Factors that determine the size of a business

Factors that determine the size of a business

1. Factors that determine the size of a business

2. Size of capital The capital invested by the owner determines the size of business. It is mainly used to compare two firms or more that are producing similar or differentiated products . It is an important factor because it determines how little of how much you will be able to do in your business. If a business has limited capital, it is limited in terms of the volume of sales, services to be rendered, number of employees to be appointed and the level of technology to be employed in its operations. Volume of sales High volume of sales = business have many clients and selling large amount of goods/rendering a lot of services. Business with high volume of sales are usually regarded as big. It is also assumed that the capital contribution will be high, buildings are bigger and more staff will be employed than in a small business.

3. Number of employees The number of employees employed by any business determines its size. In the case of a small sole trader the owner will do all the work him/herself and possibly appoint a receptionist who will do the administrative duties. In a large sole trader with different sections the owner will need more personnel to be responsible for different tasks. One of the aspects one can look at when comparing businesses is the wages paid to employees. Level of technology The technology used can also give an indication of the size of a business. Is production done manually or by means of machinery? Does the business have a sophisticated computerised cash register system or just an ordinary cash register or a money box? If we have a small business with only a few customers and little capital, it is not necessary to have state-of-the-art equipment.

4. Raw materials used This is the form in which the business is registered. A sole trader business most probably will be the smallest business, unless the owner has lots of capital and employ many people, while a partnership with a maximum of twenty partners or a Close Corporation will be much bigger. Legal form of ownership The annual consumption of raw materials of any firm determines its size. The raw materials is used to determine the size of the business where firms are producing similar products .