Chapter 3 Enterprise, Business Growth and Size

Source:CambridgeIGCSEBusinessStudies,4th
edition,KarenBorrington&PeterStimpson
Notes
Chapter 3: Enterprise, Business
Growth and Size
E
nterpriseandEntrepreneurship
Entrepreneur A person who organises, operates and takes the risk

foranewbusinessventure.

Advantages:
a)Independence

b)Workonownideas

c)Fameandsuccesswhenbusinessgrows

d)Moreprofitable

e)Makeuseofpersonalinterestsandskills
Disadvantages:

a)Riskoffailure

b)Owncapitalatrisk

c) Lack of knowledge and experience in starting and operating a
business

d)Inconsistentmonthlyincome


Characteristicofsuccessfulentrepreneurs:
a)Hardworking
b)Risktaker
c)Creative
d)Selfconfident
e)Innovative
f) Independent
g)Effectivecommunicator

WhyGovernmentsSupportBusinessStartup
Newbusinesseswillcreatejobsthatwillhelpreduceemployment.

New businesses will give consumers more options and increase
competitionwithalreadyestablishedbusinesses.
New businesses will help the economy benefit from the increased
outputofproducts.
New businesses may grow to become very large and important

businessesinthefuture.
WhatSupportGovernmentsGiveToStartupBusinesses
Business ideasandhelpbyorganisingadviceandsupportsessions
offeredbyexperiencedbusinesspeople.

Premises with enterprisezonewhichprovidelowcostpremisesto
startupbusinesses.
Financeloansatlowinterestrates.
Labour Grants to train employees and help increases their

productivity.
Research Encourage universities to make their research facilities

availabletonewbusinessenterpreneurs.
BusinessPlan
It is a document containing the business objectives and important
details about the operations, finance and owners of the new
business.

Elements:
a)Typeofbusinessorganisation
b)Businessobjectives
c)Goods/Services
d)Targetmarket
e)Humanresourcesplan
f) Locationofbusiness
g)Productiondetailsandbusinesscosts
h)Forecastprofit
i) Cashflow
j) Finance


A bank will certainly ask an entrepreneur for a business plan before
agreeingtoaloanoverdrafttohelpfinancethenewbusiness.

Without a business plan, the bank will be reluctant to lend money to
the businessasitcannotshowthattheyhavethoughtseriouslyabout
thefuture.

CompanyBusinessSize
Firms can be owned and run by a single individual, or it can have

hundredsofthousandsofworkersallovertheworld.
Investors, governments, banks, competitors andworkerswouldfindit
usefultocomparebusinesssizes.

Business sizes can be measured by the numberofemployees,value
of output, value of sales and value of capital employed that all have
advantagesandlimitations.
CapitalemployedItisthetotalvalueofcapitalusedinthebusiness.
Number of employees a high level of output does not mean that a

business is large. A firm employing a few people might produce
several very expensive computers each year and have higher output
figures than a firm selling cheaper products but employing more
workers.
ValueofsalesItcanbeverymisleadingwhencomparingthesizeof
businessesthatsellverydifferentproducts.
Value of capital employed A company employing many workers

may use labourintensive methods of production. These give low
outputlevelsanduselittlecapitalequipment.

WhyOwnersOftenWantBusinessesToGrow
Possibilityofhigherprofitsfortheowners.

Morestatusandprestigefortheownersandmanagers.
Large share of its market as the proportion of total market sales it

makesisgreater.
HowBusinessesCanGrow
Internal growth It occurs when a business expands its existing

operations.

External growth It is when a business takes over or merges with
anotherbusiness.Itisoftencalledintegration.
Merge It is when the owners of two businesses agree to join their

firmstogethertomakeonebusiness.
Takeover It is when one business buys out the owners of another

businesswhichthenbecomespartofthebusiness.
Horizontal integration It is when one firm merges with or takes over

anotheroneinthesameindustryatthesamestageofproduction.
Vertical integration It is when one firm merges with or takes over

another one in the same industry but at a different stage of
production.
Forward vertical integration It merges with a firm which is at later

stageofproduction(closertotheconsumer)
Backward vertical integration It merges with a firm at an earlier

stageofproduction(closertotherawmaterialsupplies).
Conglomerate integration It is when one firm merges with or takes

overafirminacompletelydifferentindustry/diversification.
Advantages
HorizontalIntegration

a)Themergerreducescompetitionintheindustry.
b) The combined business will have a bigger share of the total
market.

ForwardVerticalIntegration
a)Themergergivesanassuredoutletfortheirproduct.
b) Information about consumer need and preferences cannowbe
obtaineddirectlybythemanufacturer.
BackwardVerticalIntegration
a)Themergergivesanassuredsupplyofimportantcomponents.
b) Costs of components and supplies for the manufacturer could
becontrolled.
ConglomerateIntegration
a) The business would have diversified its activities and this will
spreadtheriskstakenbythebusiness.

b) There might be a transfer of ideas between the different

sectionsofthebusinesseseventhoughtheyoperateindifferent
industries.

Disadvantages:
a)Hardtocontrol.

b)Poorcommunication.

c) Expansion is costly, so do it slowlyanduseprofitsforfurther
growth.

WhySomeBusinessesStaySmall
Theyofferpersonalservices/specialisedproducts.

It is difficult to offer the close and personal service demanded by
customersifthebusinessistoolarge.

TheMarketSizeIsSmall
Owners are interested in keeping control of a small busines and

knowingalloftheirstaffandcustomers.

Owners wish to avoid the stress and worry of expanding the
business.
WhySomeBusinessesFail
Poor management Lack of experience can lead to bad decisions,

likelocatingthebusinessinanareawithhighcostsbutlowdemand.


Failure to plan for change New technology, powerful new
competitors and major economic changes can lead to business
failureifnotrespondedtoeffectively.
Poor financial management Shortage of cash means that workers,

suppliers,landlordsandmorecannotbepaidwhattheyareowed.
Overexpansion When it expands too quickly, it can lead to big

problemsofmanagementandfinance.

Risks of new business start up The owner may lack of experience
anddecisionmakingskills.

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Source:CambridgeIGCSEBusinessStudies,4th

Entrepreneur A person who organises, operates and takes the risk

New businesses may grow to become very large and important

Labour Grants to train employees and help increases their

Research Encourage universities to make their research facilities

Firms can be owned and run by a single individual, or it can have

Number of employees a high level of output does not mean that a

Value of capital employed A company employing many workers

Large share of its market as the proportion of total market sales it

Internal growth It occurs when a business expands its existing

Merge It is when the owners of two businesses agree to join their

Takeover It is when one business buys out the owners of another

Horizontal integration It is when one firm merges with or takes over

Vertical integration It is when one firm merges with or takes over

Forward vertical integration It merges with a firm which is at later

Backward vertical integration It merges with a firm at an earlier

Conglomerate integration It is when one firm merges with or takes

b) There might be a transfer of ideas between the different

Owners are interested in keeping control of a small busines and

Poor management Lack of experience can lead to bad decisions,

Poor financial management Shortage of cash means that workers,

Overexpansion When it expands too quickly, it can lead to big

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