Flashcards in growing a business Deck (63):
5 reasons why businesses grow ?
- economies of scale
- financail support
- personal vanity
- domination of the market
3 main methods of organic growth ?
- increase market share
- sell in new markets
- launch a new product
4 basics method of inorganic growth ?
(merge with or take over)
- unrelated firm
an other way of a business expanding ?
expansion affects on stakeholders of:
positive and negative
A) increased profit
they will have to invest more money
B) better job security
they may feel less involved
C) lower prices will be charged
but fewer competitors mean higher prices
D) more taxes
E) negative impacts like traffic will get worse
but more jobs
F) increased sales
might lose to competitors
pros of becoming a public limited company ?
- limited liability
- raise capital by selling shares on stock exchange
- increased capital allows the company to grow and diversify
- status of the company is increased
cons of becoming a public limited company ?
- shareholders own the company
- someone can buy enough shares to take over the business
- shareholders only want to make a profit
examples of social costs a business can have ?
- environmental costs
- non-renewable resources
- products can be harmful to people's health
- unethinical activities
example of social benefits a business can have ?
- taxes provide money for schools hospitals
- provides jobs
- provides all sorts of services
- goods they provide can improve people's health
why do firms become multinational ?
- transport costs
- local market costs
- avoid trade barriers inside a country
- foreign exchange
- raw materials or cheap labour
- avoid paying taxes
- lower wages
how do MNE'S benefit the host countries ?
- foreign investments
- create employment
- foreign technology
how do MNE'S not benefit the host countries ?
- wages are too low
- long working hours
- they may ask for reduced tax rates
5 stages of a product life cycle ?
what is a product portfolio ?
is a range of different products that a firm sells
ways to extend a products life ?
-making changes to the design
ways to broaden their product portfolios ?
-adding products to an existing range e.g new colours in a shoe product
-developing different products e.g making a line of clothes when you sells shoes
what is penetrating prices ?
low prices are charged when a product is new
what is loss leading prices ?
price is set below costs
what is price skimming ?
high price when product is new
competitive pricing ?
charging similar prices to competitors
what is cost plus pricing ?
adding the costs and then 25% of the costs on top of that
7 types of sales promotions ?
-buy one get one free
-point of sale advertising
-use of credit
what is direct marketing ?
contacting the potential customers directly e.g through email or mail
examples of sponsorship ?
-sport - international competition
-the arts - theatres etc
what is retained profits ?
-profits that owners have decided to plough back into the business after they've paid themselves a dividend
what is re-invested savings
profit from previous years to build up bank savings etc
what is fixed assets ?
raising cash by selling fixed assets e.g machinery
what is shares ?
a limited company can issue more shares.
what is debentures ?
limited companies can issue debentures to the public. long term loans which commits itself to repay with interest.
what is loans/mortgage ?
using banks for a loan for the business or buildings that have to be repaid with interest
what determines what source of finance a business can take out ?
-type of company
-amount of money needed
-length of time the money is needed for
-cost of finance
-state of economy
how to calculate Gross profit margin ?
gross profit/ sales
how to calculate net profit margin ?
how to calculate current ratio ?
current assets/current liabilities
how to calculate acid test ratio ?
(current assets - stock) / current liabilities
3 types of ways to organise the structure of the business ?
-by function e.g managing director and finance director
-by product e.g toys and clothing
-by region e.g north america and europe
what is centralising organisation?
all major decisions are made by one person
made by an experienced person
it can take along time for messages to get up and down the chain
what is decentralising organisation ?
authority to make decisions are shared out
wide range of knowledge is used
but is inconsistent decisions made between different departments can cause problems
why is a long chain of control of communication a problem ?
-long time for messages to get from the top to the bottom of the chain
-people at the bottom of the chain can feel isolated and demoralised
what is the problem with a wide span of control ?
- one person has to communicate with a lot of people
- messages can take a long time to get to everyone that need to receive them
3 types of training ?
-on the job
-off the job
what is appraisal ?
where managers keep track of employees progress and needs
3 stages of appraisal ?
agree performance targets
training to help worker meet targets
discuss how well the targets were met
how can workers motivation be improved ?
-styles of management
what is specialisation in a business ?
people that a good at a certain skill or task only do that one thing
pros of specialisation ?
- workers become even more skilled in that on one thing
- complex production is broken up
- work and production becomes more efficient as people are only doing things they are skilled at
cons of division of labour ?
specialisation leads to division of labour this means :
- workers get bored
- this leads to poorer quality
- one worker or set of workers can halt production in the whole business
- people can become over specialised
what is flow production ?
making lots of things continuously, one product that is identical.
pros of flow production ?
- good for mass market e.g soft drinks
cons of production ?
- machinery is normally needed to be done well
- can be expensive to run
- normally have to be done 24 hrs a day
two non lean stock control methods ?
- traditional - a reorder level is set and when a stock gets to that a set amount more
- just in case - they have buffer stocks avaliable just in case demand increases
what a lean stock control method ?
just in time - stock arrives immediately before it is used
what is rationalisation ?
reorganising the increase efficiency
what is methods for rationalisation ?
-closing an administrative department and delegating
-closing a factory and moving the production to another site
-reducing the number of managers
6 mains internal economies of scale ?
-risk bearing economies
what are the 4 main external economies of scale ?
-local councils and national government
what are the diseconomies of scale ?
when your unit costs go up when your business grows
what are the types of diseconomies of scales ?
-management is more difficult
-demotivation of workers
-production process might become more complex more difficult to coordinate
what is quality control ?
spotting problems before it's too late
what are the 3 stages of quality control ?
1. check raw materials
2. quality of work in progress
3. random samples taken finished products
what is total quality control ?
a strategy that aims to make quality the responsibility of every employee in an organisation
what are quality circles ?
groups of of workers from various departments and meet regularly to identify quality problems and offer solutions