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.