TOPIC 2.1 Growing a business Flashcards
Environment
The natural world around us, which may be affected business.
Flotation
When a business offers its shares for sale to the public on the stock exchange for the first time.
Import tariff
A way of protecting UK products by adding a tax to imports into the UK.
Inorganic (External) growth
Two or more businesses joining together to make one much larger one in a merger or takeover.
Merger
Occurs when two or more businesses join together and operate as one.
Multinational
A business which operates in more than one country.
Organic (Internal) growth
A business growth strategy that involves a business growing gradually using its own resources.
Public limited company (Plc)
An incorporated business, with Plc after its name that can openly sell shares on the stock market.
Stock market
Where buyers and sellers can trade shares.
Takeover
The process of one business buying more than 50% of the shares of another.
Trade bloc
A group of countries that has signed an agreement to reduce or eliminate all barriers to trade (eg tariffs).
Method of internal growth
Greater range of products, new markets (countries), new target customers, more shops
External sources of finance for growth
Loan capital, share capital,venture capital
Internal sources of finance for growth
Selling assets, retained profit
Advantages of plc
Can raise huge amounts of money for growth, raises profile of company
Disadvantages of plc (share capital)
Vulnerable to takeover as anyone can buy shares, loss of control by original owners, accounts are available to the public
Risks of rapid growth
Large amounts of finance needed, loss of control, difficult to manage more staff, expanding production to meet demand
Advantages of loan capital
Owner retains control of the business, ownership and profits are not shared
Disadvantages of loan capital
Must be repaid, interest must be paid, lender can require security over business assets, needs good business track record
Reasons for change in aims and objectives
Change in market conditions, legislation, technology, business performance, internal reasons
Fair trade
A social movement whose goal is to help producers in developing countries to achieve better trading conditions and to promote sustainability
Disadvantages of retained profit as source of finance
May not be sufficient for growth, shareholders may want dividends rather than investment in growth
Advantages of retained profit as source of finance
No costs such as interest, no loss of control of the business
Advantages of selling assets as source of finance
Reduces running costs of obsolete assets (eg buildings, machinery) no interest to pay, no loss of control
Disadvantages of selling assets as source of finance
Can only do this once, asset may be needed again in the future, may not raise enough finance
