2.1 growing the business

Question 1

what is a plc?

Answer 1

a company that commonly offers its shares to the general public via the stock exchange and have limited liability

Question 2

what is limited liability?

Answer 2

this means that the business owner is only responsible for business debts up to the value of their financial investment in the business.

Question 3

what are three benefits of limited liability?

Answer 3

1.less risky-offers more protection as business owners personal assets can not be taken away to pay for business debts
2.attracts investors-makes business more appealing for investors as they are at less risk of losing their personal wealth
3.offers legal separation-limited companies have their own legal identity,seperate to the owners

Question 4

what are the two main different ways of growing a business?

Answer 4

-organic growth
-inorganic growth/external growth

Question 5

what is inorganic growth?

Answer 5

inorganic growth is the growth of a company derived from using external resources for example a merger or a takeover

Question 6

what is a merger?

Answer 6

a merger is when two companies combine and become one joint company

Question 7

what is a takeover?

Answer 7

a takeover is when one company buys control of another and runs it

Question 8

give 4 benefits of external/inorganic growth

Answer 8

1.buying ready built brands with high awareness and loyalty-increase market share-can target new established market
2.reduced competition and increased market share-may have bought out competition-can increase prices as business now dominates market-more security
3.gain economies of scale-more buying power to get cheap raw materials/discounts from bulk buying
4.opportunity to diversify-enter new markets with new products-less risky

Question 9

give 4 drawbacks of external growth

Answer 9

1.if a business grows too large too quickly it may become inefficient
2.resentment and culture clashes between employees-lower motivation and staff retention
3.possible redundancies-lower motivation/employee satisfaction
4.huge risk-costs to buy business will be significant-no guarantee of success

Question 10

what is organic growth?

Answer 10

when a business grows by expanding its own activities eg new products/changing marketing mix/opening new stores

Question 11

give three benefits of organic growth?

Answer 11

1.builds on a businesses strengths-such as branding and customers
2.allows business to grow at a sensible rate-able to cope with increasing demand and still be efficient
3.less risk than external growth

Question 12

give three drawbacks of organic growth?

Answer 12

1.slower growth than external-shareholders may prefer more rapid growth-less likely to invest
2.new product development can be timely and costly
3.growth is more dependant on growth of the overall market

Question 13

what is internal finance?

Answer 13

capital found from within the business

Question 14

what are two sources of internal finance?

Answer 14

retained profit and selling assets/fixed assets

Question 15

give 3 advantages of using retained profit

Answer 15

1.cheap quick and convenient to use-easy access to the money-don’t have to apply to a bank or pay interest-keep costs stable
2.more flexible-can choose to spend as much as they have or need-no time limit on when to spend
3.retained profits do not dilute or reduce the ownership of the organisation-no risk of hostile takeover

Question 16

give 3 disadvantages of using retained profit

Answer 16

1.business may not have enough profit to invest-limited-may not be high enough to fund long term projects
2.growth may be slow if its dependent on retained profit-takes time to save and raise
3.may upset shareholders who may feel that their dividend payments are too low-cause conflict

Question 17

give 3 advantages of selling assets

Answer 17

1.no finance needs to be repaid-no borrowed money or interest fees
2.business owners keep full ownership and control of organisation
3.assets may have been spare,unused or underperforming eg selling one of 5 stores-improve cashflows-less cash outflow and costs-avoid losses

Question 18

give 2 disadvantages of selling assets

Answer 18

1.unlikely to be a long term solution-could result in lost productivity if asset was needed-fail to meet demand-poor reputation
2.unlikely business will gain full value for asset-will have depreciated/may struggle to sell assets-not raise any finance

Question 19

what are the 2 main sources of external finance?

Answer 19

-loan capital-bank loans or overdrafts
-share capital-selling shares on the stock market or to family and friends

Question 20

give 3 benefits of using a bank loan

Answer 20

1.get the full amount needed upfront if approved by bank-can start to invest immediately-help grow business-attract more customers
2.repayments are made in installments-long term solution-more manageable to repay-will keep cash flow steady
3.ownership is not diluted-no control lost

Question 21

give 3 drawbacks of using a bank loan

Answer 21

1.expensive-interest has to be paid on borrowed amount-will increase fixed costs and cash outflow-don’t want higher costs when trying to expand
2.time consuming-take a while for loan to be approved-slows growth
3.banks may also ask for collateral-bank will get control of assets if business fails to repay-more risky-may lose assets

Question 22

give 3 benefits of using share capital

Answer 22

1.large sums of finance can be raised-by selling on the stock market anybody from the public can invest-millionaires may choose to invest large sums of money
2.capital does not have to repaid-cheap source of finance-costs will not increase-cashflow remains stable-good for when expanding
3.there is no interest-fixed costs will not increase

Question 23

give 3 drawbacks of share capital?

Answer 23

1.possible loss of control if original owners sell over 50%-could result in a hostile takeover (stock market flotation)-owners lose control-have less of a say in business
2.need to satisfy shareholders expectations of dividends-less profit-have to pay dividends to shareholders-may pressure business
3.can be time consuming-have to monitor share price and the overall market (especially for flotations)-distract from other aims and objectives of business

Question 24

what is globalisation?

Answer 24

globalisation is the process by which businesses and countries become more connected,this refers to companies operating internationally or on a global scale

Question 25

give 3 benefits of globalisation for a business?

Answer 25

1.access to increased markets-more potential customers to sell to-wider market-attract more customers 2.cheaper labour and raw materials-can lower costs as raw materials and labour costs will be cheaper-lower total costs-lower break even 3.increased levels of efficiency-business has to become more competitive and efficient as there is more competition

Question 26

give 3 drawbacks of globalisation for a business?

Answer 26

1.more competition-increased competition from across the world with cheaper costs-can lower prices-more competitive 2.power of multinational brands-difficult to compete with-have better economies of scale and high levels of market research-meet customer needs better 3.effects of events in other countries-eg fall in consumer income will affect sales/tariffs or exchange rates

Question 27

give two benefits of imports?

Answer 27

1.firms have a larger market to buy from-supplies may be cheaper of better quality-can be more competitive-either on price or quality 2.consumers are able to buy from overseas-gives customers more choice(can also be a negative for business)

Question 28

give one drawback of imports?

Answer 28

imports means there will be increased competition for uk firms-may have lower costs meaning they can undercut prices and gain more market share

Question 29

explain a benefit of a business exporting goods?

Answer 29

the overseas market may be larger-business can increase global sales-this will allow the brand name to become more internationally recognised

Question 30

what are imports?

Answer 30

imports are goods or services brought into one country from another

Question 31

what are exports?

Answer 31

goods and services produced by one country that are then sold to another country

Question 32

explain a benefit of importing goods?

Answer 32

could find cheaper suppliers-reduce costs of production-higher profit margins

Question 33

explain a drawback of exporting goods?

Answer 33

profit can be affected by changing exchange rates-if the value of the raises then exporting will become more expensive for the business-increase costs

Question 34

what is a multinational company(mnc)?

Answer 34

a business that has operations in more than one country

Question 35

what are three reasons for a business to become an mnc?

Answer 35

1.can operate closer to target international markets-reduce transport costs-lower costs 2.gaining access to lower cost of production 3.avoiding protectionism-if a business operates abroad they may avoid import taxes and tariffs-keeps costs lower-can lower price-more competitive.

Question 36

why might mnc have a low level of public trust?

Answer 36

-exploitation of "cheap labour"-seen as unethical-people don't want to support business-could boycott -accused of avoiding tax-seen as untrustworthy-unreliable/poor reputation

Question 37

what is a tariff?

Answer 37

a tax on goods coming into the country from abroad-this will increase the price of the product in that country

Question 38

what is a quota?

Answer 38

a limit to the volume or value of specific imports allowed into a country in a given time period

Question 39

give two benefits of barriers to trade?

Answer 39

1.can protect jobs-supports businesses-keeps competitors prices high-business less likely to fail/make a loss-dont need to make people redundant 2.will raise demand for domestic goods

Question 40

give a drawback of barriers to trade?

Answer 40

can limit demand for imported goods

Question 41

explain one way a business can compete internationally?(marketing mix)

Answer 41

adapt marketing mix by changing the product-to suit local customer needs in different countries-help them to compete with other brands and gain more market share

Question 42

explain one way a business can compete internationally?(e-commerce)

Answer 42

a business may use the internet and e-commerce-help them launch quickly in new markets-can sell directly to international consumers-without need to get product in physical stores

Question 43

define business ethics

Answer 43

where businesses make decisions based on what is morally right rather than what is more profitable

Question 44

explain 3 benefits of a business acting ethically?

Answer 44

1.can charge higher prices-customers are increasingly making purchasing choices based on ethics-willing to pay higher price to support ethical brand 2.improved brand awareness-business gains good reputation-attract more customers 3.easier to attract and recruit staff-want to work for ethical business-feel valued-more motivation and staff retention

Question 45

explain three drawbacks of acting ethically?

Answer 45

1.trade off between ethics and profit-higher costs-eg sourcing from fairtrade suppliers 2.higher overheads-training of staff and communication of ethical policy 3.build up false expectations-mislead consumers-untrustworthy

Question 46

what is a pressure group?

Answer 46

groups of people who share a common interest and try to influence the decisions made by businesses/organisations eg want them to be more environmentally friendly

Question 47

how can pressure groups impact the marketing mix?

Answer 47

product-may be pressured to adapt/change product to use more sustainable raw materials/ethically sourced raw materials price-change pricing strategies-make ethical goods more affordable for consumers place-change distribution methods-eg delivery vehicles that pollute less promotion-change advertisement-promote environmentally friendly products