Specification Content: 1.

Business and its Environment

Business Size
by Sir Asif Iqbal
Specification Content | 1.3
 Size of the Business
The term business “scale” refers to the size of an organisation/size of
operations of a business enterprise.

Trim the fat

Trimming the fat is the act of removing

unnecessary details, resources or
individuals from a company or project.

Example: "We need to trim the fat. Can

we combine the research and marketing
departments for this project?" When
larger companies downsize, they “trim
the fat”.
Business categories according to business size

by Sir Asif Iqbal

Think About It: Who Wants to Know About Business Size?

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 Why do we need to know business size?
The government wants to measure business size because it may want to give
assistance to small start-up businesses or confirm how much taxes big
businesses should pay.

Investors (shareholders) in a firm want to measure business size because they

want to compare the size of the business with close competitors to find out, if the
particular business is growing and how fast.

Customers of the business want to measure business size because they want
to purchase goods and services from well-established stable firms rather than
buy from small companies that may cease production anytime, hence stop
providing after-sale services.

Employees want to measure business size because they want to know whether
their salaries will increase in the near future as the business grows and to check
whether the business will offer them opportunities for promotion anytime soon.

Local community wants to measure business size in order to find out about any
job opportunities created by the business in the future.

by Sir Asif Iqbal

 Ways of Measuring Business Size
Number of Employees Sales Turnover Capital Employed

A larger sales turnover (revenue) represents Generally the larger the business, the greater
A large number of employees a larger business. It is often used when the value of capital needed. However
represents a larger business. comparing industry businesses. Less
comparisons in different industries may be
However, it is not suitable for effective if in different industries e.g. high
value production such as previous jewels misleading e.g. a hairdresser and
businesses which require a small an optician.
compared to low value production such as
number of workers by nature. cleaning services

Market Capitalisation Market Share

Businesses with higher market If a business has a high market share

capitalisation are generally larger, then it must be among the leaders in the
however it can only be used with
businesses that have shares on the
industry or comparatively large.
stock exchange. Due to the However, if the total size of the market is
fluctuations, it can be very unstable to small, a high market share will not
compare. indicate a very large firm.

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A Closer Look into Calculations

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A Closer Look into Calculations

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Market Share Solution

Market Share Example of Soft Drinks

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Market Capitalization Formula

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 Application Point: Measuring Size of a Hotel

Total Available Rooms Average Occupancy Rate

What is this metric? What is this metric?
Total available rooms represents the number Occupancy is a percentage of the available
of rooms available multiplied by the number of rooms occupied for a specific period. It is
days in the reported period. It is used as a calculated as total paid rooms occupied divided
measure of capacity in the system of hotels. by total available rooms.

by Sir Asif Iqbal

 Which method should be used to measure business size?

Different businesses will use different methods to measure the size of the business. It will not be suitable to
measure the size of a technology reliant retail store based on the number of employees. Also, it must be
kept in mind that comparisons can be made within the same industry.

The measurement of business size used

can be either an absolute size or
comparative size within one industry.
We need to establish our needs first about
the firms being compared. And then, we
should test a firm on at least two of the
above criteria (both an absolute size and
comparative size) to make comparisons.

by Sir Asif Iqbal

Examinar Insight
Specification Content | 1.3
Concept: Small Businesses

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by Sir Asif Iqbal
 Advantages of Small Businesses
Small businesses
Running a business
Small businesses operate in a niche
means you are Small businesses
are flexible since market since they
independent are easier to
they can adapt to are in a specialised
because you are operate.
changes easily. segment in the
your own boss.
market.

by Sir Asif Iqbal

by Sir Asif Iqbal
 Disadvantages of Small Businesses
Small businesses find
There is limited Less finance is it difficult to exploit
There is a high risk potential to grow available due to the economies of scale
of failure. due to lack of limited availability to because they are not
capital. raise capital. able to enjoy cost
advantages.

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 Role of Small Businesses in the Economy

1. Job Creation – the small businesses usually employ a significant proportion

of a working population
2. Entrepreneurs – the small businesses are normally run by entrepreneurs;
creates variety and choice in the market
3. Competition – more competition for larger businesses causes an increase
in quality of goods
4. Specialist goods – they may form niche markets
5. Supplier to larger businesses – small firms can supply goods to larger firms
6. Increases Tax Revenues of Government
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How can the Government Support Small Businesses

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Family Owned Businesses

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Evaluating Family Owned Businesses

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Specification Content | 1.3
Examiner’s Favourite: Growth

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Strategies for Growth

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Internal (Organic) Growth
Ways of Achieving Internal Growth

Increasing sales revenue by improving

products and services
and making them more attractive to
customers

Better marketing of its product range

Investment in research and

development

Improved training of its workforce

Expanding the number of offices,

factories and outlets

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Examples of Internal Growth

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Analysis

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External Growth

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Analysis

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Integration between Businesses

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Examples of Integration

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Which one is the better option?

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Which one is the better option?

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Doing Both: Internal and External

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