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    Benefits Drawbacks: Unit 3: Enterprise, Business Growth and Size

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    1. An entrepreneur is someone who starts a business by taking risks to organize and operate a new venture that produces goods or services. 2. Governments support start-up businesses through providing business ideas, premises, financing, and research to create jobs, increase competition and economic output, and benefit society. 3. There are various ways to measure business size, such as number of employees, value of output, sales, or capital employed, which is important for investors, governments, competitors, workers, and banks.

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    Benefits Drawbacks: Unit 3: Enterprise, Business Growth and Size

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    Ne Pa
    62 views7 pages
    1. An entrepreneur is someone who starts a business by taking risks to organize and operate a new venture that produces goods or services. 2. Governments support start-up businesses through providing business ideas, premises, financing, and research to create jobs, increase competition and economic output, and benefit society. 3. There are various ways to measure business size, such as number of employees, value of output, sales, or capital employed, which is important for investors, governments, competitors, workers, and banks.

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    business studies GCSE

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    Unit 3

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    1. An entrepreneur is someone who starts a business by taking risks to organize and operate a new venture that produces goods or services. 2. Governments support start-up businesses through providing business ideas, premises, financing, and research to create jobs, increase competition and economic output, and benefit society. 3. There are various ways to measure business size, such as number of employees, value of output, sales, or capital employed, which is important for investors, governments, competitors, workers, and banks.

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    © All Rights Reserved
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    62 views7 pages

    Benefits Drawbacks: Unit 3: Enterprise, Business Growth and Size

    Uploaded by

    Ne Pa
    1. An entrepreneur is someone who starts a business by taking risks to organize and operate a new venture that produces goods or services. 2. Governments support start-up businesses through providing business ideas, premises, financing, and research to create jobs, increase competition and economic output, and benefit society. 3. There are various ways to measure business size, such as number of employees, value of output, sales, or capital employed, which is important for investors, governments, competitors, workers, and banks.

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    Unit 3: Enterprise, Business Growth and Size

     Enterprise and entrepreneurship


    An entrepreneur is a person who organizes, operates and takes risks for a new business
    venture. The entrepreneur brings together the various factors of production to produce goods
    or services.

    Characteristic of a successful entrepreneur


    o Risk taker
    o Creative
    o Self-confident
    o Innovative
    o Independent
    o Effective communicator
    o Hard working

    Benefits and drawbacks of being an entrepreneur

    Benefits Drawbacks

     Why governments support business start-up?


    Most governments offer support to entrepreneurs. This encourage them to set up new
    businesses. There are several reasons why this supports is given:

     Reduce unemployment – more jobs are created


     Increase competition – gives consumers more choice and compete with existing
    businesses
     Increase output – economy benefits from increase
     Benefit society – create social enterprise which offer benefits to society
     Can grow further – the business can expand into large business

    1
     What support do governments give to start-up businesses?
     Business ideas and help
     Premises
     Finance
     Labour
     Research

     How can business plan assist an entrepreneur?


     Business plan
    A business plan is a document containing the business objectives and important details about
    the operations, finance and owners of the new business.
    A business plan comprises of:

     The business location


     What products or services the business intend to provide
     Its business costs, cash flow
     Resources required-machinery, labours
    Uses of a business plan

    Making a business plan before actually starting the business can be very helpful by
    documenting the various details about the business:
    1. The owners will find it much easier to run it.
    2. There is a lesser chance of losing sight of the mission and vision of the business as
    the objectives have been written down.
    3. Moreover, having the objectives of the business set down clearly will help motivate
    the employees.
    4. A new entrepreneur will find it easier to get a loan or overdraft from the bank if they
    have a business plan.

    2
     Comparing business sizes
    Businesses vary in size, and there are some ways to measure them. For some people, this
    information could be very useful:

     Investors - how safe it is to invest in businesses


     Government - tax
     Competitors - compare their firm with other firms
     Workers - job security, how many people they will be working with
     Banks - can they get a loan back from a business.

    Business size can be measured in the following ways:


     Number of employees.

     Value of output. Does not take into account people employed. Does not take into
    account sales revenue.

     Value of sales. Does not take into account people employed.

    3
     Capital employed. Does not work on labour intensive firms. High capital but low
    output means low efficiency.

    You cannot measure a business’s size by its profit, because profit depends on too many
    factors not just the size of the firm.

     Why do owners often want their businesses to grow?


    There are several reasons behind the expansion of a business:

     Possibility of higher profits


     More status and prestige for owners and managers
     Lower average costs-benefit from economies of scale
     Larger share of its market

     Business growth
    How can a business grow?
    There are two ways in which a business can grow- internally and externally.

    Business
    Growth

    Internally Externally

    Merger or
    takeover

    Horizontal vertical Conglomerate

    Forward Backward

    4
    1. Internal growth
    This occurs when a business expands its existing operations. For example, when a fast food
    chain opens a new branch in another country. This is a slow means of growth but easier to
    manage than external growth.

    2. External growth
    This is when a business takes over or merges with another business. It is sometimes called
    integration as one firm is ‘integrated’ into the other.

     A merger is when the owner of two businesses agree to join their firms together to
    make one business.
     A takeover occurs when one business buys out the owners of another business, which
    then becomes a part of the ‘predator’ business.

    External growth can largely be classified into three types:

    1. Horizontal merger/integration: This is when one firm merges with or takes over
    another one in the same industry at the same stage of production. For example, when
    a firm that manufactures furniture merges with another firm that also manufacturers
    furniture.
    Benefits:

     Reduces number of competitors in the market, since two firms become one.
     Opportunities of economies of scale.
     Merging will allow the businesses to have a bigger share of the total market.

    2. Vertical merger/integration: This is when one firm merges with or takes over
    another firm in the same industry but at a different stage of production. Therefore,
    vertical integration can be of two types:

    i. Backward vertical integration: When one firm merges with or takes over another
    firm in the same industry but at a stage of production that is behind the ‘predator’
    firm. For example, when a firm that manufactures furniture merges with a firm
    that supplies wood for manufacturing furniture.
    Benefits:

     Merger gives assured supply of essential components.


     The profit margin of the supplying firm is now absorbed by the expanded firm.
     The supplying firm can be prevented from supplying to competitors.

    5
    ii. Forward vertical integration: When one firm merges with or takes over another
    firm in the same industry but at a stage of production that is ahead of the ‘predator’
    firm. For example, when a firm that manufactures furniture merges with a
    furniture retail store.
    Benefits:

     Merger gives assured outlet for their product.


     The profit margin of the retailer is now absorbed by the expanded firm.
     The retailer can be prevented from selling the goods of competitors.

    3. Conglomerate merger/integration: This is when one firm merges with or takes over
    a firm in a completely different industry. This is also known as ‘diversification’. For
    example, when a firm that manufactures furniture merges with a firm that produces
    clothing.
    Benefits:

     Conglomerate integration allows businesses to have activities in more than one


    country. This allows the firms to spread its risks.
     There could be a transfer of ideas between the two businesses even though they are
    in different industries. This transfer of ideas could help improve the quality and
    demand for the two products.

    6
     Why businesses stay small
    Not all businesses grow.Some stay small, employ a handful of workers and have little output.
    Here are the reasons why.

    1. Type of industry: Some firms remain small due to the industry they operate in.
    Examples of these are hairdressers, car repairs, catering, etc, which give personal
    services and therefore cannot grow.
    2. Market size: If the firm operates in areas where the total number of customers is
    small, such as in rural areas, there is no need for the firm to grow and thus stays small.
    3. Owners’ objectives: Not all owners want to increase the size of their firms and
    profits. Some of them prefer keeping their businesses small and having a personal
    contact with all of their employees and customers.

     Why businesses fail


    Not all businesses are successful. For new firms especially, the rate of failure is rather high.
    The main reasons why they fail are:

    1. Poor management: This is a common cause of business failure for new firms. The
    main reason is lack of experience which could lead to bad decision making. New
    entrepreneurs could make mistakes when choosing the location of the firm, the raw
    materials to be used for production, etc, all resulting in failure.
    2. Over-expansion: This could lead to diseconomies of scale and greatly increase costs.
    This could happen if a firms expands too quickly or over their optimum level.
    3. Failure to plan for change: The demands of customers keep changing with change
    in tastes and fashion. Due to this, firms must always be ready to change their products
    to meet the demand of their customers. Failure to do so could result in losing
    customers and loss.
    4. Poor financial management: If the owner of the firm does not manage his finances
    properly, it could result in cash shortages. This will mean that the employees cannot
    be paid and enough goods cannot be produced. Poor cash flow can therefore also
    cause businesses to fail.

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