Growing the business

• why is business growth normally an important objective

  Help to increase market share

  lead to lower costs

  Result in more profit
• When does a business grow

  When it sells more output over a period of time
• Internal growth


  Occurs when a business expands by itself, by bringing out new products or by entering new markets.
• Methods of internal growth

  New markets-changing the marketing mix to find new markets or expanding overseas.

  New products-innovating or researching and developing brand new products that are not currently available.

  New technology- large organisations can benefit from investigating in the latest technology or in the ability to develop new technology themselves
• External growth


  Business joins forces with another
• Merger


  Where two or more businesses voluntarily agree to join up and work as one.
• Takeover


  Where one business buys another.To take over a company it is necessary to gain control by buying enough shares
• Methods of external growth


  Conglomerates-Businesses with no common business interest join

  Horizontal-businesses at the same stage join

  Forward vertical-business joins with one at a later stage

  Backward vertical-business joins with one at a previous stage
• How do public limited companies raise Capital

  Through selling shares on a stock exchange. Easier for businesses to raise money for growth
• Stock market flotation

  Business issues shares for sale on the stock exchange
• private limited company can change to public limited company by stock market flotation
• Benefits of PLC

  Ability to raise finance through share capital.

  Limited liability

  Considered more prestigious and reliable

  May be able to negotiate better prices with suppliers

  Greater public awareness of business
• Disadvantages of plc

  More complex accounting and reporting procedures.

  Risk of potential takeovers

  Increased public and media attention

  Less privacy around financial performance

  Greater influence on decision-making external shareholders
• Becoming a plc may enable a business to grow into multinational and operate in more than one country.
• Finance growth

  A business can use internal sources of finance from within the business or external sources of finance from outside the business.
• Internal sources of finance

  Sale of assets

  Retained profit
• External sources of finance

  Loan capital

  Share caputal
• Sale of assets

  A large business may have assets that it no longer needs, such as fixed assets (eg machinery) or excess stock.Selling assets is a quick way of raising capital ,but the business loses the benefit of owning the assets that it sells.
• Retained profit

  Involves no risk or debt.Profit is not guaranteed and a business may require a more substantial investment than it can make as profit.
• Loan capital

  Long-term bank loan can be secured against the business's assets but interest will be charged and the business will have to make fixed repayments to repay the debt
• Share capital


  A PLC can raise considerable capital by selling shares. selling shares puts plcs at risk of being taken over and all shareholders are entitled to a share of profits through dividends.
• Factors affecting business objectives

  New competitors, Adoption of new technology, The economic climate , Legislation , Annual objectives
• Legislation

  Force a business to change its products and services this may restrict the business's operations or create new opportunities that may be incorporated into its objectives
• Sources of finance 


  Risk - selling shares result in owner losing control or cashflow problems may result from meeting loan-repayment terms . Cost- The cost of borrowing varies across different sources. Availability - Some sources eg loans or share capital might not be accessible
• Economic climate may change level of demand and spending in the market . A fall or rise in demand will influence a businesses ambitions and objectives
• Objectives may link to adaptation of new technology or innovation and invention of new products made possible by new technology
• New competitors enter marker or grow business may change objective to become more competitive
• Annual objectives reflect on previous objectives of the business . Change in working culture or business's leaders can influence objectives so match ambitions or personality of managing director or CEO (Chief Executive Officer)
• Targets for growing business

  Expand the product range

  Enter new markets

  Increase sales

  Increase profits

  Gain larger market share

  Take over other businesses

  Open new stores

  Increase the workforce
• Targets for a struggling business

  focus on survival : Decrease the product range

  Exit markets

  achieve enough sales to break even

  improve efficiency

  maintain market share

  reduce costs eg close stores or reduce workforce
• Retrenchment is when a business downsizes the scale of its operations eg decreasing range of products it sells or closing store
• business objectives

  retrenchment , Efficiency , profit , Growth .

  shrinking market and negative economic climate . Expanding market and positive economic climate
• globalisation

  imports , exports , location
• imports 


  Globalisation allows businesses to import products and raw materials at lower prices than they would be able to produce them for in the Uk , either for resale or to produce their own goods . However importing increases competition from foreign businesses that are able to sell directly to UK customers .
• exports

  exporting opens up new international markets for businesses and gives potential to grow. Operating in international markets different from uk and businesses may face problems if they lack the necessary expertise or knowledge
• location

  Globalisation brings opportunity for businesses to relocate operations to other countries . To benefit from lower labour costs , to be closer to raw materials or to be closer to markets to which they sell their products .
• globalisation

  Businesses operate internationally and gain a lot of influence or power . Globalisation changes the way businesses operate and creates considerable opportunities and threats
• imports

  flow of goods and services into one country from another country
• exports

  flow of goods and services out of one country to another country
• multinationals

  large company with facilities and markets around the world . powerful businesses that can create lots of jobs and growth when they enter a country . However smaller local businesses can lose out , especially in less economically developed countries (LEDCs)