✅ 1.6 - 1.7 Business Plans & Expansion Flashcards
What is the purpose of a business plan?
The purpose of a business plan is to outline what a business will do and how it plans to achieve its aims and objectives
Give the 4 reasons why businesses create business plans
Businesses create business plans because:
- It is important for setting up a new business as it helps the owner to clarify their thoughts and plans as well as allowing them to think about the business in depth to minimise risks
- It helps a business to raise finance as it provides detailed information about renenue and costs, which can be used to convince potential investors that it is a good investment
- It helps to decide what objectives need to be set in order to achive their aim(s)
- To detail how the functions of a business will be organised, so that it can run more efficiently
What are the main sections of a business plan?
- Personal details of the owner and other important personnel, like their CVs, as financial backers will want to know who they are trusting their money with
- Mission statement - A broad way of saying what the company wants to achieve
- Objectives which are more specific than aims
- Product Description - Describes which products and services the business sells, what its USP is, as well as details of the market and competitors
- Production Details which include how the business will make its product or services. It also includes the equipment needed and the location of the factories
- Staffing Requirements - Which includes how many people are needed, their job decriptions and their expected wage bill
- Finance - (EXPAND LATER)
What are two drawbacks of business planning?
- Business plans may prevent or obstruct a business from being flexible and able to adapt to a changing environment or unexpected circumstances
- It can be time consuming and costly
What is another term for internal growth?
Organic growth
What is internal expansion?
Internal expansion is when a business grows by expanding its own operations
Give the benefits and drawbacks of internal expansion?
- Internal expansion is relatively inexpensive
- It is less riskier as the business just has to do more of what it is already good at
- It is a slower route to expansion than external expansion
- Return on investment can take a long time
List 3 methods of organic growth
- E-commerce
- Opening New Stores
- Outsourcing
- Franchising
Define Outsourcing
Outsourcing is when a business pays another firm to carry out tasks it could do itself
Give one benefit and drawback of outsourcing as a method of expansion?
+ Saves time
- The business might lose some control over parts of its operation
Give one benefit and drawback to opening new stores as a method of expansion?
- It is a fairly low risk, as if it operates in a similar way to the existing store, it should be a success
- Opening a new store means more costs (rent & staff), so a business needs to be prepared to afford these costs
Give one benefit and drawback of using e-commerce as a method of expansion?
- Business has access to a larger market
- Technical problems can cause customers to be unsatisfied
What is franchising?
GFranchising is when a company (the franchisor) sells the rights to sell its products and use its trademarks to others firms (franchisees) in return for a fixed fee and/or a percentage of profits in return
What are three advantages of franchising?
- Increases a franchisor’s income as it gets money from the franchisee
- Franchising increases the market share and brand awareness of a firm’s product
- The business can expand cheaply as it is does not incur the costs of opening a new store
What are two disadvantages of franchising?
- The franchisor does not have complete control over how the franchisee operates
- If a franchisee has poor standards, then it can damage the reputation of the franchisor
List the 2 types of external expansion
- Mergers
- Takeovers
What is a merger?
A merger is when two businesses join together to form a new, larger business
What is a takeover?
A takeover is when a business expands by buying more than half of the shares in another business
What is Horizontal Integration?
Horizontal integration is when two competitors join through a merger or takeover
What is Backward Vertical Integration?
Backward vertical integration is when a business takes control of a business earlier in the supply chain
What is Forward Vertical Integration
Forward vertical integration is when a business takes control of another that operates at a later stage in the supply chain
What is Conglomerate Integration?
Conglomerate Integration is when businesses in unrelated markets join through a takeover or merger
What are the advantages of Horizontal Integration?
- It increases the market share
- More economies of scale
- It reduces competition
What are the advantages of Backward Vertical Integration?
The business can control the supply, cost and quality of its raw materials
Give an advantage of Forward Vertical Integration?
The business has greater access to customers, which makes it easier to sell the products
Give an advantage of Conglomerate Integration
It diverisfies a company’s risks
What is the key benefit of external expansion over internal expansion?
It is much faster
What are the disadvantages of takeovers and mergers?
- Different management styles and company cultures may lead to employees being demotivated by a new style & culture
- Often, there are attempts to cut costs, which can lead to lots of people losing their jobs, creating tension in the workforce
Explain in detail what economies of scale is?
Economies of scale is when a business benefits from a reduction (fall) in the average unit cost of their product or service because of the increasing production (the number of units produced). This leads to a lower average cost per unit that lets a business make higher profits or charge a lower price
What are the two types of economies of scale?
- Purchasing Economies of Scale
- Technical Economies of Scale
What is Purchasing Economies of Scale?
Purchasing Economies of Scale is when a large business buys its supplies in bulk and so they get them at a cheaper unit price
What is Technical Economies of Scale?
Technical Economies of Scale is when larger companies are able to buy and operate more advanced and specialised machinery
What are Diseconomies of Scale?
Diseconomies of Scale is when a business grows so large that the business’ products’ average unit cost (cost per unit) increases
Give 3 reasons for why Diseconomies of Scale occur?
- As a business becomes larger, communication issues increase
- Workers at the bottom of the hierarchy can feel insignificant, which may cause them to be more demotivated, causing the productivity to go down
- The production process may become more complex and difficult to coordinate
