Section 1.3 Entreprise, Business Growth, and Size Flashcards

1
Q

What are entrepreneurs?

A

An individual who has an idea for a new business and takes the financial risk of starting up and managing it

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2
Q

Examples of famous entrepreneurs.

A
Richard Branson (Virgin)
Jeff Bezos (Amazon)
Mark Zuckerberg (Facebook)
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3
Q

What are some characteristics of a successful entrepreneur?

A
Innovative
Self-motivated and determined
Self-confident
Multi-skilled
Strong leadership skills
Initiative
Results driven
Risk-taker
Good at networking (learning from others)
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4
Q

What is a business plan?

A

A detailed written document outlining the purpose and aims of a business which is often used to persuade lenders or investors to finance a business proposal

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5
Q

What key things does a business plan describe?

A
The business
The business opportunity
The market
The objectives of the business
Financial forecasts
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6
Q

What does ‘the business’ part of the business plan describe?

A

Details of the entrepreneur, the idea for the business and information about the skills and expertise of the managers or employees who need to be recruited

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7
Q

What does ‘the business opportunity’ part of the business plan describe?

A

Information of the product and why the entrepreneur believes consumers will buy it; this part of the plan includes market research

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8
Q

What does ‘the market’ part of the business plan describe?

A

The current size, the potential for growth and the product’s main competitors

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9
Q

What does ‘the objectives of the business’ part of the business plan describe?

A

What the business hopes to achieve

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10
Q

What does ‘financial forecast’ part of the business plan describe?

A

Predicted revenue and profit, cash-flow and projected sales for at least the first year of trading

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11
Q

What is revenue?

A

The amount a business earns from the sale of its products

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12
Q

How can a business plan help new and existing business?

A
  • Can be used to persuade lenders to provide finance to the business
  • Gives the business a sense of purpose and direction
  • Provide businesses with targets to aim at and enable the business to monitor its progress
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13
Q

Are business plans only for start-up businesses?

A

No, an existing business can make updated business plans to guide their business

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14
Q

What are the benefits the government gets by supporting new and small start-up businesses?

A
Job creation
Entrepreneurs bring innovative ideas
More competition
Provides consumers with goods and services
The businesses will become bigger
Low costs
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15
Q

How does ‘job creation’ benefit the government?

A

New businesses employ a large percentage of the working population in the country therefore there is a low unemployment rate

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16
Q

How do ‘entrepreneurs bringing innovative ideas ‘ benefit the government?

A

Increases the variety of products available, which leads to greater consumer choice in the market

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17
Q

How does ‘more competition’ benefit the government?

A

Competition leads to lower prices

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18
Q

How does ‘providing consumers with goods and services’ benefit the government?

A

Small business often provide specialist goods and services to consumers and they also supply products to much larger firms

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19
Q

How does ‘small businesses becoming bigger’ benefit the government?

A

The government can benefit from the advantages that larger businesses bring to the economy

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20
Q

How does ‘low costs to small businesses’ benefit the government?

A

Low costs can pass on to the consumer through lower prices

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21
Q

What kind of support does the government give to new start-up businesses?

A
  • Grants, interests-free or low-interest loans
  • Lower taxation rates of profit (in early years)
  • Rent-free premises for a certain period of time
  • Free or subsidised training schemes for employees
  • Information, advice and support from specialist
    agencies
22
Q

What are the ways of measuring and comparing the size of businesses?

A
  • Capital employed
  • Market share
  • Number of employees
  • Value of output
23
Q

What is capital employed and how can you measure a businesses using it? Is there a problem with using this method?

A

Capital employed is the value of all long-term finance invested in the business; it is used to buy things the business needs before producing goods or services.

Small businesses tend to invest less capital than larger businesses

There is a problem in comparing the size of a business using this method because some industries may not require much capital. For example, a car manufacturing company need a lot of capital investment whereas a computer software design does not (the computer software business can be bigger than the car manufacturing business )

24
Q

What is market share and how can you measure a businesses using it? Is there a problem with using this method?

A

Market share is out of total purchases of a customer of a product or service, what percentage goes to a company in that market.

Smaller businesses tend do have a lower market share than larger businesses

There is a problem when measuring the size of a business using this method as firms from different industries cannot be compared by market share.

25
Q

What is number of employees and how can you measure a businesses using it? Is there a problem with using this method?

A

The number of employees a business employs

Larger businesses tend to employ more employees than smaller businesses in the same industry

There is a problem when using the number of employees to measure a business. For example, a large business can be employing only a few employees and more machinery than a smaller business.

26
Q

What is value of output and how can you measure a businesses using it? Is there a problem with using this method?

A

Value of output is the amount a business earn from selling their product

Smaller businesses tend to have lower value of output than larger businesses

You shouldn’t compare the value of output of businesses from different industries

27
Q

Why do some businesses grow and others remain small?

A

Some businesses may have growth as a long-term objective, however some business prefer to stay small

28
Q

What are the benefits of growing a business?

A
  • Increased profits
  • Increased market share
  • Economies of scale
  • Greater power to control the market
  • Protection from the risk of takeover
29
Q

How does increased market share benefit a business?

A

Its product and brand become more widely known and launching new products is less risky

30
Q

How does economies of scale benefit a business?

A

Reduced average costs as a result of economies of scale

31
Q

How does having greater power to control the market benefit a business?

A

Larger businesses can influence other firm prices as they use it as a guide or example. They can also influence government policies to their advantage

32
Q

How does having protection from the risk of takeover benefit a business?

A

The larger the company the more expensive and difficult it is for other companies to take over the business.

33
Q

What are the two types of growth?

A

Internal growth

External growth

34
Q

How does internal growth occur?

A
  • Increasing the number of goods
  • Developing new products
  • Finding new markets for its products
35
Q

How does external growth occur?

A

External growth occurs when a business merges with or takes over another business in the same or different industry. This process is known as integration

36
Q

What are the types of integration?

A
  • Horizontal integration
  • Forward vertical integration
  • Backward vertical integration
  • Conglomerate integration
37
Q

What is horizontal integration?

A

When two firms in the SAME INDUSTRY who are also in the SAME SECTOR merge

38
Q

What is forward vertical integration?

A

When two firms in the SAME INDUSTRY merge, but one is the customer of the other

39
Q

What is backward vertical integration?

A

When two firms in the SAME INDUSTRY merge, but one is the supplier of the other

40
Q

What is conglomerate integration?

A

When two firms from DIFFERENT INDUSTRIES merge

41
Q

What are the problem with internal business growth?

A
  • Slow

- Risk of takeover (as other businesses grow faster)

42
Q

What are the problem with external business growth?

A
  • Managers and employees fear loss of job and status
  • Diseconomies of scales (increased costs and reduced profit margins)
  • Conflict between two businesses due to different objectives, managing styles, decisions, and work conditions
  • Loss of control
43
Q

Why do some businesses remain small?

A
  • Owner’s choice
  • Market share
  • Access and availability
  • Market dominance
44
Q

Why would the owner of a business want to remain small?

A
  • Does not want the responsibility or workload
  • Wants total control of business
  • Wants to maintain a close relationship with customers
  • Does not want the risk of having growth as an objective
45
Q

Why would market share cause the business to remain small?

A

Some businesses do not have market share as an objective, therefore they do not grow

46
Q

Why would access and availability cause a business to remain small?

A

Small businesses find it hard to obtain loans from banks and investors, which can prevent the business from growing

47
Q

Why would market dominance cause a business to remain small?

A

Some businesses are dominated by larger companies therefore making it difficult for businesses to compete

48
Q

What causes some businesses fail?

A
  • Poor planning and lack of objectives
  • Liquidity problems
  • Poor choice of location
  • Poor management
  • Failure to invest in new technologies
  • Poor marketing
  • Lack of finance
  • Competition
  • Economic influences
49
Q

What are liquidity problems?

A

Liquidity is determined by how quickly a business can convert its assets into cash. Non-cash assets in this context could include stock, equipment, and money owed by debtors.
Liquidity problems arise when businesses fail to properly convert its assets into cash due to poor cash management

50
Q

What are economic influences?

A

Unemployment, high interest rates and taxation can influence the amount of money consumers will have. This in turn affects businesses’ earning from sales and profit