The Business Life Cycle

Establishment Phase High set up costs for fixtures, fittings and stock. High set up costs for fixtures, fittings and stock. Obtaining funding / loans from financial institutions due to risk Obtaining funding / loans from financial institutions due to risk Slow sales growth due to lack of exposure to the market. Slow sales growth due to lack of exposure to the market. Trouble attracting the right staff Trouble attracting the right staff

Challenges Choosing 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 costs Marketing strategies / promo costs Sourcing finance to grow business Sourcing finance to grow business Est systems to control production costs Est systems to control production costs

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

Mergers and Takeovers Merger occurs when owners of 2 separate biz agree to combine resources to form 1 organisation Merger occurs when owners of 2 separate biz agree to combine resources to form 1 organisation A Takeover occurs when one business takes control of another business or buying a controlling interest in it. A Takeover occurs when one business takes control of another business or buying a controlling interest in it.

Vertical Integration: expansion at different but related levels of production and marketing ie. A bakery taking over a wheat farm. Vertical Integration: expansion at different but related levels of production and marketing ie. A bakery taking over a wheat farm. Horizontal Integration: A business merges or takes over a business that sells similar products. Horizontal Integration: A business merges or takes over a business that sells similar products.

Diversification: (Conglomerate integration) occurs when a business takes over or merges with a business in a completely unrelated industry. Diversification: (Conglomerate integration) occurs when a business takes over or merges with a business in a completely unrelated industry. Draw fig 2.5 from text. Draw fig 2.5 from text.

Challenges Maintaining quality as output grows. Maintaining quality as output grows. Develop systems to evaluate performance. Develop systems to evaluate performance. Managing cash flow in expanding biz. Managing cash flow in expanding biz. Improving efficiency as biz grows (economies of scale). Improving efficiency as biz grows (economies of scale).

Sustaining growth – no complacency. Sustaining growth – no complacency. Recruiting and delegating. Recruiting and delegating. Managers letting go of duties. Managers letting go of duties.

Maturity Phase Rapid growth levels off. Rapid growth levels off. New competition may enter market New competition may enter market Biz reaches max size in premises. Biz reaches max size in premises. Management may become stuck or satisfied with current state. Management may become stuck or satisfied with current state. May work on reducing production costs to maintain profits. May work on reducing production costs to maintain profits.

Challenges Staying responsive to consumer demands. Staying competitive. Staying responsive to consumer demands. Staying competitive. Identifying opportunity for innovation in products and services Identifying opportunity for innovation in products and services Sustaining motivation of management and staff. Sustaining motivation of management and staff. Rationalising biz operation and reducing costs. Rationalising biz operation and reducing costs.

Post-Maturity Stage Steady State: maintain sales, remains profitable, no changes to strategy. Steady State: maintain sales, remains profitable, no changes to strategy. Renewal: Takes off, expands again. New products, takeover / merger, new markets. Renewal: Takes off, expands again. New products, takeover / merger, new markets. Decline and Final Closure: loses competitive advantage, products obsolete, profits decline. Decline and Final Closure: loses competitive advantage, products obsolete, profits decline.

Challenges Understanding the changing tastes and needs of consumers. Developing new products. Understanding the changing tastes and needs of consumers. Developing new products. Shifting into new or related markets where growth opportunities exist. Shifting into new or related markets where growth opportunities exist. Orienting management and staff towards change, new methods, new structures and procedures. Orienting management and staff towards change, new methods, new structures and procedures.

Time Sales $ Establish Growth Maturity Post- Mat Steady State Renewal Plateau Decline - cessation

Voluntary & Involuntary Cessation Voluntary Cessation: A biz closes at any time during the life cycle. The decision is made by the business owner. Voluntary Cessation: A biz closes at any time during the life cycle. The decision is made by the business owner. Involuntary Cessation: Business owners are forced to close due to circumstances beyond control. Involuntary Cessation: Business owners are forced to close due to circumstances beyond control.

Reasons for Voluntary Cessation Owner does not want to take on new challenge or phase. Owner does not want to take on new challenge or phase. Owner receives offer to sell. Owner receives offer to sell. Death of the owner Death of the owner Retirement of the owner. Retirement of the owner. Owner not satisfied with investment. Owner not satisfied with investment.

Reasons for Involuntary Cessation A lack of business management skills. A lack of business management skills. Excessive borrowing. Bankruptcy Excessive borrowing. Bankruptcy Failure to seek or use prof advice. Failure to seek or use prof advice. Being out-done by competitors or not responding to change. Being out-done by competitors or not responding to change.

Not enough consumer demand. Not enough consumer demand. Unfavourable economic conditions. Unfavourable economic conditions. Death or illness of key individual Death or illness of key individual

Bankruptcy Is a declaration that a business, or person, is unable to pay his or her debts. Is a declaration that a business, or person, is unable to pay his or her debts. Can be voluntary or involuntary. Can be voluntary or involuntary. Involuntary bankruptcy occurs when a creditor applies to a court for a Bankruptcy order. The court appoint a representative to collect money owed. Business and personal assets of owner may be sold to pay debts to creditors. This is called realisation. Involuntary bankruptcy occurs when a creditor applies to a court for a Bankruptcy order. The court appoint a representative to collect money owed. Business and personal assets of owner may be sold to pay debts to creditors. This is called realisation.

Voluntary Administration: An independent administrator is appointed to help the business trade out of the financial problem. If successful, the business can resume normal trading. Voluntary Administration: An independent administrator is appointed to help the business trade out of the financial problem. If successful, the business can resume normal trading. Liquidation: if unsuccessful, a third party is appointed to take control of the business. Their job is to sell the assets of the company to recover money for the creditors. Liquidation: if unsuccessful, a third party is appointed to take control of the business. Their job is to sell the assets of the company to recover money for the creditors.