Chapter 3-enterprise, Business Growth And Size Flashcards
What is an entrepreneur
A person who organises,operates and takes the risk for a new business venture
Advantages of being an entrepreneur (5)
Indépendance
Own ideas
Famous
Higher profit
Personal interest+skills
Disadvantages of being an entrepreneur (4)
Risk
Capital
Lack of knowledge/experience
Opportunity cost-lost income from not being an employee of another business
What is a business plan
A document containing business objectives, important finance details owners etc
What does a business plan include(7)
Description
Products and services
The market
Business location+how it’ll reach customers
Organization structure+management
Financial info
Business strategy
How do governments help new business start-ups (5)
Business ideas+help
Premises
Labour/pay someone to train
Finance
Research
What are loans for new businesses with low interest rates
Start-up loans
What is a businesses main expense
Wages
Who would want to compare business size (5)
Investors
Bank
Government
Competition
Workers
How can business size be measured (4)
Workers
Value of output
Capital employed
Value of sales
What is capital employed
Total value of capital used in a business
Why would an owner want to expand a business (4)
For higher profit
Status
Market share
Lower average costs
How can a business grow(5)
Internal growth
External growth
Conglomerate intergration
Vertical intergration
Horizontal intergration
What is a vertical merger
Same industry, different stage
Characteristics of successful entrepreneurs (8)
Hard working-long hours
Risk taker-making decisions
Creative - new ideas
Optimistic - look to a better future
Self confident - convince customers your product is worth it
Innovative - put new ideas into practice
Independent - work on your own
Effective communicator - talk clear and confident
What the financial plan of a business plan includes (5)
Predicted future accounting statements
Sources of capital
Predicted costs
Forecast cashflow and working capital
Projections of profitability and liquidity ratios
Why business plans are important
Without them banks will not want to loan money as they have no proof that the business has thought and planned carefully and will be able to pay them back with interest
Internal growth
A business expanding its existing operations
Eg. Opening a restaurant
External growth
When a business takes over or merges with another business. Also known as integration as the businesses are intergrated into eachother.
Takeover
Alternative name
Aquisition
When one business buys out anither and the predatory business absorbs the bought one
Merger
When owners of 2 businesses agree to join their businesses together to make one business
Horizontal integration
The integration of 2 businesses in the same industry and stage of production
Vertical integration
Can be forward or backward
The integration of 2 businesses in the same industry but different stages of production
Conglomerate integration
Alternative name
Diversification
When one businesses merges/takes over another business in a completely different industry
Benefits of horizontal integration (3)
Larger market share
Economies of scale
Reduces the number of competitors in the industry
Benefits of forward vertical integration (4)
Could stop the “forward business” from buying competitors products
Information comes directly from the manufacturer
Profit margin from the retailer is absorbed by the expanded business
Assured outlet for product
Benefits of backward vertical integration(4)
Stops suppliers supplying to competitors
Controls prices from suppliers
Profit margin absorbed by expanded business
Assured supply of components
Benefits of conglomerate integration(2)
Different ideas
Diversified activities in more than 1 industry - spread risks
Why some businesses remain small (3)
Market size - some eg. Niche just dont have a lot of potential customers
Owners objectives - more in control of business
Type of industry - personal services
Causes of business failure (4)
Poor managment
Liquidity/financial managment probles
Changes in business enviroment
Over expantion
Why governments support business start ups (5)
To reduce unemployment - creates jobs
To increase competition - give consumers more choice
To increase output - economy benefits
To benefit society - creates social enterprise
To let them grow further - to become large and important in future
Limitations of measuring business size through number of people employed
Some firms use production methods which employ few people but produce high output levels. Should 2 part time employees count as 1 or 2
Limitations of measuring business size through value of output
Might produce only a few very expensive products per year
Limitations of measuring business size through value of capital employed
Some companies may use labour-intensive methods which give low output levels with little capital equipment
Problems resulting from expansion + solutions (4)
Larger business is difficult to control - operate in smaller units (decentralisation)
Larger business has poorer communication - operate in smaller units
Short on finance - expand slowly + ensure sufficient long-term finance is available
Integrating with another business is harder than expected - communicate well with the workforce
