2.1.1 Business Growth Flashcards
Organic Growth
Internal Growth
What can be done for organic growth
Opening New Stores
Expanding Overseas
Changing Marketing Mix to interest new customers
Introduce new products
Use new technology
Advantages of Organic Growth
Sustainable, Usually paid with retained profits, can adjust for bigger size as it develops
Disadvantages of organic Growth
Slower growth meaning competitors could get a competitive advantage whilse you wait for the capital needed, too many branches opened at once can cause cashflow issues
Inorganic Growth
External Growth
What can be done for inorganic growth
Merger
Takeover
Takeover
One business takes over another business
Merger
When two business combine to form one organisation
Advantages of inorganic growth
Almost immediate growth, reduce competition within a market by purchasing competitors, increased market share
Disadvantages of inorganic growth
Lots of capital needed, conflict between new and old business, duplication of roles can lead to higher costs, redundancies might be needed
Horizontal integration
Merging or taking over a business at the same stage of the supply chain
Forward vertical integration
Business taking control of another business at a later stage of the supply chain
Backward Vertical Integration
Business taking control of an other business in an earlier stage of the supply chain
Conglomerate integration
Businesses in unrelated markets merge or takeover, spreading the businesses risk over a wider range of products and services
Public Limited Company (PLC)
Company shares are sold on the stock market and those who own shares are shareholders, with a voice on how the business operates
Share Holders have limited liability
Loosing control and chance of hostile takeover by competitors
Retained Profit
Internal
Profits held back by the business for reinvestment rather than dividends
Cheap, quick and convenient
Once the money is gone it is gone and can’t be used for future unforeseen circumstances
Selling Assets
Internal
Selling unwanted equipment to make money
Convenient and creates space
Might not get full market value and may be needed in future
Owner’s savings
Internal
Personal savings from the owner
Cheap, quick and convenient
Might not have enough savings or may be needed for personal use
Loan Capital
External
Lump sum of capital borrowed from a bank and paid back in instalments with interest
Regular payments made over long time
Costs more than borrowed due to interest
Share Capital
External
Money raised when a business becomes a PLC by offering shares to a select group in return for capital
No interest and not repaid
Profits are shared by shareholders through dividends
Stock Market Flotation
External
Money raised by being a PLC and offering shares to the public.
Raises large amounts of capital as easy for shares to be brought
Profits shared by shareholders through dividends
