Describe the characteristics and role of an entrepreneur, the contents and purpose of a business plan, the reasons businesses succeed or fail, and how governments support enterprise

What this dot point is asking

This outcome wants you to describe what an entrepreneur does and the qualities they need, to explain the contents and purpose of a business plan, to give the reasons new businesses succeed or fail, and to describe how governments support enterprise. The central idea is that starting a business is risky, and that planning, research and the right personal qualities improve the odds.

The answer

What an entrepreneur is and does

An entrepreneur is a person who takes the risk of setting up and running a business, combining the factors of production (land, labour and capital) and hoping to make a profit. The entrepreneur's role includes spotting an opportunity, raising finance, organising resources, making decisions and bearing the risk of loss.

Common characteristics of successful entrepreneurs include being a risk-taker, hard-working and determined, innovative (full of new ideas), a good decision-maker, and confident in dealing with people. None of these guarantees success, but they help.

The role of enterprise in the economy

New enterprises matter to a whole economy because they create jobs, introduce new products and ideas, increase competition (keeping prices down and quality up), and can grow into large firms that pay taxes and export. This is why governments encourage enterprise.

The business plan

A business plan is a document that sets out what the business will do and how. Typical contents include:

• A description of the business and its products or services.
• The target market and a marketing plan.
• The objectives of the owner.
• The finance needed and where it will come from.
• A cash-flow forecast and other financial forecasts.
• Details of the people and premises.

A business plan serves two purposes. First, it helps the entrepreneur raise finance: banks and investors want to see a thought-through plan with a cash-flow forecast before they lend or invest. Second, it helps the entrepreneur run the business: it sets clear objectives and budgets to measure progress against, reducing the chance of drifting or running out of cash.

Why businesses succeed or fail

New businesses often fail in their first couple of years. Common reasons for failure include poor cash flow, lack of finance, weak management or inexperience, too little market research, and strong competition. The most common single cause is running out of cash before the business becomes profitable.

Businesses are more likely to succeed when the entrepreneur plans carefully, researches the market, keeps costs under control, arranges enough finance, and offers a product customers genuinely want.

How governments support enterprise

Governments support new enterprise in several ways: grants and low-interest loans, tax advantages, business advice and training, enterprise zones with cheaper premises, and reducing red tape. In Singapore, government agencies offer grants, mentoring and funding to help start-ups grow.

Examples in context

Example 1. A food-stall start-up. A hawker opening a new stall must find premises, buy equipment, source ingredients and attract customers, all while bearing the risk that sales may be slow at first. A simple business plan, with a cash-flow forecast of daily takings against rent and stock costs, helps the hawker secure a loan and judge how many months of low cash to prepare for. This shows the entrepreneur's role and the practical value of planning in a small, real venture.

Example 2. Government start-up support in Singapore. Singapore agencies such as Enterprise Singapore provide grants, mentoring and co-funding to help new firms develop products and expand overseas. By lowering the cost and risk of starting up, this support encourages more enterprise, which creates jobs and brings new ideas to the economy, illustrating why governments actively back entrepreneurs rather than leaving start-ups entirely to the market.

Try this

Q1. State two characteristics of a successful entrepreneur. [2 marks]

• Cue. Any two of: willing to take risks, hard-working and determined, innovative with new ideas, a good decision-maker, confident in dealing with people.

Q2. Explain one reason a bank would want to see a business plan before lending. [3 marks]

• Cue. A business plan, especially its cash-flow forecast, shows the bank that the idea has been thought through and that the business is likely to generate enough cash to repay the loan, which reduces the bank's risk and makes lending safer.

Q3. Analyse why poor cash flow is a common cause of failure for new businesses. [4 marks]

• Cue. New businesses face high start-up costs (premises, equipment, stock) but slow early sales, so cash flowing out exceeds cash flowing in for some time. If the firm cannot pay suppliers, wages or rent on time, it can be forced to stop trading even though the underlying idea is sound and could have become profitable later, which is why cash flow, not just profit, must be managed from the start.