Details about the Business size, Government, Employee, Supplier, Banks, Investors, Customers, competitors and Community, Methods ,Methods of measuring business size, small businesses , large businesses, and family businesses.

1. Chapter.3
Business Size
1

2. Define Business Size
It is an overall operational scale which is
important, to determine the performance of a
business and draw a comparison….
with the competing firms
with the past performance of a business
2

3. Who is interested in knowing the business size?
3

4. Stakeholders:
Stakeholders can affect
or be affected by
the business's actions,
objectives and policies.
4

5. Stakeholders  Amount of tax regarding the
size
 For subsidies
 Benefits
 Tax holidays
Government:
Stakeholders
5

6. Stakeholders
 Job security
 Fringe benefit (company giving
car, mobile, electricity units,
fuel etc)
Employees
6

7. Stakeholders
 good on credit
 To set up credit period( large
business have reputation &
credibility & large order quite
frequently given)
Suppliers
7

8. Stakeholders
 To decide about extension of
loans(Short term/long term)
 Collateral
 Overdraft facility
Banks:
8

9. Stakeholders
Short term:
Capital gain: It is solely used for
the profit generated on the
difference b/w the selling price &
the buying price of a share
Long term: Dividends & Increase
in shareholder’s wealth (e.g.
Increase in the value/price of a
share)
Investor:
9

10. Stakeholders
 To make decisions about the
products
 For repeat purchases and to
continue with the future
products as well
Customers:
10

11. Stakeholders
 The product range
 The pricing strategy
 The promotions
Competitors:
11

12. Stakeholders
 Positive externality
(infrastructure)
 Employment opportunities
Community:
12

13. Methods of measuring a business size
(The Business Intensity Should be Same During Comparison)
.
Number of employees:
Greater the number of employees, greater the business but a business may be labour or capital intensive.
We need to check the intensity of the business, if a business is capital intensive it would definitely have less
labour however, it would not be classified as a small business. Rations, lectures, and speeches.
13

14. Number of employees
Number of employees is the most commonly used method to assess and
measure the business size that is apparently a business having employed
more staff would be considered as a large organization. This method can be
deceptive if a business is compared with another business with very limited
number of staff employed, but because of high capital intensity machines
and automation of plant the output is exponentially higher than a business
with more number of staff employed.
14

15. Sales Turnover
.
Check the type of the business, number of customers
and nature of the product
Jewelry => RS 9,000,000/day => 6 – 7 customers
Departmental store => RS 400,000 day => 700 – 800
customers
15

16. Sales revenue is also widely used to assess the business size, which can be
calculated as the (number of units sold × S.P per unit) can still lead to
misleading results unless the nature of business and the value of item being
sold are taken into account.
For example a business of daily sales of RS 400,000 will be considered
smaller when compare with a firm (B) with sales value of 900,000 a day, this
is because 400,000 might be generated by an FMCG Business (daily use
products) having served more than 800 customers a day for example as
compared to a Jewellery business with sales of RS 900,000 a day but having
served only 6 – 7 customers. The value of the product being sold difference
substantially, Which is a real cause of misleading results.
Sales turnover
16

17. Capital employed
Investment sources
Share capital (equity) loans (debts)
Example:
Doctor => more investment
Lawyer => less investment=> maximum fee
1crore
17

18. Capital employed is the entire amount of investment
which has been made in the business, there is a clear
possibility that high investment owing to the nature of
product and compared to a tertiary sector (service
industry) where substantial revenue would be charged
for service being offered.
For example: a corporate lawyer with a minimum
investment of furniture books and will charge a heavy
amount, for every corporate client.
Capital employed
18

19. Market Share
It is the sales of a business expressed as a
percentage sales of the entire industry, of
the specific product, over a given period of
time.
Formula= Total sales of the business ×100
Total sales of the industry
19

20. Market capitalization
Number of share issued × current share price
 Only for public limited company.
 Share price keeps on fluctuating because the performance of a business may
change
 The number of shares issued (depends upon the capital need of business) which
could be different for different firms.
 Market capitalization method is applicable for public limited companies only,
which are listed on the stock market.
 Market capitalization can be found using a (formula = Number of shares issue ×
the current share price) however, the problem using this formula is both the
components are variable in nature.
20

21. Market capitalization
 The current share price: Since the share keeps fluctuating and does not remain
constant because it is an indicator of the performance of a business. The forces of
demand & supply will deter mine the forces for demand & supply will determine the
share price, Therefore it is largely affected by the performance of a business.
 Moreover, No two businesses will necessary have identical number of shares issued,
this is because issuance of the shares depends on the capital need of the business
which will be different from each other, Hence for a competitive measure, this is not
a very appropriate method.
Most Importantly
 If the growth rate of a business is equal to or greater than the growth rate of the
industry then the business is performing well.
 It may be possible that a business has a greater market share but the Market size
may be small enough.
21

22. Market Size Market Share
VS
22

23. Market Size
Market size can be termed as the total value of sales made by the businesses
of a specific industry for a specific product with specified period of time.
For example: - Market size of a telecom industry in Pakistan during 2015 was
Ufone = 200m
Mobilink = 100m
Telenor =100m
Warid = 50m
Zong = 50m
= 500m market size / Industry
23

24. Market Size
Importance:
 To know the growth of a business, so that investment could be made
 Market size/ growth is an essential factor, which enables business to decide
whether to step in a market or not. If the market size is increasing at a higher
growth rate and has reached saturation (where the market size is constant) shows
more potential of growth & a worthwhile investment
24

25. Market Share
Market Share can be defined as the sales of a business, expressed as a
percentage sales of the entire industry within a specified period of time.
It can be calculated as: -
Market share = Sales of business ×100
Sales of industry
Example:
A. 70% => 100m => RS 70m
B. 10% => 5000m => RS 500m
25

26. Market Share
Market share can reveal misleading results when a business (A)
with 70% market share is compared with a firm (B) with 10%
market share only, this is because a 70% market share might be
of a very small industry for example 100 million, on the other
hand a10% m share might be captured from a very huge
industry for example RS 5000 million, generating overall 500
million sales as compared to 70 million only.
Therefore, it does not assess the size of a business rather the
overall market size as well.
26

27. Small Businesses
Small businesses can be defined as / categorized according to the number of
staff employed, sales turnover per annum, and by amount of investment
made. These can also categorized as a microenterprises.
E.g. furniture manufacturer, small restaurant
27

28.  Compete with large firms: - When new small business enters in
market the affect the existing large firms reducing their sales.
 Specialist suppliers: - They become support for large by supply
them specialist goods.
 Small businesses are often run by dynamic entrepreneurs:
ability/ willingness to test and try new markets, stepping into new
ventures, and taking a calculated risk.
Benefits of small businesses
 Employment opportunities: - For all the skilled, unskilled,
permanent and temporary workers.
28

29. Limitation of small businesses
 Limited product range (product portfolio)
 Competition (price and marketing)
 Suitable location
 Problem in raising finances(short term and long term)
29

30. Product Mix
30

31. Small Business
Advantages
 It is managed and controlled by the owner
 It employs limited number of workers,
hence it is easier to know each worker closely
 It is easier and possible to provide personal services to
customers
 It can easily adapt to the changing customer needs
 If it is family owned, then the business culture would be
informal and the workers would perform multiple roles
Disadvantages
 They have limited access to the sources of finance
 They are not able to afford to employ specialist managers and
there is a burden of responsibility on the owner
 They may not be able to achieve economies of scale
 They may not be diversified, hence there is a greater risk of
negative impact of any external change
31

32. Family Business
A family-owned business may be defined as any
business in which two or more family members
are involved and the majority of ownership or
control lies within a family.
32

33. Family Business
Strengths:
Knowledge continuity: Conveying experiences and skills to their future
generation
Commitment: Have devotion to make business grow, prosper and beneficial for
the next generation
Reliability and pride: Strive hard to make their product well-known in the
market by increasing quality and maintaining good relationship with their
stakeholders
33

34. Family Business
Weaknesses:
Informality: Informal attitude of the owners leads to inefficiencies and internal
conflicts
Traditional: No innovative practices due to reluctance in changing system and
procedures
Succession/continuity problem: Lack of ability and skills of descendants and splitting
of management responsibilities among several family members
Conflict: Family problems may appear on management of the business
34

35. Why Businesses Grow?
Why business want to grow?
 To increase profits.
 To increase revenues.
 To increase market share.
 To achieve economies of scale.
 To enhance the reputation and credibility of businesses.
35

36. How can Businesses Grow?
Business Growth
Internally (Organic) Externally (integration)
- When a business increases
 no. of shops
 outlets,
 factories, branches
 Product range/ Product portfolio
- Very slow growth, because this is funded by
businesses own profits therefore, it is
comparatively slow
36