Growing the business Flashcards
What is business growth?
Business growth happens when a business sells more output over time, increasing market share, profits, revenue, and possibly opening more branches.
Why is business growth an important objective?
Business growth helps increase market share, improve profits, increase revenue, and can lead to more branches being opened.
How can a business grow?
A business can grow by employing more people, opening more branches, increasing sales or revenue, and increasing profits.
What is internal growth (organic growth)?
Internal growth happens when a business expands its own activities, like launching new products or entering new markets, to increase customers, revenues, and profits.
Explain why entering new markets can be risky for a business.
Entering new markets is risky because the business lacks experience in that market, which can lead to high costs and challenges. The business may not understand local preferences or regulations, and there’s a chance the market may not respond well to its products.
Why do businesses launch new products?
Businesses launch new products to expand their market, attract more customers, and increase revenue and profits.
How does research and development (R&D) help a business grow?
R&D helps businesses innovate, improve, and introduce new products and processes, which supports business growth.
What are two advantages of internal growth for a business?
Low risk: The business stays in control and doesn’t rely on outside influences, allowing it to grow at its own pace.
Economies of scale: As production increases, the business can reduce costs per unit, improving efficiency and profitability.
What is one disadvantage of internal growth for a business?
One disadvantage is that internal growth is slow. It takes time to see the return on investments, and the business’s growth is limited by sales forecasts and market demand.
What is the difference between a merger and a takeover?
A merger is when two businesses join to form a new, larger business. A takeover is when one business buys more than 50% of another business’s shares to take control.
Give an example of how a merger works
in a merger, two businesses, Business ‘A’ and Business ‘B’, combine their locations, stock, marketing, products, and staff to form a new, larger business, allowing them to grow together.
Explain how a takeover works using an example.
In a takeover, Business ‘A’ buys more than 50% of the shares in Business ‘B’ to take control. This allows Business ‘A’ to grow by owning a business in the same or a different market.
How can a business merge with or take over another business?
A business can merge or take over another business using different methods, including buying shares, forming alliances, or expanding into related markets.
What are the advantages of external (inorganic) growth?
Competition can be reduced
Market share can increase quickly
Expansion happens more rapidly than through organic growth
What are the disadvantages of external (inorganic) growth?
It can be expensive to merge or take over another business
Managers may lack experience in dealing with the new business
Integration issues can arise, making it difficult to merge different cultures and processes
What is a public limited company (PLC)?
A public limited company (PLC) is a business that sells shares to the public on the stock market. Shareholders become part-owners and can vote on business matters. A CEO and board of directors manage the company.
What are the advantages of being a public limited company (PLC)?
Ability to raise additional finance through share capital
Shareholders have limited liability
Increased negotiation opportunities with suppliers due to economies of scale
What are retained profits and what are their advantages and disadvantages as a source of finance?
Retained profits are profits kept within the business for reinvestment rather than being paid as dividends.
Advantages: Cheap, quick, convenient, and easy access to money.
Disadvantages: Once used, it’s not available for future unforeseen problems.
How does selling assets work as an internal source of finance, and what are its pros and cons?
Selling assets involves selling unwanted items like machinery or equipment to raise money.
Advantages: Convenient, can free up space for more profitable uses, and can be quick.
Disadvantages: The business might not get full market value for the assets or could struggle to sell them. It may also need those assets in the future.
What are the advantages and disadvantages of using the owner’s savings as a source of finance?
Owner’s savings can be used to fund the business.
Advantages: Cheap, quick, and convenient.
Disadvantages: The owner may not have enough savings or might need the cash for personal use.
What is loan capital and what are its advantages and disadvantages as a source of finance?
Loan capital is a lump sum borrowed from a bank, paid back in instalments.
Advantages: Regular repayments are made over time.
Disadvantages: Can take time to approve, interest is applied, and collateral may be required if the business fails to repay.
What is share capital and what are its pros and cons for a business?
Share capital is money raised by a private limited company through offering shares to a select group of people.
Advantages: No need for repayment or interest, and the business can choose who to offer shares to.
Disadvantages: Profits are paid to shareholders (dividends), diluting control of the business.
What is stock market flotation and what are its advantages and disadvantages?
Stock market flotation involves a business becoming a PLC by offering shares to the public.
Advantages: Raises large amounts of capital, easy for the public to buy shares, and no repayment or interest required.
Disadvantages: Expensive and complicated, risk of losing control, and profits are shared with shareholders. The business records become public.
Why do business aims and objectives change as businesses grow?
Business aims and objectives change due to shifts in market conditions (size of the market, competitors, types of businesses).
As markets grow, businesses may focus on growth objectives (e.g., offering sustainable products).
If competition increases, businesses may shift to survival objectives (focusing on daily operations).
