Chapter 3-enterprise, Business Growth And Size

Question 1

What is an entrepreneur

Answer 1

A person who organises,operates and takes the risk for a new business venture

Question 2

Advantages of being an entrepreneur (5)

Answer 2

Indépendance
Own ideas
Famous
Higher profit
Personal interest+skills

Question 3

Disadvantages of being an entrepreneur (4)

Answer 3

Risk
Capital
Lack of knowledge/experience
Opportunity cost-lost income from not being an employee of another business

Question 4

What is a business plan

Answer 4

A document containing business objectives, important finance details owners etc

Question 5

What does a business plan include(7)

Answer 5

Description
Products and services
The market
Business location+how it’ll reach customers
Organization structure+management
Financial info
Business strategy

Question 6

How do governments help new business start-ups (5)

Answer 6

Business ideas+help
Premises
Labour/pay someone to train
Finance
Research

Question 7

What are loans for new businesses with low interest rates

Answer 7

Start-up loans

Question 8

What is a businesses main expense

Answer 8

Wages

Question 9

Who would want to compare business size (5)

Answer 9

Investors
Bank
Government
Competition
Workers

Question 10

How can business size be measured (4)

Answer 10

Workers
Value of output
Capital employed
Value of sales

Question 11

What is capital employed

Answer 11

Total value of capital used in a business

Question 12

Why would an owner want to expand a business (4)

Answer 12

For higher profit
Status
Market share
Lower average costs

Question 13

How can a business grow(5)

Answer 13

Internal growth
External growth
Conglomerate intergration
Vertical intergration
Horizontal intergration

Question 14

What is a vertical merger

Answer 14

Same industry, different stage

Question 15

Characteristics of successful entrepreneurs (8)

Answer 15

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

Question 16

What the financial plan of a business plan includes (5)

Answer 16

Predicted future accounting statements
Sources of capital
Predicted costs
Forecast cashflow and working capital
Projections of profitability and liquidity ratios

Question 17

Why business plans are important

Answer 17

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

Question 18

Internal growth

Answer 18

A business expanding its existing operations
Eg. Opening a restaurant

Question 19

External growth

Answer 19

When a business takes over or merges with another business. Also known as integration as the businesses are intergrated into eachother.

Question 20

Takeover
Alternative name

Answer 20

Aquisition
When one business buys out anither and the predatory business absorbs the bought one

Question 21

Merger

Answer 21

When owners of 2 businesses agree to join their businesses together to make one business

Question 22

Horizontal integration

Answer 22

The integration of 2 businesses in the same industry and stage of production

Question 23

Vertical integration

Answer 23

Can be forward or backward
The integration of 2 businesses in the same industry but different stages of production

Question 24

Conglomerate integration
Alternative name

Answer 24

Diversification
When one businesses merges/takes over another business in a completely different industry

Question 25

Benefits of horizontal integration (3)

Answer 25

Larger market share Economies of scale Reduces the number of competitors in the industry

Question 26

Benefits of forward vertical integration (4)

Answer 26

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

Question 27

Benefits of backward vertical integration(4)

Answer 27

Stops suppliers supplying to competitors Controls prices from suppliers Profit margin absorbed by expanded business Assured supply of components

Question 28

Benefits of conglomerate integration(2)

Answer 28

Different ideas Diversified activities in more than 1 industry - spread risks

Question 29

Why some businesses remain small (3)

Answer 29

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

Question 30

Causes of business failure (4)

Answer 30

Poor managment Liquidity/financial managment probles Changes in business enviroment Over expantion

Question 31

Why governments support business start ups (5)

Answer 31

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

Question 32

Limitations of measuring business size through number of people employed

Answer 32

Some firms use production methods which employ few people but produce high output levels. Should 2 part time employees count as 1 or 2

Question 33

Limitations of measuring business size through value of output

Answer 33

Might produce only a few very expensive products per year

Question 34

Limitations of measuring business size through value of capital employed

Answer 34

Some companies may use labour-intensive methods which give low output levels with little capital equipment

Question 35

Problems resulting from expansion + solutions (4)

Answer 35

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