Business Size, Small Businesses, and Business Growth

Flashcards about business size, small businesses, and business growth, based on lecture notes.

Revenue

The total value of sales made during the trading period (selling price x quantity sold).

Capital Employed

The total value of all long-term finance invested in the business.

Market Capitalization

The total value of a company's issued shares.

Market Share

Sales of the business as a proportion of total market sales.

Organic Growth

Expansion of a business by means of opening new branches, shops, or factories (also known as internal growth).

External Growth

Business expansion achieved by integrating with another business by either merger or takeover.

Merger

An agreement by owners and managers of two businesses to bring them together in a new combined business. This is often referred to as a friendly merger.

Takeover

When a company buys more than 50% of the shares of another company and becomes its controlling owner. It can be called an acquisition.

Horizontal Integration

Integration with a business in the same industry and at the same stage of production.

Vertical Integration

Integration with a business in the same industry.

Forward Vertical Integration

Vertical integration with a customer business.

Backward Vertical Integration

Vertical integration with a supplier business.

Conglomerate Integration

Integration with a business in a different industry.

Synergy

Literally means that 'the whole is greater than the sum of parts' - it is often assumed that the new business will be more successful than the original separate businesses.

Strategic Alliance

Agreement between two organisations to commit resources to achieving a specific objective while remaining independent.

Number of Employees

A measure of business size based on the number of people employed by the business.

Revenue/Sales Turnover

This is often used as a measure of size, especially when comparing businesses in the same industry; it is the total value of sales.

Capital Employed

A measure of business size which is the total value of all long-term finance invested in the business.

Market Capitalisation

A measure of business size calculated by current share price x total number of shares issued.

Market Share

A relative measure, if a firm has a high amount of this, it must be among the leaders in the industry and comparatively large.

Small Business

Businesses employing few people and with relatively low annual revenue are considered this.

Importance of Small Firms

These create employment, variety/choice. and competition, supply specialist goods and services, and they all began small.

Advantages of Small Businesses

Can be managed/controlled by the owner, adapt quickly to customer needs, offer personal service; it is often family-owned; it can usually be started with low capital investment.

Disadvantages of Small Businesses

Limited access to finance sources, the the owner has a large burden of responsibilities. They may not be diversified, they have high costs due to little economies of scale.

Strengths of Family Businesses

Commitment, reliability and pride, knowledge continuity are all strengths of this type of business.

Weaknesses of Family Businesses

Succession/continuity problems, informality, tradition, and conflicts are weaknesses of this type of business.

Importance of Small Businesses in the Economy

Help generate economic growth, amount to a high percentage of all employers, create a high percentage of all new jobs, and are often innovative.

Reasons for Business Growth

To increase profits, increased market share, increased economies of scale, increased power and status, and a reduced risk of being a takeover target.

Organic Growth Example

opening more shops in new locations to grow the business.

Disadvantages of Horizontal Integration

May bring bad publicity, customer opposition, and monopoly investigation.