Chap 3. Enterprise, Business Growth And Size

Question 1

Define entrepreneur.

Answer 1

Someone who invests and takes the risk of starting a new business venture

Question 2

Give some characteristics of a successful entrepreneur.

Answer 2

. Risk taker
. Hard working
. Innovative
. Creative
. Self confident
. Independent
. Leader
. Effective communicator
. Multi skilled

Question 3

List some advantages of being an entrepreneur.

Answer 3

. Enjoys all profit made by business
. Own boss and does not take orders from others
. Acquires fame and becomes well known for managing a business
. Job satisfaction as he puts his ideas, skills and talents into the firm

Question 4

List some disadvantages of being an entrepreneur.

Answer 4

. May lose all money invested in the business
. May have limited capital
. Shoulder all risks and responsibilities alone
. Unlimited liability
. If sick, there is lack of continuity of the business
. May not have necessary knowledge to manage firm

Question 5

What is a business plan?

Answer 5

It is a document that give details about activities, objectives, finance and owners of the business

Question 6

List the content of a business plan.

Answer 6

. Description of business
. Products and services
. The market
. Business location and how the products will reach customers
. Organisation structure and management
. Financial information
. Business strategy

Question 7

Give 2 uses of a business plan.

Answer 7

. To help gain finance
. Careful planning reduces risks

Question 8

List the 4 ways that we can measure size of businesses.

Answer 8

. Number of employees
. Value of output
. Value of sales
. Value of capital employed

Question 9

Give the disadvantage of measuring size of a business by “number of employees”.

Answer 9

Some firms may use capital intensive and produce more compared to another firm who has more workers and produce less

Question 10

Give the disadvantage of measuring size of a business by “value of output “.

Answer 10

Some firms may produce less output and have a greater value of output
E.g a jewellery store would produce 100 jewelleries and a value of Rs 1million compared to a match stick company producing 50 000 output but have a value of Rs 100000

Question 11

Give the disadvantage of measuring size of a business by “value of sales”.

Answer 11

Some firms may make less sales but have a greater value of sales
E.g firm A may have a level of sale of 50000 and a value of sales of Rs 400000 while another firm B may have a level of sales of 200 and value of sales of Rs 30million

Question 12

Give the disadvantage of measuring size of a business by “value of capital employed “.

Answer 12

Some firms may invest more but be of the same size
E.g firm A may invest Rs 3million and be a small cafe compared to firm B who invested Rs 50000 and is a tailor

Question 13

Why will “investors” find it useful to measure size of a business?

Answer 13

To decide which business to put their money in

Question 14

Why will “government” find it useful to measure size of a business?

Answer 14

To determine how much tax revenue it will get from different firms

Question 15

Why will “bank” find it useful to measure size of a business?

Answer 15

To find out if the firm is able to pay their loan

Question 16

Why will “consumers” find it useful to measure size of a business?

Answer 16

They will be concerned about the continuous supply of the required products, prices and quality

Question 17

Why will “workers” find it useful to measure size of a business?

Answer 17

To determine job security, bargaining power for better salary and working conditions

Question 18

Why will “owners” find it useful to measure size of a business?

Answer 18

To determine their position in the market

Question 19

Why will “suppliers” find it useful to measure size of a business?

Answer 19

To determine if it is worth dealing with the business

Question 20

Why will “competitors” find it useful to measure size of a business?

Answer 20

To determine the strengths and weaknesses of their rivals

Question 21

Why do workers want their bysiness to grow?

Answer 21

. To be able to increase their sales and profits
. To attract a larger number of customers (increase market share)
. Improve reputation and image of businesses and owners
. Reduce risks of being eliminated by big rivals
. To attract big investors
. Improve credit worthiness of the business
. To benefit from economies of scale

Question 22

What is external growth ?

Answer 22

When a firm merges with another business or takeover another business

Question 23

What is internal growth?

Answer 23

When a firm expands its existing operations
E.g open new branches and extend its premises

Question 24

What are the 2 types of external growth?

Answer 24

. Merger/integration
. Take over

Question 25

Define merger/integration.

Answer 25

When 2 or more firms agree to join together and create one new business

Question 26

Define take over.

Answer 26

When a business buys another business and becomes the new owner of that enterprise

Question 27

List the Different types of integration.

Answer 27

. Horizontal integration . Vertical integration . Conglomerate integration

Question 28

Define horizontal integration.

Answer 28

Meeting of 2 firms of same industry and same stage of production

Question 29

Define vertical integration.

Answer 29

Meeting of 2 firms of same industry but of different stages of production

Question 30

Define vertical forward integration.

Answer 30

When 1 firm integrates another firm at a later stage of production

Question 31

Define vertical backward integration.

Answer 31

When 1 firm integrates another firm at an earlier stage of production

Question 32

Define conglomerate integration.

Answer 32

When 2 firms of different sector and different stage of production merges

Question 33

List the Advantages of horizontal integration.

Answer 33

. Reduces competition . Benefit from economies of scale . Greater possibility of applying specialisation and division of labour . Sharing of knowledge, duties, responsibilities, skills and expertise

Question 34

List the disadvantages of horizontal integration.

Answer 34

. Conflicts may arise among owners . Managerial problems due to too large business . Firms may lay off surplus worked as they cannot afford to pay all workers . Less competition leads to higher consumer exploitation

Question 35

List the Advantages of vertical forward integration.

Answer 35

. Better control over quality of product . Producing firm will have an assured outlet . Producing firm will have better control over firm . Outlet will not sell rival's brand

Question 36

List the Advantages of vertical backward integration.

Answer 36

. Cost of production decrease . Producing firm will ensure regular supply of raw materials . Producing firm can prevent raw material supplier to sell to rivals . Can ensure good quality raw materials

Question 37

List the disadvantages of vertical integration.

Answer 37

. Risk of conflicts between owners due to different managerial style . May not benefit from economies of scale . Risk of job losses . Too big to control

Question 38

List the Advantages of conglomerate integration.

Answer 38

. Diversifying is activities can spread risks . Predator business can absorb market share . Possibility gain economies of scale . Possibility to apply specialisation . Sharing of ideas, knowledge and skills

Question 39

List the disadvantages of conglomerate integration.

Answer 39

. Risk of conflicts between owners with different managerial style . Poor communication if firm become too large . Lack of proper control may lead to wastages . Lack of experience to manage may affect performance . Surplus workers may lose their jobs

Question 40

How can we fix the problem of "lack of finance" during business growth?

Answer 40

. Business should expand slowly . Ensure sufficient long term finance is available

Question 41

How can we fix the problem of "too difficult to control" during business growth?

Answer 41

. Operate in smaller units . Apply delegation and workers empowerment

Question 42

How can we fix the problem of "poor communication " during business growth?

Answer 42

. Operate in smaller units . Make use of latest technology

Question 43

How can we fix the problem of "conflicts may arise in case of merger" during business growth?

Answer 43

. Develop good communication methods . Develop common ways of doing things

Question 44

Why do some firms remain small?

Answer 44

. MARKET SIZE- if there are too few people willing or able to buy the product . SIZE OF CAPITAL - owner may have limited capital . OWNER'S OBJECTIVE - they may prefer to keep firm small to have better control . PERSONAL CONTACT - some may like personal contact with customers to satisfy exact needs . REDUCE COSTS - small firms have less costs than large firms . MORE FLEXIBLE - able to adapt quickly to changes in market condition

Question 45

List the causes of business failure.

Answer 45

. Poor management skills . Lack of liquidity . Increased competition . Changes in business environment . Diseconomies of scale