Business Growth Flashcards
Business Plan
A document that outlines business objectives and strategies put in place to achieve them. Also included are business financial details, source of finance, marketing objective.
Turnover
How much they sell (amount of money made)
Motives for Business Growth
Survival (To be competitive) Economies of Scale Increase Profits Increase Marketshare Diversify (Reduce Risks)
Organic (Internal) Growth
Growing internally, this involves a business increasing its output and selling more. It may involve opening new stores.
Pros and cons of Organic Growth
Pros - Economies of Scale, increase profits and sales, cheaper method of growth, better reputation.
Cons - Slow method, can be risky, consumers have more choice if you don’t merge.
External Growth
Involves joining with another company to grow. Eg Merging, takeover and acquisition
Average Labour Costs (Equation)
number of employees / output
Examples of External Growth
Horizontal Integration - 2 firms from same industry and same level of production
Vertical Integration - 2 firms from same industry but not same level of production
Lateral Integration - Same as horizontal but firms are not in direct competition
Conglomerate/Diversifying mergers - 2 firms merging with no common interest.
Pros and Cons of External Growth
Pros - Economies of Scale, increase profits and sales, fast method of growth, less risk, reduce competition.
Cons - More expensive method of growth, may form an oligopoly/monopoly so may face more regulations.
Constraints on Business Growth
Access to Finance - If a firm is low on profits, ability to expand will be low
Competition - Competition from a large, estabilished firm who have large marketshare may make it difficult to grow.
Government Regulation
Barrier to Growth
Owners Objectives for business (Owner may want smaller firm)
Limited skilled workforce
Diseconomies of Scale (If firms average costs are increasing, may find it challenging to grow)
Demerger
Occurs when a firm splits itself into 2 or more separate parts to create two or more firms.
Reasons for Demerger
Conflicting business objectives between departments
Lack of synergy (lack of relations between two departments of business)
Eliminate diseconomies of scale
Business break down to focus on objectives
Cooperation tax may be lower if firms split.
