internal growth positives and negatives

Reinvesting profits positive 1

Less risky, business won’t need to borrow any money from the bank which means they don’t have to make any interest payments

Reinvesting profits positive 2

No loss of control, this is because the business cannot be taken over by another business. It can grow slowly and gradually.

Reinvesting profit negative 1

The owner cannot keep profits which means the owner may only do this for a limited time period

Reinvesting profits negative 2

This method may annoy shareholders who will receive less or no dividend, which means the shareholders may be unwilling to to continue to invest

Expanding products range positive 1

New products will attract new customers leading to and increase in sales and profits

Expanding product range positive 2

Ensures that existing customers purchase products from the business which keeps them loyal to the business and should prevent them going to competitors

Expanding product range negative 1

It is costly for the business to research and develop new products to sell to customers because the business must invest heavily into research and development

Expanding product range negative 2

No guarantee that the new products developed will be a success which means capital and other resources invested in the new products may be wasted, which will reduce profits

Increase sales activity positive 1

Enable the business to increase their net profits, which means that the owners will receive a higher dividend

Increasing sales activity positive 2

Attract new customers who will be attracted to the business because the business will be operating in new geographical areas

Increasing sales activity negative 1

Costly because the business will have to spend capital to fund new locations and they will also have to carry out research and development to identify what countries they should sell in

Increasing sales activity negative 2

May be difficult to achieve when competition is fierce in the markets

What is internal growth

This is also known by organic growth. This is growth which occurs naturally and without the assistance of other businesses. This can be achieved by reinvesting profits, expanding the product range and increasing sales activity.