Business Growth And Decline

Question 1

How do you overcome establishment stage?

Answer 1

The business owner needs to become involved in some basic planning. Business planning can help identify the strengths and weaknesses, the needs to the business and the owners abilities in order to overcome the establishment stage.

Question 2

What happens in the growth stage?

Answer 2

It becomes essential for the business owner to develop long-term plans.
•during the growth stage the business has increased sales, a regular customer base, develops new products and improves its cash flow.

Question 3

How does growth and expansion occur through merger?

Answer 3

When the owners of two separate businesses agree to combine their resources and form a new organisations

Question 4

How does growth and expansion occur through acquisition?

Answer 4

When a business takes control of another business by purchasing a controlling interest in it.

Question 5

What is vertical integration during the growth stage?

Answer 5

It occurs when a business expands at a different but related levels in the production and marketing or a product

Question 6

What is horizontal integration during the growth stage?

Answer 6

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

Question 7

What is diversification?

Answer 7

When a business acquires or merges with a business in a completely unrelated industry

Question 8

What are the concerns of the establishment phase?

Answer 8

The overriding concern is to get the business on a solid foundation.
•slow sales
•survival
•occasionally loss of profit
•very high fixed costs
•lack of money with possible cash flow shortages
•high risks

Question 9

What happens during the maturity stage?

Answer 9

Everything flattens out; plateauing.
It requires a more formal organisational structure.
Sales increase at the maturity stage, but at a slower rate

Question 10

What are the possible outcomes of the post maturity stage?

Answer 10

• Steady state: the business operates the same level since the maturity phase.
• Decline: falling profits and sales ultimately resulting in business failure
• Renewal: increasing sales and profits due to new growth areas

Question 11

Why is the renewal phase important?

Answer 11

For business success, sales increase, the business is regenerated

Question 12

What should you do as a business to reach the renewal phase?

Answer 12

• Open and honest communication with employees, so they are fully aware where the business is headed so they can help achieve goals
• implement a vision statement and organisational structure to help realign objects and reach new goals

Question 13

Factors that contribute to business decline:

Answer 13

• Lack of management expertise: when a business either fails to prepare a business plan or fails to keep on modifying an existing plan as the environment changes
• undercapitalisation: without sufficient capital and a positive cash flow the business will not be able to purchase stock and materials. This inevitably results in lost sales and falling profits.

Question 14

What is voluntary cessation?

Answer 14

Voluntary cessation is when the owner ceases to operate the business of their own record

Question 15

What is involuntary cessation?

Answer 15

Involuntary cessation occurs when the owner is forced to cease trading by the creditors of the business

Question 16

What is liquidation?

Answer 16

When the liquidator takes control of a business with the intention of selling all the company’s assets in an orderly and fair way in order to pay off debts.

Question 17

Why does liquidation occur?

Answer 17

When the business becomes insolvent

Question 18

What is insolvent?

Answer 18

Being insolvent occurs when a company is not able to pay its debts when they fall due