Unit 1.3 - enterprise, business growth & size Flashcards
(24 cards)
State 6 characteristics of a successful entrepreneur
- Risk takers
- Self-motivated, disciplined - working long hours requires motivation and commitment; hardworking
- Confident & resilient - every business faces challenges, must be optimistic
- Innovative & creative - make product different from other businesses so they can be competitive
- Leadership - manage team & motivate employees
- Good planning skills - managing resources & finances
State 4 advantages & disadvantages of owning a business
+ self reporting - manage your own finances and resources & make your own decisions; creative freedom to make product of your imagination; tax deduction which allows some things to be written off as business expenses; flexible working hours
- possible income instability: especially at first the costs may be higher than the revenue; financial risks: you may need to get a loan for your business which results in debt; long working hours; competition makes it difficult for your product/service to stand out.
What is a business plan + features?
Document stating a business’s future objectives and strategies for achieving them. Would also include information about the product (what is the USP), the market (potential customers & competition), structure of the business (how many owners) , human resources (how many employees), productions & operations (where do resources come from, how are products produced) & finance (how will business raise money to get started, how will it make profit).
What are 4 benefits of having a business plan?
- Sets out clear objectives and how to achieve them
- Can be used to support applications for bank loans, showing how business will make profit
- Identify risks of setting up business
- Ensure business will be profitable by identifying costs and revenue early on
State 4 reasons why government support entrepreneurs?
- Creates new jobs & increases levels of disposable income available to employees
- Contribute to growth of economy (more goods/services are produced)
- By providing training, a more skilled & productive workforce can be built
- Innovative products meet the needs & wants of consumers
What is a start-up?
A newly established business
What are grants?
A sum of money given by the government or other organizations to a business that offer a product/service that they thinks will increase quality of life or employment.
What are training schemes?
Government provides training programs for entrepreneurs and people in general, teaching them skills in particular fields/professions (or even how to run a business). Usually free.
What are tax breaks?
System provided by governments where entrepreneurs/start-ups pay lower tax rates than established businesses to help them get started by reducing their running costs for a limited period of time.
State 4 ways to measure business size
- Number of employees
- Value of output (sales revenue) - the number of goods a business sells x the selling price
- Capital employed - money invested by business to buy equipment/machinery
- Market share - percent of total sales that a particular company has in their overall industry
State 1 limitation for ways of the ways to measure business size
- Number of employees - business with few employees may still be considered large if it is capital intensive (employs more machines than people); also does not account for part time workers
- Value of output - may be small business which sells luxury products at high prices (so generate a lot of revenue)
- Capital employed - many service businesses employ more people than invest in machines
- Market share - business may many employees/employed capital but small market share depending on size of industry
When comparing businesses, they all need to be in the same industry.
State and explain 5 reasons why some businesses choose to expand
- Diversification - business can expand their range of services/products therefore spreading their risks as if one product falls out of favor/trend with the customers, they still have other products.
- Increase customers - this will help them increase their revenue & market share and therefore remain competitive and survive in the long term
- Economies of scale - unit costs decreases (less spending on producing in bulk and marketing)
- Attract more investors/shareholders - people are more willing to invest in large businesses because they seem more credible and are more likely to generate profit
- Increase profit and market share - gives company competitive advantage, more influence over market price
What is economies of scale?
Cost advantages that companies experience when production increases and the business becomes efficient. This is because the costs are spread over a larger number of units. Larger companies will have more cost savings and higher production levels.
State two types of business growths
- Internal/organic growth - when a business uses its own resources to expand its operations
- External growth - when a business buys/joins with other businesses through a process called integration.
Why do we measure the size of businesses?
- So business owners know the size of their competitors
- Investors want to know if they will make good return on savings they invest
- Banks want to know if business is big/reliable enough to give them a loan
State 3 examples of internal growth
- Developing new products
- Buying more capital equipment
- Selling its products in new markets
State 2 types of external growth
- Mergers - two businesses agree to combine to form a larger business
- Takeover - acquisition of one business by another; one buys to majority of shares of another
State 3 types of integrations + examples w fruit juice
- Horizontal integration - business joins with another business in the same industry at the same stage of production. E.g. fruit juice manufacturer joins another fruit juice manufacturer
- Vertical integration - business joins with another business in the same industry but at different stages of production. E.g. fruit juice manufacturer joins orange farmer. Forward v.i - joining business at later stage of production; Backwards v.i - joining business at easier stage of production
- Conglomerate integration - business joins together with another business in different industry. E.g. fruit juice manufacturer + dentist surgery
Why is conglomerate integration usually done?
Usually to increase available capital or gain access to customers in another market.
State 3 problems with business growth + how to overcome them
- Increased costs - extra capital equipment and labor costs a lot, so business must be grown slowly
- Difficult to control - communication and organizing resources becomes more difficult. Business should use managers to delegate/distribute work to lighten workload
- Lower quality - higher scale of production means less personalized. Quality control methods must be implemented. products and more errors
Why do some businesses chose to remain small?
- Market - some markets are small with limited customers due to the products being specialised/meeting specific needs, so there is no need to expand
- Lack of capital - small businesses have less expenses and do not have the money, space or resources to grow
- More personalized - able to focus on needs and wants of small target audience
What are some disadvantages of a business remaining small?
- Difficult to compete with larger business who have more resources & capital
- Limited brand recognition due to smaller marketing budget
Why do some businesses fail (5 reasons)?
- Lack of management skills (people, finances, resources)
- Changes in business environment - changes in economy, consumer tastes/trends, influence of new technology, etc. can all lead to business failure
- Liquidity (amount of cash business needs to cover every day expenses) problems - running out of cash so unable to pay back dept & supplies
- Overtrading - when a business expands too quickly, spending too much money on equipment and producing too many goods which they can’t sell (resulting in high storage costs)
- Failure to understand market/customer needs & wants
Why are new business at greater risk of failure (4 reasons)?
- Lack of skills of new entrepreneur to make product into successful business
- Lack of accurate record-keeping (costs, sales, etc,) leads to bad finance management and debt
- Difficult to raise sufficient finance - forced to borrow money to start business which may lead to debt
- Insufficient market research - potential number of customers is not identified so market for product is not found
