BUSINESS SIZE

MEASUREMENT OF BUSINESS SIZE

• PURPOSE
 Assistance from the government to small
business owners
 Investors may want to compare the size and rate
of growth of the business with close
competitors .
 Customers may prefer to deal to large businesses
due to greater security of supply.
 Workers may prefer large or small workplaces .
• PROBLEMS
 Various ways of measuring business size
provide different comparative results making
it difficult to compare .
 No internationally agreed definition of small
medium or large business.
 DIFFERENT MEASURES OF BUSINESS

• NUMBER OF EMPLOYEES
 Business employing more than 50 employees
is a large business.
LIMITATION
If business is capital intensive it will employ few
workers
 REVENUE (SALES TURNOVER )
• Revenue is the total value of sales made
during the year and is used to compare
businesses in the same industry .
Limitation
• Some business may employ themselves is
producing high value goods while others in
low value production .
 CAPITAL EMPLOYED
• Capital employed is the total value of all long
term finance invested in the business .
• Larger the business enterprise the greater the
value of capital needed for long term
investment .
• LIMITATION
• If the business is labour intensive the capital
employed will be lesser .
 MARKET CAPITALISATION
• Market capitalisation id the total value of the
company’s issued shares .
• Market capitalisation = current share
price*total number of shares issued .
• It can be used only for businesses that have
shares quoted on the stock exchange.
• This comparison will not be stable due
fluctuation in the share prices .
 MARKET SHARE
• Market share is sales of the business as a
proportion of total market sales .
• Higher market share makes the firms leaders
in the industry and thus comparatively larger.
• However if the size of the total market is
small, a high market share will indicate a very
large firm .
Which form of measurement is best ?
 Significance of small businesses
• What is a small business?
 Small business employ few people and will
have a relatively low annual revenue .
 Very small businesses are known as micro
enterprises .
Business employees Revenue Capital
category employed
Medium 54-210 Over €10m to Over €10 to
€50m €34m
Small 11-50 Over €2m to Over €2m to
€10m €10m
Micro 10 or fewer Upto €2m Upto €2m
 Benefits of small and micro
businesses to the economy
• Employment creation
• They are often run by dynamic entrepreneurs
with new ideas for consumer goods and
services
• They create competition for larger businesses
• They can be important suppliers to larger
businesses
• All great business were small at one time
• They might have lower average costs than
larger ones
 FAMILY BUSINESS
• Businesses that are actively owned and
managed by at least two members of the
same family. The family that founded the
business retains complete ownership of it.
strengths Weakness
• Commitment • Succession/continuity
• Reliability and pride problem
• Knowledge and continuity • Informality
• Tradition
• Conflict
Advantages and disadvantages of being small
business
Advantages
• Can be managed and controlled by the
owners – little risk of losing control.
• Often able to adapt quickly to meet
changing customer needs- especially if the
owner deals directly with the customers
• Offer personal services to customers to help
build customer loyalty
• Easy to know each worker –many people
prefer to work for a small business
• If family ownwd the business culture is
often informal, employees are well
motivated and family members perform
multiple roles
• Can usually be started op and operated with
low capital investment.
Disadvantages
• May have limited access to sources of
finance
• The owner has to cry a large burden of
reponsilbility and is usually unabale to
afford to employ specialist managers
• If the owner or important workers are
absent or ill other employees may not
have the necessary skills to operate the
business
• May not be diversified so there is a
greater risk of external change having a
negative impact .
• Fewer opportunities of economic of
scale ‘ average cost could be high .
 Importance of small businesses in the
economy .
• Generate economic growth. Important in regions of a country that have
no large companies.
• Job dependency as 90% of employers belong to small business .
• 80% of jobs in developing countries are created by small businesses
• Innovative and develop new products and services which create
competition to existing companies
• In some industries specialist services such as research, technical
support, repair maintenance facilities are provided by small businesses.
• Recruitment and training of employees, transport of supplies and
employees are undertaken by small businesses so the larger companies
can focus on core business activities to reduce their overall cost