chapter 3 - enterprise, business growth and size

Question 1

what are the advantages of being an entrepreneur? (5)

Answer 1

 Independence – able to choose how to use time and money.
 Able to put own ideas into practice.
 May become famous and successful if the business grows.
 May be profitable and the income might be higher than working as an employee for another business.
 Able to make use of personal interests and skills.

Question 2

what are the disadvantages of being an entrepreneur? (4)

Answer 2

 Risk – many new entrepreneurs’ businesses fail, especially if there is poor planning.
 Capital – entrepreneurs have to put their own money into the business and, possibly, find other sources of capital.
 Lack of knowledge in starting and operating a business.
 Opportunity cost – lost income from not being an employee of another business.

Question 3

what are the characteristics of a successful entrepreneur?

Answer 3

• Hard working - Long hours and short holidays are typical for many entrepreneurs to
  make their business successful
• risk taker - Making decisions to produce goods or services that people might
  buy is potentially risky
• creative - A new business needs new ideas – about products, services, ways of
  attracting customers – to make it different from existing firms
• optimistic - Looking forward to a better future is essential, if you think only of
  failure, you will fail!
• self-confident - Being self-confident is necessary to convince other people of your skills and to convince banks, other lenders and customers that your
  business is going to be successful
• innovative - Being able to put new ideas into practice in interesting and different
  ways is also important
• independent - Entrepreneurs will often have to work on their own before they can afford to employ others. Entrepreneurs must be well-motivated and
  be able to work without any help
• effective communicator - Talking clearly and confidently to banks, other lenders, customers and government agencies about the new business will raise the profile of the new business

Question 4

what are the contents of a business plan? (7)

Answer 4

• Description of the business – provides a brief history and summary of the business, and the objectives of the business.
• Products and services – describes what the business sells or delivers, and strategy for continuing or developing products/services in the future to remain competitive and the grow the business.
• The market – describes the target market:
   Total market size
   Predicted market growth
   Target market
   Analysis of competitors
   Predicted changes in the market in the future
   Forecast sales revenue from the product
   Marketing strategy
   Market research data
• Business location and how products will reach customers – describes the physical location if applicable, internet sales or mail order. How the firm delivers products and services to customers.
• Organization structure and management – describes the organizational structure, management and details of employees required. Usually includes the number and level of skills.
• Financial info – including:
   Projected future financial accounting statements for several years or more into the future.
   Sources of capital (owner’s, revenue, bank loans).
   Predicted costs – fixed costs and variable costs
   Forecast cash flow and working capital
   Projections of profitability and liquidity ratios.
• Business strategy – explains how the business intends to satisfy customer needs and gain brand loyalty.

Question 5

what happens to the business if they do not have a business plan? (3)

Answer 5

• Without this detailed plan, the bank will be reluctant to lend money to the business. this is because the owners of the new business cannot show that they have thought seriously about the future and planned for the challenges that they will certainly meet.

Question 6

why do governments support business startups? (5)

Answer 6

• To reduce unemployment – new businesses will often create jobs.
• To increase competition – new businesses give consumers more choice and compete with already established businesses.
• To increase output – the economy benefits from increased output of goods and services.
• To benefit society – entrepreneurs may crease social enterprises, which offer benefits to society other than jobs and profit.
• Can grow further – by supporting today’s new firms, the government may be helping some firms grow to become very large and important in the future.

Question 7

how do governments support business startups? (5)

Answer 7

• Business idea and help – organizing training for entrepreneurs.
• Premises – providing low-cost premises.
• Finance – loans for small business at low interest rates.
• Labour – grants to small businesses to train employees.
• Research – encouraging universities to make their research facilities available to new business entrepreneurs.

Question 8

who (stakeholders) find the measuring and comparison of business size useful? (5)

Answer 8

investors, governments, competitors, workers and banks find the comparison of size useful

Question 9

what are the methods of measuring business size? and their limitations? (8)

Answer 9

• Number of people employed – easy to calculate with other businesses.
   Limitations – some firms employ very few people but produce high output levels. A company with high output levels could employ few people than a business which produce less.
• Value of output – calculating the value of output is a common way of comparing business size in the same industry.
   Limitations – a high level of output does not mean that a business is large when using the other methods f measurement. The value of output in any time period might not be the same as the value of sales if some goods are not sold.
• Value of sales – this is often used when comparing the size of retailing businesses selling similar products.
   Limitations – it could be misleading to use this measure when comparing the size of business that sell very different products.
• Value of capital employed – this means the total value of capital invested into a business.
   Limitations – a company employing many workers may use labour-intensive methods of production. These give low output levels and use little capital equipment.

Question 10

why do owners want to expand business? (4)

Answer 10

• High possibility of high profits
• More status and prestige for the owners and managers
• Lover average costs
• Larger share of its market – this gives a business more influence when dealing with suppliers and distributors, and consumers are often attracted to the big names in an industry.