Who is an entrepreneur and what is an enterprise?

Munisa sewed dresses for her own family at home. A neighbour saw them and said, "Sew one for me too." Then came her sister, then a friend. A month later, people waiting for their orders were standing outside Munisa's door. On that day, without noticing it herself, she became an entrepreneur.

Who is an entrepreneur?

An entrepreneur is a person who has started a business at their own risk in order to make a profit. "At their own risk" means: the fabric is bought, the money is spent, but if nobody buys the dress, the entrepreneur bears the loss.

The difference from an ordinary employee is this: an employee gets wages for having worked, even if business is going badly. An entrepreneur has to earn their own wages.

What is an enterprise?

An enterprise is the place where the work is organised: an organisation in which money, property, employees and accounting are brought together into one system. When Munisa sewed alone, her "enterprise" consisted of one table and one machine. If orders grow, she will call in a helper, rent a room, and a separate procedure will be needed to run the business.

Enterprises have their own legal forms, and we will talk about them separately in the following sections. In this lesson we will work out the main idea.

The biggest mistake: mixing two wallets

At first Munisa threw all her money into one little box. At the end of the month she did not know how much she had earned. Let us calculate (the figures are hypothetical).

In one month she sewed 12 dresses and sold each for 150,000 soums.

• Revenue: 12 × 150,000 = 1,800,000 soums.
• Fabric: 3 lengths at 200,000 each = 600,000 soums.
• Thread, buttons and the rest: 70,000 soums.
• Business expenses, total: 670,000 soums.

At the end of the month the box should have held 1,800,000 − 670,000 = 1,130,000 soums. But during the month Munisa took 450,000 soums from the box for the family. 680,000 soums were left in the box. Munisa thinks: "I have earned only 680,000."

The real profit is 1,130,000 soums. Money taken for the family is not an expense, it is a share taken out of the profit. If the two get mixed up, the entrepreneur either underestimates the profit or does not notice at all that the business is running at a loss.

What changes when the enterprise grows?

In the second month Munisa received an order for 20 dresses. She could not manage alone, so she hired a helper and agreed to pay her 500,000 soums a month. Now expenses have grown (the figures are hypothetical):

• Revenue: 20 × 150,000 = 3,000,000 soums.
• Fabric and thread: 1,100,000 soums for 20 dresses.
• The helper's wages: 500,000 soums.
• Total expenses: 1,600,000 soums.
• Profit: 3,000,000 − 1,600,000 = 1,400,000 soums.

Do you see? The number of dresses rose from 12 to 20, yet the profit rose by only 270,000 soums, because a new expense appeared. That is why an entrepreneur looks not only at revenue but at profit.

What should you do?

The rule is simple: business money separate, family money separate. It is enough to take money for the family once a month, in a fixed amount, and to write down what money was taken for what.

This is exactly why bookkeeping is needed: to know which money came from the business and which belongs to the family.

In the next lesson

In the twelfth lesson we will see why an entrepreneur records everything sold and bought, backing it with a document and a receipt.