size of business Flashcards
who wants to know about size of business
shareholders customers employees government business managers
Capital employed:
the total value of all long-term finance invested in the business
different ways to measure business size
- number of employees
- revenue (total value of sales made by a business in a given time period.)
- market capitalization (Market capitalization: the total value of a company’s issued shares)
- market share (sales of the business as a proportion of total market sales)
advantages of a small business
■ can be managed and controlled by the owner(s)
■ often able to adapt quickly to meet changing customer needs
■ offer personal service to customers
■ find it easier to know each worker, and many staff prefer to work for a smaller, more ‘human’ business
disadvantages of a small business
■ may have limited access to sources of finance
■ the owner/s has/have to carry a large burden of responsibility
* may be unable to afford to employ specialist managers
■ few opportunities for economies of scale
advantages of large business
■ can afford to employ specialist professional managers
■ benefit from the cost reductions associated with largescale production
■ may be able to set low prices that other firms have to follow
■ have access to several different sources of finance
■ are more likely to be able to afford research and development into new products and processes
disadvantages of large business
■ may be difficult to manage, especially if geographically spread
■ may have potential cost increases associated with largescale production
■ may suffer from slow decision-making and poor communication due to the structure of the large organization
■ may often suffer from a divorce between ownership and control that can lead to conflicting objectives
advantages of family business
Commitment: The family owners often show dedication in seeing the business grow, prosper and get passed on to future generations. As a result, many family members identify with the company and have the incentive to work harder and reinvest part of their profits into the business to allow it to grow in the long term.
Reliability and pride: Because family businesses have their name and reputation associated with their products, they strive to increase the quality of their output and to maintain a good relationship with their stakeholders.
Knowledge continuity: Families in business make it a priority to pass their accumulated knowledge, experience and skills to the next generation.
challenges of family business
continuity problem: Many family businesses fail to be sustainable in the long term. On average only around 15% continue into the third generation of the descendants of the founder(s).
Succession: high rate of failure among family businesses can often be explained by the lack of skills and ability of later generations or the splitting of management responsibilities between several family members to give them all a role in it.
Informality: Because most families run their businesses themselves, there is usually little interest in setting clear and formal business practices and procedures. As the family and its business grow larger, this situation can lead to inefficiencies and internal conflicts.
Traditional: There is quite often a reluctance to change systems and procedures, preferring to continue to operate as it was historically run. Lack of innovation could be a consequence.
Conflict: Problems within the family may reflect on management of the business and make effective decisions less likely.
internal and external growth
Internal growth: expansion of a business by means of opening new branches, shops or factories (also known as organic growth).
External growth: (also known as inorganic growth) refers to growth of a company that results from using external resources and capabilities, usually involves a merger or takeover (A takeover occurs when an existing business expands by buying more than half the shares of another business)
reasons why stakeholders want to know about business size
The government might wish to give assistance to ‘small’ firms
Investors in a firm may wish to compare the size of the business with close competitors– particularly in order to compare the rate of growth
Customers may prefer to deal only with large firms, assuming, perhaps, that they are more stable and less likely to cease production than smaller ones.
advantages of external growth
Faster speed of access to new product or market areas.
Increased market share / increased market power.
Access internal economies of scale (perhaps by combining production capacity)
better distribution channels / control of supplies
disadvantages of external growth
it can be expensive to takeover/merge with another business.
managers may lack the experience to deal with the other businesses.
what are small firms and large firms
Small business is a privately owned organization with a few employees and less annual revenue than a corporation or regular-sized business.
what is a family business
a business which is actively owned, operated and managed by two or more members of the single-family. Here, members may be related by blood, marriage or adoption.
