Unit 3 : Enterprise, Business Growth and Size Flashcards
Define Entrepreneur
an entrepreneur is a person who organizes, operates and takes risk to make the business better
6 Advantages of being an Entrepreneur
- independent, allowed to choose how to use their time and money
- able to put own ideas into practice
- may become successful and very profitable if business grows
- able to use personal interests and skills
- profits go to themselves, no need to share
- income is higher than an average employee
5 Disadvantages of being an Entrepreneur
- have to put own money into business
- many entrepreneur businesses fail
- lack of knowledge and experience in starting and operating a business
- lost income for not being an employee for other businesses (Opportunity cost)
- have to invest own savings and find other finance sources (time consuming and expensive)
Define a Business Plan
a document which contains business objectives and essential details about the operations, finance and owners of the new business
What are the contents of a business plan
description of product, products and services, market, business location and how products will reach customers, organisation structure and management, financial information, business strategy
Why do Entrepreneurs use Business Plans
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
Why do Governments Support Business Start-ups
reduces unemployment, increases competition, increases output, benefits society, further growth of economy
4 ways that Governments Support Business Start-ups
- business ideas & help
- finance
- Labour
- Research
5 Reasons why it’s Beneficial to Compare Business Size
- investors need to know which business is succeeding to know who to invest it
- governments need to see different tax rates for small and large firms
- competitors need to compare size and importance with other firms
- workers need to know if they’re working at a successful business as their salary is at stake
- banks need to know the importance of the loan in comparison to the business size
4 Measurements of Business Size and their Limitations
- number of people employed - capital intensive firms would employ fewer people but produce high levels of output
- value of output of the business - doesn’t take into account the value of the goods sold and the sale of the goods
- value of sales - different business sell different products
- total value of capital employed - some businesses use labor intensive methods which requires less capital and more workers
Define Capital Employed
total value of capital used in the business
4 Benefits of expansion of a business
- possibility of higher profits for the owner
- more status and prestige for owners/managers
- lower average costs
- larger share of its market. proportion of total market sales it makes is greater.
Define Internal Growth
growth using the businesses resources. this can be through purchasing additional equipment, hiring more labour, etc.
Define External Growth
involves a takeover or merger with another business
Define Takeover
when a business buys out the owners of another business which becomes a part of the ‘predators’ business
Define Merger
when to owners of a business agree to join their businesses together
Define Horizontal Integration
one firm merges with another one in the same industry at the same stage of production
3 Benefits of Horizontal Integration
- reduces the number of competitors in the industry
- opportunities for economies of scale
- a bigger share of the total market
Define Vertical Integration
one business mergers with another one in the same industry at a different stage of production
Define Forward Vertical Integration
when a business integrates with another business at a later stage of production that is closer to the consumer
3 Benefits for Forward Vertical Integration
- merger provides an assured outlet for its products
- expanded business absorbs profit margin that is made by the retailer/manufacturer
- information regarding the consumer needs/preferences are obtained from the manufacturer
Define Backward Vertical Integration
when a business integrates with another business at an earlier stage of production that is closer to raw materials
4 Benefits for Backward Vertical Integration
- merger gives an assured supply of the essential components
- expanding business absorbs profit margin of suppliers
- supplier is prevented from supplying to other manufacturers
- cost of materials + supplies for manufacturer are controlled
Define Conglomerate Integration
one business merges/takes over a business in a completely different industry. also known as diversification
2 Benefits of Conglomerate Integration
- activity in more than one industry diversifies and spreads risks taken by the business
- transferring ideas to different sections can help the business
4 Disadvantages caused by Business Growth
- control and management get harder with expansion
- larger business causes poor communication
- expansion costs are high and can result in shortage of finances
- integration with other business can cause difficulties with business culture/style of management.
4 Reasons why some Businesses Remain Small
- size of their market is small
- access to capital is limited
- personal choice of owner
- size and cost of technology
4 Reasons Why Businesses Fail
- lack of management skills ( lack of experience, poor choice of managers, bad decisions )
- failure to plan for change ( businesses must adapt to changing business environment )
- over expansion ( diseconomies of scale, poor financial management )
- competition with other businesses ( intense competition makes it hard to set up )
