Unit 3 : Enterprise, Business Growth and Size

Question 1

Define Entrepreneur

Answer 1

an entrepreneur is a person who organizes, operates and takes risk to make the business better

Question 2

6 Advantages of being an Entrepreneur

Answer 2

1. independent, allowed to choose how to use their time and money
2. able to put own ideas into practice
3. may become successful and very profitable if business grows
4. able to use personal interests and skills
5. profits go to themselves, no need to share
6. income is higher than an average employee

Question 3

5 Disadvantages of being an Entrepreneur

Answer 3

1. have to put own money into business
2. many entrepreneur businesses fail
3. lack of knowledge and experience in starting and operating a business
4. lost income for not being an employee for other businesses (Opportunity cost)
5. have to invest own savings and find other finance sources (time consuming and expensive)

Question 4

Define a Business Plan

Answer 4

a document which contains business objectives and essential details about the operations, finance and owners of the new business

Question 5

What are the contents of a business plan

Answer 5

description of product, products and services, market, business location and how products will reach customers, organisation structure and management, financial information, business strategy

Question 6

Why do Entrepreneurs use Business Plans

Answer 6

it helps in gaining finance as banks will ask for a business plan before loaning a business money and forces the entrepreneur to plan carefully, reducing the risk of the business failing

Question 7

Why do Governments Support Business Start-ups

Answer 7

reduces unemployment, increases competition, increases output, benefits society, further growth of economy

Question 8

4 ways that Governments Support Business Start-ups

Answer 8

1. business ideas & help
2. finance
3. Labour
4. Research

Question 9

5 Reasons why it’s Beneficial to Compare Business Size

Answer 9

1. investors need to know which business is succeeding to know who to invest it
2. governments need to see different tax rates for small and large firms
3. competitors need to compare size and importance with other firms
4. workers need to know if they’re working at a successful business as their salary is at stake
5. banks need to know the importance of the loan in comparison to the business size

Question 10

4 Measurements of Business Size and their Limitations

Answer 10

1. number of people employed - capital intensive firms would employ fewer people but produce high levels of output
2. value of output of the business - doesn’t take into account the value of the goods sold and the sale of the goods
3. value of sales - different business sell different products
4. total value of capital employed - some businesses use labor intensive methods which requires less capital and more workers

Question 11

Define Capital Employed

Answer 11

total value of capital used in the business

Question 12

4 Benefits of expansion of a business

Answer 12

1. possibility of higher profits for the owner
2. more status and prestige for owners/managers
3. lower average costs
4. larger share of its market. proportion of total market sales it makes is greater.

Question 13

Define Internal Growth

Answer 13

growth using the businesses resources. this can be through purchasing additional equipment, hiring more labour, etc.

Question 14

Define External Growth

Answer 14

involves a takeover or merger with another business

Question 15

Define Takeover

Answer 15

when a business buys out the owners of another business which becomes a part of the ‘predators’ business

Question 16

Define Merger

Answer 16

when to owners of a business agree to join their businesses together

Question 17

Define Horizontal Integration

Answer 17

one firm merges with another one in the same industry at the same stage of production

Question 18

3 Benefits of Horizontal Integration

Answer 18

1. reduces the number of competitors in the industry
2. opportunities for economies of scale
3. a bigger share of the total market

Question 19

Define Vertical Integration

Answer 19

one business mergers with another one in the same industry at a different stage of production

Question 20

Define Forward Vertical Integration

Answer 20

when a business integrates with another business at a later stage of production that is closer to the consumer

Question 21

3 Benefits for Forward Vertical Integration

Answer 21

1. merger provides an assured outlet for its products
2. expanded business absorbs profit margin that is made by the retailer/manufacturer
3. information regarding the consumer needs/preferences are obtained from the manufacturer

Question 22

Define Backward Vertical Integration

Answer 22

when a business integrates with another business at an earlier stage of production that is closer to raw materials

Question 23

4 Benefits for Backward Vertical Integration

Answer 23

1. merger gives an assured supply of the essential components
2. expanding business absorbs profit margin of suppliers
3. supplier is prevented from supplying to other manufacturers
4. cost of materials + supplies for manufacturer are controlled

Question 24

Define Conglomerate Integration

Answer 24

one business merges/takes over a business in a completely different industry. also known as diversification

Question 25

2 Benefits of Conglomerate Integration

Answer 25

1. activity in more than one industry diversifies and spreads risks taken by the business
2. transferring ideas to different sections can help the business

Question 26

4 Disadvantages caused by Business Growth

Answer 26

1. control and management get harder with expansion
2. larger business causes poor communication
3. expansion costs are high and can result in shortage of finances
4. integration with other business can cause difficulties with business culture/style of management.

Question 27

4 Reasons why some Businesses Remain Small

Answer 27

1. size of their market is small
2. access to capital is limited
3. personal choice of owner
4. size and cost of technology

Question 28

4 Reasons Why Businesses Fail

Answer 28

1. lack of management skills ( lack of experience, poor choice of managers, bad decisions )
2. failure to plan for change ( businesses must adapt to changing business environment )
3. over expansion ( diseconomies of scale, poor financial management )
4. competition with other businesses ( intense competition makes it hard to set up )