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2. Enterprise, business growth and size

Enterprise – business know-how, skills and qualities including the willingness to take
considered financial and other business risks

Enterpreneurship – the process of identifying a business opportunity, organizing the

resources needed to start and run a business and taking both the risks and the rewards it
involves

Enterpreneur – an enterprising person who is willing and able to take the risks and
decisions necessary to organize resources to produce goods and services

Pros: Cons:

 Making best use of your skills and  Increased risk

interests  Increased responsibility
 Being independent  Long hours
 Increased motivation  High opportunity cost
 The potential to earn more income

Business plan - a written statement about a business idea: how it will be organized, what
the owners want to achieve with it and how they will do so

Government support for business start-ups

 Grants – can be used to ofset the cost of equipment, training, development, workers
 Low-cost loans – loans at a low rate of interest to finance machinery, equipment...
because banks may be unwilling to to lend
 Tax incentives – reductions in taxes on the prices of goods and services or
reducions in taxes on business profits
 Low-cost or rent-free premises – office and factory units... paid by the government
 Free or low-cost advice and training - government can organize classes and
provison advice

Ways to measure size of firm

• How many workers they employ

• How much capital they employ
• The volume or value of their output or sales
• Their market share

Measuring the size of business

1. Measure – number of employees 2. Measure – capital employed

Firms with fewer employees are Capital employed - money invested in

considered smaller.
Capital intensive firm - few workers,
multiple machinery and automatic
production
productive assets in firm, which are used
in production of G&S
The more capital employed in a firm the
more it can produce therefore the greater
its size or scale of production

Labour intensive – little machinery and

capital, a lot of workers
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3. Measure – output or sales 4. Measure – market share

Comparing firms in same industry The market share of particular firm is the
according to how much output they proportion of total sales revenue or
produce or how much they sell turnover that is attributable to that firm.

Volume – how many pieces (e. g. phones)
are produced in certain period of time
(month, year..)
Value - how much revenue (money) they
earn per period of time
Not all markets are big, firm may be small
in terms of workers and capital, but might
be the only one in town so market share is
big (hairdressing salon)

Advantages of a large companies

 Diversification - producing varied range of goods and expanding into different

consumer markets to reduce risk
 Economies of scales – increasing the volume of output or scale of production of a
product can reduce average cost of producing each item or unit of output (cost savings)
 Banks land more money, More profit....

Ways firms can grow

1. Internal growth 2. External growth

- firm expanding its scale of production - known as integration, through:

through the purchase of additional
equipment, increasing the size of its Merger – one or more firms agree to join
premises and hiring more labour together to create new, larger enterprise

Takeover / acquisition – one company

buys enough shares so it takes overall
control. This can happen with or without
the agreement of the owner

Integration

 Horizontal integration – involves firms engaged in the production of the same type
of good or service
 Vertical integration – occurs between firm at different stages of production
 Lateral integration – firms that produce a wide range of different products

Causes of business failure

• Poor management – unskilled, inexperienced managers

• Poor financial control – spends more than its able to earn
• Changes in the external business environment – economic recession,
changes in consumer preferences...

Why some businesses remain small

• the size of market is small – if there is small number of customers, no point in

being a big firm
• access to capital is limited – unable to raise enough money to grow
• new technology has reduced the scale of production needed - small
businesses have access to machinery and equipment
• some business owners choose to stay small – lower taxes, make reasonable
profit, no need to grow