Unit 1.3 Enterprise Business Growth and Size Flashcards
(28 cards)
Entrepreneur
An individual who has an idea for a business, who takes FINANCIAL RISKS of starting and managing a new business
Characteristics of an Entrepreneur
- Innovative
- Risk taking
- Problem solver
- Hardworking and diligent
Benefits of starting a business
- Independent and flexible
- Control
- To make a difference
- Personal fulfillment
Disadvantages of a starting a business
- Risk of failure
- Capital
- Lack of knowledge and experience
- Opportunity cost –> loss of income
Business Plan
A WRITTEN DOCUMENT that outlines the business’s AIMS AND VISION (plan for the future)
Uses of a Business Plan
- Gives owner a guide of how the business needs to develop
- Attracts investors (finance)
- Useful for Stakeholders involved in the business
Stakeholders
A person, group or organisation interested in or affected by a business
Business Plan information
- Business Summary
- Business Description
- Market Research
- Marketing
- Day to day running of business
- Finance
Advantages of a Business Plan
- Test for the feasibility
- To secure funding e.g. bank loans
- To make business planning more manageable and effective
Disadvantages of a Business Plan
- Time consuming
- Market is always changing
- Other businesses may be faster than you
Government Support for Start-Ups
- Reduces unemployment (creates jobs)
- Increase competition (more choice and lower prices)
- Increased output (economy benefits leads to increased economic growth)
- Growth pays the government more taxes
Measuring Business Size
- Number of employees (Full time)
- Value of output (number produced)
- Value of sales (in a period of time)
- Value of capital employed (invested)
Limitations of measuring Number of Employees
- Firms use different production methods
- Employing further workers but still has higher output levels
e.g. machines
Limitations of Value of Output
Doesn’t mean it is large when using other methods of measurement
Limitations of Value of Sales
- Misleading when comparing size of business that sell different products
Limitations of Value of Capital
- Similar to “number of employees”
- More employees but less capital
Reasons for Business Growth
- Profits
- Reputation
- More status for Owners & Managers
- Larger Market Share –> ability to influence price
- Can benefit from ECONOMIES OF SCALE
Economies of Scale
Reduction in average costs as a business grows in size.
Advantages of Economies of Scale
- Purchasing (Buying in “BULK”)
- Marketing (Targets larger audience)
- Financial (Better interest rate from banks)
- Managerial (Able to afford specialist managers)
-Technical (Able to afford specialist machines)
(More efficient with less staff)
Ways Businesses can Grow
Internal Growth and External Growth
Internal Growth
- When a business expands its existing operations
- Independent of other firms
External Growth
- When a business takes over OR merges with another business
- Dependent on another form
3 types of External Growth
- Horizontal Integration (in the same industry)
- Vertical Integration (same industry but different stage of production)
- Conglomerate Merger (merging into a different industry)
Disadvantage of Business Growth
- Diseconomies of Scale (beyond optimum point)
- Poor Communication
- Low Morale (lowers efficiency)
- Slow Decision Making
