Business Growth

1. Business Growth

2. Business Growth

3. Financing Growth

4. Financing Growth • To grow a firm needs to be able to expand – plant, equipment, buildings, human resources, etc. • To do this it needs to acquire finance • There are two basic sources:

5. Internal Sources • Private funds – personal savings • Profits – retained profit ploughed back into the business. This assumes the business is successful • Internal sources tend to mean growth is slower Firms like Marks and Spencer have been around for many years, their growth has been primarily internal but has taken time. Copyright: Les Powell, http://www.sxc.hu

6. External Sources • Loans – from banks and financial institutions • Venture Capital – specialist groups who provide capital – may take over ownership of the firm, build it up then sell it on at a profit in a few years • Leasing – allows a degree of flexibility in finance arrangements • EU/Government Grants

7. Overtrading • Sudden growth can mean a sharp increase in demand – or be the result of it! • The firm may try to cater for this growth but not be able to meet demand • Investment may be made in new capacity which incurs extra cost but customers may not pay at the same rate leading to cash flow problems and possible insolvency

8. External Growth

9. Takeovers • One firm buying/securing a controlling interest in another, the taken over firm may lose its identity (e.g. Morrisons takeover of Safeway will eventually lead to the disappearance of the name ‘Safeway’) • Horizontal – a business at the same stage of the production process • Vertical – a firm at different stages of the production process. • Forwards – towards the market • Backwards – towards the source

10. Mergers • The amalgamation of two or more firms • Each firm may retain some degree of identity – e.g. Cadbury Schweppes, • Horizontal mergers – at the same stage of the productive process • Vertical – at different stages of the productive process

11. Conglomerate Growth • Conglomerate Growth – the acquisition of firms in different production areas from its core market – Kingfisher own Comet, B&Q, Woolworths, MVC and Screwfix Many people may not have recognised Kingfisher plc as a ‘business’ but are likely to have heard of the branded businesses they own. Sponsorship of Dame Ellen MacArthur’s sailing exploits have helped raise the group’s profile. Title: Vendee Globe Challenge. Copyright: Getty Images, available from Education Image Gallery

12. Internal Growth

13. Internal Growth • Internal growth can come from: • Innovation – new product development, new processes, new systems, etc. which can improve the efficiency of the firm • Competitive Advantage – the means by which a firm is able to make itself stand out from its rivals – innovation could be one source of competitive advantage • Others might include: • After sales service • Quality • Price • Cost advantages • Brand image • Environmental consciousness

14. Managing Growth

15. Managing Growth • Businesses are human organisations – humans are difficult to manage! • Larger organisations may suffer from diseconomies of scale • Larger organisations may necessitate changing roles for the managers/leader/owners • There may be a divorce between ownership (the shareholders) and control (the Board)