Introduction to business - business size and growth

Question 1

How do you measure the size of a business?

Answer 1

• 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

Question 2

what factors affect the size of a business?

Answer 2

• market size
• nature of products
• ability to access resources for expansion
• customer preference (what they want)

Question 3

why might a business want to grow?

Answer 3

• ⭐️ 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

Question 4

What is the EU guidance on business size?

Answer 4

medium, small or micro

Question 5

how is a medium business defined by EU guidance?

Answer 5

• 250+ employees
• less than £50m turnover
• less than £43m on balance sheet

Question 6

how is a small business defined by EU guidance?

Answer 6

• less than 50 employees
• less than £10m turnover
• less than £10m on balance sheet

Question 7

how is a micro business defined by EU guidance?

Answer 7

• less than 10 employees
• less than £2m turnover
• less than £2m on balance sheet

Question 8

what are the advantages of business growth for the employee stakeholder?

Answer 8

• promotional opportunities
• job security
• specialist HR department
• trade unions more likely to be recognised

Question 9

what are the disadvantages of business growth for the employee stakeholder?

Answer 9

• employees feel remote from those making the decisions
• leading to poor morale and motivation that may affect productivity

Question 10

what are the advantages of business growth for the supplier stakeholder?

Answer 10

• regular and large orders
• security

Question 11

what are the disadvantages of business growth for the supplier stakeholder?

Answer 11

• may be offered a “take it or leave it” approach to conditions of supply and payment
• over reliance on large suppliers

Question 12

what are the advantages of business growth for the local community stakeholder?

Answer 12

• creates job opportunities
• boosts local economy

Question 13

what are the disadvantages of business growth for the local community stakeholder?

Answer 13

• increases pollution & congestion
• small, local businesses may be driven out of business

Question 14

what are the advantages of business growth for the shareholders stakeholder?

Answer 14

• market power (gained from economies of scale)
• greater market control (set prices leading to high profit, dividends and share prices)

Question 15

what are the disadvantages of business growth for the shareholder stakeholder?

Answer 15

• large businesses that are failing can be hard to turn around
• businesses may suffer from diseconomies of scale (reduced share prices, dividends, profits)

Question 16

what are the advantages of business growth for the customer stakeholder?

Answer 16

• economies of scale lower costs and may lower prices
• new innovated products made
• more likely to have a customer service department

Question 17

what are the disadvantages of business growth for the customer stakeholder?

Answer 17

• 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

Question 18

why do small businesses still survive around larger ones?

Answer 18

• 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

Question 19

what are the two types of growth?

Answer 19

organic and external

Question 20

what is organic growth?

Answer 20

growth from within the business
launch of new products, expansion into new geographical markets, exporting, new distribution channels, franchising

Question 21

what is external growth?

Answer 21

growth from outside the business
mergers, takeovers, acquiring suppliers or major customers, joint venture overseas

Question 22

what are some ads and disads of organic growth?

Answer 22

+ lower risk
+ builds on existing activities
+ good for high growth markets
+ rewards innovation and brand building
- slower

Question 23

what are some ads and disads of external growth?

Answer 23

+ quicker
+ transformational
+ popular in mature/declining markets
+ can acquire missing technology and brands
- higher risk