1.3 business activity

Cards (27)

  • Entrepreneur
    A person who organizes, operates and takes risks for a new business venture. The entrepreneur brings together the various factors of production to produce goods or services.
  • Characteristics of an entrepreneur
    • Risk taker
    • Creative
    • Optimistic
    • Self-confident
    • Innovative
    • Independent
    • Effective communicator
    • Hard working
  • Business plan
    A document containing the business objectives and important details about the operations, finance and owners of the new business
  • Content of a business plan
    • Executive summary
    • The owner
    • The business
    • The market
    • Advertising and promotion
    • Premises and equipment
    • Business organisation
    • Costs
    • Finance
    • Cash flow
    • Expansion
  • Making a business plan before actually starting the business can be very helpful
  • A new entrepreneur will find it easier to get a loan or overdraft from the bank if they have a business plan
  • Startup
    A company typically in the early stages of its development. These entrepreneurial ventures are typically started by 1-3 founders who focus on capitalizing upon a perceived market demand by developing a viable product, service, or platform
  • Reasons for the government to help new startups
    • They provide employment to a lot of people
    • They contribute to the growth of the economy
    • They can also, if they grow to be successful, contribute to the exports of the country
    • Start-ups often introduce fresh ideas and technologies into business and industry
  • Government support for startups
    • Organise advice
    • Provide low cost premises
    • Provide loans at low interest rates
    • Give grants for capital
    • Give grants for training
    • Give tax breaks/ holidays
  • Ways of measuring business size
    • Number of employees
    • Value of output
    • Value of capital employed
  • Internal growth
    When a business expands its existing operations
  • External growth
    When a business takes over or merges with another business
  • Merger
    When the owner of two businesses agree to join their firms together to make one business
  • Takeover
    When one business buys out the owners of another business, which then becomes a part of the 'predator' business
  • Horizontal merger/integration
    When one firm merges with or takes over another one in the same industry at the same stage of production
  • Benefits of horizontal merger
    • Reduces number of competitors in the market
    • Opportunities of economies of scale
    • Merging will allow the businesses to have a bigger share of the total market
  • Vertical merger/integration
    When one firm merges with or takes over another firm in the same industry but at a different stage of production
  • Backward vertical integration

    When one firm merges with or takes over another firm in the same industry but at a stage of production that is behind the 'predator' firm
  • Benefits of backward vertical integration
    • Merger gives assured supply of essential components
    • The profit margin of the supplying firm is now absorbed by the expanded firm
    • The supplying firm can be prevented from supplying to competitors
  • Forward vertical integration

    When one firm merges with or takes over another firm in the same industry but at a stage of production that is ahead of the 'predator' firm
  • Benefits of forward vertical integration

    • Merger gives assured outlet for their product
    • The profit margin of the retailer is now absorbed by the expanded firm
    • The retailer can be prevented from selling the goods of competitors
  • Conglomerate merger/integration

    When one firm merges with or takes over a firm in a completely different industry. This is also known as 'diversification'.
  • Benefits of conglomerate merger
    • Conglomerate integration allows businesses to have activities in more than one country. This allows the firms to spread its risks.
    • There could be a transfer of ideas between the two businesses even though they are in different industries. This transfer o ideas could help improve the quality and demand for the two products.
  • Drawbacks of growth
    • Difficult to control staff
    • Lack of funds
    • Lack of expertise
    • Diseconomies of scale
  • Reasons why businesses stay small
    • Type of industry
    • Market size
    • Owners' objectives
  • Reasons for business failures
    • Poor management
    • Over-expansion
    • Failure to plan for change
    • Poor financial management
  • Reasons why new businesses are at a greater risk of failure
    • Less experience
    • New to the market
    • Don't have a lot of sales yet
    • Don't have a lot of money to support the business yet