2.1.1 Business Growth

Question 1

Internal growth (Organic)

Answer 1

When a business grows from the inside.
E.g.1. Develop a new product. - Research and development is expensive.
E.g.2. Can change marketing mix by changing the four P’s( Price, Place, Promotion, Product).
E.g.3. Expanding overseas. - Selling same product abroad.
Advantages: Relatively low risk
Builds business’ own strengths
Can be financed through the business’ internal funds such as retained profit.
There will not be the risk of a clash of cultures.

Question 2

External Growth (Inorganic)

Answer 2

When a business grows by joining with other businesses. E.g. Buying out a company. - Takeover, Merger
Advantages: Can be achieved quickly.
The expertise of both businesses can be shared.
The business has access to the customers of both businesses.
It can allow a business to establish itself in a new market quickly.

Question 3

Public Limited Company (PLC)

Answer 3

As a business grows it may change its type of ownship to a public Limited company.
Must have issued at least £50,000 worth of shares.
At least 25% (£12,500) of shares have to be paid up i.e. they have been paid for.
Can sell shares to the general public.
Can be listed on the Stock Exchange
Advantages: Enhance business reputation.
Gets exposure through stock exchange.
Tend to be large, stable companies meaning it is easier to access further finance from banks.
Allows a larger pool of finance.
Disadvantages: expensive and not guaranteed to be successful.
General public can buy shares meaning that the company is open to takeovers.
Financial information is freely available for anyone to see, including competitors.
Stricter rules and regulations are paced on PLCs.

Question 4

Internal source of finance: Retained profit

Answer 4

[Enter Definiton +/ Equation]

Question 5

Internal source of finance: Selling Assets

Answer 5

[Enter Definiton +/ Equation]

Question 6

External sources of finance: Loan Capital

Answer 6

[Enter Definiton +/ Equation]

Question 7

External sources of finance: Share Capital (stock market, flotation (Public Limited Companies))

Answer 7

[Enter Definiton +/ Equation]

Question 8

Merger (External Growth)

Answer 8

Where two businesses agree to become integrated to form one business under joint ownership.
E.g. A + B = A&B

Question 9

Takeover (External Growth)

Answer 9

Where one Business buys another business.

E.g. A + B = A