Business notes

What are some ways business size can be measured?

Number of people employed, value of output, value of sales, value of capital employed

Why do owners want to expand their businesses?

Higher profits for the owners, more status, larger share of the market

What are the two ways businesses can grow?

internal & external growth

internal growth

occurs when businesses expand their current operations. i.e. A restaurant owner opens other restaurants in other towns.

external growth

Involves mergers and takeovers with other businesses. Also known as integration.

Three types of external growth

horizontal, vertical & conglomerate.

Horizontal merger

When a company merges or takes over another one in the same industry. i.e. Facebook taking over Instagram.

Two types of vertical mergers

Forward vertical integration, and backward vertical integration

Example of forward vertical integration

A business making leather shoes takes over a business selling leather shoes.

Example of backward vertical integration

A business making leather shoes takes over a business making leather shoes.

Conglomerate merger

When a company takes over or merges with another company in a different industry. i.e. A car manufacturer merges with a food manufacturer.

What are some problems linked to business growth?

When a business is large, it is difficult to control; it leads to poor communication; because of expansion, there may be a shortage of cash.

Why do some business remain small?

The type of industry the business operates in; the market size; the owner’s objective

reasons of business failure

lack of management skills; not enough cash; changes in business environment