Why should a business grow?

Updated: Feb 11

Business growth is a key business objective


There a many reasons why a business should grow. Among them


  1. To achieve economies of scale

  2. Increase market share

  3. Better ability to get financing

  4. A higher return to shareholders from more profits

  5. Enable diversification that will reduce risk of business failure


Economies of Scale


A business that achieves economies of scale will reduce its average cost and increase its profits as revenues peak from maximizing output, while cost minimizes from economies of scale.


Market Share


When a business grow, it can increase market share as it increases output, as it increases the possibility of selling more products or services. This gives the firm an opportunity to increase its market share.


Financing Opportunities


Larger firms are considered as established businesses that have grown because they were successful. As such, investors, creditors and banks have more confidence that these firms will be able to use the funds from loans to make a profit and repay their loans.


Higher Shareholders Return


As large firms are more likely to be able to get financing from external sources such as banks, most profit earned would be distributed to shareholders or kept as retained profits.


Diversification


Large firms are likely to have accumulated large funds from years of retained profits. This enables them to acquire other businesses through mergers and acquisitions. Whether it is from internal growth or external growth (vertical, horizontal or lateral integration), diversification ensures that should one business fail, the firm may rely on other businesses (they acquired) to earn