Chapter 3 Enterprise, Business Growth and Size

Question 1

Entrepreneur

Answer 1

A person who organises, operates, and takes the risk of starting a new venture,

Question 2

Cons of being an entrepreneur

Answer 2

High chance of failure

capital - Usually, entrepreneurs have to invest their own money to start the business

lack knowledge while starting a business

opportunity cost of income from a stable job.

Question 3

Pros of being an entrepreneur

Answer 3

Independence, Put your own ideas into practice, potential to earn more as compared to being an employee

Question 4

Characteristics of an entrepreneur

Answer 4

Hard-working, risk-takers, creative, optimistic, innovative

Question 5

Business plan

Answer 5

A document that contains all the business objectives, and important details about the business operations, finance and owners of a new business.

Question 6

Components of a business plan

Answer 6

Description
Product and services
market
location
management
financials
business strategy

Question 7

Capital employed

Answer 7

The total value of the capital used in the business.

Question 8

Measuring business size

and why could be misleading

Answer 8

The number of employees - some companies could be capitally intensive

the value of output

the value of sales - could be misleading since different companies are in different industries - sell different products

the value of capital employed - could be misleading since some companies are labour intensive.

Question 9

Internal growth

Answer 9

Grow organically, expand current business operations naturally.

Question 10

External growth

Answer 10

Occurs, when a business takes over or merges with another business.

Question 11

Takeover

Answer 11

When a business buys the owners out of another business, and the second business becomes a part of the first, “predator” business.

Question 12

Merger

Answer 12

When owners of two businesses agree to combine their businesses in order to form one business.

Question 13

Benefits of expansion

Answer 13

More profit, Owners and managers get more famous, larger market share.

Question 14

What are some problems that arise with expansions and their solutions

Answer 14

Difficult to control
Operate the business in small units – this is a form of decentralization

Poor communication could arise
Operate the business in smaller units

Costs a lot - could leave the business short of finance
use profits from slowly expanding business to pay for further growth

Integrating with other business is more difficult than expected - eg managing styles.
Introducing a different style of management requires good communication with the workforce

Question 15

Why some businesses remain small

Answer 15

The owner’s objective, could be easier to control, the business industry they’re in, the market size.

Question 16

Horizontal integrations

Answer 16

When a business takes over or merges with another business in the same stage of production and industry.

Question 17

Vertical integrations

Answer 17

When a business takes over or merges with another business in the same industry, but at a different stage of production.

Question 18

Forward Vertical integrations

Answer 18

When a business takes over or merges with another business in a later stage of production, in the same industry. Eg: Primary —> secondary, secondary —> tertiary. Primary —-> tertiary.

Question 19

Backward vertical integrations

Answer 19

When a business takes over or merges with another business at a former stage of production, in the same industry. Eg: Tertiary —> secondary.

Question 20

Conglomerate integrations

why would business do this

Answer 20

When a business takes over or merges with another business in a different industry altogether.

Diversify the business which will spread the risks taken by the business. If demand for one business’s products goes down that doesn’t necessarily mean that business would be loss making.

Question 21

Benefits of horizontal integrations

Answer 21

Reduce the number of competitors
Have a bigger market share

Question 22

Benefits of Forward Vertical Integration

Answer 22

» The merger gives an assured outlet for its product.
» The profit margin made by the retailer is absorbed by the expanded business.
» The retailer could be prevented from selling competing models of car.
» Information about consumer needs and preferences can now be obtained directly by the manufacturer.

Question 23

Benefits of Backward vertical integration

Answer 23

» The merger gives an assured supply of important components.
» The profit margin of the supplier is absorbed by the expanded business.
» The supplier could be prevented from supplying other manufacturers.
» Costs of components and supplies for the manufacturer could be controlled.

Question 24

Why government support business start-ups

Answer 24

Reduce unemployment
increase competition
increase output.

Question 25

How governments support business start-ups

Answer 25

Training
Mentoring
Loans
Grants

Question 26

How does the government provide support via training

Answer 26

Provides courses for the unskilled and unemployed. Can get more of the population into work.

Question 27

How does the government provide support via mentoring

Answer 27

Having access to people who have run a successful business is vital for future business growth. Using their knowledge can be the key to having a successful business

Question 28

How does the government provide support via loans

Answer 28

sums of money that the business has to payback

Question 29

How does the government provide support via grants

Answer 29

sums of money that the business doesn’t have to pay back.