3.1.2 Business Growth

Question 1

How do businesses grow?

Answer 1

Growth

1. Internal
2. External
   - Acquisitions
   - Mergers -> Horizontal/Vertical/Conglomerate

Question 2

Define organic growth

Answer 2

Organic growth is internal growth through reinvesting profits or borrowing from banks.

Question 3

How to grow through organic growth?

Answer 3

• Increase market share
• Development of new innovative products
• New markets to sell its existing products
• Getting existing customers to buy more products through advertising or investing technologies to expand production

Examples: Subway, Wasabi, Poundland, Hotel Chocolat

Question 4

Organic growth advantages

Answer 4

• Grow at a rate that is comfortable to you and maintain your corporate culture
• Will have a wealth of knowledge about yo business
• Using retained profits means low gearing and this can give a strong financial position
• Stakeholders are likely to be supportive
• Existing shareholders maintain control

Question 5

Organic growth disadvantages

Answer 5

• Risk of over extending the capacity of the management team and key workers
• Larger competitions can crowd you out (slow way to grow a business)
• Relying on strength of the market to grow could limit growth

Question 6

Keys of a successful business

Answer 6

1. Grow customer base -> Increased sales -> Increased revenue
2. Reinvest profits into new assets and technologies -> improved productivity -> reduce costs per unit
3. Reinvest profits into new assets and technologies -> increase output -> greater profits
4. Diversify -> Spread risk
5. Develops new products through R&D