1.3 Enterprise, Business Growth and Size

Question 1

Define entrepreneur.

Answer 1

An entrepreneur is someone who invests capital, takes a risk and starts up and operates a new business venture.

Entrepreneurship drives business growth and innovation.

Question 2

Explain the four characteristics of successful entrepreneurs?

Answer 2

Creativity; also known as innovation or vision

It is the ability to generate new ideas or fresh thinking for new products or services to gain competitive advantage.

Resilience; also known as optimism or the ability to bounce back.

All entrepreneurs will face many setbacks and have to overcome these and not give up on their aims.

**Hard Working **

entrepreneurs often have to work long, irregular hours late into the night and on weekends, especially during the start-up phase of the business.

Multi tasking, also known as problem-solving or independence.

Before they can afford to hire experts, entrepreneurs will have to juggle all the tasks of the business and develop skills in many different areas like marketing, finance and operations.

Question 3

What is a business plan?

Answer 3

A business plan is a document setting out a business’s objectives and how it will achieve them.

It is usually drawn up when starting up a new business or when there will be an important change in how the business is run, like starting a new service or investing in a new outlet.

Question 4

Explain the finance section of a business plan.

Answer 4

Finance concerns how much capital the business will need and where will it come from.
For example, $10,000 start-up capital required from a bank loan.

It will also look at forecast revenue and costs so the business can estimate how much profit they will make.
It makes sure there is enough capital to start the business.

It can also show banks or potential investors the business has a solid plan to control costs, earn revenue and repay loans.

Question 5

Explain the marketing section of a business plan.

Answer 5

The Marketing Plan involves researching the market and planning how to sell a product or service.
It ensures there is a sufficient budget in place to pay for marketing campaigns and outlines strategies for building a customer base.
It can also help forecast future volume demand.

Question 6

Explain the Operations section of a business plan.

Answer 6

The Operations section shows how the product or service will be produced.
It ensures the firm can find suppliers, and produce effectively at the output needed to ensure the customer demand is satisfied.

Question 7

Explain the Human resources section of a business plan.

Answer 7

Human Resources outlines the employees that will be required, and what skills or training they will need.
It means entrepreneurs can employ the right people for the job and the business can be productive quickly.

For example, a restaurant will have to find skilled chefs and train service staff.

Question 8

How do governments support business start ups?

Answer 8

Training schemes:
To help entrepreneurs draw up a business plan and forecast their sales and costs for the first year.

Grants: payments for equipment or to help with start-up costs.

Tax breaks, free office space, and subsidies for hiring new employees.

Question 9

Why do governments support business start ups?

Answer 9

Employment creation:
successful startups employ workers and reduce unemployment.

Economic growth:
entrepreneurs contribute to developing economic activity by creating profits, and paying employees and suppliers.

Innovation and technological change:
often entrepreneurs come up with new ideas which can inspire other startups, and make the economy more competitive and productive.

Question 10

What is the disadvantage of looking at the number of employees as measuring business size?

Answer 10

Some large businesses may have invested in machinery, and have a high output but a low number of employees.

If we only look at the number of employees as a means of measuring business size, it may give a misleading impression of business size.

Question 11

Name the ways of measuring business size

Answer 11

1. Number of employees.
2. Capital employed.
3. Value of output

Question 12

How do you calculate the number of employees.
Give an example.

Answer 12

Simply add up all of the employees in X-Ray Microchips and Yummy Oranges and see which one has more.

Question 13

What is the limitations for measuring business size by the number of employees?

Answer 13

Some large businesses may have invested in machinery, and have a high output but a low number of employees.

If we only look at the number of employees as a means of measuring business size, it may give a misleading impression of business size.

Question 14

Explain, with an example, how you calculate capital employed.

Answer 14

Add up the value of all the assets in a business like buildings and machinery.

X-Ray Microchips has much more capital employed than Yummy Oranges, because it is a high technology business and has to invest high levels of capital in its production line.

Question 15

How is value output calculated?

Answer 15

Value of output is calculated by multiplying market value of the product by the level of output.

Value of output = market value of the product x the level of output

Question 16

What is the limitation for measuring business activity through value of output?

Answer 16

However, we can’t be sure that all the products will be sold or the prices might change, which limits the accuracy of the figure.

Question 17

Is profit a measure of business size?

Answer 17

No.

Question 18

Why do owners of business want to expand?

Answer 18

1. Profit:
   The bigger a company grows, the more products or services it can sell.
   Therefore, if a business grows there is a greater potential to make profit.
2. Economies of scale:
   As companies grow larger they can cut costs by buying in bulk, and can afford to invest in technology or machinery that lowers the unit cost of each item they produce, cutting costs and increasing profits.
3. Diversification or spreading risk:
   As a business grows it can produce different products and it lowers its dependence on one product.
   For example, a car rental company may expand to also offer van and truck rental. This means if there is a downturn in the car rental market the business can can still rely on revenue from the truck market.
4. Market domination
   As companies grow they gain greater market share and greater control of the market.
   For example, if a coffee shop in a small town has a number of outlets, it can have a large influence over setting prices for of a cup of coffee in that town.

Question 19

What are the different ways in which a business can grow?

Answer 19

1. External Growth
   When a business expands by taking over or merging with another business.
   For example, Facebook took over photo-sharing platform social Instagram for $1 billion in 2012.
2. Internal Growth (or organic growth):
   When a company expands by building another outlet or adding another service rather than taking over another business.
   For example, Ed’s Coffee expands by renting another shop, redecorating, employing staff and starts operating.

Question 20

Which is quicker, external growth? Or internal growth?
Explain the risks and why.

Answer 20

External growth is quicker than internal growth, but riskier and requires higher capital investment.
It’s more expensive to buy an existing business than expand your own operations from scratch, but much quicker, as the business is already running and has a customer base and suppliers.

Question 21

What are the problems linked to business growth?
How can we overcome them?

Answer 21

1. Communication:
   As a business grows, more people are employed in more locations.
   It becomes increasingly difficult to ensure everyone is getting clear messages, and for management to know what is going on in every part of the business.

To overcome this, businesses can set up clear communication channels with the assistance of modern technology (email and instant messaging) to keep all staff updated.

2. Finance:
   Expansion involves a high capital cost which puts pressure on a company’s finances and cash flow.

The solution can be to expand more slowly, and ensure that there are suitable long term sources of finance available.

Question 22

Why do some businesses stay small?

Answer 22

1. Expansion is never an option because of a lack of capital.
   This may be because they can’t get a bank loan or find an investor to finance business growth.

This is particularly the case in the developing world, where there are millions of small business owners who can’t expand because of high-interest rates, or they lack the assets required as collateral for a bank loan.

2. Some businesses choose to stay small.
3. Owner’s objectives:
   Some business owners start their own business as they want to have control over their lives.
   If a business expands it will involve more responsibility, stress, risk and a higher workload.
   So the business stays small to allow the owners greater work-life balance.
4. Contact with customers:
   For many small business owners what makes them successful and what motivates them is the close relationship with customers.

For example, a yoga teacher may expand her business by employing other teachers and operating more classes. However, this would mean she would spend less time giving a personalised service to her loyal customers, and more time in the office controlling and organising.

Question 23

Why do businesses fail?

Answer 23

1. Lack of management skills.

Business managers have to be experts in finance, marketing, operations and all aspects of the business.
It is very difficult to master every part of business and mistakes or bad choices can lead to failure.

Startups are particularly vulnerable, as they are just starting out and lack the experience or expertise of competitors, and will inevitably make mistakes.

2. Changes in the business environment.

Changes in the business environment can affect the whole economy like a recession, where the economy gets smaller. Changes in the business environment may also just affect a small section of the economy.

For example, online shopping has made it very difficult for ordinary “bricks and mortar” shops to compete.
Many high street shops have closed down as they can’t compete on price and convenience with Amazon and Alibaba.

3. Lack of finance/liquidity.

Startups often underestimate how much money they will need to survive, and it can be a real challenge to predict sales accurately.
If revenue is lower than costs the business will ultimately fail. More established companies can base their sales forecasts on previous results.

All companies will fail if they don’t have enough money coming into the business to be able to pay their short term debts.

Question 24

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Question 25

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Question 26

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Question 27

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Question 28

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Question 29

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Question 30

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Question 31

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Question 32

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Question 33

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Question 34

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