BUSINESS GROWTH

When an individual invest in a business he or she may be faced with

several risk. Some of these risks are bad debts, damages or theft.

These risks can be insured however, there are some risks that a business
cannot insure. One way businesses can reduce the risk is by being successful
and increasing profitability. If the business becomes more successful its profits
will increase, this will also lead to a growth in the business. Many business
people want to see their business grow because of the benefits of having large
businesses. Some of the reasons businesses may grow are:

1. They are successful and expansion is necessary to meet the demand for
their product;
2. They wish to make a greater level of profit;
3. They are trying to gain economies of scale;
4. They wish to reduce competition and become market leaders;
5. Expansion will only take place if the business can benefit and make extra
profits.

Businesses can grow internally or externally.

Internal Growth

This refers to a situation when a firm expands through the use of its own
resources such as the re-investing of profits. Some of the ways in which a firm
can grow internally are:

1. Investing in new assets that will increase productivity for example, the
purchase of new updated machinery and computer systems that work
better and faster;
2. Employing specialist staff – increased profits will make it possible to
employ specialist staff rather than hire one from outside;
 3. Internal growth also makes it possible to reduce cost of production and
thus prices. When prices are reduced the market share can increase for
the business.

Internal Growth is possible when the following are present:

1) A plant and all machinery are working at peak performance which would
encourage production to take place at full capacity;
2) Investing in cost saving technology;
3) Investing in a bigger building and more land;
4) Hiring more employees with technical skills.

External Growth

External growth usually occurs when one firm merges with another. The
following are some of the ways a business may grow externally:

1. Joint venture – this is when two or more businesses come together to

pool their resources and expertise to achieve a common goal. The risk
encountered and rewards enjoyed are shared.
Reasons for a joint venture:
1. To expand the business operations;
2. To develop new products;
3. To enter new markets.

Advantages:

1. More resources are available;

2. The sharing of expert advice and knowledge;
3. Greater productivity takes place as well as marketing.
2. Mergers / Amalgation
This refers to a situation where two or more businesses willingly agree
to become one business. This is based on decisions made by managers
and shareholders.

Reasons for merging:

1. To expand operations;
2. To increase profitability;
3. To extend into different markets, this is possible when one firm is
already successful in the particular market thus the other business
sees it as an opportunity to enter into new markets e.g.

4. Takeover/ Acquisitions
Acquisitions or takeovers refer to a situation where one business is
taken over and now being controlled by another business via the
purchase of 51% of its voting shares. Takeovers are seen as hostile
unlike mergers which are voluntary.