Growing a Business

There are generally two methods a business can use to grow.  The first is reinvesting its profits. The second method, is to expand though a merger. Both methods have benefits as well as drawbacks.

When a business seeks to grow through reinvestment, they are using their revenue from sales to invest in capital  or labor (factory machinery, new technologies, more workers, etc.).  After subtracting expenses from sales, the business is left with net income. It is this figure that determines the ability of a business to reinvest in labor  or capital. This reinvestment allows the business to produce additional products and increases their sales (hopefully their net income). The major drawback to this method is the slower realization of growth. A company must rely on its profits and may not be able to raise enough money to invest as rapidly as desired.

When a firm grows through a merger, it may do so for a number of reasons. It may seek to grow faster, become more efficient, acquire or deliver a better product, eliminate a rival, or improve it’s image. Several drawbacks to this strategy exist, including too rapid of growth (unsustainable), loss of identity, and increased government regulation/interference.

Objectives:

• Explain how businesses can reinvest their profits to grow and expand
• Recognize the reasons that cause firms to merge
• Identify two different types of mergers

Here is a resource that takes an in-depth look at mergers.

Homework: Find an article and write a summary - business organization (sole-proprietorship, partnership, corporation) problems (lawsuit, takeover, stock issues, etc.) due Wednesday the 28th due Thursday the 29th. Chapter 3 quiz, Friday the 30th. Unit 1 exam, Monday the February 2.

Corporations

A corporation is a kind of business organization made up of a number of people who, according to law can act as a single person. Corporations account for approximately one-fifth of the firms in the United States and about 90% of all sales. A corporation is a form of business organization recognized by law as a separate legal entity having all the rights of an individual. This status gives the corporation the right to buy and sell property, enter into legal contracts, and to sue and be sued.

Some of the advantages of corporations include:

• ease of raising capital
• owners have limited liability
• business’s life is unlimited

Some of the advantages of corporations include:

• charter is expensive
• corporate income is taxed twice
• subject to government regulation.

Objectives:

• Describe the characteristics of a corporation
• Explain some of the advantages and disadvantages of a corporation

Here is a link to a resource that explains how to form a corporation, advantages, and disadvantages.

Homework: Find an article and write a summary - business organization (sole-proprietorship, partnership, corporation) problems (lawsuit, takeover, stock issues, etc.) due Wednesday the 28th.