Chapter 3 Enterprise, Business Growth and Size Flashcards
Entrepreneur
A person who organises, operates, and takes the risk of starting a new venture,
Cons of being an entrepreneur
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.
Pros of being an entrepreneur
Independence, Put your own ideas into practice, potential to earn more as compared to being an employee
Characteristics of an entrepreneur
Hard-working, risk-takers, creative, optimistic, innovative
Business plan
A document that contains all the business objectives, and important details about the business operations, finance and owners of a new business.
Components of a business plan
Description
Product and services
market
location
management
financials
business strategy
Capital employed
The total value of the capital used in the business.
Measuring business size
and why could be misleading
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.
Internal growth
Grow organically, expand current business operations naturally.
External growth
Occurs, when a business takes over or merges with another business.
Takeover
When a business buys the owners out of another business, and the second business becomes a part of the first, “predator” business.
Merger
When owners of two businesses agree to combine their businesses in order to form one business.
Benefits of expansion
More profit, Owners and managers get more famous, larger market share.
What are some problems that arise with expansions and their solutions
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
Why some businesses remain small
The owner’s objective, could be easier to control, the business industry they’re in, the market size.
Horizontal integrations
When a business takes over or merges with another business in the same stage of production and industry.
Vertical integrations
When a business takes over or merges with another business in the same industry, but at a different stage of production.
Forward Vertical integrations
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.
Backward vertical integrations
When a business takes over or merges with another business at a former stage of production, in the same industry. Eg: Tertiary —> secondary.
Conglomerate integrations
why would business do this
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.
Benefits of horizontal integrations
Reduce the number of competitors
Have a bigger market share
Benefits of Forward Vertical Integration
» 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.
Benefits of Backward vertical integration
» 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.
Why government support business start-ups
Reduce unemployment
increase competition
increase output.
