Topic 2.1.1 Business growth

Question 1

What are the internal sources of finance for growth?

Answer 1

Retained profit,selling assets

Question 2

Disadvantage of using retained profit for growh.

Answer 2

May take slower for growth.This is because gathering the amount of retained profit needed for significant growth could take a long time.As a result,decreasing productivity/taking longer to reach business success.
Upset shareholders in the short term.This is because shareholders want to maximise their dividends.As a result leading to conflicts between shareholders and the owner leading to shareholders selling their share in the business and leaving,stunting growth.

Question 3

Disadvantage of selling assets for growth?

Answer 3

Selling key/important assets for growth can decrease productivity.For example selling machinery that speeds up the production of the business.As a result,increasing unit costs of the business.

Question 4

Advantages of selling assets.

Answer 4

Business can sell old/used machinery that they don’t need anymore.This means that they could potentially get a return on there investment.As a result,preventing the business from making a loss.

Question 5

What are the external sources of finance for growth?

Answer 5

Loan capital,share capital,Stock market flotation-converting to plc’s,Crowdfunding

Question 6

Disadvantage of loan capital for growth?

Answer 6

Interest has to be paid on the loan.Therefore,the fixed costs of the business will increase.As a result,profit may fall.

Question 7

Advantages of internal growth?

Answer 7

Sustainable growth,usually paid with retained profits so as company gets bigger it can develop
-Slower method,rivals can gain a competetive advantage over you