2.1.1 Business Growth

Question 1

Internal Growth - Definition

External Growth- Definition

Answer 1

Internal Growth- Does not require help for example opening new stores and launching new products
External Growth- When a Business merges with another business or takes over or is taken over by another business. For example buying out a competitor

Question 2

Internal Growth-

Developing New products- Innovation

Answer 2

Copyright - Business name or song
Patent- Copyright for a product
R+D for New products is expensive - High fixed costs, Can create barriers to entry and a tendency towards less competition

Question 3

Internal Growth-

New Markets

Answer 3

Changing the marketing mix-

• opening more stores
• increasing the product range
• changing price to increase market share
• increasing promotional spend
• Using E or M commerce
• Expanding overseas - risky but a potentially huge rewards depending on size of the market

Question 4

Advantages and disadvantages of Internal Growth-

Answer 4

Internal Advantages-
Low risk
Builds on the business strengths
Internal disadvantages-

Question 5

External Growth- Inorganic Growth

Answer 5

Merger- Two business come together and become joint

Takeover- Where another business buys out another business - can be hostile

Question 6

Advantages and disadvantages of External Growth-

Answer 6

External Advantages-
Can be achieved quickly
The expertise of both businesses is shared
Gain more customers
External Disadvantages-
Can take on any business debts
Can be hostile due to a business purchasing shares to gain the majority of the business

Question 7

Types of shareholders-

Answer 7

Major- own larger shares of the business. Have the power to remove the CEO
Minor - owns smaller shares of the business

Question 8

Public Limited Company (PLC)

Answer 8

A business which is owned by shareholders
Finance documents must be presented online so shareholders can see
A PLC must have issued at least £50,000 worth of shares

Question 9

Advantages of a PLC-

Answer 9

Flotation on the stock market allows accès to a larger poll of finance
PLCs tend to be large, stable companies so it is easier to access further finance from banks
Enhanced reputation of the company
Gains exposure through the stock market

Question 10

Disadvantages of a PLC

Answer 10

Flotation is an expensive process and not guaranteed to be successful
The general public can be share so the business is open to takeovers
Financial information is available for competitors
More strict rules and regulations are placed on PLCs

Question 11

Internal sources of finance-

Answer 11

Retained profit

Selling Assets

Question 12

External Sources of finance

Answer 12

Loan Capital

Share Capital

Question 13

Short terms sources of finance

Answer 13

• An overdraft facility, where a bank allows a firm to take out more money than it has in its bank account.
• Trade credits, where suppliers deliver goods now and are willing to wait for a number of days before payment.
• Factoring, where firms sell their invoices to a factor such as a bank. They do this for some cash right away, rather than waiting 28 days to be paid the full amount.

Question 14

Long term sources of finance

Answer 14

• Owners who invest money in the business. For sole traders and partners this can be their savings. For companies, the funding invested by shareholders is called share capital.
• A mortgage, which is a special type of loan for buying property where monthly payments are spread over a number of years.
• Grants from charities or the government to help businesses get started, especially in areas of high unemployment.

Question 15

Short term sources of finance

Answer 15

Overdraft

Trade credit

Question 16

Trade credit-Short term-

Answer 16

Paying suppliers a period of time after the goods or services have been received
Usually paid within 0-60 days

Question 17

Overdraft (External)-

Answer 17

• The facility to overspend on a current account up to a agreed sum
• In effect a business can withdraw money that is not in the account
• Interest is charged

Question 18

Long term sources of finance

Answer 18

Personal savings 
Venture capital 
Share capital
Loans
Retained profit
Crowdfunding

Question 19

Personal savings (External)-

Answer 19

When an entrepreneur invest their own money in a business

Owner capital is how much the owner has invested in the business

Question 20

Venture capital (External)-

Answer 20

Investment from an established business into another business in return for a percentage equity in the business

Question 21

Share capital (External)

Answer 21

Finance raised from the sale of shares (percentage of the business)
Shareholders get rewarded through dividends

Question 22

Example 1-
Small nail salon, popular with locals,
Has £1000 needs additional £3000
Source of finance?

Answer 22

They should use trade credit for the supplies and use a loan with a lower interest rate and put the retained £750 towards it

Question 23

Example 2-
Needs £900 to pay additional taxes
Source of finance?

Answer 23

He should get an overdraft because it has to be payed in so little time and overdraft is a short term source of finance

Question 24

Example 3-
Has £10000 personal savings
Car dealership needs cars and a good location
Source of finance?

Answer 24

They should use some of the personal savings but not all of it so about £5000 and then use trade credit on each of the cars purchased to be sold buy the dealership. And use any retained profit to get a better location and more cars to sell

Question 25

Example 4-
Developing a new product
Need £40000 to produce it
Source of finance?

Answer 25

I think that they should use venture capitalists because they can invest the money into the business and the money is gain instantly even though the will lose a percentage of the business