8 Growth Problems

Question 1

Define overtrading

Answer 1

where a business does not have enough cash to support its production and sales.

Question 2

Name the problems of rapid growth

Answer 2

• the merger/takeover may require investment in new equipment or staff to support the growth which may cause financial strain if the revenue growth does not keep up with the expenses
• diseconomies of scale may increase the cost per unit and are commonly caused by cultural and communication diseconomies
• managers may be overloaded with new responsibilities and this may decrease their motivation