2.1

• if a business grows it can

  • benefit from economies of scale
  • benefit from a larger market share
  • gain more recognition, customers, revenue and profit
• what is organic (internal) growth

  when a business grows on its own - from within
• how can a business grow organically

  • taking existing products to new markets in the UK or overseas
  • developing new products (via research and development, taking advantage of new technology or innovation)
  • becoming a PLC by floating on the stock market
• what are the advantages of organic growth

  • business can maintain it's own values without interference
  • retain their own company culture
  • higher production means that the business can benefit from economic of scale and lower average costs
  • increased market share gives the business more influence
• what are the disadvantages of organic growth

  • slower growth
  • very high risk strategy
  • long period between investment and return on investment
  • growth may be limited and is dependant on reliability of sales forecasts
• what is inorganic (external) growth

  when a business combines with another business to grow
• what are the two methods of inorganic growth

  • merger - when 2 businesses join together
  • takeover - when one business buys a smaller business
• what are the advantages of inorganic growth

  • rapid growth
  • new shared resources, skills and customers
  • increased revenue and market share
  • buying a business in another country helps with cultural issues and foreign laws
• what are the disadvantages of inorganic growth

  • disagreements and communication problems
  • clash of cultures
  • merger partners may be unreliable
  • 80% of mergers fail
• what are the three types of internal finance

  • retained profits
  • sale of assets
  • owner's savings
• what are the advantages to using retained profit as an internal source of finance

  cheap, quick and convenient
• what are the disadvantages of retained profits as a source of finance

  • might not have any retained profit or may need the funds for something else
  • once the money is gone, it's not available for future unseen problems
• what are the advantages to becoming a PLC

  • limited liability
  • easy to raise capital
  • banks are more willing to lend money to a well established large business as there is less risk
  • easier to grow and expand
• what are the disadvantages of a PLC

  • expensive and there is a lot of admin work
  • must issue more information about the business which is expensive to produce
  • has to prepare annual accounts and has to be sent to all shareholders
  • annual accounts have to be made available to the public and therefore to competitors
• what are the advantages of selling assets as a source of finance

  • convenient
  • can create space for more profitable uses
  • can be quick
• what are the disadvantages of selling assets as a source of finance

  • might not get market value for it or even sell at all
  • might need the assets in the future
  • can look desperate
• what are the advantages of using savings as a source of finance

  • quick
  • convenient
  • chaep
• what are the disadvantages of using savings as a source of finance

  • might not have any savings
  • may need cash for private purposes
• what are the three types of external sources of finance

  • loan capital
  • share capital
  • stock market
• what are the advantages of using a loan as a source of finance

  • regular payments spread over a long period of time help with cash flow management
  • a bank manager often gives financial advice
• what are the disadvantages of using a loan as a source of finance

  • can take a while to be approved
  • may not qualify for the loan
  • expensive due to interest
  • a bank often insists on collateral being offered in case the business fails to repay
• what is share capital

  what a business becomes a private limited company by offering shares in the business in exchange for money
• what are the advantages of using share capital as a source of finance

  • does not need to be repaid
  • no interest applies
  • business can choose who to offer shares to
• what are the disadvantages of using share capital as a source of finance

  • profits are paid to shareholders - aka dividends
  • control of the business is diluted
• what are the advantages of using the stock markets as a source of finance

  • can raise large amounts of capital as it is easy for the public to buy shares via a stockbroker or the bank
  • does not need to be repaid
  • no interest applies
  • business becomes more recognised
• what are the disadvantages of using the stock market as a source of finance

  • complicated and expensive
  • loss of control as anyone can buy shares
  • profits are paid to shareholders (dividends)
  • business records are made public
  • some investors only buy shares to make a quick profit by selling shares when share price increases
• over time businesses need to change their aims and objectives as the business evolves to adapt to changing circumstances
• a business may adapt aims and objectives in response to

  • market conditions
  • technology
  • performance
  • legislation
  • internal reasons
• why may a business change its aims and objects in response to market conditions

  • there may be lots of new competitors entering the market and the business will have to adapt to better compete with them
  • the growth rate of the market (whether it is becoming bigger or smaller)
• why may a business change its aims and objectives in response to technology

  • innovation may lead production processes becoming more efficient (e.g by the use of machinery and robots)
  • innovation may lead to advancements in technology so businesses may need to adapt to stay more competitive
• why may a business need to change its aims and objectives in response to its own performance

  • a successful business may change its aims and objectives to include future growth
  • a failing business may need to change its aims and objectives for example decreasing the number of staff and focussing on core business
• why may a business change its aims and objectives in response to legislation

  • in the uk due to minimum wage laws costs are higher as they have to pay staff more so aims and objectives may have to change as growth may be slower
  • new laws regarding food labelling caused businesses to adopt and objective to promote public health awareness
• why may a business change its aims and objectives in response to internal reasons

  • the owner may have had a change in vision
  • the original aims and objectives may no longer be applicable e.g as a business grows it may turn from selling at a stall to larger shops nationally
• what may a business change its aim from after its first year

  from survival to making a profit and growth
• a business may have to change its aims and objectives when entering or exiting a market
• what may a business have to change when entering a new market

  ensure a product is in line with customer tastes and if not adapt it as there is no point entering a new market if it won't sell because people don't want it
• what may a business have to change when exiting a market

  change the direction as if they are exiting a market chances are sales were low and they weren't making much profit
• why may a business need to change the size of it's workforce to meet new aims and objectives

  a business may need to reduce costs and therefore reduce the workforce or they may want to expand the business and therefore hire more labour
• why may a business need to increase it's product range in order to meet new aims and objectives

  so that customers will have more choices and the business can make more sales and to appeal to a wider range of customers and price ranges
• why may business decide to decrease its product range

  to return to core business and get rid of products that may be old or obsolete or just not selling which will streamline the business and reduce costs making the business more profitable