2.1 Growing the Business

How does a business grow?

when it sells more output over a period of time

Why is business growth an important objective

• to help increase market share

• improve profit/revenue

• lower costs

• spread risk

How does business growth occur?

• from employing more people

• from opening more branches

• from increasing sales/profit/revenue

internal growth

when a business decides to expand its own activities by:

• launching new products

• launching into new markets

external growth

usually involves a merger or takeover

advantages of internal growth

• low risk and can be achieved quickly

• builds on the companies own strengths

• can be financed by business’ internal funds eg. retained profit

disadvantages of internal growth

• shows lack of willingness to take risks and expand

• may indicate lack of vision or effective leadership

advantages of external growth

• expertise of both business’ can be shared

• new business has access to customers of both business’

• may enable the business expand into foreign markets easier

disadvantages of external growth

• may be a clash of cultures and managers may disagree

• can be expensive to merge/takeover

Public Limited Companies (PLC) in Business Growth

• as a business grows it may change its type ownership to a PLC

• a PLC must have issued at least £50,000 worth of shares

• can sell to general public

• can be listed on stock exchange

advantages of PLC

• ability to raise finance through share capital

• limited liability

• greater public awareness of business

• considered more prestigious and reliable

• could negotiate better prices with suppliers

disadvantages of PLC

• more complex and reporting procedures

• risk of potential takeover

• increased public and media attention

• less privacy around financial performance

Internal Sources of Finance

• retained profit = revenue left after costs have been paid

• selling assets = selling items eg. clothes to raise funds

External Sources of Finance

• loan capital = finance borrowed from the bank

• share capital = selling of a % of a business to external investors - they get a % of the profit

advantages of retained profit

• you don’t have to pay interest

• quick and convenient

disadvantages of retained profit

• if it runs out you have no money

advantages of selling assets

• can create space for more profitable uses

• can be quick

• raise money from unused equipment

disadvantages of selling assets

• might not get the full market value of the asset

• might need the assets in the future

advantages of loan capital

• easy and quick to access

  • can get a significant

disadvantages of loan capital

• have to pay interest

• only a short term solution

advantages of share capital

• source of permanent capital

• no dividends to be paid if business has a poor year

disadvantages of share capital

• business is vulnerable to take over

• dilutes control for founders

changes in business aims and objectives

• market conditions

• performance

• internal reasons

• legislation

• technology

market conditions

• some competitors might leave the market

• if the economy is in a recession there will be less demand

• in a boom businesses will look to increase sales and invest in expansion

technology

• changes in technology can lead to new opportunities for a business

• although competitors can grow rapidly

performance

• some businesses may decide to leave the market

legislation

• changes in law mean that some businesses have no option but to change their aims and objectives

internal reasons

• new leadership could lead to a changes in the direction of the business

globalisation

the process in which the world is becoming more interconnected as a result of massively increased trade

impacts of globalisation on businesses:

• imports

• exports

• business location

• multinationals

exchange rates

• strong pound makes imports cheaper and exports dearer

• weak pound makes imports dearer and exports cheaper

advantages of business location

• access to more customers

• potential for more sales and profit

• potential to grow product range

• increased brand awareness

disadvantages of business location

• increased responsibility

• more risk

• potential for failure

• increased costs

tariff

• taxes imposed on imports

• imposed to support local businesses by making imports more expensive

• customers choose to buy local instead of expensive imports

barriers to trade

some countries may try to stop the amount of goods or services coming into the country

advantages to tariffs

• more money for the government

• businesses in home country have a better chance of competing

disadvantages to tariffs

• imported goods and services become more expensive

• may cause other countries to impose tariffs in response affecting exporters

trade bloc

• a group of countries that act together is make trading easier

• no tariffs and less restrictions

• makes trades easier and cheaper, increasing demand

• countries outside of the trading bloc will face barriers to trade

advantages of trading bloc

• promotes free trade union means trading without tariffs

• there is often free movement of labour

• creates good trading relationships with other countries in the trading bloc

disadvantages of trading bloc

• importing and exporting to countries outside the trading bloc can be expensive

• countries can often only be a part of one trading bloc which means others can’t enter

impact of internet/e-commerce an globalisation

• made communications easier - buyers and sellers are more interconnected on a global basis

• greater demand from consumers worldwide - easier to grow sales and market share

trade-offs

when one or more things are given up in order to achieve the alternative

ethical behaviour

requires businesses to act in ways that stakeholders consider to be both fair and honest

four main environmental issues that influence business activities

• climate change

• pollution

• sustainability

• waste reduction

for traffic congestion businesses can:

• timings of deliveries to and from stores

• car share schemes for employees and closer parking for customers

• efficient online ordering and delivery services

for recycling businesses can:

• provide facilities eg. collection of christmas cards, recycling bins

• reduced use of packaging

• recycling materials within the production process

for disposal of waste businesses can

• safe disposal of waste generated in the production process

• finding alternative uses for waste eg. breweries using waste to feed animals

for noise + air pollution businesses can:

• reduce carbon emissions eg. electric delivery cars

• safe practises to ensure environmental disasters don’t happen

• using filters

for traffic congestion consumers can:

• car share

• using transport

for recycling consumers can:

• buy reliable products

• recycle waste

• reusing carrier

for disposal of waste consumers can:

• safe disposal of domestic waste

• reducing waste

for noise+ air pollution consumers can:

• reducing carbon footprint

• low emission cars

• alternative methods of transport

resource depletion

caused as we use up non-reusable resources

marketing mix

• price

• product

• promotion

• place

impact of pressure groups on price

• costs are likely to increase so businesses will pass this on to the consumer in the form of higher prices

• consumers are more willing to pay higher prices for ethical products

impact of pressure group on product

• businesses will produce ethically minded products that meet the needs of the consumer increasing their reputation

• products might be removed from the product range or have ingredient/raw materials changed

• businesses will improve relationships with stakeholders such as suppliers and employees

impact of pressure groups on promotion

• businesses can use their improved reputation to advertise their products

• they will consider the medium that they use to market their products, to see if theses are appropriate in order to meet the demands of their stakeholders

impact of pressure groups on place

• businesses will have to consider where they can open new stores

• they will source products from local areas to support the community and reduce damage to the environment