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Business Unit 2 > 2.1.1 Business growth > Flashcards

2.1.1 Business growth Flashcards

1
Q

Why would a business want to grow?

A

Benefit from economies of scale
Benefit from a larger market share
Gain more recognition, customers, revenue and profit

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2
Q

What is economies of scale?

A

being able to provide more goods or services, making it cheaper to make each product

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3
Q

What is organic growth?

A

When a business grows on its own

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4
Q

How is organic growth achieved?

A

Through changing the marketing mix by:
- Taking existing products to new markets in the Uk or overseas
- Developing new products via:
research and development
taking advantage of new technology
innovation
- Becoming a public limited company by floating on the stock market

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5
Q

What is an advantage of organic growth?

A

A business can maintain its own values without interference

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6
Q

What is a disadvantage of organic growth?

A

Slower growth

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7
Q

What is inorganic growth?

A

When a business combines with another business to grow

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8
Q

How is inorganic growth achieved?

A

Through a:
- Merger (when two businesses join together)
-Takeover (when one business buys a smaller business)

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9
Q

What are advantages of inorganic growth?

A

Rapid growth
New shared resources/skills/customers

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10
Q

What is a disadvantage of inorganic growth?

A

Disagreements and communication problems

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11
Q

What is an internal source of finance?

A

Capital found from within a business

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12
Q

What is an external source of finance?

A

Capital found outside a business

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13
Q

What are retained profits?

A

using capital from profits kept from previous years of trading

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14
Q

What are advantages of retained profit?

A

Cheap
quick
convenient

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15
Q

What are disadvantages of retained profit?

A

Might not have any retained profit or might need the funds for something else.
Once the money is gone, not available for future unseen problems

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16
Q

What are the advantages of selling assets?

A

Convenient
can create space for more profitable uses
can be quick

17
Q

What are the disadvantages of selling assets?

A

Might not get the market value or even sell at all
might need the assets in the future
It also looks desperate

18
Q

What are the advantages of using savings?

A

Quick
convenient
cheap

19
Q

What are the disadvantages of using savings?

A

Might not have any savings or may need cash for private purposes

20
Q

What are the internal sources of finance?

A

Retained profits
Sale of assets
Owners own savings

21
Q

What are the internal sources of finance?

A

Retained profits
Sale of assets
Owners own savings

22
Q

What are the external sources of finance?

A

Loan capital
Share capital
Stock market flotation

23
Q

What is loan capital?

A

lump sum of capital borrowed from a bank

24
Q

What are the advantages of loan capital?

A

Regular repayments spread over a period of time assist with cash-flow management
often a bank manager gives financial advice

25
Q

What are the disadvantages of loan capital?

A

Can take a while to be approved
might not qualify
interest applies, so can be expensive.
Often a bank will insist on collateral being offered by a business in case the business fails to make loan repayments

26
Q

What is share capital?

A

when a business becomes a private limited company by offering shares in the business exchange for capital

27
Q

What are the advantages of share capital?

A

Does not need to be repaid
no interest applies
business can choose who to offer shares to

28
Q

What are the disadvantages of
share capital?

A

Profits are paid to shareholders (dividends)
control of the business is diluted

29
Q

What is the stock market flotation?

A

when a business becomes a public limited company by offering shares to the public to buy

30
Q

What are the advantages of stock market flotation?

A

Can raise large amounts of capital as is easy for the public to buy shares via a stockbroker or bank
does not need to be repaid
no interest applies
business becomes recognised

31
Q

What are the disadvantages of stock market flotation?

A

Complicated and expensive
loss of control as anyone can buy shares
profits are paid to shareholders
business records are mace public
some investors only buy shares to make a quick profit by selling them when the share price increases

Business Unit 2 (17 decks)

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