Cambridge University Press

978-1-108-33925-4 — Cambridge IGCSE® Enterprise Coursebook with Cambridge Elevate Edition

(2 Years)
Medi Houghton , Matthew Bryant , Veenu Jain
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11

Chapter 1
Setting up a new enterprise
Learning summary
In this chapter you will learn about:
■ the diferent stages of the enterprise process
■ the key points to consider at each stage
■ the characteristics of diferent types of business organisations.

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978-1-108-33925-4 — Cambridge IGCSE® Enterprise Coursebook with Cambridge Elevate Edition
(2 Years)
Medi Houghton , Matthew Bryant , Veenu Jain
Excerpt
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Cambridge IGCSE Enterprise

The enterprise process KEY TERM

To be successful in an enterprise activity,
Enterprise process: The various
an enterprising person needs to follow
stages involved in starting and
various steps in order. This is called the running an enterprise.
enterprise process. Make sure you
consider each of these steps as you plan
and implement your own enterprise project.

Identifying Exploring Evaluation of

Action Implementing
the problem, creative Monitoring successes and
planning the plan
need or want solutions progress failures

12

Figure 1.1: The enterprise process

Identifying the problem, need or want:

• A combination of group discussion, brain storming and individual reflection
should be used to identify and understand the problem, need or want. Collecting
ideas and thoughts from diferent people involved/stakeholders will ensure many
diferent aspects of the business opportunity have been considered.
• A suitable risk assessment needs to be carried out before starting an
enterprise activity.
• The identification of the enterprise opportunity/idea should be backed up
with thorough research about the market need. This helps the enterprise have
a clear aim and vision that it can work towards. The expected rate of return if
it is to be a business enterprise, should also be considered.

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978-1-108-33925-4 — Cambridge IGCSE® Enterprise Coursebook with Cambridge Elevate Edition
(2 Years)
Medi Houghton , Matthew Bryant , Veenu Jain
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Chapter 1: Setting up a new enterprise

• Recognition of the skills required and reflection on whether an entrepreneur

and his associates have them is important for the success of the enterprise. If
there are any skills gaps then there should be a plan in place to fill them.

Exploring creative solutions

• When aiming to solve a problem or meet a need, creative and innovative ways
need to be looked at and evaluated. Creativity and innovation are key traits
of a successful enterprise. They help entrepreneurs find new ways of solving
existing problems and meeting needs.
• These creative ideas then need to be analysed and evaluated to help choose
the most efective solution. Mind maps can be used to explore the links
between ideas which can then be very helpful in developing an efective
enterprise plan.

Action planning:
• This involves, making plans for the enterprise activity keeping the costs,
budget and financial capability in mind.
• Breaking down goals into achievable tasks.
13
• Using resources and team members most eficiently. Allocating roles
according to people’s strengths, skills and attributes to increase the chances
of success.
• Setting appropriate timescales and milestones, working towards the goals set
out earlier.

Implementing the plan

• To be successful, enterprise activities must be carried out eficiently,
efectively, lawfully and with due regard to health and safety.
• All milestones, timescales and health and safety issues identified in the plan
should be frequently referred to. This ensures that the activities and tasks are
focused and directed towards meeting objectives.
• Things don’t always work out as planned and unexpected events do happen.
In such a case, decision-making needs to be quick, flexible and responsive.

Monitoring Progress
• Constantly monitoring and evaluating progress against the objectives set out
is a way to make sure that projects are tracked and any deviations identified.

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Medi Houghton , Matthew Bryant , Veenu Jain
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Cambridge IGCSE Enterprise

• If tasks are not done and objectives not met on time, corrective action/
adjustments need to be done in response to any deviations from the plan.
This is essential to ensure that objectives are met and goals achieved within
the allocated budget and time.

Evaluation of successes and failures

• This involves reviewing the final outcomes against achievement criteria.
This is done in order to draw lessons from the activity and come up with
suggestions for improvement in the future.
• Skills, attitudes, qualities, understanding acquired and lessons learned should
also be assessed and reflected on to enhance the success of future enterprise
projects or activities.

TIP

Word processing and spreadsheet sotware tools can be very useful for recording
ideas and plans, and for creating timelines for target setting and monitoring.
Putting data and figures into tables makes it easier to understand the
information. Use a spreadsheet to store information and perform calculations.
14

ACTIVITY 1.1

Your group has been given the task of starting a new club in school. Brainstorm
for ideas with your team. Some examples of new clubs that could be ofered are:
• helping children in the lower classes with maths/science/English
• sports club ofering a popular or sport of your choice
• debating club.
Once you have decided on which club your group will be starting, discuss all the
things you need to consider to get it running. Consider the various stages of the
enterprise process and what you need to do. You can make an enterprise process
mind map or make a list of the points.
1 Which club has your group decided to start? How did you identify this club as
the best one to start?
2 What planning do you need to do in order to start the club? One of the things
to think about is the venue where the club will meet. What other things should
be considered?
3 How will you implement the plans that you have made?
4 How will you ensure that your club is running successfully?

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Cambridge University Press
978-1-108-33925-4 — Cambridge IGCSE® Enterprise Coursebook with Cambridge Elevate Edition
(2 Years)
Medi Houghton , Matthew Bryant , Veenu Jain
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Chapter 1: Setting up a new enterprise

PROJECT PROMPT

As you start your enterprise project, have an overview about how your project
will develop through various stages of the enterprise process
1 When identifying the problem/need of your project, identify the various
factors that you will have to consider. Think about the research you will
have to do to make informed decisions. What will be the aim/vision of
your enterprise? Consider the risks involved in starting and running your
enterprise.
2 Analyse how the solution that you have found to the need/problem identified
in your project is the most creative and efective.
3 When making your action plan, think of all the financial and marketing
aspects of your enterprise.
4 Find out about all sources of help and support from the government and
other organisations that you could use.
5 Think about what milestones you might set to be able to monitor the progress
of your project.
6 At each stage, remember to reflect on what worked well and what could have
been improved.
15

Types of business organisations

Businesses may be organised in many diferent ways, each with its own legal
status, advantages and disadvantages.

Sole trader
Private limited
Limited company
Public limited
Types of business
organisations

Partnership

Co-operative
Charities
Social enterprise
Not-for-profit
Franchise

Figure 1.2: Types of business organisations

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(2 Years)
Medi Houghton , Matthew Bryant , Veenu Jain
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Cambridge IGCSE Enterprise

Sole trader
This is a business that is owned and run by just one person though it may employ
staf. A sole trader is an unincorporated business. This means it is not a separate
entity from the owner. The owner has unlimited liability and is liable for all the
debts of the business and stands to lose his/her investment as well as personal
assets if the business
goes into debt. KEY TERMS
However, this is one Sole trader: A business that is owned and run by
of the most common just one person though it may employ staf. It is an
types of business unincorporated business in which the owner has
organisations, unlimited liability for all the debts of the business.
mainly because it is Unincorporated business: A business that does not
cheaper and simpler possess a separate legal identity from its owner. The
to start. Examples owner(s) have full liability for the business.
include hairdressers, Unlimited liability: Shareholders/owners are liable for
all the debts of their organisation and stand to lose their
photographers,
investment as well as personal assets if the business goes
freelance writers and into debt.
artists.
16
Advantages of being a sole trader:
• Cheap, quick and simple (less documentation and legal formalities) to start.
• The owner can keep all the profits.
• The owner can make his/her own decisions and has full control of their business.
Disadvantages of being a sole trader:
• The owner is fully responsible for all debt, also known as unlimited liability
• It is dificult to raise finance, so oten the owner has to rely on personal savings.

Partnerships
This is a business that is owned by two or more people, who are known as the
partners. Partnerships cannot normally KEY TERM
have more than 20 partners though this
can vary from country to country. This Partnership: A business that is
owned by two or more people,
sort of a business organisation is also
known as the partners. This
unincorporated and so the partners have sort of a business organisation
unlimited liability. Lawyers, accountants is unincorporated and so the
and small businesses owned by two or more partners have unlimited liability.
people are usually set up as partnerships.

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978-1-108-33925-4 — Cambridge IGCSE® Enterprise Coursebook with Cambridge Elevate Edition
(2 Years)
Medi Houghton , Matthew Bryant , Veenu Jain
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Chapter 1: Setting up a new enterprise

Advantages of partnerships:
• Cheap, quick and simple (less documentation and legal formalities) to start.
• The partners can keep all the profits.
• The partners have full control of their business.
• The decision-making and workload is shared.

Disadvantages of partnerships:
• The partners are fully responsible for all debt (also known as unlimited
liability).
• It is dificult to raise finance, so oten entrepreneurs have to rely on personal
savings.
• Disagreements and conflicts between partners can slow down the business.
• The decision made by one partner is legally binding on all the others.

Limited companies
Limited companies are incorporated businesses that are a separate legal entity
from their owners. A limited company is owned by its shareholders who own a 17

share of the company. There are two types of limited companies.

Private limited company

The shares of a private limited company are usually held by friends and family so
there are a small number of shareholders.

Public limited company

Shares are ofered to and oten owned by the public and other organisations.

Advantages of a limited company:

• The shareholders have a limited KEY TERMS
liability, which means they are Limited company: An
not fully liable for the debts of the incorporated business that
business. Shareholders/owners are is a separate legal entity from its
only liable to pay/lose the amount owners.
they have invested. Limited liability: Shareholders/
owners are only liable to pay
• It is easier to raise finance than it is for or lose the amount they have
sole traders and partnerships as they invested.
can sell their company’s shares.

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(2 Years)
Medi Houghton , Matthew Bryant , Veenu Jain
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Cambridge IGCSE Enterprise

• Since the company is a separate unit from the owners, it will continue to exist
even if one of the owners leaves or dies.

Disadvantages of a limited company:

• Limited companies are not so easy to set up as there are a lot of legal
formalities, rules and regulations to be followed.
• The original owners may lose control of the business as shares are sold to
the public.
• The accounts of the company have to be published for the public to see.

Co-operatives
This type of business organisation is KEY TERM
owned and managed by people who use
its services and who work there. There Co-operative: A type of business
organisation that is owned and
are diferent types of co-operative. managed by people who use its
• A consumer co-operative is owned services or who work there.
by consumers who buy its goods or
18 services.
• A producer co-operative is owned by producers of goods who have come
together to sell their goods.
• A worker co-operative is one which is run by its employees.

Advantages of co-operatives:
• Co-operatives are democratic.
• The members (whether consumers or employees) work together. There are
fewer chances of conflict as members share a common interest.
• The owners/shareholders in a co-operative usually have limited liability.
• Co-operatives usually get some sort of tax relief from the government.
• Most co-operatives are treated as separate legal units and so the death of a
member does not afect its continuity.

Disadvantages of co-operatives:
• It is dificult to raise finance as co-operatives cannot issue shares.
• Accounts have to be made accessible to the public.
• Members may not necessarily have the required skills to run the business and
so have to hire professionals who may be expensive.

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978-1-108-33925-4 — Cambridge IGCSE® Enterprise Coursebook with Cambridge Elevate Edition
(2 Years)
Medi Houghton , Matthew Bryant , Veenu Jain
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Chapter 1: Setting up a new enterprise

Franchises KEY TERM

A franchise is a form of business Franchise: A form of business
organisation that allows a company organisation that allows a
(franchisee) to buy the right to use company (franchisee) to buy the
an existing company’s (franchisor) right to use an existing company’s
brand name and products/service. For (franchisor) brand name and
products/service.
example, Subway, the sandwich shop
opened its first franchise in Connecticut,
USA in 1965. Other Subway franchises soon followed and now there are more
Subway restaurants in the world than any other restaurant chain.

Advantages of franchises:
• The franchisee has a greater chance of success as they are selling a
well-known product/service.
• The franchisor may provide some support to the franchisee by providing
advice and training.
• The franchisor may contribute funds or do some advertising at national level,
reducing the franchisee’s costs. 19
• Easier to gain loans from bank, as the business is seen to be low-risk.

Disadvantages of franchises:
• The franchisee will have to pay a license fee and possibly a percentage of the
revenue to the franchisor.
• The initial costs of setting up a franchise business may be high.
• The franchisee will not have full control over how he can run his business as he
will have to follow the controls set by the franchisor.

Social enterprises
A social enterprise is a business with social objectives and ethical values aimed
at benefitting the community. The money earned is reinvested in the business or
used for a social cause. There are diferent types of social enterprise.

Not-for-profit enterprises
• Not-for-profit enterprises are directly involved in producing goods or providing
services, but in a socially responsible way.
• They oten sell products or services in order to reinvest their profits into the
business for the benefit of the community and not-for-profit maximisation of
its owners/shareholders.

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(2 Years)
Medi Houghton , Matthew Bryant , Veenu Jain
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Cambridge IGCSE Enterprise

• They generate their own income and do KEY TERM

not rely on donations to survive.
Income: All the money that
• A not-for-profit organisation’s aim is to comes in to an enterprise.
improve social conditions. The aims may be
short-term or may last for decades.

Charities
• Charities raise money by doing fundraising activities and collecting donations.
• Charities work to provide quick solutions to immediate disasters/adversity
and their impact is oten short lived.

Advantages of social enterprises:

• Committed employees: employees who work for a social enterprise oten
feel for the cause and have a personal interest in its social aims and objectives.
• Job satisfaction for employees is high as they know they have made a
diference to people in need.
• They bring about a positive change to people and communities.

Disadvantages of social enterprises:

20
• Social enterprises may be less competitive in the market due to limited capital.
TIP

Consider your skills and personality when deciding what type of organisation
your enterprise will be.

ACTIVITY 1.2

In a group, research and discuss an enterprise that has come up internationally or

in your own country recently. You may use the internet or a business magazine/
journal for your research. What type of an organisation is it? What is the main
product/service ofered by the enterprise? What are the risk factors/challenges
faced by the enterprise? Is it successful so far?

PROJECT PROMPT

What type of a business organisation will best suit your enterprise? Explain why
you think this sort of organisation will be best suited to you.
It isn’t a requirement for the coursework, but it would still be useful to think about
which type of organisation will best suit your enterprise.
What are the disadvantages of this sort of organisation and how could you
minimise them?

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