Expanding a Business Flashcards
What are the two methods of expansion?
1) Internal/ organic growth.
2) External growth.
What is internal/ organic growth?
This growth occurs when a business gets bigger by selling more of its products.
What is external growth/ integration?
This occurs when a business gets bigger by joining with, or buying another business.
How can you measure business size?
1) Quantity of sales:
A business that is growing would normally sell a larger number of products.
2) Value of sales:
As a business expands it would expect to receive more revenue from selling its goods and services. This may result also in and increased market share.
3) Value of its business:
This can be calculated by totalling the value of a business’s assets and subtracting what it owes. the resulting value is the net worth.
4) Number of employees:
This can measure the size of businesses that provide services rather than sell goods.
Give examples of internal/ organic growth.
1) Franchising.
2) E-commerce.
3) Outsourcing.
What is franchising?
This occurs when a franchisor sells the rights to sell its its products to a franchisee and allows them to use its brand name; this is usually in return for a fee or a percentage of turnover.
What are the advantages of franchising?
1) A business can expand rapidly as it does not need to raise finance to expand as the franchisee has to find the money to buy the necessary property.
2) Selling a franchise provides the franchisor with finance.
3) Franchisees are more effective and hardworking than employees as they are managing their own businesses.
What are the disadvantages of franchising?
1) Franchisees may make errors that damage the franchisor’s brand name and reputation.
2) Most of the profits go to the franchisee rather than to franchisor.
What is e-commerce?
This is the act of buying or selling a product using an electronic system such as the internet. This is also known as electronic commerce.
What are the advantages of e-commerce?
1) Allows businesses to grow quickly as it avoids the need for shops yo sell products.
2) Fewer employees are needed, reducing running costs.
3) Customers can buy products 24/7, which can lead to an increase in sales.
What are the disadvantages of e-commerce?
1) Retailers may suffer from falling sales in their shops.
2) It can be difficult and expensive to distribute goods to customers, especially if the goods are bulky or heavy.
3) Some customers prefer to see a product before buying.
What is outsourcing?
Occurs when a business uses another business to produce for it.
What are the advantages of outsourcing?
1) Reduces costs as it is not necessary to buy or rent a new factory or office, or hire additional employees.
What are the disadvantages of outsourcing?
1) Its risky as it depends on another business.
2) Sales may be lost and reputations damaged if the outsourcing business does not deliver on time or produces low quality products.
Give methods of external growth.
1) Merger.
2) Takeover.
