Enterprise, Business growth and size

Entrepreneur

Entrepreneur

A person who organizes, operates, and takes the risk for a new business venture.

Benefits of being an entrepreneur

Independence- able to choose how to use time and money
Able to put ideas into practice
May become famous and successful if business grows
May be profitable and the income might be higher than working as an employee for another business
Able to make use of personal interests and skills

Disadvantages of being an entrepreneur

risk - many entrepreneurs fail, especially if poor planning
capital - have to use own money or other capital sources
lack of knowledge and experience
opportunity cost - lost income from not being an employee of another business

Characteristics of successful entrepreneurs

• Hard working

• Risk taker

• Creative

• Optimistic 

• Confident

• Innovative

• Independent

• Good communicator

Why do governments support start ups

reduces unemployment
Increases consumer choice
Economy benefits from increased output
benefit society- through social enterprises
can grow further

what support to governments give start ups

idea and help
premises
finances (low interest rate loan)
Labor (grants to train employees)
Research

Business plan

A document containing business objectives and important details about the operations, finance and owners of the new business.

How do business plans assist entrepreneurs

Description of the business

Products and services

The market

Business location and how products will reach customers

Organization structure and management

Financial information

Business strategy 

Who would find it useful to compare the size of businesses

Investors
Governments (different taxes)
Competitors
Workers
Banks

How can businesses be measured

number of employees
value of output
Value of sales
value of capital employed

Capital employed

The total value of capital used in the business.

Number of employees

easy to calculate and compare
some have less people and more machines (capital intensive)
part time workers
skills of workers are not accounted

Value of output

Common way to compare business in the same industry(especially secondary sector)
A high value of output does not mean that a business is large when using other methods
Does not account for output not sold

Equity

the value of the shares issued by a company

turnover

Turnover is the total sales of the company

Value of sales

misleading to use this to measure when comparing the size of businesses who sell different products

Value of capital employed

The total capital invested into the business.
some companies may use cheap labor giving low output with low-cost equipment

market share

a company's product sales as a percentage of total sales for that industry
company sales/total market sales x 100

Why do owners want their business to grow

Possibility of higher profit for owner
Higher status and prestige given to owners and managers, managers of bigger firms are usually paid more
Lower average cost( Economies of sale)
Larger market share- this gives the business more influence when dealing with suppliers and distributors

Internal growth

Occurs when a business expands its existing operations. It is often paid by profits from the existing profits. Is slower

External growth

When a business takes over or merges with another business

Merger

When the owners of two businesses agree to join their firms together to make one business.

Takeover/Acquisition

is when one business buys another business which then becomes the predator business

Horizontal Integration/Merger

When one firm merges or takes over another one within the same industry or at the same stage of production

Vertical Integration

when one firm takes over or merges with another one within the same industry but at a different stage of production
Can be forward (stage closer to the consumer) or backward

Conglomerate integration/Diversification

When one firm merges with or takes over a firm in a completely different industry.

Benefits of Horizontal Integration

Reduces number of competitors
Increased market share (Better prices from suppliers, more buying power)

Benefits of forward vertical integration

Assured supply of components and raw materials
profit margin of supplier is absorbed by the expanded business
cost of components could be controlled

Benefits of conglomerate integration

Diversification spreading the risk taken by the
business
Transfer of ideas between the different
sections of the business

Problems of business growth

larger businesses are harder to control (so operate in smaller units and decentralize)
poor communication (decentralize and use latest IT developments)
business is short of finance due to expansions(expand slowly and use profits to pay for further growth)
different management styles the other business (explain to the workforce the reasons for the change)

Why do some businesses stay small

operating at maximum (extra premises or outlets won't bring any benefit, eg. carpenter)
can not afford extra staff or premises
economies of scale (may be operating at its perfect output and increasing may cause inefficiency)
no desire
no knowledge of other skills

Why do some businesses fail?

poor management (May choose wrong product, pricing method or market)
failure to plan for change (unable to adapt to competition and new tech)
poor financial management(shortage of cash increases liability)
risks of new business startups (poor planning, no experience)
over-expansion(can lead to big problems with management and finance)