Business Growth - Business Growth Flashcards
What is business growth
Any form of expansion of the business
What are the two types of business growth?
- Internal growth
- External growth
What are the different types of internal growth
- Reinvest it’s profits - when some of the profits are kept in the business for expansion
- Expand its product range - when new or additional products are introduced by the business
- Increase sales activity - additional sales can be achieved by opening new retail outlets
What are 3 advantages of reinvesting the profits?
- The business can grow and make more sales
- No interest paid so it’s cheaper
- Flexible approach as management can control how much is reinvested
What are 2 disadvantages of reinvesting your profits?
- Less money is available to pay dividends to shareholders. Therefore, they may become unhappy and sell their shares
- Not possible if the business is making a loss
What are 3 advantages of expanding your product range?
- This leads to more customer and increased sales and profits
- Increased customer satisfaction, which creates customer loyalty
- Diversification - if one product fails, the business has others to fall back on
What are 3 disadvantages of expanding its product range?
- It takes a long time to yield additional profits , as consumer awareness of the product range needs to be widespread to be of any benefit
- Market research to find out what customers want will have to be carried out, which can be expensive
- New products will have to be advertised extensively, which can be costly
What are 3 advantages of increasing sales activity?
- Increases sales and profits
- Increased market share and the firm could become a market leader
- The business’ reputation improves which improves corporate image
What are 2 disadvantages of increasing sales activity?
- The business needs to carry out market research to find out what customers want in other countries. This is expensive
- Expensive
Name the 3 types of external growth
- Takeover - when one business buys over the control of another business by purchasing a large number of shares so that it can control the voting in the other business.
- Mergers - an agreed joining together of two companies. All assets and liabilities are pooled together in order to benefit from economies of scale and increased profits
- Franchising - when a business idea is hired out to other businesses
Name 3 advantages of takeover
- It’s a very fast method of growth compared with internal growth
- The business can now benefit from economies of scale
- Getting rid of a competitor so the market share can rise
Name 3 disadvantages of takeover
- Takeovers can be hostile and this can lead to strained relationships in the business
- Takeovers lead to redundancies, which can damage the business’ corporate image
- Takeovers are very expensive as the price of the shares rise prior to a takeover
Name 3 advantages of a merger
- Economies of scale can be achieved by buying in bulk supplies
- Mergers minimalise duplication of resources since multiple departments can be closed in order to make the best use of limited resources
- Fewer staff is required to manage the business, reducing costs
Name 2 disadvantages of a merger
- Redundancies are likely since duplication of resources is probable
- Consumers may face a limited choice of products
- There may be a lack of competition in the market place
Name 3 advantages of franchising
- A local business benefits from the terms and conditions set out by the franchising company such as; use of their logo,layout of the premises, staff uniforms and product range supplied
- The business has more of a chance of success if it’s an already well known brand name
- The franchisor increases market share by entering a greater number of geographical markets
Name 3 disadvantages of franchising
- It doesn’t allow for creativity at a local level, as they’re all run the same
- It’s unlikely that the franchisee will have any input into national marketing campaigns , which may be more relevant to the local market
- There’s no guarantee that maximum sales will be reached in each franchise location. The franchisee could damage the brand if the business isn’t run well.
What are the 4 factors that can limit growth?
- Lack of finance - if the business doesn’t have the required capital it can’t expand
- Increased competition - competition from larger businesses who can afford to sell products at lower price, therefore, growth may be restricted as they don’t have enough customers to expand
- Lack of demand - if consumer demand doesn’t exist for the product range, then the business might not be able to secure growth
- Difficult economic climate - of levels of consumer disposable income decline, then consumers will spend less, meaning falling sales and profits for many businesses so they can’t spend
Signs of success ( 6 points )
1) Increasing profits
2) attracting new competitors into the industry
3) Expansion
4) Favourable customer reviews
5) Word of mouth recognition
6) Listings on social media or increased publicity
Signs of failure ( 5 points )
1) Loss of profits
2) Poor cash flow
3) Loss of customers
4) Unfavourable customers reviews
5) High employee turnover
Factors that can limit the growth of firms ( 4 points )
1) Lack of finance
2) Increased competition
3) Lack of demand
4) Difficult Economic climate
Advantages of growth ( 3 points )
1) Increase profits
2) Economies of scale
3) Greater Market influence
Disadvantages of growth ( 3 points )
1) Poor communication
2) Lack of motivation
3) Difficulties of co-ordination
