Unit 03 Business Size Flashcards
Who wants to know how large a business is ?
The government may wish to give assistance to small businesses.
Investors may wish to compare the size of a business with its competitors to compare the rate of growth.
What are the different measures used to measure the size of a business ?
01) Employees
02) Revenue
03 ) Capital employed
04) Market capitalisation
05) Market share
What is Capital employed?
The total value of all long term finance invested in the business.
What is revenue?
Revenue is the total sales made by a business in a given time period.
What is market capitalisation?
It refers to the total number of shares issued by a company.
What is market share?
It is the total sales of the business in proportion to the total market sales.
How do you calculate market capital?
Current share price x Total shares issued
How do you calculate market share?
Total sales of the business / Total sales of the industry x 100
What are the benefits of encouraging the development of small firms?
01) More job opportunities are created - even though each firm may not employ many staff, collectively the small business sector employs a very significant proportion of the working population.
02) Small businesses are often run by dynamic entrepreneurs - These individual are always looking to create innovative goods and services. This helps to create variety in the market and consumers will benefit from greater choice.
03) Small firms can create competition for larger business - Without this competition. Larger firms could exploit consumers with high prices and poor service.
04) All great businesses were small at one time - The more small firms are encouraged to become established and expand, the greater the chances that an economy will benefit from large-scale organisations in the future.
What are the advantages of a small business?
01 ) Can be managed and controlled by the owner (s)
02) They can easily adapt to changing consumer patterns and behaviours.
03) They can offer a more personalised service to consumers
04) Workers find it easier to know each worker. Thus the working environment would be more flexible and communication would be more effective.
What are the advantages of a large business?
01 ) Can employ specialist managers
02 ) Can benefit from economies of scale
03 ) They can diversify into several markets by producing a wide range of products and spread their risks.
04) Have access to several different sources of finance.
What are the disadvantages of a small business?
01 ) Owners may feel burdened if they are unable to afford specialist managers
02 ) May not be diversified given they’d usually produce a narrow range of products, thus increasing risks.
03) May have limited access to different sources of finance
04 ) May be unable to benefit from economies of scale
What are the disadvantages of a large business ?
01 ) May be unable to retain control
02 ) Communication may be ineffective and the decision making could be slow due to the large structure/ chain of command of the business.
03 ) May be unable to cater to customer feedback and needs.
04 ) May have cost increases associated with large scale production
What are the strengths of a family business ?
01 ) Commitment - Family owners would be dedicated towards seeing the business grow, prosper and passed onto future generations. Family members would be identified with the business and have the incentive to work harder to reinvest back into the business to allow it to grow in the long run.
02 ) Reliability and reputation - As family businesses have their name and reputation associated with the product. They may strive to improve the quality of their products and produce a product that meet their standards. As well as maintain good relationships with their stakeholders.
03) Knowledge continuity - Families make it a priority to pass on the accumulated knowledge, skills and experience to the next generation.
What are the weaknesses of a family business ?
01 ) Inheritance/ continuity problem - Many family businesses fail to be successful in the long run, this could be due to the lack os skills and ability of later generations or the splitting of management responsibilities between several family members to give them all a role in it.
02 ) Informality - They may have little interest in setting clear and formal business practices. As the business grows, this may lead to inefficiencies and internal conflicts.
03) Tradition - There could be a reluctance to change systems and procedures due to their historical nature. Lack of innovation could be a consequence.
04) Conflict - Internal problems within the family may reflect on the management of the business and make effective decisions less likely.
