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Financing Growth
· Business growth needs financing
· Finance can come from internal and external sources
· Internal
· Internal sources come from within the firm
· e.g. Retained profits, Sale of assets
· External
· External sources come from outside the firm, these are
more expensive as the business has to pay interest
· e.g. Overdrafts, Mortgages, Loans, Share issue…read more

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Management reorganisation during
· There may be adjustment problems for staff
· When two firms merge employees roles may change which can impact their
morale, motivation and performance
· As firms grow in size many entrepreneurs find the transition from boss to manager
difficult as they have to remove themselves from doing the jobs to delegating and
leading the company
· Change in management structure / hierarchy
· When firms grow their organisational structure often changes
· As a small firm grows the management structure develops more layers in the
hierarchy creating longer chains of command
· When two businesses merge layers are often removed in the hierarchy leading to
redundancies to reduce costs and increase efficiency
· Risk of loss of direction and control
· As businesses get bigger it gets more difficult for managers to stay in control
· To stay in control managers often introduce procedures like appraisals, budgeting
and management by objectives
· These procedures provide direction for the entire business and help with
coordination problems
· Managers need to ensure that communication is clear and open within the
business…read more

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Problems of Transition in size:
· From LTD to PLC
· When firms grow they often change ownership from a LTD to a PLC
· Public limited companies offer the benefit of raising more finance by selling shares to members of the public
· By becoming a PLC a firm does not guarantee that they will be able to sell shares to the public
· Flotation is the process where an LTD becomes a PLC
· Advantages
· Can raise more finance. More media attention
· Disadvantages
· Increased regulation e.g. have to publish accounts No restrictions on share ownership Share price
open to fluctuations Managers may loss control of the business
· From National to International
· Advantages
· Provides new market opportunities Can increase profitability
· Disadvantages
· Exchange rate fluctuations Have to cope with different laws and regulations Need to conduct expensive
market research to familiarise yourself with consumer behaviour / market conditions
· Expansion Internationally
· This usually occurs in a number of stages:
· - Firms export their products abroad - Firms appoint an overseas agent - Firms join up with local producers
and give / sell licences to them to sell their products - Firms set up their own operations abroad
· Retrenchment
· This is where businesses reduce their size
· Firms may deliberately do this when:
· - They are suffering from diseconomies of scale - They have lost focus
· Retrenchment may be forced on firms when:
· - Competitive nature of the market changes - Social trends change - New product development -
Economic changes…read more

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Change in Ownership
· Takeovers
· Takeovers are where one firm gains control of another firm. The amount a firm pays to
takeover another firm is dependent on its perceived value. Attacker firms often pay a
premium to shareholders in order to secure their shares. Bids can be hostile or welcome.
Hostile bids have a greater degree of risk
· Mergers
· Mergers occur when at least two firms join together to form one organisation. Mergers and
takeovers can take the following forms:
· - Horizontal ­ firms join together who are at the same stage in the production process
· - Vertical ­ firms join together who are at different stages in the production process
· - Conglomerate ­ firms in different markets join together
· Why do Firms Merge?
· Mergers and takeovers are ways for businesses to grow. Firms decide to merge / take over
due to synergy
· Synergy is where the performance of the new firm is greater than the performance of the
separate firms
· Synergy is created by shared resources, ideas and skills
· Management Buyouts
· Where managers in a business take it over by buying a controlling interest in its shares
· Managers may do this as they think they can turn the business around, or if shareholders
lose interest in a particular part of the business
· Manager often need to borrow money to finance
· MBOs are risky however if successful they allow managers to reap plenty of rewards…read more

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Business Objectives:
· Mission Statements: These set out the reasons why a business exists and what it is trying to achieve
· Aims & Objectives: Aims are determined by owners and managers. They will change over time as the
business grows and the business environment changes
· Corporate Aims & Objectives: Corporate aims - The long-term intentions of a business. Corporate
objectives: Targets that must be achieved in order to realise the aims of the business. Corporate aims
and corporate objectives are used to help the business achieve what is set out in the mission statement
· Short Term vs. Long Term
· The choice of short term or long term objectives depends on: - Financial position - Market position -
Economic Conditions - Government Policy - Bad publicity & Social change
· In the short term a business may aim to survive but in the longer term they may aim to make a profit
· SMART: Specific , Measurable, Agreed, Realistic, Timed
· Common Objectives: The most common objectives are concerned with:
· - Profit - Growth - Social Considerations - Employee Welfare
· Profit: This is the number one objective for most firms in the private sector. Profit = Total revenue ­
total costs
· Profits can be used to reward workers and reinvest in the business so it can grow
· Growth: Firms may set growth or increasing their market share as an objective. If a firm wants to grow it
will see a decrease in profits as it will have to incur costs to do so
· Other Objectives
· Social considerations ­ these are objectives which influence society or a businesses local community
· Employee welfare ­ some businesses set objectives for their workers welfare
· Conflicting Objectives Objectives may often be in conflict:
· Growth vs. Profit ­ To grow in size a business will need to spend more money which will reduce profit
· Profit vs. Employee Welfare ­ It is often expensive for a business to ensure that its workers are well
looked after
· Stakeholder Objectives: Stakeholders are individuals or groups who are affected by the actions of the
· Stakeholders include: - Employees - Local community - Customers - Suppliers - Shareholders Society…read more

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