1.3 Enterprise, Growth, and Size Flashcards
Entrepreneur and their characteristics
Person who organises, operates and takes risks for a new business venture
Risk-taker
Creative
Innovative
Optimistic
Self-confident
Independent
Effective communicator
Hard-working
Business Plan
Document containing business objective, details about operations, finance and owners
It…
Supports requests for loans
Help set targets
Shows planning
Estimates costs
Why may new business get government support
Government wants…
Employment (less unemployment)
Increased output of goods/services to the community
Promotes competition (lower prices higher quality)
Adv and disadv of being an entrepreneur
Adv
Freedom of schedule
Reward if business does well
Independence in handling money
Put ideas to work
May become famous/sucsessful
Make use of your skills and ideas
Disadv
Risk of failing
Have to be good at planning
Have to put your own money into the business for capital
Opportunity cost of earning income from being a normal worker
How can government support?
Give ideas
Giver enterprise zones
Loans for finance
Find labour for businesses
Encouraging unis to make facilities available for the small business
Training of employees
How to measure the size of a business?
Some ways are…
Number of employees
Output
Value of sales
Value of capital employed
Limitations
Measuring a single factor may not represent the whole business size
May be capital intensive and low labour amounts and vise versa
Range of the value of goods
High average costs makes profits worth less
Who would like to compare business sizes
Investors to decide who to invest in
Governments to decide tax rates
Competitors to compare size and importance
Workers to understand who they are working for
Banks to see the importance of a loan
Reasons for growth of a business
Higher profits possibility
More status and recognition
Lower average costs when they produce more
Larger share of market
This is only achievable if customers are happy
Ways to grow a business
External growth:
Merger
Takeover
Internal growth:
Using own operations
Internal growth of a business
Using its existing operations to grow a business
e.g.
Opening a new store
Entering new markets
Develop new products
Diversification
External growth (merge and takeovers) of a business
Merges is when two or more companies agree to become one united company
Takeover is when one company buys another company to expand their own and make it part of theirs
There are three different types of external growth:
Horizontal integration
Vertical integration
Conglomerate integration
Horizontal integration
Example of external growth method
When one business merges/takes over another in the same industry at the same stage of production
Vertical integration
Example of external growth method
When one business merges/takes over another in the same industry but at a different stage of production (forward and backwards)
Forward vertical integration is when a business in the earlier stage of production takes over a business in the later stage (e.g. a car manufacturer takes over a car retailing company)
Backward vertical integration is when a business in the later stage of production takes over a business in the earlier stage (e.g. a car manufacturer takes over a car body panel supplier)
Conglomerate integration
Example of external growth method
When one business merges/takes over a business in a completely different industry (aka. diversification)
Why do some businesses stay small
Type of industry
Market size
Owner’s objectives
Why do some businesses fail?
Poor management
Failure to plan for change
Poor financial management
Over-expansion
