Business ( Enterprise, Business growth and size (Why governments support…
- Enterprise, Business growth and size
Why business fail?
- Poor management – from lack of experience, poor
choice of managers (family business), bad decisions
- Poor money management – lack of money to pay
workers, suppliers, landlords, etc.
- Competition with other businesses – new businesses
are at more risk of failing than existing businesses.
- Over-expansion – (diseconomies of scale), management
problems and finance
Why do some business stay small Type of industry the business operates in
- (Hairdressing, car repair) Too large = can't offer close and personal service demanded by consumer
- Total number of customers = small, businesses likely to remain small/goods + service of a specialized kind = appeal only to limited consumers
- keeping control of a small business, knowing all staff and customer, avoid stress
Enterprise and entrepreneurship
Entrepreneur = a person who organises, operates and takes the risks for a new business venture.Benefits
- Independence ( able to choose how to use time + money)
- Put own ideas into practice
- Famous and successful if business grow
- Make use of personal interest and skill
Characteristic of a successful entrepreneurs
- Risk ( new entrepreneurs' businesses might fail
- Capital (Have to put own money into business | find another source of capital)
- Lack of knowledge and experience when starting
- Hard working (long hours and short holidays = successful)
- Risk taker (takes a lot of risks to set up business),
- Creative (they need new ideas in order to become successful)
- Independent (work on their own before able to afford employees)
- Risk taker (decision making | goods/service that people want = risky)
- Optimistic (looking forward to a better future)
Why governments support business start-ups? - Reduce unemployment: New business = create jobs
- Increase output: economy benefits from increased output of goods + service
- Benefit society: entrepreneurs may create social enterprise which offer benefits to society other than jobs and profit (e.g supporting disadvantaged groups)
- Can grow further: government may be helping some firms that grow to become very large and important
Support that governments often give to start-up business - Business idea and help = organising advise, support session by experience business people
- Labour = Train employees, help increase their productivity
- Premises = Enterprise zone = provide low cost premise
- Finance = loans for small business at low interest rate | grants if start up in depressed area (unemployment)
How a business plan assists entrepreneurs?
- Bank will ask for business plan before agreeing to a loan or overdraft to help finance new business
- Entrepreneurs forced to think ahead and plan carefully
- If no business plan/not well completed = cannot show that they have thought seriously
- setting specific objectives and then tracking and following up.
Comparing size of business Who would find it useful to compare the size of business?
- Investor = which business to put their saving into
- Government - different tax rates for small and large business
- Competitors - compare size and importance with other firms
- Workers - some idea of how many people working with
- Banks - how important a loan to the business is compared to its overall size
- Number of employees = easy to calculate and compare >< use production method/machines and technology | very few employed but produce high output level
- Value of output = common way of comparing, in manufacturing industries - a company that have less worker but sell luxuries stuff
- Value of sales = compare in retailing business/selling similar product - comparing business with different product any price for them
- Value of capital employed = total value of capital used in bus - might not use capital efficiently or large number of employees use labour intensive method = give low output and use less capital equipment
Why do owners often want their business to grow?
- Higher profit/larger range of customer
- Prestige for owner and manager - higher salaries paid to manager who controls the bigger firm
- Lower average cost
- Larger share of its market/proportion of total market sales it makes is greater = give business more influence when dealing with suppliers and distributor, consumers are often attracted to the big names in an industries.
Internal growth = when a business expands its existing operations (restaurant open other restaurants in other towns) paid for by profit | type of growth often quite slow but easy to manageExternal growth = when a business takes over or merges with another businessHorizontal merger = when one firm merges with or takes over another one in the same industry at the same stage of production
Vertical merger when one firm merges with or takes over another one in the same industry but a different stage of production
- Reduce the number of competitors in the industry
- Opportunities for economies of scale
- A bigger share of the total market
Forward = later stage of production
Backward = earlier stage of production
- Give assured outlet for their product
- Information about consumer needs and preference can now be obtained directly by the manufacturer/another stage
Conglomerate merger = when one firm merges or takes over a firm in a completely different industry = also know as diversification
- Gives an assured supply of important component
- cost of component + supplies could be controlled
- Activities in more than one industry = diversified its activity = spread the risks taken by the business.
- Transfer of ideas between different sections of the business even if different industries
Problem of business growth
- Larger business is difficult to control
- Operate business in small unit
- Larger business leads to poor communication
- Operate business in small uni/IT equipment/telecommunication
- Expansion cost so much that business is short of finance
- Expand more slowly, use profit from slowly expanding business to pay for further growth/Ensure sufficient long-term finance
- Integrating with another business is difficult
- Introduce different style of management/require good communication = need to understand the reason for the change
All businesses attempt to Add value = selling price - cost of buying in materials and components.
If no value added = other cost cant be paid + no profit
if value-added = pay other costs such as labour cost and advertising + able to make profit
- Increase selling price but keep the cost of material the same + reduce the cost of materials but keep the price the same
Specialisation Factors of production are limited => important to use them as efficient as possible.Specialisation is now common because:
Purpose of all businesses is to combine the factors of production to make products which will satisfy people's want
- Specialised machinery and tech = available
- Increasing competition = business have to keep low cost
- Recognise higher living standard from being specialised
Since not enough resources to satisfy all of our want = have to decide which want we take and which one we give up => leads to opportunity cost
Economic problem The 4 factors of production:
Never enough of the four factors of production to produce all of the needs and unlimited wants of a whole population
- Land = natural resources provided by nature
- Labour = number of people available of make the product
- Capital = the finance, machinery and equipment needed for manufacturing
- Enterprise = skill and risk taking ability of the person who brings the other resources or factors of production together to produce a good or service = entrepreneurs
= there is an economic problem of scarcity.
Business activity = what businesses do: the types of goods and/or the service they produce
Core business activities = activity on which they depend more than the other/express that organization's "main" or "essential" activity.
- Classification of business
Mixed economy = Private sector + public sector
- Private = Business not owned by the government. Own decision of what to produce, how and the price. Most private sec aim to run profitably.However, some government control over the decision.
- Public = government or state owned and control business. Gov make decision of what to produce and how much to charge consumer. Some goods and services are provided free of charge (state health, education service. The money for these comes from taxpayer
Privatisation = when a public sector company becomes a private sector company = sold by the government
- Reason = main objective is profit = cost must be controlled
- Private owners might invest more capital than the government.
- However to cut costs = might make some workers unemployed
- Less likely to focus on social objective
Public = health, education, defence, public transport, electric + water supply
Changes in relative importance
- Most developed countries: Tertiary > Primary
- Developing countries: Primary > Tertiary
- Countries total wealth and living standard increase =
usually spend money on service (traveling and restaurant) rather than manufactured products from prim sec
- Losing competitiveness
- Sources of primary products become depleted.
Stages of economic activity
- Primary sector = Extracts and uses the natural resources of the earth to produce raw material used by other business.
- Secondary sector = Manufactures goods using raw materials. Converting resources into manufactured or processed goods.
- Tertiary sector = provide service to consumers and the other sectors of industry
- Types of business organisation
A business in which 2 to 20 people agree to own it.
Usually small businesses but bigger then sole traders.
- Useful for people who want to form a business but
don’t want the legal complications
- Industry such as medicine or law where you are not
allowed to form a company
- Partners that know each other very well
- Easy to set up, do not require a lot of money
- More capital invested (more expansion)
- Partners are motivated because any losses are shared by the partners
- Responsibilities are shared (focused on different parts
- Partners have unlimited liability
- Partners can disagree on decisions. If one of the partners are inefficient, they all lose money
- They are unincorporated. If one of the partners dies,
the partnership ends
• A business owned by just one person. It’s the smallest
type of business. Can employ other people, however.
- Useful for people who are setting up new business
- Do not need much capital to get the business running
- Will be dealing mainly with the public
- Easy to set up, do not require a lot of money to set up
- Their own boss, freedom to choose their own holidays, work hours, prices, who to employ
- Does not have to share profits
- Close relationship with customers
- Capital is usually provided by the owner, hard to get
capital to expand the firm
- They have unlimited liability (responsible for any debts of the business, the bank can take away possessions to pay back)
- They are unincorporated (business has the same identity as the owner). So, business ends when owner dies