2.1

• Economies of Scale are the benefits to a business of being larger. For example being able to produce their products at a cheaper unit cost.
• Economies of scale can happen for three reasons: - Larger firms need more supplies than smaller firms, so will buy supplies in bulk. - Larger firms can afford to buy and operate more advanced machinery than smaller firms. - The law of increased dimensions.
• As the average unit cost of making each product is lower, businesses can make more profit on each item that they sell. This can also mean that businesses can afford to charge customers less for products than smaller businesses can.
• There are however some disadvantages to economies of scale and this is referred to as diseconomies of scale. - The bigger the business, the harder and more expensive it is to manage it properly. - Larger businesses have more people, so it can be harder to communicate. People at the bottom of the organisational chart may feel insignificant and can get demotivated. - The production process may become more complex and more difficult to coordinate.
• A public limited company means that the shares of a business are traded on the stock market and can be bought and sold by anyone.
• Types of business ownership - Public limited companies Benefits ● This can bring a lot of extra finance into a business, especially if the shares are in high demand. ● The business will also have limited liability. Drawbacks ● It can be hard to get shareholders to agree on how the business should run, someone could buy enough shares to takeover. ● They also have to publish their accounts with Companies House
• Sources of Finance Larger businesses need to raise money to finance their expansion and to continue operating. Internal sources of finance (finance that comes from within the business) External sources of finance (finance that comes from outside of the business) But they can also use a different type of ownership in order to raise financ
• Internal sources of finance - retained profit. Retained profits are profits that owners have decided to put back into the business after they have paid

  themselves and their shareholders a dividend (a share

  of the profits).

  The benefit of this is that they don’t have to pay any

  interest or pay it back to anyone.

  However, the drawbacks are that they have to pay

  themselves and shareholders so there is a limit to the

  amount of retained profit that they have.
• Internal sources of finance - fixed assets Businesses can also raise cash by selling fixed assets (assets that a business keeps long term - machinery and buildings) that are no longer in use. The benefits of this is that a business is making use of something they currently make no money from. However, the drawbacks are that there is a limit to the assets you can sell, as if you sell to many you won’t be able to trade.
• External sources of finance - loan capital A business can also take out a loan, then pay the money back over a fixed period of time. The benefits of this is that larger businesses can normally take out larger loans than smaller businesses because they have assets to borrow against which can be used to pay back the loan. They can also find it easier to prove to the bank that they have been profitable over a longer period of time as they are seen as less risky. However, the business will need to pay interest on the loan which will increase their payments.
• External sources of finance - share capital If a business becomes a limited company it can be financed using share capital - money raised by selling shares in the business. The benefits of this is that finance raised through share capital does not need to be paid back (unlike a loan). However, selling shares means that the original owners will get a smaller share of the businesses profits and lose some control over how the business is run.
• Globalisation is the process by which more and more businesses operate on an international scale: selling to, buying from and operating in multiple countries.
• Imports are goods brought into a country from abroad
• Exports are goods produced in a country that are then sold abroad
• An exchange rate is the rate at which the money of one country can be exchanged for the money of another country
• A businesses aims and objectives may have to change for a number of reasons: - Technology - Business performance - Market conditions

  - Legislation - Internal reasons
• As the business evolves, the aims and objectives are likely to change: - Change whether to survive or grow - Change the size of its workforce - Enter or exit new markets - Change the size of its product range
• What is the title of the first video in theme two?

  Grow the Business
• What is the focus of theme two compared to theme one?

  Transition from small to bigger businesses
• What are the two categories of methods of business growth?

  • Internal growth (organic growth)
  • External growth (inorganic growth)
• What is internal growth in a business context?

  Growth through a business's own operations
• What is one way a business can achieve internal growth?

  Launching new products
• What is external growth in a business context?

  Growth through mergers or takeovers
• What is a merger?

  Two businesses combine into one
• How does a takeover differ from a merger?

  A takeover involves one business buying another
• What are the benefits of internal growth?

  More control over decisions
• What is a drawback of external growth?

  It can be more expensive
• What are internal sources of finance?

  Funds from within the business
• What is retained profit?

  Profit made from previous years
• What is a potential downside of selling assets for finance?

  You lose the asset sold
• What are the two main categories of external sources of finance?

  • Share capital
  • Loan capital
• What is share capital?

  Selling ownership shares to investors
• What is a public limited company?

  A company selling shares on the stock market
• What is an IPO?

  Initial public offering of shares
• What is loan capital?

  Borrowing money to be paid back later
• What is a bank loan?

  Borrowing a sum of money with repayment terms
• How does an overdraft work?

  Allows negative bank balance temporarily
• What is a key characteristic of an overdraft?

  Short-term source of finance
• What are the reasons for changing business aims and objectives?

  • Market conditions
  • Technology changes
  • Performance issues
  • Legislation impacts
  • Internal changes (e.g., new leadership)
• What is the difference between an aim and an objective?

  An aim is a long-term goal; an objective is a target