Chapter 3 :

Enterprise, Business growth and size

Business Studies IGCSE
Ms Nelly
 Enterprise and Entrepreneurship
 Entrepreneur is a person who has an idea for a new business and takes the
financial risk of starting up and managing it.

Benefits of being an entrepreneur Disadvantages of being an entrepreneur

- Independence (able to choose how to - Risk when the business fail
use time and money) - Need capital (own money) to start up
- Able to put own ideas into practice the business
- May become famous and successful if - Lack of knowledge and experience in
the business grows starting and operating a business
- May be profitable and the income may - Opportunity cost – lost income from
higher than working as an employee not being an employee of another
- Able to make use of personal interests business
and skills
Characteristics of successful entrepreneurs
 Innovative and creative: think up new ideas for goods and services
 Self-confident : strong belief in own ability and ideas
 Risk-taker : prepare to take risk and see failure as positive experience to learn
 Self-motivated and determined : keep going even though things get difficult
 Hard working : long hours of working and short holiday
 Initiative : develop a good plan to achieve business’s objectives
 Optimistic : looking forward to a better future
 Multi –skilled : have understanding in finance, operations, human resources and marketing
 Independent : be able to work on their own without any help
 Effective communicator : talk clearly and confidently
 Strong leadership qualities : good decision makers and able to motivate others
 Good at networking : prepare to learn from others
Contents of a business plan
 Business plan is a detailed written document outlining the purpose and aims
of a business which is often used to persuade lenders or investors to finance a
business proposal.
 Contents of a business plan :
1. Description of the business
2. Products and services
3. The market
4. Business location and how products will reach customers
5. Organisation structure and management
6. Financial information
7. Business strategy
Business start-up
 Business start-up is a newly formed business. It is usually start small, but
some might grow to become larger business of the future.
 Why governments support business start-ups?
- To reduce unemployment
- To increase competition
- To increase output
- To benefit society
- Can grow further
Business start-up
 How governments support business start-ups?

Business start-ups need: Government support

Business idea and help Organising training for entrepreneurs that gives
advice and support sessions offered by
experience business people/special agencies
Premises Provide low-cost premises to start-up businesses
Rent-free premises for a certain period of time
Finance Loans at low interest rates
Grants if the business start up in high
unemployment area
Labour Free of subsidised training scheme for employees
Research Encouraging universities to make their research
facilities available to new business entrepreneurs
Comparing the size of the business

 Comparing the size of the business is useful to :

1. Investors – before deciding which business to invest.
2. Governments – to determine the tax rates for small and large businesses.
3. Competitors – to compare their size and importance with other firms.
4. Workers – to have some idea of how many people they might be working with.
5. Banks – to see how important a loan to the business.
Methods of measuring business size
Advantages and limitations of each method
 1. Number of people employed
This method is easy to calculate and compare with other businesses. However some firms use
production methods which employ very few people but produce high output levels. Beside that
should two part-time workers working half a working week each counted as one or two?
 2. Value of output
Common way of comparing business size in the same industry especially in manufacturing industries.
However a high level of output does not mean that the business is large.
 3. Value of sales
Often used when comparing the size of retailing businesses – especially retailers selling similar
products. However it could be misleading to use this measure when comparing the size of businesses
that sell very different products
 4. Value of capital employed
This shows the value of capital invested into the business. The limitation is a company employing
many workers may use labour - intensive methods of production. These give low output levels and
use little capital equipment.
Why the owner of the business
may want to expand the business

 The possibility of higher profits for the owners

 More status and prestige for the owner and managers
 Lower average costs
 Larger share of its market
Different ways in which
businesses can grow
 Internal Growth
Occurs when a business expands its existing operations
 External Growth
Involve takeover or merger with another business. It is often called integration as one business is
integrated into another one.
Takeover or acquisition is when one business buys out the owners of another business.
Merger is when the owners of two businesses agree to join their businesses together to make one business.
Example of external growth :
1. Horizontal integration : one business merges with another business in the same industry at the same
stage of production.
2. Vertical integration : one business merges with another business in the same industry but at different
stage of production. Vertical integration can be forward or backward.
3. Conglomerate integration : one business merges with another business that is completely different
industries
Benefits of integration
 Horizontal integration :
- Merger reduces the number of competitors
- There are opportunities for economies of scale
- Have a bigger share of the total market than before the integration
 Forward vertical integration :
- Give an assured outlet for its product
- The profit margin made by the retailer is absorbed by the expanded business
- The retailer could be prevented from selling competing products
- Information about consumer needs and preferences can now be obtained directly by the
manufacturer.
Benefits of integration
 Backward vertical integration :
- The merger gives an assured supply of important components
- The profit margin of the supplier is absorbed by the expanded business
- The supplier could be prevented from supplying other manufacturers
- Costs of components and supplies for the manufacturer could be controlled
 Conglomerate integration :
- The business has diversified its activities and spread the risks taken by the
business.
- Might be a transfer of ideas between the different sections of the business
even though they operate in different industries.
 Problems linked to business growth
and how to overcome
Problem resulting from expansion Possible ways to overcome problem
Larger business is difficult to control Operate the business in small units
(decentralisation)

Larger business leads to poor communication Operate the business in smaller units
Use the latest IT equipment and
telecommunications

Expansion costs so much that business is short Expand more slowly

of finance Ensure sufficient long-term finance is available

Integrating with another business is more Introducing a different style of management

difficult that expected requires good communication with the
workforce – they need to understand the
reasons for the change
Why some businesses remain small
 The type of industry the business operates in
 The market size
 The owner’s objectives

Causes of business failure

 Lack of management skills
 Changes in the business environment
 Liquidity problems or poor financial management
 Over-expansion