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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. productive assets in firm, which are used
in production of G&S
Capital intensive firm - few workers,
multiple machinery and automatic The more capital employed in a firm the
production 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) Not all markets are big, firm may be small
are produced in certain period of time in terms of workers and capital, but might
(month, year..) be the only one in town so market share is
big (hairdressing salon)
Value - how much revenue (money) they
earn per period of time
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
