Internal growth (also known as organic growth) happens when a company expands its business using its own resources. It increases output, sales, and market share without merging with or buying other businesses.
Methods of Internal Growth:
- Increasing Capacity: Expanding production facilities, adding new product lines, or opening new branches.
- Increasing Sales: Using aggressive marketing, improving product quality, or expanding where products are sold.
- Reinvesting Profits: Using the money the company has earned to fund expansion instead of borrowing.
Advantages:
- The company keeps full control and independence.
- It is lower risk compared to buying other companies.
- Growth is gradual and more sustainable.
- It helps protect the existing company culture.
Disadvantages:
- Growth is slower than buying other firms.
- It is limited by the company’s own cash and resources.
- The company might miss out on fast-moving market opportunities.
How it is Financed:
- Using retained profits (the cheapest way).
- Taking out bank loans.
- Selling new shares of the company.
Example: A restaurant chain that grows by building new outlets one by one, rather than purchasing a competitor, is using internal growth.