Chapter 3 Flashcards
Enetrprise, Businesses, and sizes (horizental merger and vertical merger)
Entrepreneur
is a person who organises, operates and takes the risk for a new business venture.
Business plan
A business plan is a document containing the business objectives and important details about the operations, finance and owners of the new business.
Capital employed
is the total value of capital used in the business.
Internal growth
occurs when a business expands its existing operations.
External growth
is when a business takes over or merges with another business. It is often called integration as one business is integrated into another one.
Takeover
is when one business buys out the owners of another business, which then becomes part of the ‘predator’ business (the business which has taken it over).
or acquisition
Merger
is when the owners of two businesses agree to join their businesses together to make one business.
Horizontal integration
is when one business merges with or takes over another one in the same industry at the same stage of production.
Vertical integration
is when one business merges with or takes over another one in the same industry but at a different stage of production. Vertical integration can be forward or backward.
Conglomerate integration
is when one business merges with or takes over a business in a completely different industry. This is also known as diversification.
Benefits of being an enterpeneur
- Independence
- Able to put own ideas
- May become famous and successful as the business grows
- May be profitable and the income might be higher than working as an employee
- Able to make use of personal interest
Drawbacks of being an enterpeneur
- Risk
- Capital
- Lack of knowledge and experience in starting and operating a business
- Opportunity cost
Characteristics of successful entrepreneurs
- Hardworking
- Independent
- Innnovative
- Creative
- Risk taker
- Optimistic
- Self confident
- Effective communictaor
What is a business plan?
A business plan is a document containing the business objectives and important details about the operations, finance and owners of new business
What does a business plan include
- Description of the business
- Products and Services
- The market
- Business location and how products will reach customers
- Organisation structure and management
- Financial information
- Business Strategy
Why does the giverment support business start ups
- To reduce unemployment
- To increase competition- good customers, prices will not be very high
- To increase output
- To benefit society
- Can grow further
How doe sthe government support business start ups
- Business idea and help: Organising training for entrepreneurs that gives advice, and support sessions offered by experienced business people
- Premises: ‘Enterprise zones’, which provide low-cost premises to start-up businesses
- Finance Loans for small businesses at low interest rates.
Grants, if businesses start up in depressed areas of high unemployment - Labour: Grants to small businesses to train employees and help increase their productivity
- Research Encouraging universities to make their research facilities available to new business entrepreneurs
Methods of measuring size of business
- Number of people employed
- Value of output
- Value of sales
- Value of capital employed
Why the owner of a business may want to expand the business?
- The possibility of higher profits
- More status and prestige (famous)
- Lower average cost
- Larger market share
Comparing size useful for:
- Investors - wanting to invest their savings
- Governments - different tax rates for different size companies
- Competitors - comparing with other companies
- Workers- how big the salary
- Banks- how old is your company, stable company, existing client of the bank, different businesses, ability to pay, purpose,risk
Whats involved in external growth?
- Takeover- when one business buys out the owners of another business.
- Merger- when two businesses agree to join their businesses to make one business.
Examples of External Growth
- Horizontal merger/integration- when one firm merges with or takes over another one in the same industry at the same stage of production.
- Vertical Merger- can be forward or backward, when one firm merges with or takes over another one in the same industry but in a different stage of production.
- Conglomerate Merger- when one business merge or takes over a business in a completely different industry. Also known as diversification.
benefits of integration
Horizental
- Reduces competitors in the industry
- Opportunities for economies of scale (ex: bigger business, more discounts)
- Bigger share of total market
benefits of integration
forward vertical
- merger has assured outlet of product
- Profit margin is absorbed by the expanding business
benefits of integration
backward vertical
- The merge gives an assured supply of components
- Profit margin of supplier is absorbed by the merger
- Supplier can be prevented from selling to competitors
- Costs can be controlled
benfits of integration
Conglomorate
- The business now has more activities in more than one industry
- There might be a transfer of new ideas
Problems abt business growth
- Larger business is difficult to control
-Operate in small business - Larger business leads to poor communication
-Operate in small business
-Use latest IT Communication and equipment - Expansion costs so much that business is short of finance
-Expand more slowly
-Ensure long -term finance is available - Integrating with another business is more difficult than expected
-Introducing a different style of management requires good communication with the workforce – they will need to understand the reasons for the change
Why some businesses remain small?
- Type of industry the business operates in
- The market size
- The owner’s objectives
Causes of business failure
- Lack of management skills
- Changes in business environment
- Poor financial management
- Over-expansion
Why new businesses are at greater risk of failing?
- Lack of finance
- Poor planning
- Inadequate research
- Owner Lack experience and decision making skills
