Topic 2.1 Growing A Business 📍 Flashcards
Methods of business growth?
Organic growth - internal growth
Inorganic growth - external growth
How do businesses use organic growth? (4)
- Development of new products
- Entering a new market
- Changing marketing mix
- Using tech
What are the advantages of organic growth?
- Increase in customers increase in sales revenue + profit
- More production -> benefit from economies of sale
- More control over business reflecting on your business culture
- Gain more influence -> can set prices for market share
Disadvantages for organic growth
- Takes a long time
- Expensive - risky
What are the positives of inorganic growth?
- Greater quality of products
- Customer needs being met
- Higher market share gained
- More income so dents are paid off more
What are the two types of inorganic methods
Takeover - get bought by another business
Horizontal Merger- merge with another business in same market
Vertical- join via supply chains
What are the negatives of of inorganic Growth?
- Jobs made redundant
- Less choice for customers
- Clash of cultures - risk merger to fail
- Lack of communication
- Diseconomy of scale
How does inorganic growth take place in a PLC ?
Public can buy shares of your business and use the stock exchange to raise funds
What are the advantages of using inorganic growth as a plc ?
- Limited liability
- Good public profile - banks willing to lend loans
- Easy to raise capital
Disadvantages of using inorganic growth as a PLC?
- Ownerships shared between shareholders - more likely to be a hostile takeover
- Expensive / complicated prepare annual accounts
- Everything is visible for your competitors to see
What are the internal sources of finance?
Retained profit
Sales of assets
Positives and negatives of using sales of assets?
Positives - releases trapped money
No interest
Negatives- sell it for less than you bought it still a loss
No longer on balance sheet - drives away investors
Money not available immediately
Positives and negatives of retained profit
Positive - no interest
Freedom of chioce
Tax break
Negatives- one time opportun- can only be spent once
Positives and negatives of a bank loan
Positives - low rate of interest as a well known business
Negative - interest still needs to be paid
Positives and negatives of using share capital ?
Positives - no interest
Easy
Negative - dilutes ownership
Entitled to dividends so may lose most money
What are positives of becoming a PLC ?
Ability to raise finance through share capital
Limited liability
Good public awareness
Seen as reliable
What are negative did becoming a PLC?
More complex procedures
Risk of hostile take over
Increase public attention
Dilute ownerships
Less privacy
What are the internal sources of finance ?
Sales of assets
Positives - no interest
Negatives
May make less as asset has devalued
No immediate
Less assets - less opportunity for partnerships
Retained profit - saving profit
Positives - no interest
Negative - takes a while to accumulate- may miss out on opportunities
What are the external sources of finance ?
loan capital 🏦- money form bank
Good - secure
Negatives - interest
Shared capital- no interest
Negative - risk take over
What are the four main external influences that make us a business to change their objectives?
Legislation
market conditions
technology
competitors
How may the external influence of competitors cause a business to change their objectives?
If a new competitor enters the market it will lead to high levels of competition that needs to be completed with
this will lead to the business change the objectives to be more competitive
How can the external influence of legislation affect our businesses objectives?
Legislations may change the creations of services and products and restrict the businesses operations or create new opportunities to incorporate them into objective
How may the external implement of market conditions affect the businesses objectives?
The economic climate may affect how consumers spend if demand is high and low this will affect the ambition of the businesses objectives
How may the external influence of technology affect the businesses objectives?
Technology may create a new opportunity or innovation
