Understanding business activity Flashcards
who is an entrepreneur
a person who organizes,operates, and takes risks for a new business venture
benefits and disadvantages of being an entrepreneur
benefits
-independence; choose how to use your time and money
Able to put ideas to practice
-may become famous and rich
-maybe profitable and income may be higher than working as an employee
- able to make use of personal interests and skills
disadvantages
-risk ; the business may fail due to poor planning
-capital ; the owner may have to use their own money for capital
-lack of knowledge and experience in starting a business
what are the characteristics of an entrepreneur
remember acronym
COHESIRI
C-creative
O-optimistic
H-hardworking
E-effective communicator
S-self confidence
I-innovative
R-risktaker
I-independence
content of a business plan
-what is the product
-description of the business
-the market
-business location
-business cost
- financial cost
- business strategy
- resources requirement
uses of business plans
-to help gain finance
-carefulplanning of reduces risk
- help motivate employees
- helps concentrate on objectives of business
why government support business start-ups
-to reduce unemployment
-to increase competition;provides consumer with more choices
-to increase outputs of ;economy benefits from increased outputs
-can grow further
-to benefit society
how governments help support business start-ups
-business idea & help by training people
-premises;providing low cost premises to start up businesses
-finace ;loans for small businesswith low interest
-labour; grants to small business to train employees increasing productivity
how to measure business size
use acronym
SECO
S-sales
E-employees
C- capital emplooyed
. O-output
advantages of expanding a business
- higher profit
- more status for the owner
- larger share of the market
- lower average cost
differnt ways a business can grow
internal growth
external growth
three types of horizontal merger
- horizontal merger ;taking over firms in the same industry at the same stage of production.
- vertical merger ;taking over a firm in the sane industry but different stage of production .
- congolomerate ;when firms merges with firms in different industries .
another name for merger
intergration
define take over
this is when a business buys out the owners of other businesses
define a merger
this is when two business agree to join their businesses together to make on e business
benefits of horizontal integration
- Reduces number of competitors in the market, since two firms become one.
- Opportunities of economies of scale.
3.Merging will allow the businesses to have a bigger share of the total market.
benefits of backward vertical integration
- Merger gives assured supply of essential components.
2.The profit margin of the supplying firm is now absorbed by the expanded firm.
3.The supplying firm can be prevented from supplying to competitors.
4.Forward vertical integration: When one firm merges with or takes over another firm in the same industry but at a
forward vertical integration
- Merger gives assured outlet for their product.
2.The profit margin of the retailer is now absorbed by the expanded firm.
3.The retailer can be prevented from selling the goods of competitors.
benefits of conglomerate
- This allows the firms to spread its risks.
- There could be a transfer of ideas between the two businesses even though they are in different industries. This transfer o ideas could help improve the quality and demand for the two products.
problems linked with business growth
- difficult to control staff als diseconmies of scale
- leads poor communincation
- expansion is costly
- different management style
- it can lack expertises
why some business remain small
- Type of industry: some firms remain small due to the industry they operate in.
- Market size: if the firm operates in areas where the total number of customers is small, such as in rural areas, there is no need for the firm to grow and thus stays small.
- Owners’ objectives: not all owners want to increase the size of their firms and profits. Some of them prefer keeping their businesses small and having a personal contact with all of their employees and customers, having flexibility in controlling and running the business, having more control over decision-making, and to keep it less stressful.
why businesses fail
- Poor management: lack of experience and planning which could lead to bad decision making.
- Over-expansion: this could lead to diseconomies of scale and greatly increase costs,
- Failure to plan for change: the demands of customers keep changing with change in tastes and fashion.
- Poor financial management: if the owner of the firm does not manage his finances properly, it could result in cash shortages.
advantages of sole trader
- Easy to set up
- Full control
- Sole trader receives all profit
- Personal
disadvantages of soletrader
- Unlimited liability
- Full responsibility
- Lack of capital
- Lack of continuity
