1.7 Expanding a Business Flashcards
What is meant by the term “external growth”?
Also known as integration which occurs when a business gets bigger by working with or buying other businesses.
What is meant by the term “internal growth”?
Also known as organic growth which occurs when a business gets bigger by selling more of its products.
What is meant by the term “net worth”?
The value of a business.
What is the formula for net worth?
total value of the business’ assets - what it owes.
What is meant by the term “franchise”?
When a franchisor sells the right to its products to a franchisee.
What is meant by the term “franchisee”?
A person who buys a franchise in return for a fee or percentage of turnover.
What is meant by the term “franchisor”?
Usually sells a franchise in return for a fee and a percentage of turnover.
What are 3 advantages to franchising?
• business can expand rapidly as it does not need to raise finance to expand. It’s all up to the franchisee.
• provides franchisor with finance.
• franchisees are more effective and hardworking than employees as they are managing their own businesses.
What are 3 disadvantages to franchising?
• franchises can make errors which can damage the business’ reputation and brand name.
• most profits got to franchisee rather than franchisor.
• less independence in decision making.
What is meant by the term “e-commerce”?
The act of buying or selling a product using an electronic system such as the internet.
What is meant by the term “outsourcing”?
When a business uses another business to produce for it.
What are 3 disadvantages of e-commerce?
• retailer can suffer from falling sales in their shop.
• difficult and expensive to distribute goods to customers.
• some customers prefer to see the product or try on clothing before buying.
What is meant by the term “merger”?
When two or more businesses join together to form a new business.
E.g. Carphone Warehouse and Dixons merged to form Dixons Carphone plc.
What is meant by the term “takeover”?
When one business buys control of another business.
What is meant by the term “average unit cost”?
The cost of producing a single unit of production.
What is meant by the term “diseconomies of scale”?
When the cost per unit increases as a business expands.
What is meant by the term “economies of scale”?
When business’ unit costs of production fall as it output rises and business expands.
What are the advantages of growth?
• economies of scale. • advertising and publicity. • attracting the best employees. • access to more retailers/outlets. • less vulnerable to takeover.
What are the disadvantages of growth?
> diseconomies of scale. > failure to meet customer's needs. > slower decision making. > communication more difficult. > employees may become demotivated. > increased costs.
What is the formula for average unit cost?
total costs / number of units of output produced.
What are the different ways of expanding a business?
• internal growth. • external growth. • franchise. • outsourcing. • e-commerce. • merger. • takeover.
What are the internal ways of expanding a business?
> franchising. > introducing new product range. > e-commerce. > opening new stores. > outsourcing.
What are the external ways of expanding a business?
- merger.
- takeover.
What are the advantages of e-commerce?
• it can access a larger market and the business can trade 24/7.
• it can complement physical stores.
