Enterprise, business growth and size

How can we measure a businesses size?
1. Value of output
  1. Larger businesses will obviously produce much more output than smaller businesses, however this can be a limitation because smaller businesses may produce more output in one product due to specialisation but may not sell as this output but give the impression of being larger.
2. Number of employees
  1. Larger businesses usually need more employees than smaller businesses because they neeed more to help run it, however this is a limitation because sometimes smaller businsses use automation or other production methods that produce very high output but with less employees
3. Value of sales
  1. More sales usually means that the business is larger because they have more units of operation etc however the market may be such that it does not allow of high sales output but the business is still large.
4. Value of capital employeed
  1. Larger businesses can usually raise more capital eg plc and ltd's however large businesses may use labour-intensive production which does not require large capital compared to automation however they still may be a large business
How do businesses grow?
1. Internally
  1. Internal growth occurs within an organisation
  2. This can be done by increasing sales revenue and increasing output, this is a form of growth because the more sales the businesses makes, the more profit they can therefore make and the greater the chance of them being able to retain higher amounts for profit for growth and expansion.
  3. Entering more markets in other countries or by selling a different range of products (diversification) expands the business into new markets and opens opportunities to increase size and overall profit. Entering international markets is also a great method of internal growth.
2. Externally
  1. Businesses grow externally by integrating themselves with other businesses, and this has two different methods
    1. Horizontal integration involves a business merging with another business or taking over business in the same level of production and same industry, creating a larger company
      1. This creates a less competitive market and businesses can charge higher prices because of this
      2. Adds the two businesses market shares together
      3. However it costs a lot of money to integrate businesses
      4. Consumers then have less choice and may have to pay higher prices because businesses can charge higher prices as less competition
    2. Vertical integration occurs between businesses in the same industry and market but a different production stage
      1. Costs of production or shipments will be lowered thus variable costs of the business will decrease
      2. Business has more influence over the market
      3. Quality control can be more readily applied
      4. Can be very expensive to do and requires lots of capital
      5. Inexperiance in the new business method
      6. Fixed costs may increase as new employees may need to be employed
    3. Some businesses grow by diversification, which involved merging or taking over a business in a different industry. This is useful because businesses can spread their risks, increase their market share in both markets, increase the range of products they sell. However, this is also dangerous because the business has no previous knowledge in the market and may not succeed in the new market
  2. This can be done through a merger, joining their business with another business in a friendly manner
  3. This can also be done by a takeover, where one business buys the rights to another and they then own the business and their product rights, combining the two business products, profits and employees together
Why do some businesses remain small?
1. The market that they are in, for example a niche market, may only allow them to gain so much market share because it is a smaller section of a larger market. This decreases the opportunity for growth and the business will therefore remain smaller.
2. Some businesses do not have the capital or profits to afford an expansion
3. The owner of a business may not wish to grow in fear of losing control and gaining diseconomies of scale
What is an entrepreneur and what qualities do they possess?
1. An entrepreneur is an individual who takes the risk and starts a business despite all costs in hope of gaining a reward
2. Entrepreneurs must be hardworking in order to keep trying and finding ways to make their business successful without much rest and must be committed to making their dream a reality
3. Starting a business is usually full time work and requires lots of capital despite the risk of failure, entrepreneurs must be risk-takers to quit their job and attempt enterprise despite the high chances of failure
4. Entrepreneurs must be optimistic to stay positive during the rough times in making their business work and look forward to an optimistic future for them and their business
5. Entrepreneurs must be independent because they will mostly have to work by themselves and be well motivated to work without having to ask for help
6. Entrepreneurs also need to be innovative in order to come up with new products and ideas for their business that are well-thought out and original
Why do businesses fail?
1. Some businesses may fail because their product has decreased demand and they have failed to plan for market changes, and therefore no sales of their products are made to cover all their costs and they make a loss
2. Lack of capital and cash flow problems may lead to the business being in debt or being unable to make sufficient revenue to cover costs
3. Some businesses may expand too quickly and costs may increase and they may recieve too many diseconomies of scale

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	Created by oliviaa.adamss about 11 years ago