Theme 2: Building a Business Flashcards
Theme 2.1.1: What is the difference between Internal and External growth?
Internal Growth is when a business grows by it’s own means such as creating a new product.
External Growth is when you grow your business using outside means such as taking over another business.
Theme 2.1.1: Give some methods of growth for Internal Growth.
Advertisement, New products, New stores, Finding new markets overseas
Theme 2.1.1: Give some methods of growth for External Growth.
Merge with another company, Takeover another company
Theme 2.1.1: What is a merger?
A merger is when two businesses two businesses of roughly equal size agree to come together to form one business.
Theme 2.1.1: What is a takeover?
A takeover is gaining control of another business by buying more than 50% of it’s share capital.
Theme 2.1.1: What are some advantages and disadvantages of Internal growth methods?
Advantages: Low risk, A business can maintain it’s own values without interference from stakeholders, Getting bigger brings economy of scale
Disadvantages: Slower Growth, Opportunities can be missed due to lack of finance
Theme 2.1.1: What are some advantages and disadvantages of External growth methods?
Advantages: It can happen quickly, You can eliminate competition by buying them, Vertical and horizontal integration brings in economy of scale
Disadvantages: Risky, A business may have to borrow money, If it doesn’t work it is difficult to go back to how you were.
Theme 2.1.1: Why do businesses want to grow?
Meeting customer needs, Add value to a product, Meet business goals, Increase profit, Keep competition at bay, Keep investors happy
Theme 2.1.1: What is a PLC?
Public Limited Company
Theme 2.1.1: What is a LTD?
Private Limited Company
Theme 2.1.1: Name some sources of finance for growth.
Share Capital (External), Selling unwanted assets (Internal), Bank Loan, Bank Overdraft, Internal Retained Profit
Theme 2.1.1: Give some benefits and drawbacks to getting bank loan.
Benefits: Interests rate may be fixed, Repayments are made in installments, Don’t need to give away a share of your business
Drawbacks: Time consuming, Security, Lack of flexibility
Theme 2.1.1: Give some benefits and drawbacks to selling unwanted assets.
Benefits: No finance need to be repaid and keep all control
Drawbacks: Not a long term solution, Reduces value of the business, The business won’t gain any value due to depreciation
Theme 2.1.1: Give some benefits and drawbacks to getting a bank overdraft.
Benefits: Flexibility, Interest is only paid on the amount used
Drawbacks: Have to pay back to the bank at any time, High levels of interest
Theme 2.1.2: Name some things that could cause a change a businesses aims and objectives.
Technology, Internal reasons, Business performance, Legislation, Market conditions
Theme 2.1.3: What is Globalisation?
The free movement of goods, services, people, capital, information and technology enabling businesses to sell their products anywhere in the world.
Theme 2.1.3: What are the main benefits to business of operating in more than 1 country?
Quicker growth, Cheaper labour, Multinational brands
Theme 2.1.3: What are the reasons for changing business location?
Access to lower manufacturing and labour costs.
Better skilled and higher quality supply
To make it easy to target international markets (where it is important to be located in, or near to, those markets)
Theme 2.1.3: What are barriers to international trade?
Theme 2.1.3: What is the effect of barriers to trade?
Protects Jobs
Imposing tariffs on imports will raise money to fund Government services.
Stop the entry of harmful or undesirable goods.
Increase demand for domestic goods.
Theme 2.1.3: Name 3 types of barriers of trade.
Quota, Tariff, Trading Blocs
Theme 2.1.3: Name some benefits of trading blocs.
Foreign Investment, Economies of Scale, Competition, Greater Trade, Market Efficiency
