Business Growth

• Organic Growth


  Growth is important because it allows:

  • increased market share
  • improve profits
  • increase revenue
  • helps a business open more branches
• Organic Growth


  can occur in a number of ways:

  • employing more people
  • opening more branches
  • increasing sales/revenue
  • increasing profits
• Organic Growth


  internal/organic growth - when a business decides to expand its own activities by launching new products/entering new markets

  improves chances of:

  • increasing customers
  • increasing revenues
  • increasing profits
• Organic Growth


  New Products:

  • once a business has its market, it is easier and less risky to expand its product range with related products
  • research and development works directed toward the innovation, introduction and improvement of products and processes
• Organic Growth


  Entering new markets - higher risk, the business has not experienced these before, so it can be complex and expensive

  • entering overseas markets
  • amend its marketing mix (product, price, place and promotion)
  • taking advantage of technology
• Organic Growth


  Entering new markets - overseas

  • trading in new countries to achieve growth
  • gives business access to brand new market -> extremely successful and increase profitability or complex and expensive
• Organic Growth


  Entering new markets - amend marketing mix

  • re-examined
  • changes may need to be made
• Organic Growth


  Entering new markets - new technology

  • use of e-commerce
  • makes items cheaper to produce, can lower prices and target lower-income markets
• Organic Growth


  advantages:

  • maintain its own values without interference from stakeholders
  • higher production means business can benefit from economies of scale and lower average costs
• Organic Growth


  disadvantages:

  • can be long period between investment and return
  • growth may be limited and dependant on reliability of sales forecasts
• Inorganic Growth


  Merger - when two business join to form a new (larger) business
• Inorganic Growth


  Takeover - when an existing business expands by buying more than half the shares of another business
• Inorganic Growth


  Horizontal Integration -> when two competitors join through a merger/takeover, new business is more competitive and increases its market share, gives it more control when negotiating and setting prices
• Inorganic Growth


  Forward Vertical Integration -> when a business takes control with another that operates at a later stage in the supply chain
• Inorganic Growth


  Backward Vertical Integration -> when a business takes control of a business earlier in the supply chain
• Inorganic Growth


  Conglomerate Integration -> when a business in unrelated markets join through a takeover/merger, enabling businesses to spread their risk over a wider range of products and services
• Inorganic Growth


  Advantages:

  • competition can be reduced
  • market share can be increased very quickly overnight
• Inorganic Growth


  Disadvantages:

  • can be expensive to takeover/merge with another business
  • managers may lack experience to deal with other businesses
• Inorganic Growth


  Public Limited Companies:

  • shares are sold to public on the stock market
  • shareholders become part owners of the business and have a voice on how it operates
  • CEO + board of directors -> manage and oversee the business activities
• Inorganic Growth


  selling shares on stock market - known as 'floating on the stock exchange'
• Inorganic Growth


  PLC advantages:

  • ability to raise additional finance through share capital
  • shareholders have limited liability
  • increased negotiation opportunities with suppliers in terms of prices, larger businesses = economies of scale
• Inorganic Growth


  PLC disadvantages:

  • expensive to set up, requiring minimum of £50,000
  • more complex accounting and reporting requirements
  • greater risk of a hostile takeover by a rival company
• Sources of Finance


  internal - capital found from within a business

  external - capital found from outside a business
• Inorganic Growth


  Internal sources:

  • retained profits
  • selling of asssets
  • owners savings
• Inorganic Growth


  Retained Profits - advantages

  • cheap
  • quick and convenient
  • easy access to money
• Inorganic Growth


  Retained Profits - disadvantages

  • once money is gone, it's not available for future unforeseen problems the business may face
• Inorganic Growth


  Selling Unwanted Assets - advantages

  • convenient
  • creates space for more profitable uses
  • quick
• Inorganic Growth


  Selling Unwanted Assets - disadvantages

  • business may not get full market value of the assets
  • assets may be needed in future
• Inorganic Growth


  Owners Savings - advantages

  • cheap
  • quick and convenient
• Inorganic Growth


  Owners Savings - disadvantages

  • owner may not have enough savings/need cash for personal use
• External Sources of Finance


  Loan Capital - a lump sum of capital borrowed from a bank and paid back in instalments
• External Sources of Finance


  Loan Capital - advantages

  • regular repayments are made over a period of time
• External Sources of Finance


  Loan Capital - disadvantages

  • can take a while for a loan to be approved and business may not qualify
  • interest is applied (make it expensive option)
  • bank may ask for collateral (security) in case a business fails to make repayments
• External Sources of Finance


  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
• External Sources of Finance


  Share Capital - advantages

  • does not have to be repaid
  • no interest is applied
  • business can choose to whom to offer its shares
• External Sources of Finance


  Share Capital - disadvantages

  • profits made by the business are paid to shareholders (dividends), so control of the business gets diluted
• External Sources of Finance


  Stock market flotation - money raised when a business becomes a PLC by offering shares to the public to buy
• External Sources of Finance


  Stock market flotation - advantages

  • can raise large amounts of capital as its easy for the public to buy shares through a stockbroker or bank
  • shares do not have to be repaid and no interest is applied
  • business can gain recognition
• External Sources of Finance


  Stock market flotation - disadvantages

  • can be complicated/expensive and there is a possibility of losing control
  • profits are paid to shareholders and business records are made public
  • risk investors will only buy shares to make a quick profit by selling them when the share price increases