Introduction to business - business size and growth Flashcards
How do you measure the size of a business?
- value of shares (current share price x shares issued)
- turnover and profit made
- value of assets
- amount of employees (below 50=small, above 250= large)
- number of factories/shops/offices
what factors affect the size of a business?
- market size
- nature of products
- ability to access resources for expansion
- customer preference (what they want)
why might a business want to grow?
- ⭐️ higher return on investments
- growth into new markets can spread risks
- a bigger business is better placed to fight external threats
- ⭐️ gain unit cost reduction through economies of scale
What is the EU guidance on business size?
medium, small or micro
how is a medium business defined by EU guidance?
- 250+ employees
- less than £50m turnover
- less than £43m on balance sheet
how is a small business defined by EU guidance?
- less than 50 employees
- less than £10m turnover
- less than £10m on balance sheet
how is a micro business defined by EU guidance?
- less than 10 employees
- less than £2m turnover
- less than £2m on balance sheet
what are the advantages of business growth for the employee stakeholder?
- promotional opportunities
- job security
- specialist HR department
- trade unions more likely to be recognised
what are the disadvantages of business growth for the employee stakeholder?
- employees feel remote from those making the decisions
- leading to poor morale and motivation that may affect productivity
what are the advantages of business growth for the supplier stakeholder?
- regular and large orders
- security
what are the disadvantages of business growth for the supplier stakeholder?
- may be offered a “take it or leave it” approach to conditions of supply and payment
- over reliance on large suppliers
what are the advantages of business growth for the local community stakeholder?
- creates job opportunities
- boosts local economy
what are the disadvantages of business growth for the local community stakeholder?
- increases pollution & congestion
- small, local businesses may be driven out of business
what are the advantages of business growth for the shareholders stakeholder?
- market power (gained from economies of scale)
- greater market control (set prices leading to high profit, dividends and share prices)
what are the disadvantages of business growth for the shareholder stakeholder?
- large businesses that are failing can be hard to turn around
- businesses may suffer from diseconomies of scale (reduced share prices, dividends, profits)
what are the advantages of business growth for the customer stakeholder?
- economies of scale lower costs and may lower prices
- new innovated products made
- more likely to have a customer service department
what are the disadvantages of business growth for the customer stakeholder?
- diseconomies of scale may lead to increased prices
- if the point of contact is a call centre the business can appear remote and the consumer feels powerless
why do small businesses still survive around larger ones?
- still have individual contact with customers and can gain valuable feedback
- they are less vulnerable from a recession (overhead costs are lighter)
- will not be affected by diseconomies of scale
what are the two types of growth?
organic and external
what is organic growth?
growth from within the business
launch of new products, expansion into new geographical markets, exporting, new distribution channels, franchising
what is external growth?
growth from outside the business
mergers, takeovers, acquiring suppliers or major customers, joint venture overseas
what are some ads and disads of organic growth?
+ lower risk
+ builds on existing activities
+ good for high growth markets
+ rewards innovation and brand building
- slower
what are some ads and disads of external growth?
+ quicker
+ transformational
+ popular in mature/declining markets
+ can acquire missing technology and brands
- higher risk
