2.1 Growing the business Flashcards
What is internal (organic growth) and what are the examples of this?
Internal growth is when a business grows by expanding on its own without mergers or takeovers from other businesses.
New products Innovation Research Development New markets Through changing the marketing mix Taking advantage of technology Expanding overseas
What is external (inorganic growth) and what are the examples of this?
When a business combines with another to grow.
Takeover: When one business joins another
Merger: When two ore more businesses join together
Describe how economies of scale work
When your costs decrease due to larger levels of production:
More products being produced means more materials being ordered more regulalry
Bulk orders reduce price
Variable cost per unit reduced
What are the advantages and disadvantages of a business going through organic (rather than inorganic) growth?
PROS:
A business that grows from within can retain their own company culture
Higher production means the business can benefit from economies of scale and lower average costs
More influence comes with more market share, the business can start setting prices for the industry
CONS:
This is a very high risk strategy, opening lots of stores or taking on new staff is very risky
Long period between investment and return on investment
Growth may be limited and is dependent on reliability of sales forecasts
What are the advantages and disadvantages of a business mergers?
PROS:
Economies of scale. Better deals because of increased order size, bulk-buying discounts etc.
Increased revenue and market share.
Buying technology
International Expansion. Buying a business in another country helps with culture issues, foreign laws etc.
CONS:
Clash of cultures
Possible communication problems
Unreliable merger partners
Diseconomies of scale. As a business gets larger costs will go up with problems of motivation, communication and co-ordination
What is an internal source of finance and what are examples of this?
Capital gained within a business.
Retained Profit
Selling Assets
Personal Savings
What is an external source of finance and what are examples of this?
Capital gained outside a business.
Loan capital
Share capital
Stock market floatation
What are the pros and cons of loan capital?
PROS:
Improve cash flow
Financial advice
CONS:
Time for approval
Interest
Expensive
Collateral
What are the pros and cons of share capital?
PROS:
Large amounts of capital
No interest
Does not need to be repaid
CONS:
Loss of control
What is a public limited company?
When a private limited company (a business owned by its shareholders) makes shares available to the public to purchase. This process is stock market floatation
What are the pros and cons of stock market floatation?
PROS:
Large amounts of capital
No interest
Does not need to be repaid
CONS:
Loss of control (As all the shareholders vote on desicions)
What might business aims and objectives change in response to?
Market conditions Technology Legislation Growth Consumer taste
As a business evolves, how would its focus on survival or growth alter?
It would be less focused on survival as it starts to pass the break even point. Once it starts to make a profit, growth will be the preferred choice.
As a business evolves, how would its focus on entering or exiting markets alter?
It will change the markets it is in. For example it may:
Enter new markets so that the business is growing by venturing in new areas
Exit markets if they see that they aren’t making enough sales in that area
As a business evolves, would it be growing or reducing the workforce?
It may decide to:
Grow the workforce so that the business can have a higher production rate
Reduce the workforce if it has become more reliant on technology that they’ve aquired through growth
