Business Life Cycle and Expansion

Challenges of the Declining stage

- Becomes difficult to loan money - Suppliers restrict their credit facilities and may insist on cash payment. - Products become obsolete (outdated/expired), leaving business with unsold stock. - Well qualified employees leave to seek better job opportunities.

Challenges of the Steady State

- Business can not sustain this state forever.(max 3 years) - Consumer taste changes/competitors have superior products. - Loses sales eventually and competitive edge. - Business becomes unstable, business stagnates.

Challenges of the Maturity stage

- Businesses tend to lose their energy, enthusiasm and vitality of its earlier times. - If costs are not controlled, Cash flow position deteriorates. - Rate of growth slows and eventually flattens out. - Increased competition- need for advertisement and improved quality of products.

Challenges of the Establishment stage

- Costs-very high fixed cost - Financial Management - Capital normally from owner's pockets. - Lack of Money with possible cash flow shortages - Very high risk level (high level of uncertainty)

Challenges of the Renewal stage

- May need to issue new shares for financial assistance/management - Advertisement in new markets - Communication- Employees need to know what is happening- overcome resistance to change. - Cash flow declines as money goes towards research and development of products

Challenges of the Growth Stage

- Rapid expansion (losing control of business direction) - Adequate cash flow must be maintained for further expansion - Borrowings could increase which would leave business exposed to liabilities greater than assets - Increased complexity and responsibility meaning business needs better long-term planning.

Renewal Stage

An option in the post-maturity stage where the business plan new strategies that result in new markets being tapped on and increasing the sales, cash flow and profits all being increased once again. This is normally chosen when the owner wants to keep the business running for a long time.

Post-Maturity Stage

Final stage of the business life cycle, at where their is the options the business can take

Establishment Stage

First Stage of the business life cycle where the business is starting up.

Growth Stage

Second stage of the business life cycle where the businesses sales are rapidly increasing, they have required a regular customer base, develops new products and improves its cash flow.

Steady State

The option in the post-maturity stage where the business decides to operate at the level it has been in the maturity stage.

Declining Stage

The stage a business enters if they do not prepare for the Post-maturity stage or plan poorly or some business owners choose this as it costs too much money to keep the business operating, owner wants to retire or the death of the owner if it is a sole trader.

Maturity Stage

Third Stage of the business life cycle which requires a great deal of rethinking how the business should be operated to guarantee survival. Sales start to increase slower or stop increasing.

Diversification

When a business acquires or merges with a business in an unrelated industry.

Horizontal integration

When a business acquires or merges with another firm that makes and sells similar products.

Vertical integration

When a business expands at different but related levels in production and marketing of a product. (e.g. Bakery buying a wheat farming company)

Acquisition

When one business takes full control over another business by purchasing a controlling interest