Methods of funding growth

Question 1

McSporran Limited is a medium sized kilt-making business that is looking to grow. As Finance Director you have been asked to advise the Board on different ways that business growth can be funded. Prepare a short report.

Answer 1

• Retaining profit – the company can decide not to distribute profit to its shareholders and use it to reinvest into the business.
• Taking out a business loan.
• Applying for a business grant.
• Issuing new shares in the company.
• Divestment – McSporran could sell off an asset to raise finances to grow.
• Deintegration - selling off a part of the business that had previously been integrated.

Question 2

Explain what is meant by the term ‘asset stripping’

Answer 2

Asset stripping - when another business is purchased for the value of its assets which are then sold for profit.

Question 3

Distinguish between a management buy-in and a buy-out.

Answer 3

Buy-in - when managers not employed by the firm purchase the business as they believe they can run it more profitably. Buy-out - when managers or employees who are currently employed by the business purchase the business from the owners.

Question 4

Explain what is meant by ‘Outsourcing’ business operations.

Answer 4

Outsourcing – where when a firm hires another business to perform some of its activities