Business - 1.3

Question 1

reasons for business growth

Answer 1

• higher profits
• more status for owners and managers
• larger share of its market
• lower average costs

Question 2

economies of scale - examples

Answer 2

• purchasing : when businesses buy in ‘bulk’ so they get lower prices
• marketing : targeting large audience
• financial : bigger businesses get better interest rates
• managerial : afford specialists managers
• technical : more efficiency

Question 3

economies of scale

Answer 3

• reduction in average costs as a business grows

Question 4

ways for business growth

Answer 4

• internal growth
• external growth

Question 5

internal growth

Answer 5

• business expands its existing operations
• independent

Question 6

external growth

Answer 6

• business takes over / merges with another business
• growth that is dependent on another firm

Question 7

3 types of external growth

Answer 7

• horizontal integration
• vertical integration
• conglomerate merger

Question 8

horizontal integration

Answer 8

• same industry, different firm

eg. furniture company taking over another furniture company

Question 9

vertical integration

Answer 9

• same industry and firm, different production sector

Question 10

conglomerate merger

Answer 10

• firm merging another firm in a different industry

Question 11

problems linked to business growth

Answer 11

• diseconomies of scale
• poor communication
• low morale
• slow decision making

Question 12

diseconomies of scale

Answer 12

• factors that lead to an increase in average costs as a business grows beyond the optimum point

solution : expand slowly

Question 13

poor communication

Answer 13

• bigger business makes it difficult to send and receive messages

solution : technology

Question 14

low morale

Answer 14

• too many people can make others feel unimportant

solution : staff motivation techniques

Question 15

slow decision making

Answer 15

• bigger businesses take longer to make decisions to satisfy all of the stakeholders

Question 16

reasons for business remain small

Answer 16

• market is small : specialized goods
• owners objectives : full control
• lack of capital to expand
• nature of industry

Question 17

why business fails

Answer 17

• poor management : lack of experience
• failure to plan for change : unable to adapt
• poor money management
• over-expansion
• competition with other business

Question 18

why new businesses are at greater risk of failing

Answer 18

• failure to understand the market = lack of market research
• expanding too fast
• remaining rigid
• lack of sufficient finance = underestimate cost
• incompetence = lack of skills

Question 19

4 way to measure business size

Answer 19

1. no of employees
2. value of output
3. value of sales
4. value of capital employed

Question 20

number of employees

Answer 20

• total number of full time employees in an organization
• indicates company’s capacity and scale of operations

limitations : doesn’t accurately reflect business success, capital-intensive may be better than labor-intensive

Question 21

value of output

Answer 21

• total value of goods or services produced by the business
• comparing businesses in the same industry

limitations : doesn’t account for efficiency or profitability. a company with high output might not be as profitable if production costs are high

Question 22

value of sales

Answer 22

• revenue
• total sales generated by the business
• indicates market demand for a company’s products/services and financial success

limitations : high sales but low profit margins

Question 23

value of capital employeed

Answer 23

• total value of assets used in the business (machinery, equipment and other investments)
• indicates level of investment in business infrastructure

limitations : doesn’t show efficiency, possible misuse of assets

Question 24

stakeholders

Answer 24

• individuals or groups who have an interest or concern in a business

Question 25

is profit a measure of size?

Answer 25

no, bec it only shows monetary value

monetary = how much money all the goods or services produced by a business are worth

Question 26

business size

Answer 26

• how small or large a business is

Question 27

entrepreneur

Answer 27

• an individual who has an idea for a business, who takes the financial risk of starting and managing a new business

Question 28

successful entrepreneurs

Answer 28

• innovative & creative
• risk taking
• determined, focused, perseverant
• organized, team player, committed
• problem solver
• hardworking and intelligent

Question 29

benefits of starting your own business

Answer 29

• independence and flexibility
• control
• to make a difference
• personal fulfillment

Question 30

disadvantages of starting your own business

Answer 30

• risk of failure = especially for a new businesses
• capital = entrepreneurs own money at risk
• lack of knowledge
• opportunity cost = loss of income

Question 31

business plan - definitions

Answer 31

• written document that outlines the business aims and visions

Question 32

reasons for a business plan

Answer 32

• attract finance
• give owner ideas
• useful for stakeholders

Question 33

contents of a business plan

Answer 33

• description of the business
• products and services
• the market
  a. total market
  b. predict market growth
  c. target market
  d. analysis
  e. predicted changed in the market in the future
  f. forecast sales revenue
  g. marketing strategy
  h. market research data
  4. location and how products will reach customers
  5. organization structure and management
  6. financial information
  7. business strategy

Question 34

for - business plan

Answer 34

• test your idea
• the best possibility of success for new business
• secure funding
• business planning more manageable and effective
• guide business decisions

Question 34

against - business plan

Answer 34

• time consuming
• another business could introduce the idea
• market is always changing (business plan has to too)

Question 35

government support for start-ups

Answer 35

• reduce unemployment
• increase competition
• increase output
• grow further