3.2- Business growth Flashcards
What does liquidity tell a business?
The available cash in a business
What is business growth?
Increase in 1 or more;
- Assets
- Sales Value
- Operating Profit
- Market Share
- Value Added
- Employee Numbers
- Branch Numbers
What are economies of scale?
When unit costs or average costs fall as a result as an increase in the level of output of business.
What are the types of economies of scale?
- Purchasing (bulk buy)
- Technical (advanced machinery)
- Specialisation (specialist managers)
- Financial (find potential lenders easier)
- Marketing (spread over range of products)
- Risk Bearing (diversification)
Diseconomies of scale
A business grows so much that costs per unit increase.
Define capacity utilisation
The percentage of the total capacity actually being used
Objectives of growth
- Reduce power of suppliers
- Reduce power of customers
- Increase market share & brand recognition
- Increase profitability
Problems with growth
- Lack of motivation (powerless)
- Lack of coordination (staff and resources)
- Internal communication impact (less face to face, time)
- Risk of overtrading (more orders than can cope with)
What is organic growth?
Business grown within itself without merger or takeover with another business, through;
- increasing product range
- opening more branches
- taking on more staff
Methods of organic growth?
- New Product Launch
- Opening new stores
- Expanding to foreign markets
- Expansion of the workforce
Advantages of organic growth
- Avoids risks & pitfalls of merging
- Cheaper than merging
- Can be planned
- Higher production means EoS & lower average costs
- More influence, more market share, cant set industry prices
Disadvantages of organic growth
- Very high risk strategy (opening stores & new staff, capital intensive)
- Long time between investment & return of investment
- Growth limited, depends on reliability of sales forecasts
- New market and countriess hard to enter (risky)
Inorganic growth
Growth by buying into being larger through;
- merger
- takeover
- joint venture
Merger
When 2 business agreed to join forces to make a third company
Takeover
Friendly- helping struggling cash flow
Hostile- 51% + shares can takeover, will resist
