Business Studies
Chapter 30: Internal and External growth
External growth: When a business expands by merging with or taking over another business (inorganic)
Internal growth: When a business grows internally by entering more markets etc. (organic)
Entering new markets by entering overseas markets, amending/changing the marketing mix (product, price, place and promotion) or taking advantage of technology
Low risk method
Business can maintain its own values (stay unique and continue to do what works for them) without interference from more shareholders.
There may be a long period between investment and return on investment (slower process)
Growth may be limited and is dependant on the reliability of sales forecasts
Merger - when two businesses join to form a new (larger) business (eg. Curry's PC World)
Takeover - when an existing business expands by buying more than half of the shares of another business
Competition can be reduced and market share can be increased very quickly overnight (quicker process)
Can be expensive and managers may lack the experience to deal with other businesses
Chapter 31: Sources of Finance
Internal sources
Retained profit - profit kept in the company instead of going to shareholders
Sale of assets - When a firm sells of things they own eg. buildings, machines etc.
Free (no interest), flexible, and controlled fully by the business (room for decisions)
Not all businesses make a profit and keeping profit may lead to shareholders becoming dissatisfied
Quick, no interest and can be an effective way to make large amounts of money
Can be expensive if the company has to lease a piece of equipment in the future and also may need the asset that was sold in the distant future.
External sources
Loan Capital - money that is borrowed from banks or a finance company and has to be payed back on a regular basis (+ interest)
The business is guaranteed the money for a certain period - generally three to ten years
Loans can be matched to the lifetime of the equipment or other assets the loan is for
While interest must be paid on the loan, there is no need to provide the bank with a share in the business
Interest rates may be fixed for the term, making it easier to forecast interest payments