CCEA GCSE Business Studies

Enterprise and entrepreneurs

To be enterprising is to spot an opportunity, take the initiative to act on it and accept that the idea may not work. An entrepreneur is a person who does this by setting up and running a business, bringing together the resources it needs and taking on the risk of the venture. The entrepreneur might be a single person starting a mobile hairdressing service, or someone who builds a company that employs hundreds.

Characteristics of successful entrepreneurs

Most successful business people show a similar set of qualities, though few have all of them in equal measure.

• Risk taking: putting money, time and reputation into an idea without knowing that it will pay off.
• Innovation: coming up with a new product, a better way of making something or a different way of reaching customers, so that the business stands out.
• Decision making: choosing between options quickly enough to keep the business moving, often with incomplete information, and living with the result.
• Determination: carrying on after a setback, such as a refused loan or a slow first year.
• Leadership: persuading and directing other people so that a team works towards the same goal.
• Planning: setting out what the business will do, what it will cost and how the money will be found, so that resources are not wasted.
• Persuasiveness: convincing customers to buy, suppliers to offer credit and investors to put in money.

Why the government encourages enterprise

New and growing businesses are good for the economy as a whole, which is why governments offer them advice, grants and tax relief.

• They create jobs, which cuts unemployment and reduces the amount the government pays out in benefits.
• Employees and owners pay income tax and National Insurance, and the business pays taxes on its profit and on what it sells, so government income rises.
• New businesses bring competition, which pushes existing firms to keep prices down and quality up, to the benefit of consumers.
• Successful firms may sell abroad, which brings money into the country.
• A region with many small firms is less exposed to the loss of one large employer.

The nature and rewards of risk taking

Risk is the chance that the business will lose money or fail. Entrepreneurs face the risk of losing their own savings and of the business failing through weak demand, new competitors, rising costs or poor cash flow. Owners with unlimited liability may also lose personal property. In return the possible rewards are profit, which belongs to the owners once costs are paid, independence from an employer, the satisfaction of building something and the chance of long-term wealth if the business grows. The higher the risk in a venture, the higher the reward needed to make it worth taking, and an entrepreneur judges whether a possible gain justifies a possible loss.

Business resources

A business combines four factors of production to make goods or provide services.

Capital here covers two things: the physical items a business uses to produce (sometimes called capital goods) and the money invested in the business to buy them.

How businesses use resources differently

The mix of resources depends on what the business does. A labour intensive business, such as a hairdresser, a care home or a firm of solicitors, relies mainly on people, so wages are its largest cost. A capital intensive business, such as a car assembly plant, a bottling plant or an oil refinery, relies mainly on machinery and spends heavily on equipment but employs relatively few workers per unit of output. A business that needs a lot of land, such as a farm or a quarry, depends on the space and natural resources it can use.

The mix can change. A firm that automates a production line replaces labour with capital, which raises its fixed costs and cuts its wage bill, and it may produce more consistently. A business with few employees may still spend a great deal on land, such as a golf course. Businesses in the service sector tend to use more labour than land, and those in manufacturing more capital, though both need all four resources.