Chap 3. Enterprise, Business Growth And Size Flashcards
Define entrepreneur.
Someone who invests and takes the risk of starting a new business venture
Give some characteristics of a successful entrepreneur.
. Risk taker
. Hard working
. Innovative
. Creative
. Self confident
. Independent
. Leader
. Effective communicator
. Multi skilled
List some advantages of being an entrepreneur.
. 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
List some disadvantages of being an entrepreneur.
. 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
What is a business plan?
It is a document that give details about activities, objectives, finance and owners of the business
List the content of a business plan.
. 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
Give 2 uses of a business plan.
. To help gain finance
. Careful planning reduces risks
List the 4 ways that we can measure size of businesses.
. Number of employees
. Value of output
. Value of sales
. Value of capital employed
Give the disadvantage of measuring size of a business by “number of employees”.
Some firms may use capital intensive and produce more compared to another firm who has more workers and produce less
Give the disadvantage of measuring size of a business by “value of output “.
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
Give the disadvantage of measuring size of a business by “value of sales”.
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
Give the disadvantage of measuring size of a business by “value of capital employed “.
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
Why will “investors” find it useful to measure size of a business?
To decide which business to put their money in
Why will “government” find it useful to measure size of a business?
To determine how much tax revenue it will get from different firms
Why will “bank” find it useful to measure size of a business?
To find out if the firm is able to pay their loan
Why will “consumers” find it useful to measure size of a business?
They will be concerned about the continuous supply of the required products, prices and quality
Why will “workers” find it useful to measure size of a business?
To determine job security, bargaining power for better salary and working conditions
Why will “owners” find it useful to measure size of a business?
To determine their position in the market
Why will “suppliers” find it useful to measure size of a business?
To determine if it is worth dealing with the business
Why will “competitors” find it useful to measure size of a business?
To determine the strengths and weaknesses of their rivals
Why do workers want their bysiness to grow?
. 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
What is external growth ?
When a firm merges with another business or takeover another business
What is internal growth?
When a firm expands its existing operations
E.g open new branches and extend its premises
What are the 2 types of external growth?
. Merger/integration
. Take over
Define merger/integration.
When 2 or more firms agree to join together and create one new business
Define take over.
When a business buys another business and becomes the new owner of that enterprise
List the Different types of integration.
. Horizontal integration
. Vertical integration
. Conglomerate integration
Define horizontal integration.
Meeting of 2 firms of same industry and same stage of production
Define vertical integration.
Meeting of 2 firms of same industry but of different stages of production
Define vertical forward integration.
When 1 firm integrates another firm at a later stage of production
Define vertical backward integration.
When 1 firm integrates another firm at an earlier stage of production
Define conglomerate integration.
When 2 firms of different sector and different stage of production merges
List the Advantages of horizontal integration.
. Reduces competition
. Benefit from economies of scale
. Greater possibility of applying specialisation and division of labour
. Sharing of knowledge, duties, responsibilities, skills and expertise
List the disadvantages of horizontal integration.
. 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
List the Advantages of vertical forward integration.
. 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
List the Advantages of vertical backward integration.
. 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
List the disadvantages of vertical integration.
. 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
List the Advantages of conglomerate integration.
. 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
List the disadvantages of conglomerate integration.
. 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
How can we fix the problem of “lack of finance” during business growth?
. Business should expand slowly
. Ensure sufficient long term finance is available
How can we fix the problem of “too difficult to control” during business growth?
. Operate in smaller units
. Apply delegation and workers empowerment
How can we fix the problem of “poor communication “ during business growth?
. Operate in smaller units
. Make use of latest technology
How can we fix the problem of “conflicts may arise in case of merger” during business growth?
. Develop good communication methods
. Develop common ways of doing things
Why do some firms remain small?
. 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
List the causes of business failure.
. Poor management skills
. Lack of liquidity
. Increased competition
. Changes in business environment
. Diseconomies of scale
