Enterprise, business growth and size (Chapter 3)..

Question 1

What is an entrepreneur?

Answer 1

Entrepreneur is a person who organises, operates and takes the risk for a new business venture.

Question 2

Name 5 benefits of being an entrepreneur.

Answer 2

• Independence.
• Able to put own ideas into practice.
• May become famous and successful.
• Able to make use of personal interests and skills.
• May be profitable and income might be higher.

Question 3

Name the 4 disadvantages of being an entrepreneur.

Answer 3

• Risk; many new entrepreneurs businesses fail, especially with poor planning.
• Capital; entrepreneurs have to put their own money into the business.
• Lack of knowledge and experience in starting and operating a business.
• Opportunity cost; lost income from not being an employee of another business.

Question 4

Name 2 Zimabwean entrepreneurs.

Use the names of these entrepreneurs in essays

Answer 4

• Strive Masiyiwa (Zimbabwean) - Econet (Telecommunications services).
• Divine Ndhlukula (Zimbabwean) - Securico (Security service).

Question 5

Name the 10 characteristics of successful entrepreneurs.

Answer 5

Hard worker.
Risk-taker.
Creative.
Optimistic.
Self-confident.
Innovative.
Independent.
Effective communicator.
Adaptable.
Motivated.

Question 6

What is a business plan?

Answer 6

A business plan is a document containing the business objectives and important detail about the operations, finance, and owners of the new business.

Question 7

What are the contents of a business plan?

Answer 7

• Description of the business.
• Products and services.
• The market.
• Business location and how products will reach customers.
• Organization structure and management.
• Finanacial information.
• Business strategy.

Question 8

What will happen if you do not have a detailed business plan (bank)?

Answer 8

Without a detailed business plan, the bank will be reluctant to lend money to the business.

Question 9

Why do governments support business start-ups?

Answer 9

• To reduce unemployment.
• To increase competition.
• To benefit society.
• To increase output.

Question 10

What do business start-ups need?

Answer 10

• Business idea and help.
• Premises.
• Finance.
• Labor.
• Research.

Question 11

Who would find it useful to compare the size of a business?

Answer 11

Investors.
Governments.
Competitors.
Workers.
Banks.

Question 12

What is capital employed?

Answer 12

Capital employed is the total value of capital used in the business.

Question 13

How can business size be measured?

Answer 13

• Number of people employed.
• Value of output.
• Value of sales.
• Value of capital employed.

Question 14

What are the limitations of the number of people employed (business size measurement)?

Answer 14

Some firms use production methods that employ very few people but produce high output levels.

Question 15

What are the limitations of the value of output (business size measurement)?

Answer 15

A high level of output does not mean that a business is large when using other methods of measurement.

Question 16

What are the limitations of the value of sales (business size measurement)?

Answer 16

It could be misleading to use this measure when comparing the size of a business that sells very different products.

Question 17

Why would business owners want to expand the business (4 ways)?

Answer 17

• Possibility of higher profits.
• More status and prestige for the owners and managers.
• Lower average costs.
• Larger share of its market.

Question 18

How can a business grow (5 ways)?

Answer 18

• Internal growth.
• External growth.
• Horizontal merger or horizontal intergration.
• Vertical merger or vertical intergration.
• Conglomerate merger or conglomerate intergration or diversification.

Question 19

What is internal growth?

Answer 19

occurs when a business expands its existing operations.

Question 20

What is external growth?

Answer 20

When a business takes over or merges with another business.

Question 21

What is a takeover or acquisition?

Answer 21

A takeover is when a business buys out the owners of another business.

Question 22

What is a merger?

Answer 22

A merger is when the owners of two businesses agree to join their businesses together to make one business.

Question 23

What is horizontal integration?

Answer 23

Horizontal integration is when one business merges with or takes over another one in the same industry at the same stage of production.

Question 24

What is vertical integration?

Answer 24

Vertical integration is when one business merges with or takes over another one in the same industry at a different stage of production.

Question 25

What is backward vertical integration?

Answer 25

When a business integrates with another business at an earlier stage of production.

Question 26

What is forward vertical integration?

Answer 26

When a business integrates with another business at a later stage of production.

Question 27

What is conglomerate integration?

Answer 27

Conglomerate integration is when one business merges with or takes over a business in a completely different industry.

Question 28

Name 3 benefits of horizontal integration.

Answer 28

• The merger reduces the number of competitors in the industry.
• There are opportunities for economies of scale.
• The combined business will have a bigger share of the total market than either business before the integration.

Question 29

Name 3 benefits of forward vertical integration.

Answer 29

• The merger gives an assured outlet for its product.
• The profit margin made by the retailer is absorbed by the expanded business.
• Information about consumer needs and preferences can now be obtained directly by the manufacturer.

Question 30

Name 4 benefits of backward vertical integration.

Answer 30

• 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 31

Name 2 benefits of conglomerate integration.

Answer 31

• The business now has activities in more than one industry.
• There might be a transfer of ideas between the different sections of the business even though they operate in different industries.

Question 32

Give one example of each of the following:
Horizontal Intergration.
Forward Vertical Integration.
Backward Vertical Integration.
Conglomerate Interagration.

Answer 32

Horizontal Intergration = Coca-Cola and Pepsi.

Forward Vertical Integration = a copper wire maker merges with a copper mine and with an electrical product manufacturer.

Backward Vertical Integration = A copper wire maker merges with a copper mine.

Conglomerate Integration = Microsoft Corporation and Toyota Motors.

Question 33

List problems that can result from business growth or expansion.

Answer 33

• Larger business is difficult to control.
• Larger business leads to poor communication.
• Expansion costs so much that business is short of finance.
• Integrating with another business is more difficult than expected.

Question 34

How do you overcome the following problems linked with business growth or expansion:
- Larger business is difficult to control.

Answer 34

Operate the business in small units - this is a form of decentralisation.

Question 35

How do you overcome the following problems linked with business growth or expansion:
- Larger business leads to poor communication.

Answer 35

Operate the business in smaller units or use latest IT equipment and telecommunications.

Question 36

How do you overcome the following problems linked with business growth or expansion:
- Expansion costs so much that business is short of finance.

Answer 36

Expand more slowly to allow the use of profits from slowly expanding business to pay for further growth.

Ensure sufficient long-term finance is available.

Question 37

How do you overcome the following problems linked with business growth or expansion:
- Integrating with another business is more difficult than expected.

Answer 37

Introducing a different style of management requires good communication with the workforce- they will need to understand the reasons for the change.

Question 38

Why is integrating with another business more difficult than expected? Give some examples of this statement.

Answer 38

For example:

• Pay rates for employees differ.
• Carrying over liabilities.
• Choice of suppliers.
• Leadership styles.
• Quality control.
• Fair share of say.
• Protocols differ.
• Operations differ.

Question 39

Give 3 reasons as to why some businesses remain small.

Answer 39

• The type of industry they operate in.
• The market size.
• The owners’ objectives.

Question 40

Name some industries where most businesses remain small.

Answer 40

Here are some examples of industries where most businesses remain small:

• Hairdressing.
• Car repairs.
• Window cleaning.
• Convenience stores.
• Plumbers.
• Catering.

Question 41

Why do you think a hairdressing business would remain small?

Answer 41

Business in these industries offer personal services or specialised products, if they were to grow too large they would find it difficult to offer close and personal service demanded by customers.

Question 42

Explain why a business would remain small using the market size reason.

Answer 42

If the market - that is, the total number of customers - is small, the businesses are likely to remain small.

Question 43

If the market - that is, the total number of customers - is small, the businesses are likely to remain small. Who is this true for?

Answer 43

This is true for businesses, such as shops, which operate in rural areas far away from cities, and for businesses that appeal to only a limited number of consumers like very luxurious cars or expensive fashion clothing.

Question 44

Explain why a business would remain small using the owners’ objectives reason.

Answer 44

Some business owners perfer to keep their business small to avoid stress and worry, perhaps they could be more interested in keeping control of a small business, knowing all their staff and customers, than running a much larger business.

Question 45

What are the main reasons as to why some businesses fail include the following:

Answer 45

The main reasons why some businesses fail include the following:

• Lack of management skills.
• Changes in the business environment.
• Liquidity problems or poor financial management.
• Over-expansion.

Question 46

How can family businesses fail?

Answer 46

Family business can fail becuase the sons and daughters of the founders of a business do not necessarily make good managers and they might be reluctant to recruit professional managers.

Question 47

How can a lack of management skills cause a business to fail?

Answer 47

Lack of experience can lead to bad decisions.

Question 48

What are some factors that can lead to business failures if they are not responded to effectively?

Answer 48

New technology, powerful new competitors and major economic changes are just some factors that can lead to business failures if they are not responded to effectively.

Question 49

How can changes in the business environment cause a business to fail?

Answer 49

Failure to plan for a change adds to the risk and uncertainty of operating a business.

Question 50

How can liquidity problems cause a business to fail?

Answer 50

Shortage of cash or liquidity means that workers, suppliers, landlords and government cannot be paid what they are owed.

Question 51

How can poor financial management lead to a business failing?

Answer 51

Failure to plan or forecast cash flows can lead to this problem and is a major cause of businesses of all sizes failing.

Question 52

Explain why a business could fail because of over-expansion?

Answer 52

When a business expands too quickly it can lead to big problems of management and finance.

Question 53

Why are new businesses at a greater risk of failing?

Answer 53

Many new businesses fail due to lack of finance and other resources, poor planning, inadequate research, lack of experience and decision making skills.