The Business Life The Business Life CycleCycle

Establishment PhaseEstablishment Phase

High set up costs for fixtures, High set up costs for fixtures, fittings and stock.fittings and stock.

Obtaining funding / loans from Obtaining funding / loans from financial institutions due to financial institutions due to riskrisk

Slow sales growth due to lack Slow sales growth due to lack of exposure to the market.of exposure to the market.

Trouble attracting the right Trouble attracting the right staffstaff

ChallengesChallengesChoosing competitive product.Choosing competitive product.Finding the right legal structure.Finding the right legal structure.Size and location of premises.Size and location of premises.Marketing strategies / promo costsMarketing strategies / promo costsSourcing finance to grow businessSourcing finance to grow businessEst systems to control production Est systems to control production

costscosts

Growth PhaseGrowth Phase Rapid growth Rapid growth Increased customer awarenessIncreased customer awareness Diversified product rangeDiversified product range Better management of production.Better management of production. Cost savings – Economies of ScaleCost savings – Economies of Scale Distribution and marketing est.Distribution and marketing est. Obtainable financeObtainable finance More employees – Leads to More employees – Leads to

specialisationspecialisation

Mergers and TakeoversMergers and Takeovers

Merger occurs when owners Merger occurs when owners of 2 separate biz agree to of 2 separate biz agree to combine resources to form 1 combine resources to form 1 organisationorganisation

A Takeover occurs when one A Takeover occurs when one business takes control of business takes control of another business or buying a another business or buying a controlling interest in it.controlling interest in it.

Vertical Integration: expansion Vertical Integration: expansion at different but related levels of at different but related levels of production and marketing ie. A production and marketing ie. A bakery taking over a wheat bakery taking over a wheat farm.farm.

Horizontal Integration: A Horizontal Integration: A business merges or takes over a business merges or takes over a business that sells similar business that sells similar products.products.

Diversification: Diversification: (Conglomerate integration) (Conglomerate integration) occurs when a business takes occurs when a business takes over or merges with a over or merges with a business in a completely business in a completely unrelated industry. unrelated industry.

Draw fig 2.5 from text.Draw fig 2.5 from text.

ChallengesChallenges

Maintaining quality as output Maintaining quality as output grows.grows.

Develop systems to evaluate Develop systems to evaluate performance.performance.

Managing cash flow in expanding Managing cash flow in expanding biz.biz.

Improving efficiency as biz grows Improving efficiency as biz grows (economies of scale).(economies of scale).

Sustaining growth – no Sustaining growth – no complacency .complacency .

Recruiting and delegating.Recruiting and delegating.Managers letting go of Managers letting go of

duties.duties.

Maturity PhaseMaturity Phase

Rapid growth levels off.Rapid growth levels off.New competition may enter marketNew competition may enter marketBiz reaches max size in premises.Biz reaches max size in premises.Management may become stuck or Management may become stuck or

satisfied with current state.satisfied with current state.May work on reducing production May work on reducing production

costs to maintain profits.costs to maintain profits.

ChallengesChallenges

Staying responsive to consumer Staying responsive to consumer demands. Staying competitive.demands. Staying competitive.

Identifying opportunity for Identifying opportunity for innovation in products and innovation in products and servicesservices

Sustaining motivation of Sustaining motivation of management and staff.management and staff.

Rationalising biz operation and Rationalising biz operation and reducing costs.reducing costs.

Post-Maturity StagePost-Maturity StageSteady StateSteady State: maintain sales, : maintain sales,

remains profitable, no changes to remains profitable, no changes to strategy.strategy.

RenewalRenewal: Takes off, expands : Takes off, expands again. New products, takeover / again. New products, takeover / merger, new markets.merger, new markets.

Decline and Final ClosureDecline and Final Closure: : loses competitive advantage, loses competitive advantage, products obsolete, profits decline.products obsolete, profits decline.

ChallengesChallengesUnderstanding the changing tastes Understanding the changing tastes

and needs of consumers. and needs of consumers. Developing new products.Developing new products.

Shifting into new or related markets Shifting into new or related markets where growth opportunities exist.where growth opportunities exist.

Orienting management and staff Orienting management and staff towards change, new methods, new towards change, new methods, new structures and procedures.structures and procedures.

Time

Sales $

Establish Growth Maturity Post- Mat

Steady State

Renewal Plateau

Decline - cessation

Voluntary & Involuntary Voluntary & Involuntary CessationCessation

Voluntary Cessation: A biz Voluntary Cessation: A biz closes at any time during the closes at any time during the life cycle. The decision is life cycle. The decision is made by the business owner.made by the business owner.

Involuntary Cessation: Involuntary Cessation: Business owners are forced to Business owners are forced to close due to circumstances close due to circumstances beyond control.beyond control.

Reasons for Voluntary Reasons for Voluntary CessationCessation

Owner does not want to take on Owner does not want to take on new challenge or phase.new challenge or phase.

Owner receives offer to sell.Owner receives offer to sell.Death of the ownerDeath of the ownerRetirement of the owner.Retirement of the owner.Owner not satisfied with Owner not satisfied with

investment.investment.

Reasons for Involuntary Reasons for Involuntary CessationCessation

A lack of business management A lack of business management skills.skills.

Excessive borrowing. BankruptcyExcessive borrowing. BankruptcyFailure to seek or use prof advice.Failure to seek or use prof advice.Being out-done by competitors or Being out-done by competitors or

not responding to change.not responding to change.

Not enough consumer Not enough consumer demand.demand.

Unfavourable economic Unfavourable economic conditions.conditions.

Death or illness of key Death or illness of key individualindividual

BankruptcyBankruptcy Is a declaration that a business, or Is a declaration that a business, or

person, is unable to pay his or her person, is unable to pay his or her debts. debts.

Can be voluntary or involuntary.Can be voluntary or involuntary. Involuntary bankruptcy occurs when Involuntary bankruptcy occurs when

a creditor applies to a court for a a creditor applies to a court for a Bankruptcy order. The court appoint Bankruptcy order. The court appoint a representative to collect money a representative to collect money owed. Business and personal assets owed. Business and personal assets of owner may be sold to pay debts to of owner may be sold to pay debts to creditors. This is called realisation.creditors. This is called realisation.

Voluntary AdministrationVoluntary Administration: An : An independent administrator is appointed to independent administrator is appointed to help the business trade out of the help the business trade out of the financial problem. If successful, the financial problem. If successful, the business can resume normal trading.business can resume normal trading.

LiquidationLiquidation: if unsuccessful, a third : if unsuccessful, a third party is appointed to take control of the party is appointed to take control of the business. Their job is to sell the assets of business. Their job is to sell the assets of the company to recover money for the the company to recover money for the creditors.creditors.