Chapter 3 part 2

• Problems of Business Growth

  Not all business expansions/growth leads to success
• Reasons why business expansion can fail

  • Larger businesses are difficult to control
  • Larger businesses lead to poor communication
  • Expansion costs so much that business is short of finance
  • Integrating with other businesses is more difficult than expected
• How to overcome problems of Business Growth

  1. Operate the business in smaller units - may be a form of decentralisation

  2. Operate the business in smaller units - perhaps use IT equipments and telecommunication

  3. Businesses may expand more slowly - they might use profits from the slowly expanding businesses to pay for further growth. Ensure long term finance is available

  4. Introduce a different style of management - This requires a good communication with the workforce - they will need to understand the reasons for the change
• Reasons why businesses stay small

  • The type of industry the business operates in
  • The market size of that business
  • The owners' objectives
• Reasons for small market size

  • Firms which operate in rural areas far from the cities
  • Firms which produces goods/services of a specialised kind such as luxury cars or expensive fashion clothing
• Reasons why owners prefer to stay small

  • They are more interested in keeping control of a small business and knowing all of their staff & customers than running a much larger business
  • They wish to avoid stress and worry of running a large firm
• Reasons why businesses fail

  • Poor management
  • Failure to plan for change
  • Poor financial management
  • Over expansion
  • Risks of new business set up
• Poor Management


  • Lack of experience lead to bad decisions
  • Family businesses may fail because sons ad daughters of the founders of the business do not necessarily make good managers or have the necessary experience to run the businesses
  • Some family businesses might be reluctant to hire professional managers
• Failure to plan for change

  • New technology and powerful competitors and major economic changes are some factors that can lead to business failures if they are not responded to effectively
• Poor Financial Management


  • Shortage of cash or liquidity means that workers, suppliers, landlords and government cannot be paid what they are owed
  • Failure to plan ahead or forecast cash flows (In and out of cash), can be a major cause for business failure
• Over Expansion

  • When a business expands too rapidly, this can lead to big problems of management and finance
• Risks of Business start-ups

  • Lack of financial resources, other resources, poor planning and inadequate research
  • The business owner may lack experience and decision making skills that more experienced managers of larger businesses have