Business

• Business growth


  Selling more output over a period of time
• Reasons why business growth is an important objective

  • Help to increase market share
  • Improve profits
  • Increase revenue
  • Help a business to open more branches
• Ways a business can grow

  • Employing more people
  • Opening more branches
  • Increasing sales or revenue
  • Increasing profits
• Internal growth (organic growth)


  When a business decides to expand its own activities by launching new products and/or entering new markets
• New products


  Many new businesses start out with one product idea. Once a business has a market it already sells to, it is easier and less risky to expand its product range with related products.
• Research and development


  Work directed towards the innovation, introduction and improvement of products and processes
• Entering new markets


  A business may decide to enter new markets to try to achieve growth. However, this comes with a higher risk than developing new products.
• Ways a business can enter new markets

  • Entering overseas markets
  • Amending its marketing mix (product, price, place and promotion)
  • Taking advantage of technology
• Domestic market


  The market within a business's home country
• Commerce

  Enables customers to buy products even if they do not live near a business's store
• Advantages of internal growth

  • It is low risk
  • A business can maintain its own values without interference from stakeholders
  • Higher production means the business can benefit from economies of scale and lower average costs
• Disadvantages of internal growth

  • It is slower growth
  • There may be a long period between investment and return on investment
  • Growth may be limited and is dependent on the reliability of sales forecasts
• External growth (inorganic growth)

  Usually involves a merger or takeover
• Merger


  Two businesses join to form a new (but larger) business
• Takeover


  An existing business expands by buying more than half the shares of another business
• Horizontal integration


  When two competitors join through a merger or takeover
• Forward vertical integration


  When a business takes control with another that operates at a later stage in the supply chain
• Backward vertical integration


  When a business takes control of a business earlier in the supply chain
• Conglomerate integration


  When businesses in unrelated markets join through a takeover or merger
• Advantages of external growth

  • Competition can be reduced
  • Market share can be increased very quickly overnight
• Disadvantages of external growth

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


  A business where shares are sold to the public on the stock market
• Floating on the stock exchange

  When a business sells shares on a stock market
• Advantages of being a PLC

  • The business has the ability to raise additional finance through share capital
  • The shareholders have limited liability
  • There are increased negotiation opportunities with suppliers in terms of prices because larger businesses can achieve economies of scale
• Disadvantages of being a PLC

  • It is expensive to set up, requiring a minimum of £50,000
  • There are more complex accounting and reporting requirements
  • There is a greater risk of a hostile takeover by a rival company
• Retained profits


  Profits held back in the business for reinvestment rather than being issued as dividends
• Advantages of retained profits

  • Cheap, quick and convenient, and there is easy access to the money
• Disadvantages of retained profits

  • Once the money is gone, it is not available for any future unforeseen problems the business might face
• Selling of assets


  Another internal source of finance by selling unwanted assets, such as machinery and equipment
• Advantages of selling assets

  • Convenient, can create space for more profitable uses, and can be quick
• Disadvantages of selling assets

  • The business might not get the full market value of the assets or even sell them at all
  • The business might also need the assets in the future
• Owner's savings


  A third source of internal finance is the business owner's own savings
• Disadvantages of owner's savings

  • The owner might not have enough savings or may need the cash for personal use
• Loan capital


  A lump sum of capital borrowed from a bank and paid back in instalments
• Advantages of loan capital

  • Regular repayments are made over a period of time
• Disadvantages of loan capital

  • It can take a while for a loan to be approved and the business may not even qualify for a loan
  • Interest is applied, so this can be an expensive option
  • Banks may also ask for collateral (security) in case the business fails to make repayments
• Share capital


  Money raised when a business becomes a private limited company by offering shares to a select group of people in return for capital
• Advantages of share capital

  • It does not have to be repaid and no interest is applied
  • A business can choose to whom it offers shares
• Disadvantages of share capital

  • Profits made by the business are paid to shareholders (these payments are also known as dividends), so control of the business gets diluted
• Stock market flotation


  Money raised when a business becomes a PLC (public limited company) by offering shares to the public to buy