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To operate the business successfully, the manager needs to make decisions that maximize the returns … the owners of the company. Such decisions range … buying supplies from high-quality, low-cost suppliers, … hiring … the best available workers, to investing … the best available projects.
The first form of equity is owner’s capital. This is the most exposed form … capital since a return is received only … all other calls on a company’s profits have been satisfied. Then … an extreme case – bankruptcy – the owner’s equity will be repaid only … everyone else, including employees, creditors, banks, etc., has received what they are owed.
In successful times, the owners have a claim … all the net profit of the company. They can go … other sources … equity finance: firstly, venture capital (it is usually provided … venture firms interested … financing high-growth companies). However, the provider usually demands a much faster and higher rate … return than an owner would expect to form his /her own capital. … the other hand, the venture capital company doesn’t usually interfere … the running … the company.
Small businesses are managed by their owner(s) and have a relatively small (1)… . Small manufacturing firms (2) … fewer than 200 people. Large firms are typically incorporated (limited companies), where ownership and management are separated. Large companies that (3) … enjoy a cost advantage over small firms in the same industry. In particular, large firms have access to the following technical and financial economies. Technical economies occur in the production of a good.
As the firm expands, there is greater scope for specialisation and (4) … . Large factories can employ specialist skilled workers to do the same job all day with no time lost in changing tools or doing unfamiliar tasks. The indivisibility of certain types of (5) … means that many production processes are impossible on a small scale. Large firms can (6) … by linking production processes that would otherwise be carried out in separate factories (a large manufacturer of shirts can (7) … transport costs by combining the weaving and cutting of cotton under the same roof).
Financial economies allow large firms to raise capital (8) … . Large firms are considered to be reliable and are therefore charged (9)… and (10) … to capital markets such as the stock exchange. Selling shares is a relatively inexpensive method of raising large (11) … .
Despite (12) … to large firms of producing in bulk, small businesses find a niche by providing specialized products for small markets (e.g. hairdressing cannot easily achieve a large scale of operation, and tends (13) … small firms). An irregular or limited demand for a product prevents mass production. Small firms have the required flexibility and low overheads. Often small firms survive by accepting subcontracting work from large companies. In printing, where fixed costs form only (14) … of total costs, low set-up costs (15) …the development of small firms. Where the market for a good is restricted and highly localized, small firms survive, e.g. village shops.
In an attempt (16) … the government has introduced a number of schemes to help small firms to survive: the Enterprise Allowance is a weekly sum paid to (17) … while they are setting up their own businesses; the Business Expansion Scheme provides relief against income tax to investors in unquoted companies.
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