Businesses are needed in addition to the factors of production to organize, finance and take decisions in order to manage and control the use of these resources.
An entrepreneur combines and resources in a firm for the purpose of arrying out productive activity or business. Firms can also be called business organizations.
In order to start a business, an entrepreneur has to ask him/herself the following questions:
An entrepreneur combines and resources in a firm for the purpose of arrying out productive activity or business. Firms can also be called business organizations.
In order to start a business, an entrepreneur has to ask him/herself the following questions:
- Do I have enough money?
- Capital is needed to start a business.
- Fixed capital is the money invested long term man-made resources
- Premises, machinery and other equipment
- Working capital money tied up in...
- Stocks of finished and unfinished products
- Day-to-day running costs , including wages and and bills for electricity and telephones
- If too much capital is needed then the entrepreneur may consider starting a partnership or a limited company and share the ownership of his business.
- Can I manage my business alone?
- Managing a business can be very demanding in terms of time and knowledge.
- Do I want to share ownership and profits?
- If an entrepreneur wants to manage the business alone then he/she would be a sole trader.
- However, if he does not have the skills and money needed, he will not be able to take all business decisions by himself.
- Am I prepared to risk everything I have?
- Having unlimited liability means all debts have to be paid by the owner/s of the firm, if not the person can go to court and declared bankrupt. This is because the owner/s do not have a separate legal identity from their business. They are the same under the law.
- However, if such risks cannot be taken there are other types of organization such as limited liabilities. This kind of organizations legally separate the owners from their companies. This means they will only lose the amount of capital invested but not the debts due to the separate legal identity, the firm, being responsible for them.
- This also applies to work accidents or any other kind of legal issue that may affect the owner or the company separately.
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