3.2.4 Reasons for staying small

Question 1

Problems of growth

Answer 1

Can suffer from diseconomies of scale
Hard to motivate employees
Internal communication is harder
Risk of over trading

Question 2

Diseconomies of scale

Answer 2

Unit costs increase as the sale of production also increases
Harder to manage large firms which causes financial costs

Question 3

Why do owners choose to restrict growth?

Answer 3

-Maintain culture
-Business will become more complicated if it grows
-Growing may put a strain o the cash flow position

Question 4

Reasons for staying small

Answer 4

• Product differentiation
• Flexibility in responding to customer needs
• Customer service

Question 5

Product differentiation

Answer 5

Differentiated and unique products may not be suitable for mass production so it may lose its USP
Allows the business to invest inn new innovative products rather than investing in the production process

Question 6

Flexibility in responding to customer needs

Answer 6

Small businesses can respond to customer needs easily
Creates a good relationship with customers

Question 7

Customer service

Answer 7

Small businesses are typically run by their original owner which is more personal and gives a higher quality service
Builds brand loyalty
The owner can keep close contact with the staff
Can ensure the business is working towards its corporate aims