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Business Studies > 1.3 Enterprise, business growth and size > Flashcards

1.3 Enterprise, business growth and size Flashcards

1
Q

What is an entrepreneur?

A

An entrepreneur is a person who organises, operates, and takes the risk for a new business venture.

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2
Q

What are some benefits of being an entrepreneur?

A

Independence: Able to choose how to use time and money.
Creativity: Can put own ideas into practice.
Fame and success: May become famous and successful if the business grows.
Potentially higher income: The business may be profitable, leading to higher income than working for someone else.
Personal fulfillment: Can use personal interests and skills in the business.

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3
Q

What are some disadvantages of being an entrepreneur?

A

Risk: Many new businesses fail, especially without proper planning.
Capital: Entrepreneurs must invest their own money and may need to find additional sources of capital.
Lack of experience: Entrepreneurs may lack the knowledge and experience needed to start and operate a business.
Opportunity cost: Entrepreneurs lose income from not being an employee elsewhere.

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4
Q

Why might someone choose to become an entrepreneur?

A

Someone might become an entrepreneur for independence, to implement their own ideas, to become successful, or to align their business with their personal interests and skills.

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5
Q

What is an important characteristic of a successful entrepreneur regarding work habits?

A

Hardworking – Entrepreneurs often work long hours with short holidays to make their business successful.

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6
Q

Why is being a risk-taker important for an entrepreneur?

A

Entrepreneurs need to make decisions that involve risk, such as producing goods or services that people might buy.

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7
Q

How does creativity contribute to an entrepreneur’s success?

A

Creativity is important for coming up with new ideas for products, services, and ways of attracting customers, helping the business stand out from others.

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8
Q

Why is optimism important for an entrepreneur?

A

Optimism helps entrepreneurs stay motivated and focus on a better future, which is crucial for overcoming challenges and avoiding failure.

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9
Q

Why must entrepreneurs be self-confident?

A

Self-confidence is necessary to convince others (such as banks, lenders, and customers) that the entrepreneur’s skills and business will be successful.

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10
Q

What role does innovation play in entrepreneurship?

A

Innovation allows entrepreneurs to put new ideas into practice in unique and interesting ways, which is key to standing out and succeeding.

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11
Q

Why is independence important for entrepreneurs?

A

Entrepreneurs often need to work alone before they can afford to hire others, so they must be self-motivated and capable of working without help.

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12
Q

Why must entrepreneurs be effective communicators?

A

Effective communication helps entrepreneurs raise the profile of their business by speaking clearly and confidently to banks, customers, lenders, and government agencies.

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13
Q

What does the description of the business section of a business plan include?

A

A brief history and summary of the business, along with its objectives.

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14
Q

What should the “Products and Services” section of a business plan cover?

A

The business’s products or services, the strategy for continuing or developing them, and how they will be manufactured and distributed.

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15
Q

What is included in the “Market” section of a business plan?

A

Information on the total market size, predicted market growth, target market, analysis of competitors, forecast sales revenue, and changes in the market.

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16
Q

What does the “Business Location and How Products Will Reach Customers” section describe?

A

The physical location of the business, internet sales, mail orders, and how products or services will be delivered to customers.

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17
Q

What is explained in the “Organisation Structure and Management” section of a business plan?

A

The business’s organisational structure, management, and details of the employees required, including their number and skill levels.

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18
Q

What financial details are included in a business plan?

A

Projected financial statements (income statements, financial positions), sources of capital, predicted costs, forecast cash flow, working capital, and profitability ratios.

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19
Q

What does the “Business Strategy” section explain?

A

How the business intends to satisfy customer needs, gain brand loyalty, and summarize the overall strategy for success.

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20
Q

Why is a business plan important for securing a loan from a bank?

A

It demonstrates that the entrepreneur has thought carefully about the future and planned for challenges, making it easier to secure funding.

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21
Q

What can happen if a business plan is poorly completed?

A

The bank might refuse to offer a loan if the plan is poorly forecasted, especially with issues like inaccurate cash flow predictions.

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22
Q

Why do governments support business start-ups?

A

Governments support start-ups to reduce unemployment, increase competition, boost output, benefit society, and allow businesses to grow further.

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23
Q

How do new businesses reduce unemployment?

A

New businesses create jobs, helping to reduce overall unemployment.

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24
Q

What role do new businesses play in increasing competition?

A

They offer consumers more choice and compete with established businesses, driving improvements and innovation.

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25
Q

How do new businesses contribute to increased output?

A

They increase the overall output of goods and services in the economy.

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26
Q

How can entrepreneurs benefit society?

A

Entrepreneurs may create social enterprises that provide societal benefits beyond just jobs and profit, such as supporting disadvantaged groups.

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27
Q

Why do governments support start-ups with potential for growth?

A

Supporting start-ups today may help them grow into large, important businesses in the future.

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28
Q

How do governments help with business ideas and support?

A

Governments organize training and advice sessions from experienced business people to help entrepreneurs refine their business ideas.

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29
Q

How do governments assist with finding premises for start-ups?

A

Governments offer ‘enterprise zones’ that provide low-cost premises for new businesses to set up.

30
Q

What financial support do governments offer to small businesses?

A

Governments offer loans at low interest rates and grants, especially for businesses in areas with high unemployment.

31
Q

How do governments support businesses with labor and training?

A

Governments provide grants to help small businesses train employees and increase productivity.

32
Q

How do governments assist with research for start-ups?

A

Governments encourage universities to make their research facilities available to new entrepreneurs.

33
Q

What are some common methods of measuring business size?

A

The common methods are number of people employed, value of output, value of sales, and value of capital employed.

34
Q

What is the “number of people employed” method used for?

A

It is used to measure the size of a business by counting the number of employees.

35
Q

What is a limitation of using the number of people employed to measure business size?

A

Some businesses use capital-intensive methods, employing fewer people but producing more output, which could distort the comparison.

36
Q

What does the “value of output” method measure?

A

It measures the total value of goods or services produced by the business.

37
Q

What is a limitation of using the value of output to measure business size?

A

A firm with a high output may employ fewer workers than a firm with lower output, which doesn’t necessarily reflect business size.

38
Q

What is the “value of sales” method used for?

A

It measures the total revenue from the sale of goods and services.

39
Q

What is a limitation of using the value of sales to measure business size?

A

It may be misleading when comparing businesses that sell very different products, like a sweets vendor and a luxury retailer.

40
Q

What does the “value of capital employed” method measure?

A

It measures the total value of capital (money and assets) invested into the business.

41
Q

What is a limitation of using the value of capital employed?

A

A business that employs many workers may use little capital, leading to low output and misrepresenting its size when compared to capital-intensive firms.

42
Q

What is the definition of capital employed?

A

Capital employed is the total value of capital used in the business, including all financial and physical assets invested.

43
Q

What is the “number of people employed” method for measuring business size?

A

It calculates the size of a business by counting the total number of employees.

44
Q

What is a limitation of using the “number of people employed” method?

A

Capital-intensive firms that use automation may employ fewer people but produce higher output, making this method less reliable for such businesses. Additionally, there’s uncertainty about whether part-time workers should be counted as full employees.

45
Q

What is the “value of output” method for measuring business size?

A

It calculates the size of a business based on the total value of goods or services produced, commonly used in manufacturing industries.

46
Q

What is a limitation of using the “value of output” method?

A

A high output level doesn’t necessarily mean a business is large. For example, a business with fewer employees may produce expensive goods, leading to higher output values compared to a firm with more workers but cheaper products. Additionally, the value of output may not align with sales if some goods are unsold.

47
Q

What is the “value of sales” method for measuring business size?

A

It calculates the size of a business based on the total value of goods or services sold, often used for retail businesses selling similar products.

48
Q

What is a limitation of using the “value of sales” method?

A

It can be misleading when comparing businesses selling very different products. For example, a market stall selling sweets may show a lower value of sales compared to a luxury handbag retailer, even if both businesses are similarly sized.

49
Q

What is the “value of capital employed” method for measuring business size?

A

It measures the total value of capital invested in the business, including both physical assets and financial investments.

50
Q

What is a limitation of using the “value of capital employed” method?

A

It can be misleading when comparing businesses that use different production methods. For example, a labour-intensive company may have low capital investment but a large workforce, which doesn’t reflect its actual size compared to a capital-intensive firm with fewer employees but more expensive machinery.

51
Q

What are some benefits of business expansion for the owners?

A

Higher profits for the owners.

More status and prestige for owners and managers, with higher salaries often given to managers of larger businesses.

Lower average costs due to economies of scale (explained in Chapter 19).

Larger market share which increases influence with suppliers and distributors and attracts consumers to ‘big names’ in an industry.

52
Q

What are the two ways businesses can grow?

A

Internal Growth: Expanding by increasing the business’s own operations.

External Growth: Growing by merging with or taking over another business.

53
Q

What is horizontal integration?

A

When a business merges with or buys another business in the same industry and at the same stage of production.

54
Q

What is vertical integration?

A

When a business merges with or buys another business in the same industry but at a different stage of production.

55
Q

What is conglomerate integration?

A

When a business merges with or buys a business in a completely different industry.

56
Q

What are the benefits of horizontal integration?

A

Reduces the number of competitors in the industry.

Opportunities for economies of scale.

Bigger share of the total market.

57
Q

What are the benefits of forward vertical integration?

A

Assured outlet for products.

Profit margin of the retailer is absorbed by the business.

Prevents the retailer from selling competing products.

Direct access to consumer needs and preferences.

58
Q

What are the benefits of backward vertical integration?

A

Assured supply of important components.

Profit margin of the supplier is absorbed.

Prevents the supplier from selling to competitors.

Controls component costs.

59
Q

What are the benefits of conglomerate integration?

A

Spreads business risks by entering different industries.

Can transfer ideas between different sectors of the business.

60
Q

What are some problems that arise from business growth and how can they be overcome?

A

Problem: Larger business is difficult to control.
Solution: Operate in small units (decentralisation).

Problem: Poor communication in a larger business.
Solution: Use smaller units and modern IT/telecommunication equipment.

Problem: Expansion costs lead to financial shortages.
Solution: Expand slowly, using profits to fund growth. Ensure long-term finance is available.

Problem: Difficulty in integrating with another business (e.g., different management styles).
Solution: Communicate changes effectively to the workforce to ease integration.

61
Q

Why do some businesses remain small in size?

A

They may remain small due to the type of industry, market size, or the owner’s objectives.

62
Q

Which industries often have small businesses?

A

Industries such as hairdressing, car repairs, window cleaning, convenience stores, plumbing, and catering.

63
Q

Why do businesses in certain industries stay small?

A

These industries offer personal services or specialized products, and growing too large would affect their ability to provide close, personal service.

64
Q

How does market size affect business growth?

A

If the market size is small, businesses are likely to stay small. This applies to businesses in rural areas or those offering specialized products with limited customer appeal.

65
Q

Why do some business owners prefer to keep their business small?

A

They may want to retain control, know all their staff and customers, and avoid the stress of managing a larger business.

66
Q

What is a common cause of new business failures?

A

Lack of management skills, often due to inexperience and bad decisions.

67
Q

How do changes in the business environment cause failure?

A

Failure to adapt to changes like new technology, economic shifts, or stronger competitors can lead to business failure.

68
Q

What is the effect of liquidity problems on a business?

A

Liquidity problems, such as cash shortages, prevent a business from paying its workers, suppliers, and other expenses, leading to failure.

69
Q

How can over-expansion cause business failure?

A

Expanding too quickly can cause management and financial problems, and if unresolved, may lead to the closure of the business.

70
Q

Why are new businesses at greater risk of failure?

A

Due to lack of finance, poor planning, inadequate research, and inexperience in decision-making.

71
Q

What makes new business owners more prone to failure?

A

They often lack the experience and decision-making skills of managers in larger, more established businesses.

Business Studies (5 decks)

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