Section 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

What is a business plan?

Answer 2

A document containing the business objectives about important details about the operations, finance and owners of the new business.

Question 3

Why do governments encourage entrepreneurs to set up in business?

Answer 3

• reduce unemployment
• increase competition
• help new firms grow further

Question 4

What are some methods of measuring business size?

Answer 4

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

Question 5

What are the limitations of number of people employed?

Answer 5

Companies with higher outputs can employ fewer people compared to companies output levels that are low.

Question 6

What are the limitations of value of output?

Answer 6

The value of output doesn’t always determine if a business is large. A company could sell expensive things, giving higher figures but there will be a difference in value of sales.

Question 7

What are the limitations of value of sales?

Answer 7

It could be misleading to use this measure when the size of business that sell very different products. (e.g a market stall and luxury perfume store)

Question 8

What are the limitations of capital employed?

Answer 8

A company employing many workers may use labour-intensive methods of production. These give low output levels and use little capital equipment.

Question 9

What does a successful entrepreneur look like?

Answer 9

• doesn’t waste time
• organised
• Passionate about what they do
• innovative

Question 10

Why do entrepreneurs need to write a business plan?

Answer 10

By looking at other plans you can see how to not fail. Making a business plan forces you to think ahead and plan carefully.

Question 11

Why do you need to show your business plan to a banker?

Answer 11

They want to know if you will be able to get the money back to them and if its a good idea for them to loan you money

Question 12

What is internal growth?

Answer 12

Expands its existing operations using its own resources eg a restaurant owner could open another restaurant elsewhere

Question 13

What is external growth?

Answer 13

When a business takes over or merges with another business. (Often called integration)

Question 14

What is the difference between a merge and takeover?

Answer 14

Merger- friendly or in agreement

Takeover (acquisition) - aggressive and hostile in nature.

Question 15

What is horizontal intergration?

Answer 15

When one business merges with or takes over another one in the same industry at the same stage of production

Question 16

What is vertical intergration?

Answer 16

When one business merges with or takes over another one in the same industry but at a different stage of production. Vertical intergration can be foward or backward

Question 17

Benefits of horizontal integration?

Answer 17

• reduce number of competitors

- economies of scale

Question 18

What is conglomerate integration?

Answer 18

When one business merges with or takes over a business in a completely different industry. This is also known as diversification.

Question 19

Why are new businesses at greater risk of failing?

Answer 19

• many new businesses fail due to lack of finance or poor planning
• in addition, the owner ir a new business may lack the experience and decision making skills of managers who work for larger businesses.
• liquidity (lack of cash)

Question 20

Probalems linked to business growth?

Answer 20

• difficult to control
• poor communitcation
• short of finance
• different management styles if intergrating with another business

Question 21

Solutions to business growth?

Answer 21

• smaller units/departments
• decentralisation
• introduce new IT system

Question 22

Why do some businesses chose to remain small?

Answer 22

• smaller market size
• more personalized service and more flexible
• avoid the stress of having to run a large business

Question 23

What is the basic economic problem?

Answer 23

Unlimited wants + limited resources = scarcity