Its not rare to compare business by their
size. Who don’t want to know how large a particular business is? The government
might wish to provide support to the smaller one. Investors or share holders
may wish to compare the size of the business with close competitors. Customers
may prefer to deal only with the big bulls as they are more stable and strong
in comparison with the small businesses. There are several errors while while measuring
business size.
1. Number of Employees: This is the easiest and simplest measure. Its
obvious to some to understand that shops with just the owner of the family is a
small business. Its also clear that firms having more employees is a larger
one. Now the question is how about a business that need to employ only a few
people, for example – a highly automated computer chip maker with expensive
capital equipment?
2.
Sales Turnover : Sales turnover is the total value of sales made by
a business in a given time period. Sales turnover is often a used a measure of
size, especially when comparing firms in the same industry. It is not that much
effective when comparing with a different industrial firms because some might
be engaged in “high value” firms, such as jewels, and another might be in “low
value” production, such as cleaning services.
3.
Capital Employed : Capital employed is the total value of all
long-term finance invested in the business. Generally, the larger the business
enterprise, the greater the value of capital needed for long term business.
Comparisons between firms in different industries may give a rather misleading
picture. For example, a hairdresser shop and an optician might have same number
of employees but the later one will need expensive diagnostic and eye sight
measuring machines.
4.
Market Capitalization : Market capitalization is the total number
of a company’s issued shares. It is only available for the public limited
companies that have shares quoted on the stock exchange.
MAKET CAPITALIZATION = TOTAL NUMBER OF
SHARES X SHARE VALUE
This
method is so accurate as share value changes every day.
5.
Market Share: Market share is sales of the business as a proportion
of total market sales. Market share is not a permanent measure. It is
calculated using the following formula
(Total sales of business/Total sales of
industry) x 100
There is no “best” measure. It depends on
what need to be established about the firms being compared with. Its up to our interest in absolute size &
comparative size within a certain industry. If an absolute measure of size is
required, then it is almost certainly advisable to test a firm on at least two
of the above criteria and to make comparisons on the basis of these.
No measurement is accurate while defining
a firm as small or large but it is easy to identify them within our own
economy. Small firms will employee a few people and will have a low turnover compared
to other firms. Now a days, very small business is called “micro-enterprise”.
Advantages of small businesses
1.
can be managed and controlled by the owner
2.
often able to adapt quickly to meet changing customer needs
3.
offer personal service to customers
4.
find it easier to know each worker and stuff
5.
if family owned, the business culture is often informal, employees well
motivated and family members perform multiple roles.
Disadvantages of small businesses
1.
May have limited access to sources of finance
2.
May find the owner to carry a large burden of responsibility if
unable to afford to employ specialist managers
3.
May not be diversified, so there are greater risks of negative
impact if external change
4.
If family owned, the original owner may restrict innovation, there
may be family rivalries and keeping business control may take priority over
business expansion
Advantages of large businesses
1.
Can afford to employ specialist professional managers
2.
Benefit from the cost reductions associated with large scale
production
3.
May be able to set low prices that other firms have to follow
4.
Have access to several different sources of finance
5.
May be diversified in several markets and products so that risks
are spread
6.
Are more likely to be able to afford research and development into
new products and processes.
Disadvantages of large businesses
1.
May be difficult to manage, especially if geographically spread
2.
May have potential cost increases associated with large scale
production
3.
May suffer from slow decision making and poor communication due to
the structure
4.
May often suffer from a divorce between ownership and control that
can lead to conflicting objectives
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