3.

Enterprise, business growth and size

ADVANTAGES, DISADVANTAGES AND CHARACTERISTICS OF AN ENTREPRENEURS

Advantages Disadvantages Characteristics

Independence Risk Hardworking

Able to choose how to allocate Poor planning, poor management and Longer working hours and shorter
own time and money poor communication and resource holidays to make the business
allocation successful.

Own ideas into practice Own Capital Innovative

Able to put own ideas, personal Has to put own money and has to find Put new business ideas about products,
interests and skills into practice other sources of finance inorder to services, ways of attracting customers
start up which hard and riskier into practice in interesting and different
ways to be competitive,

Famous Opportunity cost Self confident

Able to be famous if business Lost income from working as an
becomes successful and well employee. Own capital which could
known, positive publicity have been spent on higher education.
Leisure time forgone
Profitability
Able to earn a higher income and
profitability than working as an Lack of knowledge and experience in
employee for another business. starting and operating business.
Competitors might have much
experience in operating in this
industry.
Should be motivated and able to work
without any help, confidence helps to
convince banks, other lenders and
customers that your business will be
successful
Effective communicator
Talk clearly, politely, confidently and be
optimistic inorder to convince banks,
attract customers, and suppliers. This
will give a good image about the
business to external stakeholders.

GOVERNMENT SUPPORT BUSINESS START UPS, HOW AND WHY……

HOW;
1. Business ideas and help - organising advice and support sessions offered by
experienced people to motivate new start ups and boost their self confidence and
determination,and help being optimistic.
2. Premises - ‘enterprise zones’ which provide low cost premises for business start ups,
therefore they could eliminate high cost locations and reduce start up costs. And would
encourage many new business startups.
3. Finance - loans to small firms in low interest rates. Grants , to start up businesses in
depressed areas with high unemployment
4. Labour - grants to small firms to train employees, and help increase their productivity,
and skills, knowledge necessary to perform business needs.
WHY;
1. Reduce unemployment - new businesses create job opportunities
2. Increase competition - increased competition ensures wider choice and variety of goods
and services for consumers, higher efficiency and reduced wastage of resources, lower
prices to attract customers.
3. Increase output - small firms set up as supportive firms for large businesses or
competing firms for other businesses and contribute to the GDP of the country so
economic growth and GDP per head and living standards of the country improve
4. Tax revenue - new start ups would raise employment and output, therefore higher
income and profits so the government gains higher tax revenue through income tax, VAT
and corporation taxes.

IMPORTANCES OF A BUSINESS PLAN

1. Convince banks - detailed , well organised business plans give banks the opportunity to
access the business products sold, owners, forecasted profits and costs, etc and shows
the business has thought about the future and planned to meet upcoming challenges in
the business environment. It helps to determine the amount and time period to allow a
loan for the business.
2. To judge the success of your business. - A formal business plan allows you to compare
actual operational results versus the business plan itself. It allows you to clearly see
whether you have achieved your strategic, financing, and operational goals (and why
you have or have not).
3. To attract employees and a management team- . To attract and retain top quality talent.
The business plan inspires employees and management that the idea is sound and that
the business is focused to achieve its strategic goals. Getting them motivated will be key
to your success.
4. To attract partners - Partners also want to see a business plan, in order to determine
whether it is worth partnering with your business.Before risking their time and capital,
companies will be more to partner if they can read a detailed explanation of your
company.

INCLUDINGS IN A BUSINESS PLAN:

● Name of business
● Products sold
● Market aimed
● Owners of the business
● Forecasted profits
● Location of business
● Cashflows

COMPARING THE SIZE OF BUSINESSES.

1. Number of employees - more employees in an organisation would mean it’s
comparatively larger than its competitors with less labour. BUT some firms could be
capital intensive using a great amount of capital and high cost equipment in production
 which might be actually larger. Also, one firm might be employing a lot of part time
workers and one would be employing a few full time workers. Therefore it’s hard to
compare.
2. Value of output - higher output means a firm is larger than its competitors. BUT, higher
output doesn’t guarantee higher sales if some stocks are unsold due to damages or
faults. Even though the output is high the value of the product produced might be low.
Eg; 10,000 sweets produced would not be atleast worth one car.
3. Value of sales - higher sales means larger business. BUT, higher sales doesn’t mean
higher profits, if the business is having equally high costs of sales and production. It
would be misleading to compare the sales value of two firms operating in two different
industries. Eg; sales revenue of a luxury jewellery seller and street sweets seller.
4. Value of capital employed - more capital invested in the business would mean it’s
comparatively larger than other organisations. BUT, some firms might be using labour
intensive production methods.
** At least two or more measures should be compared to determine the size of a
business.

WHY SOME BUSINESSES WANT TO GROW AND SOME WANT TO REMAIN SMALL

Grow Large Remain Small

● Higher profits - therefore expansion is faster, higher
salaries to managers and workers so easy to retain
motivated, skilled employees and managers
● High publicity- larger the firm higher the status and
prestige for owners, managers and business brand
name and brand image, and better reputation and
known by everyone
● Economies of scale- large firms are able to increase
output and reduce the average cost per unit produced
therefore could pass low prices to customers which
helps to attract more customers. Eg; purchasing EOS
( bulk purchase of raw materials allow chances for
discounts), financial EOS (banks are willing to lend
large firms at low interest rates since they conduct
most transactions through banks such as sales and
current accounts etc and also less likely to collapse.
● Higher market share - larger the firm higher the share
or number of customers from the whole market.
Expansion could be through merger or takeover
which allows to reduce competition and increase
existing and potential customers and create a loyal
customer base.
● Type of industry - firms offering specialised or
personal services such as catering, hair
dressing, plumbers etc. are more likely to
remain small as if they grow it would be difficult
to offer close and personal services demanded
by customers.
● Market size - if total number of customers in the
market are small such as luxurious cars,
expensive fashion etc. ,growth and expansion
would be useless,
● Owners objectives - small firm owners wish to
avoid stress and worry of running a large
business, and have improved relationships with
its loyal customers, and staff and suppliers. And
more interested in keeping full control over the
organisation.
Advantages of large firms Advantages of small firms

● Higher profits ● No Diseconomies of scale- improved

● Economies of scale communication, better motivation of workers
● Higher market share ● Quickly responds to changes in customer needs-
● Better publicity and brand image, improved since can easily adapt to new products, therefore
reputation higher sales and customers
● Higher influence over customers through high ● Government support - grants, industrial zones, etc
prices and suppliers through high quality low ● Not lose control or ownership- total control over
price supplies products sold, location, customers targeted,
● Influence government promotions offered, workers recruited etc
● Specialised and personalized products can charge
high prices, meet customer demand easily. And
offer personal service which is demanded and
valued by customers o could improve potential
customers easily

Disadvantages of large firms Disadvantages of small firms

● Diseconomies of scale- poor communication, ● No economies of scale- no purchasing, financial,

worker demotivation
● Higher expansion costs- high cost locations
raise fixed costs, cash flow problems, low
profits from owners so they become
discouraged
● Lack of relationship with customers, suppliers
and staff and employees
● Unable to quickly respond to changes in
consumer demand
● Difficult to control and manage, distance
between outlets or branches, less experienced
managers, decision making becomes harder
managerial EOS
● Limited finance for expansion and research and
development
● Less diversification - less range of products
available for customers, so cannot spread risk by
covering losses made by one product using profits
made by another
● No higher brand reputation or market share so
less trusted by customers, low customer base

WHY BUSINESS FAIL?

1. Poor management - lack of knowledge and experience, poor planning and
management by inexperienced, less skilled managers, inadequate research
leading to higher risk in startups. lacking effective decision making skills which
lead to wasteful resource allocation.
Solution - operate in small units, advanced IT equipments and
telecommunications,
2. Over expansion- expanding fast would lead to financial and management
problems, poor communication, poor motivation, large organisation structure
leading to poor coordination, etc. DEOS, average costs rising.
Solution - expand in small units, decentralisation, close less profitable outlets,
use profits of existing operations to grow (internal growth)
 3. Failure to plan for change - business environment changing frequently due to
changes in customer preference and taste and fashion and income,
improvements in technology, new competitors entering the industry, economics
changes such as inflation, economic growth, unemployment etc. otherwise would
lose sales and competitiveness.
Solution - business must be responsive to changes, keep in touch with the
changes in market, improved customer relationship and communication to
identify changes in customer preferences
4. Poor financial management - failure to plan for the future of the business or
prepare cash flow forecasts means business would run out of cash shortages
and be unable to pay due amounts to suppliers, banks, government etc.
Solution - ensure sufficient long term finance available, cash flow forecasts to
ensure business won’t run into negative cash balances, expansion using profits
from existing operations (internal growth)

TYPES OF EXPANSION

Internal growth - expansion through profits from existing operations such as opening up new
branches, offices, outlets, factories etc

External growth - expansion through merger or takeover

Types of external growth:
1. Horizontal expansion - Takeover or merge with another business
Same industry
Same stage of production
Example - ice cream manufacturer takes over or merges with another ice cream manufacturer
(elephant house with magic)

Advantages
Reduce competition therefore higher market share
Common knowledge needed and also experienced
Absorb profit margin of competitor overall profits rise
Economies of scale, so average cost falls and prices fall,
attract more customers
Disadvantages
Reduced competition creating monopoly which reduce
efficiency and so costs rise and prices rise
Different management and leadership styles
Financial problems
Harm relationship with suppliers of one firm
 2. Vertical integration
1. Vertical forward integration - Takeover or merge with another business
Same industry
Different stage of production
Closer to customer
Example - ice cream manufacturer overtakes or merges with an ice cream retailer or
seller.
Advantages Disadvantages
Greater control over the place(near competitors, customers Lack of experience and knowledge
etc) and promotions used (discounts, BOGOF, etc) Already establishes, larger retailers existing in the market
Absorbs retailers profit margin Restricting competitor’s products reduce variety to
Prevent displaying and selling competitor’s products consumers so sales fall

2. Vertical backward integration - Takes over or merges with another business

Same industry
Different stage of production
Closer to raw material or components supplier
Example - Ice cream manufacturer overtakes or merges with an ice cream ingredient
supplier.
Advantages Disadvantages
Greater control over the delivery, price and quality of Lack of knowledge and experience
ingredients or raw materials Already established, larger specialized suppliers
Absorbs suppliers profit margins
Prevent supplying to competitors

3. Conglomerate integration - Takes Over or merges with another business

Completely different industry

Advantages Disadvantages
Spread risks - diversification helps to cover losses of one Lack of experience and knowledge
product using profits of another product. Established competitors so has a customer base and
Profit margins increase reputation, EOS well developed
Transfer between ideas- developing ideas which allow to Higher prices higher costs of startup higher fixed costs
promote both products at the same time. Eg; hotel owner on location so can’t lower prices like competitors since
promotes his tea in the hotel they are already established