UNIT 3: ENTERPRISE, BUSINESS GROWTH AND SIZE
ENTREPRENUER:
Entrepreneur is a person who organizes, operates and takes a risk for a new business venture
Entrepreneur is a person who organizes, operates and takes a risk for a new business venture
Benefits of being an entrepreneur
+ independence - able to choose how to use time and money + able to put own ideas into practice + may become famous and successful if the 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 new entrepreneurs' businesses fail, especially if there is poor planning + capital - entrepreneurs will have to put their own money into the business and, possibly, find other sources of capital + lack of knowledge and experience in staring and operating a business + opportunity cost - lost income from not being an employee of another business |
SOME OF ENTREPRENEUS
Characteristics of successful entrepreneurs
Hard working Risk taker Creative Optimistic Self-confident Innovative Independent Effective communicator |
Reasons why important
- Long hours and short holidays are typical for many entrepreneurs to make their business successful. - Making decisions to produce goods or services that people might buy is potentially risky. - A new business needs new ideas - about products, services, ways of attracting customers - to make different from other existing firms. - Looking forward to a better future is essential - if you think only of failure you will fail - Being self-confident is necessary to convince other people of your skills and to convince banks, other lenders and customers that your business is going to be successful. - Being able to put new ideas into practice in interesting and different ways is also important. - Entrepreneurs will often have to work on their own before they can afford to employ others. Entrepreneurs must be well motivated and be able to work without any help. - Taking clearly and confidently to banks, other lenders, customers and government agencies about the new business will raise the profile of the new business. |
WHY GOVERNMENTS SUPPORT BUSINESS STAR-UPS
+ Reduce unemployment - new businesses will often create jobs to help reduce unemployment.
+ Increase competition 0 - new businesses give consumers more choice and compete with already established businesses.
+ Increase output - the economy benefits from increased output of goods and services.
+ Benefit society - entrepreneurs may create social enterprises which offer benefits to society other than jobs and profit
+ Can grow further - all large businesses were small once! By supporting today's new firms the government may be helping some firms that grow to be come very large and important in the future
+ Reduce unemployment - new businesses will often create jobs to help reduce unemployment.
+ Increase competition 0 - new businesses give consumers more choice and compete with already established businesses.
+ Increase output - the economy benefits from increased output of goods and services.
+ Benefit society - entrepreneurs may create social enterprises which offer benefits to society other than jobs and profit
+ Can grow further - all large businesses were small once! By supporting today's new firms the government may be helping some firms that grow to be come very large and important in the future
WHAT SUPPORT DO GOVERNMENTS OFTEN GIVE TO START-UP BUSINESSES?
Business start-ups need:
Business idea and help Premises Finance Labor Research |
Governments often give support by:
- Organizing advice and support sessions offered by experienced business people. - 'Enterprise zones', which provide low-cost premises to start-up businesses. - Loans for small businesses at low interest rates. Grants, if businesses start up in depressed areas of high unemployment. - Grants to small businesses to train employees and help increase their productivity. - Encouraging universities to make their research facilities available to new business entrepreneurs. |
BUSINESS PLAN
A business plan is a document containing the business objectives and important details about operations, finance and owners of the new business.
=> The entrepreneurs will have to consider:
+ What products or services do I intend to provide and which consumers am I 'aiming at'?
+ What will be my main costs and will enough products be sold to pay for them?
+ Where will the firm be located?
+ What machinery and how many people will be required in the business?
A business plan is a document containing the business objectives and important details about operations, finance and owners of the new business.
=> The entrepreneurs will have to consider:
+ What products or services do I intend to provide and which consumers am I 'aiming at'?
+ What will be my main costs and will enough products be sold to pay for them?
+ Where will the firm be located?
+ What machinery and how many people will be required in the business?
CAPITAL EMPLOYED
Capital employed is a total value of capital used in the business
=> Business size can be measured in a number of ways. The most common are:
+ Number of employees
+ value of output
+ value of sales
+ value of capital employed
+ Profit level
They all have advantages and limitations
Capital employed is a total value of capital used in the business
=> Business size can be measured in a number of ways. The most common are:
+ Number of employees
+ value of output
+ value of sales
+ value of capital employed
+ Profit level
They all have advantages and limitations
* LIMITATIONS:
NUMBER OF EMPLOYEES: some firms use production methods which employ very few people but which produce high output levels
VALUE OF OUTPUT: a high level of output does not mean that a business is large when using the other methods of measurement
VALUE OF SALES: it could be misleading to use this measure when comparing the size of businesses that sell very different products
VALUE OF CAPITAL EMPLOYED: this has a similar problem to that of the "number of employees" measure
NUMBER OF EMPLOYEES: some firms use production methods which employ very few people but which produce high output levels
VALUE OF OUTPUT: a high level of output does not mean that a business is large when using the other methods of measurement
VALUE OF SALES: it could be misleading to use this measure when comparing the size of businesses that sell very different products
VALUE OF CAPITAL EMPLOYED: this has a similar problem to that of the "number of employees" measure
WHY DO OWNERS OFTEN WANT THEIR BUSINESSES TO GROW?
Here are some likely benefits:
+ the possibility of higher profits for the owners
+ more status and prestige for the owners and managers
+ lower average costs (Economies of scale)
+ larger share of its market
Here are some likely benefits:
+ the possibility of higher profits for the owners
+ more status and prestige for the owners and managers
+ lower average costs (Economies of scale)
+ larger share of its market
HOW CAN BUSINESSES GROW?
Internal growth occurs when a business expands its existing operations.
External growth is when a business takes over or merges with another business. It is often called integration as one firm is integrated into another one.
A merger is when the owners of two businesses agree to join their firms together to make one business.
A takeover or acquisition is when one business buys out the owners of another business which then becomes part of the 'predator' business (the firm which has taken it over).
Horizontal integration is when one firm mergers with or takes over another one in the same industry at the same stage of production.
Vertical integration is when one firm mergers with or takes over another one in the same industry but at a different stage of production. Vertical integration can be forward or backward.
Conglomerate integration is when one firm mergers with or takes over a firm in a completely different industry. This is also known as diversification.
External growth is when a business takes over or merges with another business. It is often called integration as one firm is integrated into another one.
A merger is when the owners of two businesses agree to join their firms together to make one business.
A takeover or acquisition is when one business buys out the owners of another business which then becomes part of the 'predator' business (the firm which has taken it over).
Horizontal integration is when one firm mergers with or takes over another one in the same industry at the same stage of production.
Vertical integration is when one firm mergers with or takes over another one in the same industry but at a different stage of production. Vertical integration can be forward or backward.
Conglomerate integration is when one firm mergers with or takes over a firm in a completely different industry. This is also known as diversification.
THE LIKELY BENEFITS OF INTEGRATION
HORIZONTAL INTEGRATION
+ The merger reduces the number of competitors in the industry
+ There are opportunities for economies of scale
+ The combined business will have a bigger share of the total market than either firm before the integration
FORWARD VERTICAL INTEGRATION
+ The merger gives an assured outlet for their product
+ The profit margin made by the retailer is absorbed by the expanded business
+ The retailer could be prevented from selling competing makes of car
+ Information about consumer needs and preferences can now be obtained directly
BACKWARD VERTICAL INTEGRATION
+ The merger gives and assured supply of important components
+ The profit margin of the supplier is absorbed by the expanded business
+ The supplier could be prevented from supplying other manufactures
+ Costs of components and supplies for the manufacturer could be controlled
CONGLOMERATE INTEGRATION
+ The business now has activities in more than one industry. This means that the business has diversified its activities and this will spread the risks taken by the business
+ There might be a transfer of ideas between the different sections of the business even though they operate in different industries
+ The merger reduces the number of competitors in the industry
+ There are opportunities for economies of scale
+ The combined business will have a bigger share of the total market than either firm before the integration
FORWARD VERTICAL INTEGRATION
+ The merger gives an assured outlet for their product
+ The profit margin made by the retailer is absorbed by the expanded business
+ The retailer could be prevented from selling competing makes of car
+ Information about consumer needs and preferences can now be obtained directly
BACKWARD VERTICAL INTEGRATION
+ The merger gives and assured supply of important components
+ The profit margin of the supplier is absorbed by the expanded business
+ The supplier could be prevented from supplying other manufactures
+ Costs of components and supplies for the manufacturer could be controlled
CONGLOMERATE INTEGRATION
+ The business now has activities in more than one industry. This means that the business has diversified its activities and this will spread the risks taken by the business
+ There might be a transfer of ideas between the different sections of the business even though they operate in different industries
name_of_business.docx | |
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WHY DO SOME BUSINESSES STAY SMALL?
+ The type of industry the business operates in
+ the market size
+ the owners' objectives.
THE TYPE OF INDUSTRY THE BUSINESS OPERATES IN
+ The type of industry the business operates in
+ the market size
+ the owners' objectives.
THE TYPE OF INDUSTRY THE BUSINESS OPERATES IN
MARKET SIZE
If the market - that is, the total number of customers - is small, the businesses are likely to remain small.
If the market - that is, the total number of customers - is small, the businesses are likely to remain small.
OWNERS' OBJECTIVES
Some business owners prefer to keep their firm small. They could be more interested in keeping control of a small business, knowing all of their staff and customers, than running a much larger business.
Some business owners prefer to keep their firm small. They could be more interested in keeping control of a small business, knowing all of their staff and customers, than running a much larger business.
WHY SOME BUSINESSES FAIL
+ Poor management: this is a common cause of new business failure. Lack of experience can led to bad decisions
+ Failure to plan for change: this business environment is constantly changing - this features in many other letter chapters
+ Poor financial management: shortage of cash (lack of liquidity) means that workers, suppliers, landlords and government cannot be paid what they are owned.
+ Over - expansion: when a business expands too quickly it can lead to big problems of management and finance
+ Risks of new business start - ups: many new businesses fail due to lack of financial and other resources, poor planning and inadequate research
+ Poor management: this is a common cause of new business failure. Lack of experience can led to bad decisions
+ Failure to plan for change: this business environment is constantly changing - this features in many other letter chapters
+ Poor financial management: shortage of cash (lack of liquidity) means that workers, suppliers, landlords and government cannot be paid what they are owned.
+ Over - expansion: when a business expands too quickly it can lead to big problems of management and finance
+ Risks of new business start - ups: many new businesses fail due to lack of financial and other resources, poor planning and inadequate research
1/ Entrepreneur is a person who organizes and takes a risk.
2/ 2 common characteristics of successful entrepreneurs:
+ Hard - working: to get everything can be done on time.
+ Creative: think outside the box, being different.
3/ 2 elements of a business plan:
+ Capital - money, equipment: everything we need
+ Market resources: to find out if the company can success or not
4/ - To reduce the number of unemployment
- To increase the number of competition
5/ - value output
- staff/worker
6/ - capital
- Labor
=> The firm business will have a higher number of capital because they have a bigger number of machines compare to the fruit business. But the fruit business have a higher number of employees because they have more labor and more workers
7/ - The higher profit for the owners
- Low costs
=> More power
8/ Different between a takeover and a merger:
+ A takeover: is when one business buys out the owners of another business which then becomes part of the 'predator' business
+ A merger: is when the owners of two business agree to join their firms together to make one business
9/ Examples of horizontal integration of businesses
+ (ex): If Samsung buys Apple
+ (ex): If McDonald buys KFC
10/ Examples of forward vertical integration of businesses
+ (ex): A famer buys KFC
+ (ex): A cattle farm buys McDonald
11/ + Increase sales
+ More control - more power
12/ a/ Internal growth - because the owners just want to expand its existing operations
b/ + Advantages: More easy to manage
+ Disadvantages: It grows quite slow
13/ Two reasons:
+ The market size
+ Owner's object
2/ 2 common characteristics of successful entrepreneurs:
+ Hard - working: to get everything can be done on time.
+ Creative: think outside the box, being different.
3/ 2 elements of a business plan:
+ Capital - money, equipment: everything we need
+ Market resources: to find out if the company can success or not
4/ - To reduce the number of unemployment
- To increase the number of competition
5/ - value output
- staff/worker
6/ - capital
- Labor
=> The firm business will have a higher number of capital because they have a bigger number of machines compare to the fruit business. But the fruit business have a higher number of employees because they have more labor and more workers
7/ - The higher profit for the owners
- Low costs
=> More power
8/ Different between a takeover and a merger:
+ A takeover: is when one business buys out the owners of another business which then becomes part of the 'predator' business
+ A merger: is when the owners of two business agree to join their firms together to make one business
9/ Examples of horizontal integration of businesses
+ (ex): If Samsung buys Apple
+ (ex): If McDonald buys KFC
10/ Examples of forward vertical integration of businesses
+ (ex): A famer buys KFC
+ (ex): A cattle farm buys McDonald
11/ + Increase sales
+ More control - more power
12/ a/ Internal growth - because the owners just want to expand its existing operations
b/ + Advantages: More easy to manage
+ Disadvantages: It grows quite slow
13/ Two reasons:
+ The market size
+ Owner's object