Business size As Cambridge

Possible ways of measuring how big a company might be...

• How much profit a company makes

• Turnover or revenue of a business

• Number of employees

• Market value of the company

Answer explanation

NOT PROFIT - profit measures the success of the activities of a business. It is not in itself a measure of the size of a business.

Revenue is...

• ...the financial benefit realized when revenue generated from a business activity exceeds the expenses, costs, and taxes involved in sustaining the activity in question.

• ...is the money generated from normal business operations

Answer explanation

...the financial benefit realized when revenue generated from a business activity exceeds the expenses, costs, and taxes involved in sustaining the activity in question.

This describes profit.

Profit is calculated as total revenue less total expenses.

Is there a best way to measure the size of a business?

• Yes

• No

Answer explanation

NO - because...

The best measure will depend on the sector you are considering.

For example, in the public sector, that is businesses is run by government organisation, might not generate revenue (e.g. if the health service is provided free) So it may be more appropriate to measure the number of employees.

Small businesses play an important role in the economy by...

• Creating jobs and reducing unemployment.

• Provide competition to established businesses

• Helping large companies get even larger.

• Growing into bigger companies in the future.

• Through innovation

Answer explanation

Small companies are NOT there to help large companies get larger...

They do offer healthy competition though so that larger companies do not dominate too much.

Which size of business would be easier to get/find access to finance

• Small

• Large

Answer explanation

Small businesses -

They may find it difficult to raise finance because of the high risk involved as so many small businesses fail.

Small businesses do have disadvantages.

What are the missing words?

They lack power in the market - for example with _______ and ________ - and so can find it difficult to survive.

• Suppliers and employees

• Suppliers and customers

• Customers and employees

Answer explanation

Suppliers because they can charge higher prices to small companies as small companies will have smaller orders.

A large company will have more power over a supplier because the supplier will want the business of a larger company (as they will generally order more stock) and therefore the larger company will be able to negotiate lower prices for the goods.

Small businesses do have disadvantages.

What are the missing words?

They may lack much _________ compared to more established firms.

• Stock

• Managers

• Experience

Answer explanation

Small businesses will generally lack experience compared to larger companies.

A niche is...

• A type of small business

• A large segment of the market

• A small segment of the market

• A way to measure the size of a business

Answer explanation

A business niche is a specialized area that your business focuses on to serve specifically in a broader market. It involves carving out a niche market and positioning yourself as the go-to brand for a specific audience. A business niche is a section of a larger market that is defined by its own unique identity, needs, and preferences.

Is it likely that the government want small business to grow?

• Yes

• No

Answer explanation

With the increasing importance of the small firm sector to national economies, there has been a progressive attempt by many governments to develop policies specifically targeted at supporting the development of small firms.

However, given that small firms are meant to operate within a free market economy, why should the government support small firms?

One of the primary arguments for the development of specific small firm policies is that they are disadvantaged in the market relative to larger firms.

There are four major areas of market failure that might justify the development of policies to support and promote small scale enterprise.

The first is the existence of market failure due to monopoly practices provides a primary justification for state intervention. This is reflected in a wide range of policies, including the monopolies and mergers commission, competition policy and state regulations to ensure that potential competitors are not excluded from the market-place.

Secondly, and due to the fixed costs involved, small firms are at a disadvantage compared to large firms in the collection and analysis of information about market opportunities, sources of finance and government regulations.  This represents a major potential competitive disadvantage for the small firm sector that may constrain its development.

That is why business support mechanisms such as the Welsh Government’s Business Wales website have been created as a free service that provides impartial, independent support and advice to people starting, running and growing a business in Wales.

Thirdly, whilst small firms have been recognised to be highly innovative, they are less able to absorb the risk and uncertainty associated with activities such as innovation, new product development and new market development.  If government does not intervene, some of these activities may be lost to society as a whole.

As a result, there have been a range of different initiatives developed to stimulate greater innovation amongst small firms ranging from the SMART Cymru programme that offers financial support to Welsh businesses to help them develop, implement and commercialise new products, processes and services, to funding competitions promoted by the UK Government’s Innovate UK.

Finally, small firms can experience considerable difficulties in attracting finance in the capital markets, predominantly because of higher level of risk to the lender which can restrict small firms' access to finance and increase the cost of external finance or because of  the economies of scale in finance, which means that the costs to the lender of making a loan to a new or small business is much higher than for a large business.

That is why we have seen a range of different initiatives – such as the British Business Bank, the Development Bank of Wales and the Scottish Angel Capital Association – established by the UK and devolved governments to support access to finance to small firms.

Therefore, whilst some entrepreneurs may think that the ten most feared words they will hear are “Hello, I’m from the government and I’m here to help”, the reality is that public bodies can provide tangible support to help small firms to grow and develop.

Which are ways for government to support small businesses?

• Reduced rate of profits tax - more funds available for expansion.

• Loan guarantee scheme or grants.

• Selling shares to investors.

• Providing info, advice and management support.

Answer explanation

A government wouldn't provide the selling of shares to investors.

Only Public Limited Companies can sell shares to public investors. By the time a company is a PLC, is would also be considered a large company.