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The Business Life Cycle

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

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The Business Life Cycle

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  1. The Business Life Cycle

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

  3. Challenges • Choosing competitive product. • Finding the right legal structure. • Size and location of premises. • Marketing strategies / promo costs • Sourcing finance to grow business • Est systems to control production costs

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

  5. Mergers and Takeovers • 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.

  6. 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.

  7. 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.

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

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

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

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

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

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

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

  15. Voluntary & Involuntary Cessation • 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.

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

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

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

  19. Bankruptcy • Is a declaration that a business, or person, is unable to pay his or her debts. • 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.

  20. 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.

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