2.1.1 business growth

organic growth

growth from within the business

examples of organic growth

- new products

- new locations

- exporting

- franchising

adv of organic growth

-can retain own company culture

-allows business to grow at steady rate

-less risky

-builds on strengths of business

What is a disadvantage of organic growth related to speed?

Slow growth

What do stakeholders typically prefer in terms of growth?

Rapid growth

What is a disadvantage of organic growth regarding investment?

Long period between investment and return on investment

What can organic growth be reliant on?

Growth of the overall market

economies of scale

factors that cause a producer's average cost per unit to fall as output rises

example of economies of scale

A firm increases in size and therefore is able to lower its health insurance cost because as the size of the insured group increases, the premium per person decreases

diseconomies of scale

the situation in which a firm's long-run average costs rise as the firm increases output

inorganic growth

A firm growing through mergers and takeovers.

merger

Combination of two or more companies into a single firm

takeover

when one company buys another one (over50% of shares)

Merging advantages

-benefits from economies of scale

-reduced competition

-two firms can combine knowledge

-costs may be saved if combined facilities

merging disadvantages

-diseconomies of scale if business becomes too large as one unit will increase in cost

-clashes of cultures

-communication issues

-unreliable merger partner

-80% of mergers fail

what may a growing business decide to do

to float shares on the stock exchange to raise funds

this means the business will have to gain PLC status

public limited company

a company that has traded their shares on the stock exchange so that everyone can buy them

advantages of PLC

limited liability

easy to raise capital

banks more willing to lend money

easier to grow and expand

disadvantages of PLC

-High costs (floatation can be very expensive)

-loss of control

-lack of flexibility

-public can see company information and accounts

-risk of company being taken over

dividend

The portion of money made by companies paid out to stockholders

internal sources of finance

Personal funds, retained profit, sale of assets

personal funds

a source of finance for sole traders that comes mostly from their own personal savings

retained profit

Profit which is kept back in the business and used to pay for investment in the business.

sales of assets

when a business sells off its unwanted or unused assets to raise funds

external sources of finance

share capital

overdraft

loan

share capital

money raised from the sale of shares of a limited company

overdraft

Occurs when money is withdrawn from a bank account and the available balance goes below zero

bank loan

A fixed amount loan from a bank which is generally used to finance long-term assets