2.1: growing the business

• business growth


  refers to the increase in the size, revenue, and market presence and profitability of a business over time.
• organic growth


  growth achieved through the expansion of current business activities using its own resources
• organic costs advantages


  - low risk

  - (usually) not as expensive

  - control is maintained
• organic growth disadvantages


  - can be slow

  - may be limited by the size of the market

  - restricted by the amount of finance available

  - don't get new ideas from new shareholders
• inorganic growth


  expansion by merging with or taking over another business
• inorganic growth advantages


  - faster

  - ability to move up in competition

  - gained knowledge from new shareholders
• inorganic growth disadvantages


  - strategic growth is expensive

  - control may be lost

  - sudden change
• how may a business develop ideas for new products?

  - testing concepts

  - creating a market strategy

  - analysing competition and existing products
• how may a business reach a new market?

  - overseas expansion

  - introducing products to new people
• how may technology be used for business growth?

  - research and development

  - expansion

  - development
• merger


  a combination of two or more businesses to form a single firm
• takeover


  an act of taking control of a company by buying most of its shares
• businesses need ... for growth

  finance
• internal sources of finance

  - retained profit

  - selling assets

  - personal savings
• retained profit


  profit which is kept back in the business and used to pay for investment in the business.
• retained profit advantages


  - don't have any debt or interest

  - flexible

  - maintain full control without any extra shareholders or creditors
• retained profit disadvantages


  - newly formed businesses may not be able to do this

  - risk of slow growth

  - shareholders may prefer dividends
• selling assets


  when a person or business sells assets it owns, such as equipment or vehicles it no longer uses, in order to raise finance
• selling assets advantages


  - can create space for more profitable uses

  - can be quick

  - no debt or interest
• selling assets disadvantages

  - might not get the full market value of the assets or even be able to sell them at all

  - might need the assets in the future

  - time and effort needed for ownership transfer
• personal savings


  money that has been saved up by the owners of the business
• personal savings advantages


  - no debt or interest

  - quick

  - no dilution of ownership
• personal savings disadvantages


  - may not have the capital to put into the business

  - capital may be limited
• external sources of finance

  - loan capital

  - share capital

  - stock market floatation
• loan capital


  money required to run a business which is raised from loans from financial institutions (e.g. banks) rather than shares.
• loan capital advantages


  - quick and easy to apply for

  - ownership is not lost or diluted

  - payments being in instalments gives the business time to earn revenue needed to repay the loan
• loan capital disadvantages


  - interest

  - may require collateral

  - if unable to pay back loan, it will be harder to apply for another in the future

  - financial discipline is needed
• share capital


  money introduced into the business through the sale of shares
• share capital advantages


  - no debt/repayments

  - shareholders can bring new ideas

  - capital can be used however

  - full control over how many shares issued

  - dividends are not paid if loss is made
• share capital disadvantages


  - selling ownership can cause shareholder to have different opinions causing conflict or slower decision making

  - pay dividends

  - shareholders will have to have access to many files and other legal documents

  - dilution of ownership

  - risk of takeover
• stock market floatation


  the process a business goes through when it first makes shares available to the public on a stock exchange in order to become a public limited company.
• stock market floatation advantages

  - no interest

  - provides a sudden and often large injection of share capital into a business

  - does not slow down decision making as it often includes 1000s small shareholders

  - dividends are only paid if profit is made
• stock market floatation disadvantages

  - no control of who buys shares

  - risk of takeover

  - decision making may be slowed down
• why may a business evolve over time?

  due to changes in market condition, technology, business performance and legislation
• changes in market condition

  economic conditions can increase/decrease customer competition and new competition may enter the market (competition may also leave)
• changes in technology


  new and changing technology can create opportunities and/or challenges for businesses, depending on how they and potential customers use it
• changes in business performance

  changing costs and revenues require a response by a business to maintain and grow profit, new owners/shareholders can mean a new different aims/objectives and different ideas can mean a new direction for the business
• changes in legislation


  businesses need to respond to the changes in the law to both stay legal and keep staff, which can create challenges and/or opportunities for businesses
• how may a business evolve and adapt?

  by focusing on survival/growth, entering/exiting markets, growing/reducing workforce or increasing/decreasing product range
• focusing on survival or growth

  focusing on survival during when a business is newly established or difficult times and focusing on growth during successful times - difficult times could be due to recession, high unemployment, new competitors and successful times could be due to increased sales, increased profit, strong brand image