I am working for Hounslow Chamber of Commerce as a trainee manager. The Hounslow Chamber of Commerce provides advice to existing businesses and to entrepreneurs seeking to set up their own businesses. Small businesses that are successful can expand and may change their structure and status in order to attract necessary investment. I will provide a guide describing the advice and finance available for a business considering expansion and growth. I will be including, general advice on when and how expansion might be achieved using relevant examples. Sources of finance for growth and the possible relevance of various financial transactions, such as spot and forward foreign exchange dealings, currency options, financial futures and securities.
When expanding a business, it’s important the entrepreneur decides the best time to do so in order to be successful. Firstly, the most important factor to consider when expanding is if the business is profitable; the business should only consider expanding if they have been making profits over a period of time. Secondly, the business will need to do detailed market research. It’s important for the business to complete research as it will tell them if expanding will be reasonable; perhaps their products are at a high demand which would encourage the expansion. Furthermore, research will also show them the state of the economy. It is better to expand in a boom period as people have more disposable income which means there will be a demand in the products leading to a higher chance in your products being purchased. The business should also consider the nature of the product, is it a need in respectable to the state of the economy.
After the entrepreneur has decided the best time, you will need to know how to expand. You could change the legal structure or type of ownership. For example, expand from a sole trader to a partnership, from a partnership to a private limited company, to a private limited to a public limited company, to a public limited to a franchise. However, in order for a business to become a company two very important documents need to be completed; articles of association and memorandum of association. Once completed they need to be submitted in Companies house in Cardiff, if they are in order they will issue a Certificate of Incorporation. Then the business can issue shares to obtain money; a company’s first offer of shares on the stock market is called flotation. Capitalisation is the market value of the listed company, equal to the product of the number of its shares and their price. There are four types of shares investors can buy in a public limited company and the entrepreneur needs to be aware of. First there are ordinary shares. These are the cheapest shares and standard shares with no rights or restitution to get a good return on investment. This type of share has the highest risk because they will be the last to be paid if the company closes. Then there are preference shares. These shares have the right to give the holder preferential treatment when annual dividends are distributed to shareholders. They are also guaranteed a fixed dividend every year. Furthermore, there are cumulative shares. If the holder cannot be paid pone year it will be carried forward to successful years. The last type of share are redeemable shares. These shares allow the company to buy up the shares from the holder at a future date. Moreover, another way to expand is to set up in another market. The business could operate in a local, regional, national or global area. For instance, Tesco expanded to America. However, they were unsuccessful and returned to a national market. It is important for the business, if expanding in a different market to stop if the business is unsuccessful (like Tesco) to avoid extra losses. Lastly, the business could also merge with other businesses or have an acquisition. An acquisition is the process of obtaining a company to build on strengths or weaknesses of the acquiring company. A merger is similar to an acquisition but refers to combining all of the interests of both companies into a stronger single company.