Size of Business Flashcards
Ways to measure a business
-Number of employees
-Revenue/Sales turnover
-Capital employed
-Market capitalisation
-Market share
Market capitalisation
Total value of a company’s issued shares.
current share price X total number of shares issued
Benefits and Limitations of small businesses
Benefits
-Little risk of losing control
-Often able to adapt to changing customer needs
-Better relationships with workers
-Can startup with very little capital investment
Limitations
-Limited sources of finance
-Owner has a large burden of responsibility if there are no specialist managers
-If the owner or important employees are absent, other employees may not have the skills to operate the business
-Fewer opportunities for economies fo scale
Benefits and Limitations of Family Business
Benefits
-Commitment
-Reliability and pride
-Knowledge continuity
Limitations
-Succession/Continuity problem
-Informality
-Tradition
-Conflict
Importance of small businesses in the economy
-Help in economic growth
-Create employment
-Often innovative and can develop new products and services that create competition to big firms
Reasons business want to grow
-Increases profits
-Increases market share
-Increased economies of scale
-Increase power and status
-Reduced risk of takeover
Organic and External growth
Organic growth- when a business expands through its existing operations.
External growth- business expansion by taking over or merger with another business.
Merger and Takeover
Merger- when two business agree to combine their business and make a one new business.
Takeover- or acquisition is when a company buys more than 50% of another company’s shares and becomes the controlling owner.
Horizontal Integration
Benefits and Limitations
Horizontal integration- when a business integrates with another business in the same stage of production and same industry.
Benefits
-Eliminates one competitor from the market
-Increased power over suppliers
Limitations
-Rationalisation may bring bad publicity
-It may lead to a monopoly
Forward Vertical Integration
Benefits and Limitations
Forward Vertical Integration- vertical integration with a customer business.
Benefits
-The business can control pricing and promotion
-It gives a secure outlet for products and removes competitors products from retail outlets
Limitations
-Consumers may suspect an attempt to act uncompetitively and react negatively
-Business may lack experience of managing a retail
Vertical Integration
When a business integrates with another business in the same industry but different stage of production.
Backward Vertical Integration
Benefits and Limitations
Backward Vertical Integration- vertical integration with a supplier business.
Benefits
-Gives control of quality, price and delivery times
-Gives control over supply to competitors
Limitations
-Business may lack experience of managing a supply company
-Supplying business may not be efficient due to guaranteed customer
Conglomerate Integration
Benefits and Limitations
Conglomerate Integration- when a business integrates with another business in different sector entirely
Benefits
-Diversifies the business
-Spread of risk may take the business into a faster growing market
Limitations
-Lack of management experience
-Lack of focus and direction now that the business is more spread across
Objectives for Integrations
-Integrated business share ideas and facilities
-Economies of scale
-Business can save on marketing and distribution costs
-Rationalisation will reduce costs
Reasons why Integration Objectives Fail
-Diseconomies of scale
-Different management and culture leads to conflict
-There may be very little benefit of combined research or marketing and distribution
-If rate of growth is too rapid, it would be harder to manage
