3. Enterprise, business growth and size

Question 1

define entrepreneur

Answer 1

is a person who organises, operates and takes risks for a new business venture

Question 2

what are the benefits of being an entrepreneur?

Answer 2

1. Independence – able to choose how to use time and money
2. Able to put own ideas into practice
3. May become famous and successful if the business grows
4. May be profitable and income might be higher than working as an employee for another business
5. Able to make use of personal interests and skills

Question 3

what are the disadvantages of being an entrepreneur?

Answer 3

1. Risk – many new entrepreneurs’ business fail, especially if there is poor planning
2. Capital – entrepreneurs will have to put their own money into the business and possibly, find other sourced of capital
3. Lack of knowledge and experience in starting in starting and operating a business
4. Opportunity cost – lost income from not being an employee of another business

Question 4

characteristics of successful entrepreneurs

Answer 4

1. Hard working- They work long hours to make their businesses successful
2. Risk taker- Making decisions to produce goods and services that people might buy and this can be potentially risky
3. Creative- Come up with new ideas that other firms do not have
4. Optimistic- Looking forward for success of the business
5. Self confident- This is necessary to convince customers, banks and employees
6. innovative- Ability to put new ideas into practice in interesting and different ways
7. independent- They work on their own and keep themselves well motivated and be able to work with help
8. Effective communicator- Talking clearly and confidently to banks, other lenders, suppliers, customers, government agencies to raise the profile of the new business

Question 5

define capital employed

Answer 5

is the total value of capital used in the business

Question 6

what are the limitations of capital employed?

Answer 6

a company employing many workers may use labour-intensive methods of production. these give low output levels and use little capital equipment

Question 7

define internal growth

Answer 7

occurs when a business expands its existing operations

Question 8

define external growth

Answer 8

when a business takes over or mergers with another business. it is often called integration as a business is integrated into another one

Question 9

define take over

Answer 9

a take over or acquisition is when one business buys out the owners of another business, which then becomes part of the predator business

Question 10

define merger

Answer 10

when the owners of 2 businesses agree to join their businesses together to make one business

Question 11

define horizontal integration

Answer 11

when 1 business mergers with or takes over one in the same industry at the same stage of production

Question 12

define conglomerate integration

Answer 12

when 1 business mergers or takes over another business in a completely different industry. this is also known as diversification

Question 13

define vertical integration

Answer 13

one 1 business mergers with or takes over another business in the same industry but at a different stage of production. vertical integration can be forward and backward

Question 14

define forward vertical integration

Answer 14

when a business integrates with another business which is at a later stage of production

Question 15

define backward vertical integration

Answer 15

when a business integrates with another business at an earlier stage of production

Question 16

what are the likely benefits of horizontal integration ?

Answer 16

1. the merger reduces the number of competitors in the industry
2. there are opportunities for economies of scale
3. combined businesses will have a bigger share of the total market then either businesses before the integration

Question 17

what are the likely benefits of forward vertical integration?

Answer 17

1. the merger gives an assured outlet for its products
2. the profit margin made by the retailer is absorbed by the expanded business
3. the retailer could be prevented from selling competing product
4. information about consumer needs and preferences can now be obtained directly by the manufacturer

Question 18

what are the likely benefits of backward vertical integration?

Answer 18

1. the merger gives an assured supply of important components
2. the profit margin of the supplier is absorbed by the expanded business
3. the supplier could not be prevented form supplying other manufactures
4. costs of components and supplies for the manufacturers could be controlled

Question 19

what are the likely benefits of conglomerate integration ?

Answer 19

1. the business now has activities in more than one industry. this means that the business has diversified its activities and this will spread the risks taken by the business
2. there might be a transfer of ideas between the different sections of the business even though they operate in different industries

Question 20

why do governments support business start-ups?

Answer 20

• Reduce unemployment – new businesses will often create jobs
• Increase competition – more choice for customers
• Increase output – the economy benefits from increased output of goods and services
• Benefits to the society – keep people employed. Also help to establish social enterprise which offers benefits to the society, such as, supporting disadvantaged group of society
• Can grow further – by providing small firms, they can become larger ones in the future

Question 21

What support do governments often give to start-up businesses?

Answer 21

1. Business idea and help – provide advice and support sessions by experienced business people
2. Premises – ‘enterprise zones’, which provide low-cost premises to start-up businesses
3. Finance – loans at lower interests rates. Grants if setting up in high unemployment zone
4. Labour – grants to train workers who will become more productive
5. Research – encouraging universities to make their research facilities available to new business entrepreneurs

Question 22

define business plan

Answer 22

a document containing the business objectives and important details about the operations, finance and owners of the new business

Question 23

what will entrepreneurs consider in a business plan?

Answer 23

• What products or services do I intend to provide and which consumers is he/she aiming at?
• What will be the main costs and will enough products/services be sold to pay for them?
• Where will the firm be located?
• What machinery and how many people will be required in the business?

Question 24

what is the use of a business plan?

Answer 24

1. help gain finance

2. carefully planning reduces risks

Question 25

content of a business plan

Answer 25

• Name of business
• Type of organisation (soletrader, partnership or limited company)
• Business aim (objectives)
• Product or service wished to provide to customers
• Price
• Market aimed for – the characteristics of the customers
• Results of market research undertaken
• Human resources plan
• Details of business owners
• Production details and business costs
• Location of business
• Main equipment required
• Forecast profit
• Cash flow
• Finance – where the entrepreneur will get money to finance the business.