Retained profit

Organic growth builds on resources the business already understands: its products, brand, customers and experience. It can be financed using retained profits, although borrowing may also be needed. Expansion can often take place at a steady pace, giving managers time to develop operations rather than immediately having to integrate an acquired business.

Using the owner’s savings or retained profit avoids borrowing, but the funds available are limited.

Retained profit is profit kept within the business rather than distributed to its owners. It can be reinvested in the business: for example, a retailer could use profit from earlier trading to improve its shop.