business growth and decline
factors that contribute to business decline
o Two main causes of business decline (and possible failure) are lack of management expertise or undercapitalization o Undercapitalization occurs when there is a lack of sufficient funds to operate a business normally o The businesses cash flow position should be carefully monitored in order to have enough cash to keep operating - Failing to plan and monitor the businesses cash flow situation will ultimately place the business in a vulnerable position
establishment challenges
o choosing an appropriate product with a distinctive advantage over the competition o finding the right legal structure o choosing the right size and location of premises o finding the best angles for marketing o anticipating the business' entire financing requirements throughout its establishment phase
growth challenges
o ensuring that quality service or production is maintained as output grows o developing accounting financial information systems which provide managements with detailed information about the performance of the different aspects of the business o managing cash flow and taking into account the financial requirements involved in expanding the business o taking the opportunity of improving economies of scale with increased production levels o sustaining growth vs letting the success of the business create a sense of self satisfaction or laziness o recruiting new employees and delegating responsibility o redefining the role of management so that managers workload is not overwhelming
maturity challenges
o staying responsive to challenges in consumer demand o identifying opportunities for innovation in products and services o sustaining the motivation or management and staff ad avoiding laziness and complacency o rationalizing business operations and minimizing costs
maturity stage
o During the maturity phase, business growth and market share begin to slow. The business is faced with increased competition from new entrants o Owner needs to do re-thinking about how the business should be operating to guarantee survival o Characteristics: maintain profit; growth rate slows; cash flow positons starts to deteriorate
external factors
o Government policies o Unexpected competition o Natural disasters
internal factors
o Lack of management knowledge o Inadequate planning o Lack of adequate cash flow and finance o Incorrect location
establishment stage
o The establishment phase is where the business first enters the market. The owner must decide on the location of the business, the types of products the business will sell, how to find motivation, appropriately trained staff and the most suitable legal structure o Business is vulnerable; concern is to get the business on a solid foundation o This requires enough sales to generate income that will be used to pay expense and generate a positive cash flow o Characteristics: high fixed cost; high failure rate; few employees; lack of money; setting firm foundation for future growth
growth stage
o The growth phase is characterized by increasing sales and revenue for the business. Customers are now aware of the business and/or product and the business begins to increase its market share. Business now has regular customers o With growth comes more responsibility and a need for long term planning; advertisement is important o Characteristics: ensuring good reputation; maintain adequate cash flow
post-maturity stage
o The post-maturity phase is the final stage of the business life cycle. There are three very different stages in the post-maturity phase: steady state, decline, renewal o Steady state: to keep the business operating at the level it has been during the maturity stage o Decline: falling sales and profits ultimately resulting in business failure o Renewal: increasing sales and profits due to new growth areas. This stage represents many opportunities but also many threats. The decision made by the owner will be crucial for the future survival of the business o Characteristics: new markets exploited; goal to increase sales, cash flow & profits; many need to issue new shares to raise finance
post-maturity challenges
o understanding the changing tastes and needs of the customer base o shifting into new or related markets where there are greater growth opportunities o orienting the management and staff towards change
