1.3 Enterprise, Business Growth + Size Flashcards
Define entrepreneur
A person who organises, operates and takes the risk for a new business venture
Entrepreneur advantages
Independence, control of business, able to use own interests + ideas
Entrepreneur disadvantages
Risk of failure, opportunity cost, lack of knowledge + experience
Characteristics of an entrepreneur
- hard working
- risk taker
- creative
- optimistic
- self-confident
- innovative
- independent
- effective communicator
Define business plan
A document containing the business objectives and important details about the operations, finance and owners of the new business
Name parts of a business plan
- Description of the business
- Products + services
- The markets
- Business location + how products will reach customers
- Organisation structure + management
- Financial information
- Business strategy
Explain benefits of a business plan
- helps gain finance as bank is able to lend money to business
- careful planning reduces risk of failure
Explain why government support start up businesses
- reduces unemployment
- increases competition
- increases service output
- benefits society
- businesses can grow further
Explain methods used to support start up businesses
- grants + low interest loans
- lower tax rates on profits in early years
- ‘enterprise zones’ provide low-cost premises for start up businesses
- free or subsidies training for workers
- information, advice + support from specialist agencies
Name ways of measuring business size
- number of people employed
- value of output
- value of sales
- value of capital employed (total value of capital used in the business)
Limitations to the methods used to measure business size
- different measures may produce different results
- a business may be capital intensive rather than labour intensive
Explain reasons owners may want to expand the business
- increased profits
- larger market share
- gain competitive advantage
- reduces risk of being taken over
- economies of scale (factors that lead to a reduction in average costs as a business increases in size)
Define internal growth
Occurs when a business expands its existing operations
Define external growth
When a business takes over or merges with another business, it is often called integration
Define horizontal integration
When one business merged with or takes over another one in the same industry at the same stage of production
Define vertical integration
When one business merges with or takes over another one in the same industry but at a different stage of production, vertical integration can be forward or backward
Define conglomerate integration
When one business merges with or takes over a business in a completely different industry, this is also known as diversification
Advantages of horizontal integration
- reduces number of competitors in the industry
- opportunities for economies of scale
- bigger share of the total market for both businesses
Advantages of forward vertical integration
- gives an assured outlet for its product
- profit margin absorbed by the expanded business
- retailer prevented from selling competing goods
Advantages of backward vertical integration
- gives an assured supply of important components
- profit margin absorbed by the expanded business
- supplier can be prevented from supplying other manufacturers
- costs of components for manufacturer can be controlled
Advantages of conglomerate integration
- diversified it’s activities, spreading risks taken by the business
- may be a transfer of ideas between the different sections of the business
Explain problems of business growth
- harder to control
- poorer communication
- expansion costs
- integration is harder than expected (e.g. conflicts)
Explain methods of how to overcome problems of business growth
- operate business in small units
- expand slower
- ensure sufficient long-term finance is available
- good communication
Explain reasons why some businesses remain small
- type of industry the business operates in
- market size
- owners objectives
Explain causes of business failure
- lack of management skills
- changes in the business environment
- liquidity problems or poor financial management
- over-expansion
Reasons why new businesses are more likely to fail
- lack of finance + other resources
- poor planning
- inadequate research
- lack of management skills
