Wednesday 11 September 2013

32 Expanding as a business Case Study Cadbury plc

Morning year 11 

this is the second of 25  topics for us to prepare for the paper 2 exam.  This and all the rest can be flipped so that you get to familiarise yourself with it at home so that we can power through the activities in the classroom.  Cadbury's website can be seen here

Should a business grow? and what changes are likely to be the obvious ones when it does?

  1. As a business grows we notice that the FIRST CHANGE will be in its OWNERSHIP.  In a SMALL organisation the OWNER or ENTREPRENEUR tends to both OWN and MANAGE the business.  In a larger organisation the OWNERS are less likely to play a part of running their company.
  2. As it grows  a business will need to EMPLOY more STAFF as it probably had very few when it was small.  This will be a significantly larger COST to the business and employing staff involves lots of complicated LEG|ISLATION.
  3. The cost of producing the PRODUCT  i.e. the GOODS or SERVICE may become significantly less.
  4. Increasing the MARKET SHARE could become attractive but ones the market is SATURATED the business may need to start thinking about selling ABROAD.
Should a business go PUBLIC?
As a business grows it will need to raise FINANCE.  It may not be able to do this from its SHAREHOLDERS if its a growing PRIVATE LIMITED may need to 'GO PUBLIC' and sell its shares on the STOCK MARKET. This is relatively simple, requires a certain amount of cash (approx £50k) but has its down sides as the OWNERSHIP and CONTROL split completely.

What about the Aims and objectives?
The 'aims and objectives' will change as the business grows.  They need to because they need to satisfy the needs of ALL the STAKEHOLDERS and direct the activites of the employees and share the direction with the new owners or SHAREHOLDERS. Thier aims and objectives should still support their main purpose, are they operating at a COST, for a PROFIT or as a CHARITY.  Do they wish to grow MARKET SHARE, improve PROFITABILITY or be more ENVIRONMENTAL & ETHICAL.  Clearly they are beyond the need to SURVIVE or just BREAK EVEN which was important when they started out.

Will their location change?
When entrepreneurs start up a business they usually do so in the cheapest place possible, usually in their home or close by as it is a way of keeping COSTS down.  As the business grows the most likely consideration is where there CUSTOMERS are.  As the business expands they will also need to consider the AVAILABILITY of RAW MATERIALS and COST of TRANSPORT.  A large business is more sensitive to COST than a small one. Saving 10p on half a million items is a saving of £50k per year and only £50 to a small business making 500.

Chapter 32 Notetaker Pack 

Summary of knowledge

  • Businesses often want to expand as a way of increasing profits or achieving other objectives
  • There are several ways in which a business can expand
  • Many expand Organically, but if a faster growth rate is required other methods might be used.
  • Growing as a business may bring in more profits but there are risks associated with expansion

Homework and additional stretch and challenge worksheet
expanding a business - benefits and risks
additional stretch and challenge worksheet
expanding methods

Extension exercise

Nine mark question - Sports Alive Ltd
Sports Alive Ltd is a private limited company.  It is a family owned business that runs a chain of sports clothing shops.  Some members of the family want the business to grow quickly in the future.  They believe the business should float and become a public limited company.
  1.      What is meant by a private limited company (2 marks)
  2.     Explain TWO reasons why someone might want to invest in Sports Alive   (5 marks)
  3.     Discuss the advantages and disadvantages to the owners of Sports Alive of becoming  public limited company.                                                                    (9 marks)
  4.     Discuss the ways in which stakeholders may be affected if Sports Alive became a public limited company.                    

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