Topic 2.1.1 Business growth Flashcards
(10 cards)
What are the internal sources of finance for growth?
Retained profit,selling assets
Disadvantage of using retained profit for growh.
May take slower for growth.This is because gathering the amount of retained profit needed for significant growth could take a long time.As a result,decreasing productivity/taking longer to reach business success.
Upset shareholders in the short term.This is because shareholders want to maximise their dividends.As a result leading to conflicts between shareholders and the owner leading to shareholders selling their share in the business and leaving,stunting growth.
Disadvantage of selling assets for growth?
Selling key/important assets for growth can decrease productivity.For example selling machinery that speeds up the production of the business.As a result,increasing unit costs of the business.
Advantages of selling assets.
Business can sell old/used machinery that they don’t need anymore.This means that they could potentially get a return on there investment.As a result,preventing the business from making a loss.
What are the external sources of finance for growth?
Loan capital,share capital,Stock market flotation-converting to plc’s,Crowdfunding
Disadvantage of loan capital for growth?
Interest has to be paid on the loan.Therefore,the fixed costs of the business will increase.As a result,profit may fall.
Advantages/disadvantages of internal growth?
Sustainable growth,usually paid with retained profits so as company gets bigger it can develop
-Slower method,rivals can gain a competitive advantage over you
-Low risk involved.This is because you don’t have to interfere with shareholders or merge with other companies to get bigger and make profit.As a result,reduces the risk of business failure.
-Helps increase market share.This means that the business can benefit from economies of scale leading to lower unit costs for products.As a result,a business can increase their net profit.
Advantages/disadvantages of external growth?
Less competition involved. This means that you can increase your market share more quickly.As a result,a business can increase its profit.
Expensive to takeover/merge with another business.Therefore,due to high costs and business are finding it hard to make sales,it may be hard to break even.As a result,business may find it hard to manga cash flow which increases the risk of business failure.
Advantages of public limited companies?
More capital can be raised through share capital.This means that it will help the company expand and diversify.As a result,can lead to increase in profit/more sales from customers.
Limited liability.This means that the owners are only responsible for the business debts up to what they have financially invested.As a result.the owners and protected and increases their security.Consequently,the business may be willing to take more risk since they know their personal assets are not a risks.This could lead to a valuable business opportunity that could increase sales and lead to large amounts of profits for the business.
Disadvantage of plc’s
Financial accounts of the business are published.This means that competitors can see this and gain a competitive advantage a result,increasing their market share and reducing footfall to the plc business.
