Chapter 4 - Business Growth and Decline Flashcards
What is the business life cycle?
The business life cycle refers to the stages of growth and development a business can experience.
What are the four stages of the business life cycle?
The four stages of the business life cycle are establishment, growth, maturity and post-maturity.
What is 1. Establishment?
Establishment is the birth of the business. There is a high failure and risk rate, and sales usually begin slowly. The main goal is survival.
What is 2. Growth?
The second stage of the business life cycle, a time of accelerating growth. The risk level and failure rate is reduced, and sales and profit level have had a massive increase.
What is a merger?
A merger is when two seperate businesses agree to combine their resources and form a new organisation.
What is an acquisition (takeover)?
An acquisition is when a business takes control of another business.
What are the several different types of acquisitions?
Vertical integration: Forwards or backwards in the production line.
Backward vertical integration
Forward vertical integration
Horizontal Integration - when a business merges or acquires with another firm that makes and sells similar products.
Diversification - when a business acquires or merges with a business in a completely unrelated industry.
What is 3. Maturity?
The third stage. Business could easily lose the energy, enthusiasm and vitality of its earlier times, due to complacency. Sales increasing at a lower rate, a sign of danger.
What are the three possible outcomes in 4. Post-Maturity
The three possible outcomes in post-maturity are:
1. Steady State
2. Decline
3. Renewal
What is a Steady State?
A business in a steady state is neither declining nor expanding. The business continues to operate at the level it has been during the maturity phase.
What is a Decline?
A decline in post-maturity is falling sales and profits ultimately resulting in business failure. A decline is incredibly difficult to reverse.
What is a renewal?
A renewal in post-maturity is increasing profits and sales due to new growth areas. Sales, cash flow and profits all begin to rise again.
What are some factors that can contribute to business decline?
(Try to remember at least five)
- Failure to plan
- Increased competition
- Lack of adequate cash flow
- Poor location
- Lack of management skills
- Uncontrolled growth
- Failure to price product correctly
- Unfavourable economic conditions
- Ignorance of existing competition
- Bad business idea
- Failure to meet customers needs
- Lack of demand of product.
