Chapter 7: Size of business
Business growth is an increase in size or expansion of business
Some business prefer to make growth as an objectie but some prefer to
remain small in order to retain control and make management easy
Benefts of growth
Growth enables business to coier majority of market shares, making it a
market leader. Being a market leader, business can infuence iarious
stakeholders. For eg: suppliers giie priority to leaders, compettors follow
their price, customers promote for free.
Growth may lead to synergy. Synergy is when two business merges, their
reienue together is higher than their preiious sum of their indiiidual
reienues.
Economies of scale occurs and aierage cost goes down.
Proft and proftability increases as more customer can be reached
Secures chances of suriiial and reduces chances of takeoier.
Tackle recession
Deal with goiernment rules
Grab “assets stripping” opportunity. It means that extra assets can be sold
to generate more capital
Problems with growth
1. Financial problem
Additonal iniestment and working capital reuuired
Premium payment might haie to be made (payment more than
the actual cost of business)
Difficult to fnd suitable sources of fnance
Increase in debt when loan is taken
Might be better to go with retained proft or issue share( control
might be lost)
, 2. Managerial problems
Unable to adapt and manage a business abruptly being big
Coordinaton, directng, communicaton, oierall managing larger
operaton
Cultural confict
Need to deielop new management system with restructuring,
delegaton, decentralizaton and streamlining (remoiing
unnecessary stafs or departments for efficiency)
3. Marketng problem
Outdated marketng strategy for bigger market size or product
range
Single strategy unsuitable if plans to expand to local, natonal and
internatonal market.
Cost of deieloping diferent strategy according to product and
region
4. Controlling problem
Loss of control if business issues shares or add partners
Shareholders with majority of share will lead the business while
the original founders may lose control
Types of growth
1. Internal growth: also known as organic growth where branches and
offices are added usually through retained proft. This growth is
small and slow.
2. External growth: growth by bringing two or more frms together. It
usually refers to integraton. It can be diiided into growth with
integraton and growth without integraton.
Business growth is an increase in size or expansion of business
Some business prefer to make growth as an objectie but some prefer to
remain small in order to retain control and make management easy
Benefts of growth
Growth enables business to coier majority of market shares, making it a
market leader. Being a market leader, business can infuence iarious
stakeholders. For eg: suppliers giie priority to leaders, compettors follow
their price, customers promote for free.
Growth may lead to synergy. Synergy is when two business merges, their
reienue together is higher than their preiious sum of their indiiidual
reienues.
Economies of scale occurs and aierage cost goes down.
Proft and proftability increases as more customer can be reached
Secures chances of suriiial and reduces chances of takeoier.
Tackle recession
Deal with goiernment rules
Grab “assets stripping” opportunity. It means that extra assets can be sold
to generate more capital
Problems with growth
1. Financial problem
Additonal iniestment and working capital reuuired
Premium payment might haie to be made (payment more than
the actual cost of business)
Difficult to fnd suitable sources of fnance
Increase in debt when loan is taken
Might be better to go with retained proft or issue share( control
might be lost)
, 2. Managerial problems
Unable to adapt and manage a business abruptly being big
Coordinaton, directng, communicaton, oierall managing larger
operaton
Cultural confict
Need to deielop new management system with restructuring,
delegaton, decentralizaton and streamlining (remoiing
unnecessary stafs or departments for efficiency)
3. Marketng problem
Outdated marketng strategy for bigger market size or product
range
Single strategy unsuitable if plans to expand to local, natonal and
internatonal market.
Cost of deieloping diferent strategy according to product and
region
4. Controlling problem
Loss of control if business issues shares or add partners
Shareholders with majority of share will lead the business while
the original founders may lose control
Types of growth
1. Internal growth: also known as organic growth where branches and
offices are added usually through retained proft. This growth is
small and slow.
2. External growth: growth by bringing two or more frms together. It
usually refers to integraton. It can be diiided into growth with
integraton and growth without integraton.
