9.1a Growth and Retrenchment Flashcards Preview

Business Studies A2 > 9.1a Growth and Retrenchment > Flashcards

Flashcards in 9.1a Growth and Retrenchment Deck (26)
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1
Q

Reasons a business would wish to grow:

A
  • Meet the growth in demand
  • More profit
  • Economies of scale
2
Q

What are the two types of growth?

A

Organic growth or external growth

3
Q

What is organic growth also known as?

A

Internal growth

4
Q

When does organic growth occur?

A

When a firm grows using its own resources

5
Q

How is organic growth paid for?

A
  • Retained profit
  • Borrowing from banks
  • Attracting new investment
6
Q

What can you look at to work out how a business has funded growth?

A

The gearing ratio

7
Q

Ways in which organic growth can happen:

A
  • Expanding capacity
  • Wider range of products
  • Buying new premises
8
Q

When does external growth occur?

A

When two or more businesses join together either through a merger or a takeover

9
Q

What is another work for a takeover?

A

Acquisition

10
Q

Retrenchment definition

A

A reduction of a businesses operations meaning the business is not as big as it was before

11
Q

Ways in which retrenchment can happen:

A
  • Reducing product portfolio
  • Reducing staff numbers
  • Closing brances
12
Q

Reasons a business might retrench:

A
  • Bad economic conditions
  • Reduce costs
  • To stop selling products in decline stage
13
Q

Issues of retrenchment:

A
  • Remaining employees will lack motivation
  • Damage relationship with suppliers if they stop selling their products
  • Upset customers who can no longer buy the products
14
Q

Alternative approaches to retrenchment:

A
  • Being bought out by another company
  • Management buy-out
  • Go from a LTD to PLC or PLC to LTD
15
Q

What does a management buy-out involve?

A

The managers of a business buying shares in a business to take full or part control

16
Q

Where does the finance for MBO’s come from?

A
  • Managers personal funds
  • Bank loans
  • Sell shares to employees
17
Q

Rewards for MBO’s:

A
  • Managers more motivated
  • No owner-manager conflict
  • Profits can stay in the business
18
Q

Reasons for MBO’s:

A
  • Business may be in administration/receivership

- Business may be retrenching and selling off struggling parts

19
Q

Risks of MBO’s:

A
  • Possible personal losses to managers
  • Little access to additional capital
  • Possibility of redundancies
20
Q

Benefits of going from LTD to PLC:

A
  • Larger pool of potential owners and capital

- Higher profile

21
Q

Drawbacks of going from LTD to PLC:

A
  • Answerable to shareholders and their interests
  • PLC shareholders tend to be in it for short-term profits
  • Lose some control
  • More open to being taken over
22
Q

Benefits of going from PLC to LTD:

A
  • More privacy

- No pressure of varying share prices

23
Q

Drawbacks of going from PLC to LTD:

A

Long and expensive process of buying out all existing shareholders

24
Q

Advantages of organic growth over external growth:

A
  • Maintain current management style and culture
  • Less risk
  • Can control how much business grows
  • Less disruptive
25
Q

Disadvantages of organic growth over external growth:

A
  • Can take a long time
  • Miss out on more ambitious growth if only grow internally
  • If market itself isn’t growing it is restricted to increasing market share or finding a new market
26
Q

Disadvantages of becoming a larger business:

A
  • Can suffer from diseconomies of scale if not managed properly
  • Difficult to manage cash flow - lots of investment costs
  • Risk of overtrading

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