5. growth

BM Unit 1 - LO1 1

Learning Intention

Sources of help for businesses

By the end of this unit you will be able to:• Differentiate between sources of finance

• Understand Government help offered to businesses• Understand other help offered to new businesses

BM Unit 1 - LO1 2

Homework

Homework Booklet

Page 3

Questions 1, 4, 5, 6 a & b(14 marks)

Due Thursday 25 August

BM Unit 1 - LO1 3

Sources of Finance

Long-term Capital Mortgages Debentures Sale and

Leaseback Venture

Medium-term Bank Loans

Short-term Overdrafts Factoring Trade Credit

REMEMBER Retained Profits are an internal

source

BM Unit 1 - LO1 4

Government Help for Businesses

Local Enterprise Companies Education/Business Partnerships Business Start-up Scheme Loan Guarantee Scheme Reduced rate of Corporation Tax Zero Rating (VAT) on Exports Dept of Trade and Industry - advice,

Trade Fairs Export Credit Guarantee Department EU - Regional Development Funds

BM Unit 1 - LO1 5

Other Sources of Help

The Prince’s Youth Trust – provides financial help and support to young people so they can setup their own business

Local Authorities - ‘small business advisers’ providing new business start-ups with valuable help

Trade Associations – organisation founded and funded by businesses to offer help and collaboration between business in the same industry e.g. ‘Association of Small Businesses’, ‘Scottish Motor Trade Association’, ‘ABTA’, etc

Chambers of Commerce – business networks created within the one area to advocate on behalf of the business community

BM Unit 1 - LO1 6

Learning Intention

Methods of growth for companies

By the end of this unit you will understand:• different methods of business growth

• why businesses decide to grow• why business decide to become smaller

BM Unit 1 - LO1 7

Internal GrowthWhen the firm becomes larger by increasing

its output

Generated through Increasing sales Opening of new sales outlets Hiring additional staff Developing new product ideas

BM Unit 1 - LO1 8

External Growth

Through amalgamation, merger or takeover

(acquisitions) Integration - 2 firms combining to

become bigger Merger - integration on equal terms Take-over – one firm seeking control

over another. One firm’s identity is lost in the take-over. Can be ‘friendly or hostile’

BM Unit 1 - LO1 9

Integration

Horizontal – 2 firms in the same industry at the same stage of production

Vertical – 2 firms in the same industry at different stages Forward - towards the customer Backwards – towards the raw materials

Lateral - firms with related goods not in competition with each other

Conglomerate/Diversifying - firms operating in completely different markets

Horizontal Integration

BM Unit 1 - LO1 10

Primary

Secondary

Tertiary

Soft Drinks Manufacturer

Confectionery Manufacturer

Vertical Integration

BM Unit 1 - LO1 11

Primary

Secondary

Tertiary Retail Stores

Manufacturer

Backwards Vertical – acquisition takes place towards the source

Vertical Integration

BM Unit 1 - LO1 12

Primary

Secondary

Tertiary

Dairy Farming Co-operative

Cheese Processing Plant

Forwards Vertical – acquisition takes place towards the market

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Motives for Growth Eliminate competition/increase market share Achieving greater economies of scale Security from hostile take-over - more assets Cutting out “middlemen” Securing sources of raw materials Controlling distribution of products Spreading risks - ‘not having all eggs in one basket’ Smoothing seasonal fluctuations in sales Managerial Rewards – may satisfy managerial

objectives Benefit from economies of scale – large scale

production that lead to lower unit costs

BM Unit 1 - LO1 14

De-integration

De-integration - conglomerate selling off firms to concentrate on “core” business

De-merger - subsidiary companies splitting away from the parent company and operating on their own

Divestment - selling off companies Contracting out/out-sourcing - getting

other companies to do work on your behalf Management buy-out/buy-in - usually a

struggling company sold to a management team

BM Unit 1 - LO1 15

Class Questions1. Describe & justify 3 sources of finance that could be

used to expand a business. (6)

2. Levi and Pepsi Cola have moved into China and therefore into a new market to achieve growth. Describe the other methods of growth available to companies. (6)

3. Explain the reasons why a competitor might wish to take over a firm which is not making a great deal of profit. (4)

4. Identify 5 stakeholders and their differing interests & influences. (10)