Growing the Business

• internal sources of finance:

  • retained profit
  • share capital
  • sale of assets
  • stock market flotation
• retained profit is profit that has been made by the business previously that is reinvested back into the company
• advantages of retained profit:

  • no interest
  • shareholders have control over how much profit is being used
• disadvantages of retained profit:

  • slow growth
  • decreases shareholder dividends
• advantage of sale of assets is that the owner can control what assets to sell
• disadvantages of sale of assets:

  • short term solution
  • reduces value of the business
• advantage of loan capital is that it usually has a fixed interest rate paid over time
• disadvantage of loan capital is that it takes time to be approved and it has interest
• share capital is the money invested in a business by shareholders
• advantages of share capital:

  • no interest
  • business has control over who has shares
• disadvantages of share capital:

  • profits are paid to the shareholders
• Stock market flotation is money raised when a business becomes a PLC (public limited company) by offering shares to the public to buy.
• advantages of stock market flotation:

  • no interest
  • business can gain recognition
• disadvantages of stock market flotation:

  • shares are public
  • expensive
  • shares may only be bought when the stock market is doing well
• external sources of finance:

  • loan capital
  • bank loan
  • overdraft
• A bank overdraft allows you to withdraw more money from your account than is available
• advantages of overdraft:

  • flexible as you borrow what you only need
  • quick to arrange
• disadvantages of overdraft:

  • can affect credit score if it isnt paid back
  • interest rates can change
• limited liablility means only the owners are responsible for business debts up to the financial value of the business
• unlimited liability is when the owners are personally responsible for all business debts, no matter the business value
• public limited companies are businesses who offer shares to the public
• advantages of public limited company:

  • can raise a lot of capital via stocks
  • limited liability
• disadvantages of public limited companies:

  • complicated
  • expensive
  • less privacy
• examples of organic growth:

  • opening new outlets
  • expansion overseas
  • introducing more products
• examples of inorganic growth:

  • takeover
  • merger
• advantages of organic growth:

  • less risks
  • can be financed using internal funds
  • allows business growth at a sensible rate
• disadvantages of organic growth:

  • the size of the market may restrict growth
  • slow
• advantages of inorganic growth:

  • reduced competition
  • increased market share
  • risk is spread
• disadvantages of inorganic growth:

  • possible redundancies
  • business growth may be too fast
• horizontal integration is when business at the same stage of the production process join
• forwards vertical integration is when a business joins up with another business that is at an later stage in the production process
• backwards vertical integration is when a business joins up with another business that is at an earlier stage in the production process
• conglomerate is when businesses in different markets join
• globalisation is the process where businesses and countries around the world become more connected and interdependent
• globalisation has made it easier for businesses to import and export
• • Imports give business a larger market to buy from
  • they will be able to buy more supplies cheaply
  • which will reduce costs and increase profits
  • However, there would be more competition
  • so the business needs to reduce their costs further to stay competitive
• • Exports give business a larger market to sell to
  • this will increase sales and profits
• • globalisation can affect business location
  • a business may decide to start producing in areas closer to where they get their raw materials
  • this would reduce costs
  • they could also set up in countries where labour is cheaper
• tariffs are taxes on goods that are being imported or exported
• • products imported into a country are more expensive than those produced domestically
  • this helps domestic businesses stay competitive