Business growth and decline Flashcards
what are the four stages of a business?
Establishment, Growth ,Maturity , Post-
maturity
Establishment
Aim: The main challenge at the establishment stage is to get the business on a solid foundation by generating enough sales to create a positive cash flow
Challenges: lack of money with possible cash flow shortages
Risk level: Extremely high, especially within the first few months. High degree of uncertainty.
Strategies: Detailed planning can help greatly reduce the risk of failing.
Growth
Aim: To constantly increase the average level of sales: to continue growing through mergers and takeovers: to diversify business activities.
Challenges: Expanding too rapidly and therefore losing control of the business’s direction. Moving away from the core business activities — that is, what the business originally produced. Business may not have enough experience in the new areas. The need for finance to continue with the growth
Strategies: to respond to these challenges’ complexity, responsibility and the need for long-term planning.
Maturity
Aim: To maintain profits at pre-existing levels.
Challenges: Rate of increase in sales begins to falter, sometimes flattening out. Loss of initial enthusiasm. Air of complacency starts to dominate.
Strategies: Managers may need to restructure or reorganize the business.
Post-maturity
Aim: to increase sales, cash flow and profits. Seek out and exploit previously unmet demand in new markets. Undertake further diversification and integration. Sell off any unprofitable non–correlated activities or assets.
Challenges: anticipated sales may not eventuate due to inaccurate forecasts, poor timing or inappropriate marketing strategies. Initial costs are high, with cash flow shortfalls in the short term. Employees may become disenchanted with the restructuring and having to adapt to constant change.
Strategies: renewal - new products are developed, and new markets are created, leading to increased sales and a positive cash flow.
What are some factors that can contribute to business decline?
Failure to plan, increased competition, Poor location, uncontrolled growth, Failure to meet customers needs, lack of demand for product
What is voluntary cessation?
Business owners make the decision to shut down operations and terminate the existence of the firm. this could be because of loss of ideas/enthusiasm, retirement, loss of profits
What is involuntary cessation?
External party forces owners of a business to cease operations and terminate the existence of the firm. because of Lack of demand for product, Increase competition and inability to compete, Supreme court of NSW ordering that assets be sold to pay unpaid debts
what is insolvent?
when a business can not pay their debts
what is liquidation?
the court may also force the business to sell its assets, this is known as liquidation and involves the businesses owners being declared bankrupt.
