Business Growth (AQA A Level Business): Flashcards

Smaller budgets restrict how much an SME can invest in advertising, research and development or new technology compared with larger rivals.

True.

SMEs typically hold smaller cash reserves, so one late payment or unexpected cost can seriously threaten the business's survival.

Owner or manager overload is when one person is responsible for finance, HR, operations and marketing. This increases the risk of poor decisions due to a lack of specialist expertise.

Business growth involves a business increasing its size, scope or scale.

As firms get bigger, they spread fixed costs over more units. This cuts the unit cost and boosts profits.

Diseconomies of scale occur when a company grows too large to manage and control effectively, which raises the cost per unit.

Synergy is the extra value created when two businesses combine their resources so that the joint result is greater than the sum of what each could achieve alone.

False.

Synergies are often difficult to achieve because of cultural clashes between workforces and integration costs that are higher than expected.

Overtrading happens when a business tries to grow faster than its working capital can support.

Cash becomes tied up in inventory or unpaid invoices, while wages, suppliers and interest still have to be paid on time. This can force the business to borrow at high cost, sell assets in a hurry or, in extreme cases, fail.

Organic growth is growth driven by internal expansion using reinvested profits, owners' capital or loans.

The three methods of external growth are mergers, takeovers and franchising.

True.

New shares spread ownership across more shareholders, which dilutes existing shareholders' ownership and control of the business.

Sustainable growth means growing at a rate the business can support financially, operationally and culturally, while also considering its environmental and social impact.

Investors increasingly favour businesses with strong environmental, social and governance credentials. This can lower the cost of borrowing.

A business that claims to be growing sustainably without genuine evidence risks accusations of greenwashing.

Growth creates a need for more formal recruitment, training and management structures to maintain culture and communication. A business may also need decentralised structures so management does not become a bottleneck.

Vertical integration is a merger or takeover of another firm in the supply chain or at a different stage of the production process.

Backward vertical integration is a merger or takeover with a firm further backwards in the supply chain, such as an ice cream retailer taking over an ice cream manufacturer.

Vertical integration reduces the cost of production because middleman profits are eliminated.

Horizontal integration is a merger or takeover of a firm at the same stage of the production process.

True.

Even when both firms are in the same industry, unnecessary duplication of management roles can cause diseconomies of scale, and there can be a culture clash between the merged firms.

Conglomerate integration is a merger or takeover between firms in entirely different industries.

Managers may have limited know-how in unfamiliar sectors, and the business faces greater organisational complexity.

A merger occurs when two or more companies combine to form a new company, and the original companies cease to exist.

A takeover occurs when one company purchases another company, often against its will, by buying a controlling stake (more than 50%) of its shares.

A firm can acquire another that already has customers, stores or distribution channels in the desired market. This saves time and reduces risk compared with building a presence from scratch.

False.

Watchdogs such as the Competition and Markets Authority (CMA) can delay a merger, demand that parts of the business be sold off, or block the deal entirely if they think it will hurt consumers.

Franchising is a business model where a franchisee buys the rights to operate a business model, branding and support from a franchisor in exchange for an initial lump sum plus ongoing fees.

Franchisees pay most start-up costs, so the franchisor can open many outlets without large new loans.

If a franchisee cuts corners, product or service quality can fall and damage the whole brand.

Retrenchment is when a business deliberately reduces the size or scope of its operations.

Retrenchment aims to lower costs and improve cash flow.

Falling demand can force a business to scale back capacity to match reduced sales and preserve cash.

A business may sell off or close side-lines to concentrate on its core activities.

If rivals undercut prices or offer better products, a firm may exit markets where it cannot compete.

True.

Retrenchment can create a downward spiral. For example, closing stores may lose remaining loyal customers, causing continued decline rather than stabilisation.

Employees who remain after redundancies may feel insecure or less motivated. This can reduce productivity at the exact time the business needs it most.

Once sites, capacity or product lines have been cut, rebuilding them if market conditions improve can be slow and expensive.

Significant job losses or site closures can trigger stakeholder backlash from employees, unions, local communities and government.

Retrenchment can create significant severance payments and restructuring costs. Poor handling of the process can also create additional legal costs.

HR must manage the redundancy process fairly and lawfully, including formal consultation for large-scale redundancies. It may also need to restructure management to suit the smaller organisation.

False.

Finance must first fund the upfront costs of redundancy and site closures. Retrenchment can improve cash flow and profitability in the medium term if executed well.

Marketing may need to refocus spending on the most profitable remaining products or segments. It must also manage customer perception carefully to avoid lasting brand damage.

Rushed retrenchment risks straining remaining capacity or quality, rather than creating a leaner, more efficient operation.