Getting

Started
in
Business
Unit 5
Decisions of Entrepreneurs
When entrepreneurs set up a new business they have to make many
important decisions such as:
Ownership structure
of the business

Location

Sources of
finance

Production
method
Decision 1: Business Ownership Structure
Learn about
• Which ownership structure will the business use? these in
E.g. Sole trader, partnership, private limited company, more detail
co-operative etc. in Unit 6
Option 1: Sole Trader
• Owned and run by one person
• Entrepreneur makes all decisions and profits
• Easy and quick to set up
• Suited to small shops, farmers, taxi drivers etc.
• If using your own name can set up immediately e.g. O’Driscoll’s Pub
Decision 1: Business Ownership Structure
• Option 1: Sole Trader
Advantages Disadvantages
Easy to set up: few legal requirements – Unlimited liability: personally
may need a licence/need to register for responsible for all debts/losses. May
tax purposes e.g. VAT have to sell person assets to cover debt
Keep all the profits No continuity of existence: business
ceases to exist when owner dies/retires
Decision making: has all control Stress: can lead to burnout

Confidentiality: not required to publish Lack of capital: difficult to get finance

financial accounts as there’s a high failure risk
Decision 1: Business Ownership Structure
Option 2: Partnership
• Owned and run by 2-20 partners
• Must register with Revenue and the CRO
• Each partner pays self-assessment income tax on their profits
• Suited to accountants, solicitors, doctors etc.
Decision 1: Business Ownership Structure
• Option 2: Partnership
Advantages Disadvantages
Easy to set up: relatively easy to set up Unlimited liability: personally
– draw up a ‘deed of partnership’ responsible for all debts/losses. May
between partners have to sell person assets to cover debt
Increased capital: more people Profits: have to be shared – deed of
available to invest partnership outlines the split
Decision making: the range of Decision making: slower as there are
skills/experience available can help more people – can disagree
Confidentiality: not required to publish Legal entity: partners and business are
Decision 1: Business Ownership Structure
Option 3: Private Limited Company
• Owned by 1 – 149 people
• Each owner is a shareholder
• Each owner can attend and vote at AGMs
• Must register with the CRO
Decision 1: Business Ownership Structure
• Option 3: Private Limited Company
Advantages Disadvantages
Limited liability: owners not personal Less confidentiality: accounts
responsible for business debts. Can only submitted to CRO, summaries available
lose investment amount to public and competitors
Continuity of existence: business Expensive to set up: more expensive
continues after death of a shareholder than sole trader/ partnership
Separate legal entity: company can Profits: have to be shared
sue/be sued in it’s own name
Tax: corporation tax (12.5% on profits) Time: takes longer to set up. Can’t start
lower than self assessment (4% on trading until Certificate of Incorporation
gross). received from the CRO.
Decision 1: Business Ownership Structure
Option 4: Co-operative
• Set up, owned, and controlled by members – not shareholders
• Must have 7+ members
• Operates for benefit of members
• Registers with Register of Friendly Societies
• Each member has an equal say in the running of the company
Decision 1: Business Ownership Structure
• Option 4: Co-operative
Advantages Disadvantages
Limited liability: owners not personal Lack of capital: each member only has
responsible for business debts. Can only one vote – lack of incentive to invest
lose investment amount more
Continuity of existence: business Registration: More complicated - Name
continues after death of a shareholder must include ‘society’ and ‘limited’
Tax: pay corporation tax (12.5%) Profits: profits shared among members

Democratic decision making: all Confidentiality: must publish financial

members have an equal say, no matter accounts
how many shares you own
Terms We’ve Come Across
• CRO (Companies Registrations Office): Where information on Irish
companies and businesses is stored. They receive documents from
and register new companies in Ireland
• Deed of partnership: A legal agreement signed by all partners that
sets out the rules of the partnership e.g. how profit is shared
• Certificate of incorporation: Issues by the CRO when they’ve received
all relevant documentation. This enables a company to start trading.
Decision 2: Location

What do you think are the most important

factors for a business to consider when choosing
a location to set up in?
Decision 2: Location
Common
Decision 2: Location Exam Q!

Reasons Ireland is such a popular place to set up

companies:
• Highly educated workforce
• English as a first language
• Good transport links – roads, rail, airports
• Access to European mainland
• Part of the European Union – trading agreements etc.
• Low corporation tax – 12.5% (US = 21%, UK = 19%,
Spain = 25%)
Decision 3: Sources of Finance
Three classifications of sources of finance:
1. Short-term – repaid within one year
2. Medium-term – repaid between one and five years
3. Long-term – repaid after more than five years.

An entrepreneur needs to decide how to finance the setting up of their

business. Retained earnings etc. can’t be used for obvious reasons!
Decision 3: Sources of Finance

Short- Medium-
term term
Bank Accrued Trade Hire
Term loan Leasing
overdraft Expenses Credit purchases

Uses: Uses:
• Buying stock • Buying fixed assets e.g. vehicles,
• Covering day-to-day running costs machinery etc.
Decision 3: Sources of Finance
Long-term

Debentures Equity capital Grants

Uses:
• Buying land and buildings
• R&D (research and development) for new products and ideas
Decision 4: Production Method

Job Batch Mass (flow)

production production production
Decision 4: Production Method
Option 1: Job Production

Description Labour Machinery Cost Examples

• Unique • Highly • Flexible – • Raw • Tailor made
item skilled can materials, debs dress
• Made to labour produce a labour and • Private jets
order • High wage wide range machinery • Architect
• High- for of very designed
expensive home
quality employees different
• High price • Anything
products
charged to custom
customers made
Decision 4: Production Method
Option 2: Batch production

Description Labour Machinery Cost Examples

• Limited • Less skilled • Flexible – • Lower than • Bread
number of than job when one job • Clothes in
identical production batch • Multiple different
items • Lower ends, it’s items can sizes
made wage for used to be made at • Food/drink
same time of various
employees make
• Increased flavours
different
efficiency e.g. crisps
items • Less waste
https://www.youtube.com/watch?v=aXTGw4QdakY
Decision 4: Production Method
Option 3: Mass production

Description Labour Machinery Cost Examples

• Identical • Unskilled • Machinery • High cost • Pens
items workers very machinery • Toilet roll
made • Low automated • Benefit • Toothpaste
continuous morale – can only from • Baked
ly • Repetitive do one job economies beans
of scale
• Very large work
quantities • Low pay

https://www.youtube.com/watch?v=G6O2zTuGOVQ
Implications of Changing Production Methods
A business might need to change your production method in order to
expand or because of increased competition. The implications include:
• Investment: batch and mass are heavily automated – requiring
expensive machinery
• Finance: long term finance might be needed to set up a new
production process
• Ownership structure: this might change to try raise finance
• Changes to stock control: changes from job -> batch means no longer
making custom orders
• Marketing plan: a revised plan will be needed for the increased level
of goods being produced
Subcontracting/Outsourcing
Def: When a business employs another firm to manufacture/produce a
part/whole product for them.

E.g. Nissan makes cars but another company make their engines
Voxpro customer support lines is used by Google, Air BnB & Stripe
WhatsApp outsources development to Russia
Apple outsourced their LED display component to Samsung
Subcontracting/Outsourcing
Advantages Disadvantages
Cost savings: don’t need to buy Loss of control: on aspects of
machinery/equipment production e.g. quality
Staff savings: fewer staff needed Industrial relations: staff may fear for
their job/industrial relations may result
Meet demand: quicker and cheaper to Competition: the outsourced company
outsource if the business can’t meet may become a competitor
demand
Less bureaucracy: regulations are Reputation: if quality slips, your
responsibility of the manufacturing firm companies reputation may suffer
The Business Plan
Def: a detailed written document including information on the
business. It outlines the firm’ aims and objectives as well as it’s
strategies e.g. marketing and production, that are used to achieved
them.
To formulate
1. To obtain
To obtain
strategies
finance
finance

Reasons to Prepare a
Business
Plan

To measure To identify
performance problems
The Business Plan – The Elements
• Information about the firm’s directors, shareholders
Business details and the legal structure e.g. sole trader
• The overall aims and objectives of the business,
Objectives including its mission statement.
• A brief description of the products or services that it
Product details will produce or sell.
• Analysis of market research, e.g. market size,
Market details competitors and target market.
• The production method the business will use e.g.
Production details batch
• How much money is needed to set up the business
Financial details and how it will be sourced. May also include cash-
flow forecast
The Business Plan & Stakeholders
The business plan is important to many stakeholders including:
Stakeholder Interests
Employees →The business plan can address employees’ concerns about
the survival of the business.
→Employees are also interested in the firm’s plans to expand
as there may be future promotional opportunities.
Investors →Investors are interested in projected sales figures and market
(equity) research findings.
Investors →Financial institutions use a business plan to assess whether
(financial the business would be able to make repayments on money
institutions) borrowed.
The Business Plan & Stakeholders
The business plan is important to many stakeholders including:
Stakeholder Interests
Manager →The business plan is used as a benchmark to measure actual
performance against the goals set out in the plan.
Suppliers →Suppliers examine the business plan to ensure that the
business can repay any credit facilities given to it.
Government →Government agencies such as the Local Enterprise Office
Agencies (LEO) use the business plan to assess whether the business
qualifies for financial assistance.
Sample Business Plan
see pg. 344 textbook
Challenges for Business Start-Ups
• Ownership structure: must decide on a suitable structure taking into
account the risks, control, liability etc.
• Finance: difficult to raise finance as a start up
• Production methods: an appropriate method for their product must
be chosen
• Staff recruitment: difficult to attract top employees as start ups are
usually not able to afford top salaries, job security etc
• Competition: difficult to enter a market of well established
competitors
Why New Businesses Fail
• Lack of expertise in the day-to-day running of a
Poor management business can lead to poor decision-making.

Insufficient capital • Not enough capital was invested in the business.

• The business was set up in an unsuitable

Location location, e.g. the customer base was too small.
• The business plan was poorly prepared and not used
Business plan to anticipate future problems for the firm.

• The business grew too rapidly, which was

Expanding too fast unsustainable.
Key Terms
• sole trader • footloose business
• Companies Registration • sources of finance
Office (CRO) • job production
• partnership • batch production
• business name • mass production
• deed of • production run
partnership/partnership • subcontracting/outsourcing
agreement • business plan
• private limited company
• certificate of incorporation
• co-operative
Past Exam Questions
Ordinary Level
2019

2018
Past Exam Questions
Higher Level
2015

2014