Growing the business

• Business growth is important as it enables businesses to increase the scale of their operation and competitiveness
• Business growth can be achieved internally (organically) or externally (inorganically)
• Internal (organic) growth occurs when a business expands its own activities by launching new products and/or entering new markets
• To ensure internal business growth is successful, a business can engage in research and development, which is work directed towards innovation, introduction, and improvement of products and processes
• Business growth is important for increasing the scale of operation and competitiveness, achieved through internal (organic) or external (inorganic) growth
• External growth (inorganic growth) in business usually involves a merger or takeover
• A merger occurs when two businesses join to form a new (but larger) business, while a takeover happens when an existing business expands by buying more than half the shares of another business
• Horizontal integration in business occurs when two competitors join through a merger or takeover, increasing market share and competitiveness
• Forward vertical integration happens when a business takes control of another operating at a later stage in the supply chain, while backward vertical integration occurs when a business takes control of a business earlier in the supply chain
• Conglomerate integration is when businesses in unrelated markets join through a takeover or merger, spreading risk over a wider range of products and services
• Business growth is important as it enables businesses to increase the scale of their operation and competitiveness
• Business growth can be done either internally (organically) or externally (inorganically)
• Advantages of external (inorganic) growth:

  • Competition can be reduced
  • Market share can be increased very quickly overnight
• Disadvantages of external (inorganic) growth:

  • It can be expensive to takeover/merge with another business
  • Managers may lack the experience to deal with the other businesses
• Public limited companies (PLCs) advantages:

  • Ability to raise additional finance through share capital
  • Shareholders have limited liability
  • Increased negotiation opportunities with suppliers in terms of prices due to economies of scale
• Public limited companies (PLCs) disadvantages:

  • Expensive to set up, requiring a minimum of £50,000
  • More complex accounting and reporting requirements
  • Greater risk of a hostile takeover by a rival company
• Business growth is important as it enables businesses to increase the scale of their operation and competitiveness
• Business growth can be achieved internally (organically) or externally (inorganically)
• Internal sources of finance:

  • Retained profits: profits held back in the business for reinvestment rather than being issued as dividends
  • Advantages: cheap, quick, convenient, easy access to money
  • Disadvantages: once the money is used, it's not available for future unforeseen problems
  • Selling of assets: selling unwanted assets like machinery and equipment
  • Advantages: convenient, can create space for more profitable uses, quick
  • Disadvantages: might not get full market value, might need assets in the future
  • Owner’s savings: the business owner's own savings
  • Advantages: cheap, quick, convenient
  • Disadvantages: owner might not have enough savings or may need cash for personal use
• Internal (organic) growth in business is when the company expands its own operations, while external (inorganic) growth involves expanding through sources outside the business
• Internal source of finance is the money and equipment invested into a business found from within the business, while external source of finance is capital found from outside the business
• Loan capital is a lump sum of capital borrowed from a bank and paid back in instalments, with advantages like regular repayments over time but disadvantages such as delays in approval and potential disqualification
• Interest is the annual charge for borrowing money, usually expressed as a percentage of the total borrowed, and banks may ask for collateral (security) in case of repayment failure
• Share capital is money raised when a business becomes a private limited company by offering shares to a select group of people in return for capital, with advantages like no repayment required and no interest applied, but profits made by the business are paid to shareholders
• Stock market flotation is money raised when a business becomes a PLC (public limited company) by offering shares to the public to buy, with advantages like raising large amounts of capital and gaining recognition, but it can be complicated, expensive, and lead to loss of control
• Business growth is important as it enables businesses to increase the scale of their operation and competitiveness
• Business growth can be achieved either internally (organically) or externally (inorganically)
• A business may decide to enter new markets to achieve growth, which can be done by:

  • Entering overseas markets
  • Amending its marketing mix (product, price, place, and promotion)
  • Taking advantage of technology
• Entering overseas markets can give a business access to a brand new market, potentially increasing profitability, but it can be complex and expensive
• When entering a new market, a business must re-examine its marketing mix, adjusting elements like price to appeal to the new market
• Businesses may use new technology, like e-commerce, to target new markets and lower production costs, enabling them to lower prices and target a lower-income market
• Advantages of internal (organic) growth include maintaining business values without interference from stakeholders, benefiting from economies of scale, and lower average costs
• Disadvantages of internal growth include slower growth, a long period between investment and return on investment, limited growth, and dependency on sales forecasts