Topic 2.1 Mindmap
- Created by: Areesha Attique
- Created on: 28-02-19 19:45
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- 2.1.1 Business growth
- Organic Growth - business has grown from within without mergers or takeovers
- A business can grow by developing new products
- A: A business that grows can retain their own company culture & independence
- A: Higher production means that the business can benefit from economies of scale & lower average costs
- A: More influence comes with more market share, the business can start setting prices for the industry
- D: Very high risk strategy
- D: Growth may be limited & is dependent on reliability of forecasts
- Inorganic Growth
- Mergers: two businesses merge to become one new one
- Takeovers: One business will takeover another business by buying more than 50% of the shares, can be hostile if shareholders don't agree
- A: Greater economies of scale due to increased order size, bulk buying
- A: Increased revenue & market share. Combined company increase market power and ability to charged higher prices
- A: International expansion - buying a business in another country helps with cultural issues & foreign laws
- D: Clash of cultures, may not work well together
- D: Possible communicatio problems if business gets too big
- D: Unreliable merger partners - effective merger depends on trust
- Diseconomies of scale - As a business gets larger, costs rise with problems in motivation, communicatio & coordination
- Becoming a Plc (Public Limited Company)
- limited liability, business has its own legal status, owners cannot be sued
- shares are open for anyone to buy
- shares are bought and sold on the stock exchange
- A: Easy to raise capital - issue more shares
- A: Banks are more willing to lend money to a large well-established company; there is less risk
- D: Expensive, lots of administrative work, raise at least £50,000
- D: Prepare annual accounts - printed and sent to all shareholders to see how the business is doing
- Accounts must be available to the general public and competitors - know business' plans
- Internal Finance
- Retained Profits -
- A well-run business should continually re-invest in new staff/stock/ equipment/ premises/ vehicles etc.
- A: There is no interest to pay
- D: Once it has been used, it is gone
- After a year or more of trading, a business may have some profits that they are able to re-invest into the business to help it grow
- Sale of Assets
- A business can raise finance by selling items that they already own e.g. Machinery, land, premises, vehicles etc.
- Once the asset is sold, the benefit of the asset is lost
- No longer appears on the balance sheet of the company - will look less attractive to investors
- Retained Profits -
- External Finance
- Loan Capital
- A business may ask the bank for a loan if they wish to expand
- The business will have to pay back some of the loan each month
- The business will have to pay interest on the loan
- Share Capital
- If a business is an ltd, it can sell shares to friends & family
- These shareholders are then entitled to shares of the profits of the business
- There is no interest to pay back so it is cheaper than a loan to issue shares
- Float on the stock market
- A ltd business may need more money to expand to a plc
- This means that it can float shares on the stock market
- Shares in the business can now be sold to the general public, generating more capital to expand
- Loan Capital
- Organic Growth - business has grown from within without mergers or takeovers
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