business grows
● May be profitable and the income might be higher than working as an employee for
another business
● Able to make use of personal interest and skills

Disadvantages of being an entrepreneur:

● Risk: many new entrepreneurs businesses fail, especially if there is poor planning
● Capital: entrepreneurs will have to put their own money and possibly find other sources
of capital
● Lack of knowledge and experience in starting and operating a business
● Opportunity Cost - lost income from not being an employee in another business

Characteristics of an entrepreneur:
● Risk Taker
● Creative
● Optimistic
● Self-confident
● Innovative
● Independent
● Effective communicator
● Hard working

Why do governments want to help new start-ups?

● The provide employment to a lot of people
● They contribute to the growth of the economy
● They can also grow to be successful and contribute to the exports of the country
● Start-ups often introduce fresh ideas and technologies into the business and industry

How do governments support businesses?

● Organize advice: provide business advice to potential entrepreneurs, giving them
information useful in starting a venture, including legal and bureaucratic ones
● Provide low cost premises: provide land at low cost or low rent for new firms
● Provide loans at low interest rates
● Give grants for capital: provide financial aid to new firms for investment
● Give grants for training: provide financial aid for workforce training
● Give tax breaks: high taxes are a disincentive for new firms to set up. Governments can
thus withdraw or lower taxation for new firms for a certain period of time
Measuring business size:
1. Number of employees
2. Value of output
3. Value of capital employed
4. Value of sales

However, these methods have their limitations and are not always accurate. For instance, when
using the “number of employees” to compare a business with a capital intensive firm may lead
to inaccuracy in comparing business size

Business plan is a document containing the business objectives and important details about
the operations, finance and owners of the new business.

Internal growth: expands its existing operations. For example, a fast food chakin opens a new
branch in another country.
● Slow means of growth, but easier to manage than external growth

External growth: when a business takes over or merges with another business
- Merger: Owner of 2 businesses agree to join their firms together to make one business
- Takeover: Occurs when one business buys out the owners of another business

Horizontal merger/integration: when one firm merges of takes over another business in the
same industry at the same stage of production

BENEFITS:
- Reduce number of competitor in the market, since 2 firms become one
- Merging will allow the business to have a bigger share of the total market
- Opportunities of economies of scale

Vertical merger/integration: When one firm merges or takes over another firm in the same
industry but a different stage of production.
- Such as firm that makes furniture merge with with another firm that supplies wood

Forward vertical integration: acquiring a business further up (forward) in the supply chain

BENEFITS:
● Merger gives an assured supply of outlet of its product
● The profit margin will be expanded to the retailers of the company
● Expanded firm can be prevented from selling competing models

Backward Vertical Integration: backward integration is when a company buys another

company that supplies the products or services needed for production.
BENEFITS:
1. Merger gives assured supply of essential components
2. The profit margin of supplying firm is now absorbed by the expanded firm
3. Supplying firm can be prevented from supplying to competitors

Conglomerate merger/integration: One firm merges or takes over a firm in a completely

different industry (also called diversification)

BENEFITS:
● Allow businesses to have activities in more than one industry. Allows firms to spread its
risks
● There could be a transfer of ideas between 2 businesses even though they are in
different industries. Help improve quality and demand for 2 products

DRAWBACKS OF GROWTH
- Difficult to control staff
- Lack of funds
- Lack of expertise
- Diseconomies of scale : this is the term used to describe how average costs of a firm
tends to increase as it grows beyond a point, reducing profitability.
Primary Sector - the industry that extracts and uses the natural resources of earth to produce
raw materials used by other businesses

Secondary Sector - the industry that manufactures goods using the raw materials provided by
the primary sector.

Tertiary Sector - the industry that provides services to consumers and the other sectors of the
economy

1. Advantages of privatisation:
● Private sector businesses are more efficient (main objective is profit, thus costs must be
controlled).
● Private sector owners might invest more capital than the government can afford.
● Competition between private sector businesses tends to improve product quality.

2. Disadvantages of privatisation:
● A business in the private sector might make more workers unemployed to cut costs.
● Less likely to focus on social objectives.

Relative Importance of economic sectors

1. Percentage of the country’s total number of workers employed in each sector
 2. Value of output of goods and services and the proportion this is of total national output

The output of the tertiary sector is higher than secondary and primary combined. Such countries
are often called the most developed countries.

Factors of production: the resources needed to produce a good or a service, which include
land, labor, capital, and enterprise.

Scarcity: the lack of sufficient products to fulfill the total of wants of the population

Specialization: occurs when people and businesses concentrate at what they are best at

Division of labor: when the production process is split up into different tasks and each worker
performs one of these tasks. It is a form of specialization.

Advantages Disadvantages

● Workers are trained in 1 task and ● Workers can become bored doing just
specialize in this - increases efficiency one job - efficiency might fall
and output ● If one worker is absent and no one
● Less time is wasted moving from one else can do the job, production might
workbench to another be stopped
● Quicker and cheaper to train workers
as fewer skills need to be taught

Added value: the difference between the selling price of a product and the cost of bought-in
materials and components.

Why is added value important?

● Can pay other costs such as labor costs, management expenses and cost including
advertisement and power
● May be able to make a profit if these other costs come to a total that is less than the
added value

STAGES OF BUSINESS ACTIVITY:

● combines scarce factors
● produces goods and services
● employs people

(lowk chp 4) Public corporations: A business, in the public sector, that is owned and
controlled by the state

Advantage Disadvantage
Some industries are considered so important No private shareholders to insist on high
that government ownership thought to be profits and efficiency. Profit motive is not as
essential powerful as private sector industries.

If an important business is failing and likely to No close competition between public

collapse, the government can keep the bs corporations
open and secure jobs

Important public services, are often in the Governments can use these bs for political
public sector reasons. Ex: securing jobs before election
CHAPTER 4:
Sole Trader: business owned by 1 person

Advantage Disadvantage

Easy and inexpensive to set up Personally responsible for debts the business
incurs

All profit belong to the owner Lots of responsibility for the owner - long
hours, etc.

Owner has full control over the business Limited skill set of the owner may limit
business growth

Partnerships: involve 2 or more people joining together to make a business

Advantage Disadvantage

Easy and inexpensive to set up as there are Partners have unlimited liability of debts
few legal formalities incurred by the business

Increased access to capital and finance Potential for disputed between partners

Shared responsibilities and decision making Profits are shared equality, regardless of
partners contribution

Public Limited company: a business owned by shareholders but it can sell shares to the public
and its shares are tradable on the stock exchange

Advantage Disadvantage

Separate legal identity to owners and Selling shares to the public is expensive, for
shareholders fees for legal and accounting advice

Raise very large sums of capital to invest in Legal formalities of forming a PLC is
the business complicated and time consuming

High status: easier to find suppliers and Lose control over the business ; bad for
banks for loans shareholders as management prioritizes
other aspects
Private limited companies: business owned by the shareholders but it cannot sell shares to the
public

Advantage Disadvantage

Access to greater finance from investors and Expensive and time-confusing to set up as
lenders who consider limited companies to be legal advice if often required
less risky

Business continuity as the business does not More complex operational rules than sole
die with the original owner traders or partnership

Easier to transfer ownership to new Shareholders have little control over the
shareholders company as the founder usually imposes
their own agenda

Franchise: a business that uses, under license, the brand name, logo and trading methods of
existing business. The franchisor sells the license franchisee buys the license

Advantage Disadvantage

Expansion of the franchised business is Poor management of one franchised

much faster than if the franchisor having outlet could lead to a bad reputation of the
to finance all new outlets8 whole business

All products sold must be obtained from The franchisee keeps profit from the outlet
the franchisor

Training for staff and management is Less independence than with operating
provided by the franchisor non-franchised business

The chance of business failure are reduced Unable to make decisions that would suit the
because a well-known product is being sold local area

Joint venture: when 2 or more businesses start a new project together, sharing capital, risks and
profits

Advantage Disadvantage

Risks are shared Disagreements over important decisions

might occur

Sharing of costs - very important for If the new project is successful, profits have
expensive projects to be shared with the joint venture partner

Local knowledge when joint venture company They might have different ways of running a
is already based in the country business
Identify and explain 2 advantages of Only of having a business partner?
Only was able to give some of his work to Sami (Definition - K) such as keeping accounts. This
gave Only more time to spend with customers which he wants to do (Ap)

Sami would have put capital into the business ( this could have been used to purchase the new
car washing machine

Identify and explain two disadvantages of Only of buying a franchise:

A franchise license might be very expensive (K) and the business might not be able to afford it
meaning it cannot invest in expanding the business (An), such as buying the new automatic car
washer (Ap)

Franchisors often take a share of the franchise’s annual sales (K). This means that there is less
revenue left for the business to make a profit (An). Ony and Sami will then get less profit as they
take less income from the business.

Do you think Ony and Sami should now convert the business into a private limited company?
Justify your answer.

As the business is growing, they don’t have limited liability. They could lose all of their personal
assets if the business fails completely. The risk is greater if they buy the new car washer as this
will mean using more of their savings in the business. They can rescue this risk by selling
shares a public limited company

However, it is also quite expensive and time consuming to set up - as legal advice is often
required. This means that their time is lost from other activities to expand t he business,
such as the time to deal with customers directly and even losing savings to buy the new car
washer.
Therefore, I think Ony and Sami should convert into a private limited company. As I believe that
the cost and time is worth it to reduce the risk, giving up their personal assets, and less likely for
the business to fail.

A) A business owned by 1 person

B) Private limited company and partnerships
C) Easy and inexpensive to set up (K), Jameel would reduce the costs of finding
employees, etc. (ap)
All profit goes to the owner (K), Jameel would not need to split his revenue of selling his
fruits and vegetables with another person/people and therefore receive all the money.
(Ap)

D) Lots of responsibility for the owner , as he is a one-man shop, he does not have anyone
to split the work with (K). Hence, he has to do everything such as serving the customers
 while taking care of the fruit all by himself (Ap). This can make his easily get exhausted
and tired, as he carries a lot of responsibilities. (An)

Full control over the business (K), Jameel has full control over the business, since there
are no other owners to discuss matters with (An). This may be good for Jameel as the
text states he doesn't like taking orders from the manager, whilst he was working (Ap)

E) A franchise is business based upon the uses, under license, the brand name logo and
trading methods of an existing business. The franchisor sells the license; the franchisee
buys the license (K). This will lead to a recognized brand name(K), which is promoted
centrally by the franchisor. This will lead to Jameel’s business being much more
attractive to customers, and increased sales and profits(An)

Product training, they would also do product training.(K) Franchises will provide product
training from Jamee’s company, such as how to consistently take care of the fruits, etc.
(ap)This will lead to a consistency of the brand and attract more customers. (an)

However, Jameel doesn't have complete control over its franchisees(K). Hence, poor
management of one outlet could lead to a bad reputation for the whole business.(K) If
one franchisee has poor management, such as being known for having bad service, this
could spread into Jameel’s brand making his business seem unattractive to customers .
(Ap)This bad reputation or even getting involved in a lawsuit, will reduce customers
across all franchisees, which means less profit and even making the business fail. (An)

Therefore, I believe that Jameel should sell franchises as it will lead to a recognized and
mostly consistent brand name, attracting customers (Ev). However, he also must
prepare for the risk of poor management in even one outlet as it may make the business
seem unattractive to customers, even resulting in the failure of the business. (Ev)

e) I believe that it inherently depends on the country’s economic position. If the countr’y
economy ever grows, consumer incomes will also grows. As consumer incomes grow,
they would less likely to spend their money on goods, and spend it on services such as
banking, shopping, etc instead. This will then make the tertiary sector more important
than the secondary sector

However, if the economy in country X remains the same, and it’s already being
dominated by the secondary sector, then it will be the most important to the country, as
consumer incomes do not significantly raise or fall, keeping demand for goods/services
the same.

Therefore, It depends on the country’s economy. If the economy will rise, then the
tertiary sector will become more important over time. However, if the country's economy
stays inehrtiely the same, than it should be treated as most important.