business theme 2.1

What are the two methods of growth for a business?

Internal (organic)

External (inorganic)

What does internal/ organic growth involve?

Launching products (Innovation)

Expansion (locations)

What does external/ inorganic growth involve?

Mergers - two businesses deciding to combine into one

Takeovers - one business buys another

Advantages of internal growth

Business has more control

Business can make its own decisions

Disadvantages of internal growth

It can be slow

Advantages of external growth

Quicker - buying an existing business

Loyalty of customers and customer base is established

Disadvantages of external growth

Expensive - buying business for potential value

State internal sources of finance

Personal funds

Retained profit

Sale of assets

State external sources of finance

Share capital - stock market flotation (public limited company)

Loan capital - bank loan or overdraft

Give advantages, disadvantages and a definition of personal funds

Definition - finance from the owners savings

Ads - cheap, quick, convenient

Disadvantage - funds may not be sufficient

Give advantages, disadvantages and a definition of retained profit

Definition - profit held back for reinvestment

Ads - easy access to finance, cheap, quick

Dis ads - funds may not be sufficent

Give advantages, disadvantages and a definition of selling assets

Definition - selling unwanted assets

Ads - can create space for more profitable uses, can be quick

Disads - business might not get full market value or sell them at all, business might need them in the future

Give advantages, disadvantages and a definition of loan capital

Definition - some of capital borrowed from a bank that is paid in instalments

Ads - regular payments are paid over time, retain ownership and control

Disads - can take a while for a loan to be approved, high rates of interest, business may ask for collateral

Give advantages, disadvantages and a definition of share capital

Definition - finance raised when a business becomes a private limited company by offering shares to a select group of people, in return for capital

Ads - does not have to be repaid, no interest, can choose who it offers shares to

Disads - profits are paid to shareholders, control is diluted

Give advantages, disadvantages and a definition of stock market flotation

Definition - finance raised by a public limited company by selling shares on the stock market

Ads - easy to raise large amounts of capital, no interest, shares don’t have to be repaid, business can gain recognition

Disads - can be complicated and expensive as there is risk of losing control, profits paid to shareholders, business records are made public