2.1.1 Business growth Flashcards
Why would a business want to grow?
Benefit from economies of scale
Benefit from a larger market share
Gain more recognition, customers, revenue and profit
What is economies of scale?
being able to provide more goods or services, making it cheaper to make each product
What is organic growth?
When a business grows on its own
How is organic growth achieved?
Through changing the marketing mix by:
- Taking existing products to new markets in the Uk or overseas
- Developing new products via:
research and development
taking advantage of new technology
innovation
- Becoming a public limited company by floating on the stock market
What is an advantage of organic growth?
A business can maintain its own values without interference
What is a disadvantage of organic growth?
Slower growth
What is inorganic growth?
When a business combines with another business to grow
How is inorganic growth achieved?
Through a:
- Merger (when two businesses join together)
-Takeover (when one business buys a smaller business)
What are advantages of inorganic growth?
Rapid growth
New shared resources/skills/customers
What is a disadvantage of inorganic growth?
Disagreements and communication problems
What is an internal source of finance?
Capital found from within a business
What is an external source of finance?
Capital found outside a business
What are retained profits?
using capital from profits kept from previous years of trading
What are advantages of retained profit?
Cheap
quick
convenient
What are disadvantages of retained profit?
Might not have any retained profit or might need the funds for something else.
Once the money is gone, not available for future unseen problems
What are the advantages of selling assets?
Convenient
can create space for more profitable uses
can be quick
What are the disadvantages of selling assets?
Might not get the market value or even sell at all
might need the assets in the future
It also looks desperate
What are the advantages of using savings?
Quick
convenient
cheap
What are the disadvantages of using savings?
Might not have any savings or may need cash for private purposes
What are the internal sources of finance?
Retained profits
Sale of assets
Owners own savings
What are the internal sources of finance?
Retained profits
Sale of assets
Owners own savings
What are the external sources of finance?
Loan capital
Share capital
Stock market flotation
What is loan capital?
lump sum of capital borrowed from a bank
What are the advantages of loan capital?
Regular repayments spread over a period of time assist with cash-flow management
often a bank manager gives financial advice
What are the disadvantages of loan capital?
Can take a while to be approved
might not qualify
interest applies, so can be expensive.
Often a bank will insist on collateral being offered by a business in case the business fails to make loan repayments
What is share capital?
when a business becomes a private limited company by offering shares in the business exchange for capital
What are the advantages of share capital?
Does not need to be repaid
no interest applies
business can choose who to offer shares to
What are the disadvantages of
share capital?
Profits are paid to shareholders (dividends)
control of the business is diluted
What is the stock market flotation?
when a business becomes a public limited company by offering shares to the public to buy
What are the advantages of stock market flotation?
Can raise large amounts of capital as is easy for the public to buy shares via a stockbroker or bank
does not need to be repaid
no interest applies
business becomes recognised
What are the disadvantages of stock market flotation?
Complicated and expensive
loss of control as anyone can buy shares
profits are paid to shareholders
business records are mace public
some investors only buy shares to make a quick profit by selling them when the share price increases
