Business Growth Flashcards

All 24 cards in this deck

What is internal (organic) growth?

When a business grows by expanding its own operations, e.g. launching new products or entering new markets.

Give two methods of internal (organic) growth.

Any two of: new products (innovation, research and development); entering new markets; changing the marketing mix; using new technology; expanding overseas; opening more branches.

Give one drawback of internal (organic) growth.

Any one of: it is slow; the business may lack cash to fund it; it may lack experience in new markets, leading to costly errors.

What are the two methods of external (inorganic) growth?

Merger and takeover.

What is a takeover?

When one business buys a controlling interest in another business.

What is a merger?

When two businesses agree to join together to form one new business.

True or false? Improving promotion is a method of external growth.

False. Improving promotion, innovation and research and development are all methods of internal (organic) growth; external growth means merger or takeover.

Give one way a takeover of a rival can increase a business's profit.

Any one of: it gives a larger market share; it eliminates a main competitor; larger orders bring bulk-buying discounts, lowering costs; less competition allows higher prices.

Give one drawback of external (inorganic) growth.

Any one of: competition laws may block the merger or takeover; the cost of buying the rival may be better spent elsewhere; the business bought may be loss-making.

What is a public limited company (plc)?

A company whose shares can be bought and sold by the general public on the stock market.

What is stock market flotation?

When a company first sells its shares to the public on the stock market, becoming a plc.

Give one drawback to the original owners of becoming a plc.

Any one of: issuing new shares dilutes their ownership, so they may lose control or face a takeover; flotation is expensive and takes management time.

Give one advantage to a growing business of becoming a plc.

Any one of: it can sell shares to the general public, raising large amounts of capital to fund growth; its higher profile and status can make it easier to borrow from banks.

Name the two internal sources of finance for a growing or established business.

Retained profit and selling assets.

What does 'selling assets' mean as a source of finance?

Raising cash by selling items the business owns but no longer needs, such as machinery, vehicles or property.

Give two external sources of finance for a growing or established business.

Loan capital and share capital (including stock market flotation for plcs).

True or false? Using share capital rather than a bank loan avoids increasing fixed costs.

True. Loans add interest to fixed costs, while share capital instead dilutes existing shareholders' ownership.

Give one advantage of selling assets to finance growth.

Any one of: it can raise cash quickly; there is no interest to pay or loan to repay; the owners give up no share of the business.

Give one drawback of selling assets to finance growth.

Any one of: the business no longer has the use of the asset; an asset can only be sold once; a quick sale may raise less than the asset is worth.

Give one drawback to a business of being a plc, other than the owners losing control.

Any one of: its financial results must be published, so rivals can see them; accounting and reporting rules are more complex and costly; it faces more attention from the media and the public.

Give one reason why a business may want to grow.

Any one of: to gain a bigger share of its market; to benefit from lower average costs as output rises (economies of scale); to earn more profit; to reduce competition.

What is horizontal integration?

When a business merges with or takes over another business at the same stage of production, e.g. one retailer joining another.

What is vertical integration?

When a business merges with or takes over a business at a different stage of production in the same industry: backward if it is an earlier stage, such as a supplier; forward if it is a later stage, closer to the customer, such as a retailer.

What is conglomerate integration?

When a business merges with or takes over a business in an unrelated market.