growth and decline

Question 1

define the business cycle

Answer 1

refers to the stages of growth and development a business can experience

Question 2

what are the four life cycle stages of a business

Answer 2

establishment, growth, maturity, post-maturity

Question 3

what are some features of the establishment stage?

Answer 3

small product range, small group of customers, local, owner financed

Question 4

what are some challenges in the establishment stage, how must businesses respond?

Answer 4

high set-up costs-don’t spend on unnecessary items
cashflow shortages-prepare forecasts/budgets
establishing a customer base-undertake market research

Question 5

what are some challenges in the growth stage, how must businesses respond?

Answer 5

employees-source employees with relevant skills
growing too quick leads to cashflow shortages- prepare detailed budgets

Question 6

what are some challenges in the maturity stage, how must businesses respond?

Answer 6

competition in the market-differentiate the product, seek new markets, marketing
management structure and inactivity - change management (traditional or flat)

Question 7

what are some challenges in the post-maturity stage, how must businesses respond?

Answer 7

drop in demand for product-revisit market research, rejuvenate existing products
cashflow issues from drop in sales- control costs in line with drop in sales, refinance to fund r&d

Question 8

identify features of the growth stage

Answer 8

growing product range, increased sales, need for long-term planning, increasing/regular customer base

Question 9

identify features of the maturity stage

Answer 9

product differentiation, saturated customer market, rate of growth slows

Question 10

identify growth strategies

Answer 10

merger, acquisition(takeover), vertical integration, horizontal integration, diversification

Question 11

define merger

Answer 11

when the owners of two seperate businesses agree to combine their resources and form a new organisation

Question 12

define vertical intergration

Answer 12

when a business expands at different but related levels in the production and marketing of a product

Question 13

define backward vertical integration

Answer 13

when a business integrates with one of its suppliers

Question 14

define forward vertical integration

Answer 14

when a business integrates with a firm it sells to

Question 15

define acquisition(takeover)

Answer 15

when one business takes control of another business by purchasing a controlling interest in it

Question 16

define horizontal integration

Answer 16

when a business acquires or merges with or is acquired by another firm that makes and sells similar products

Question 17

define diversification

Answer 17

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

Question 18

what are the three possible outcomes for a business in the post maturity stage?

Answer 18

steady state: the business is neither declining nor expanding
decline:fall in sales, cashflow and eventual business failure
renewal: new products are developed and new markets are created, leading to increased sales and a positive cashflow

Question 19

identify the features of post maturity

Answer 19

product development, smaller/niche market or global market, rate of growth slows

Question 20

what are the reason for business decline and failure?

Answer 20

lack of management expertise, undercapitalisation, trading losses

Question 21

define voluntary cessation

Answer 21

when the owner ceases to operate the business of their own record

Question 22

define involuntary cessation

Answer 22

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

Question 23

what are the reasons for involuntary cessation

Answer 23

death, lack of demand, unfavourable economic conditions, increased competition, court order

Question 24

what are types of involuntary cessation for a business

Answer 24

bankruptcy, voluntary administration, liquidation

Question 25

what is the process of sole traders and partnership when leading to cessation and having financial difficulties

Answer 25

may go into voluntary or involuntary bankruptcy and business owner begins realisation

Question 26

define bankruptcy

Answer 26

a declaration that a business or person is unable to pay his or her debts

Question 27

define realisation

Answer 27

the process of converting the assets of a business into cash

Question 28

what is the process of a company when leading to cessation and having financial difficulties

Answer 28

voluntary administration or liquidation (voluntary or involuntary)

Question 29

define liquidation and why does it happen to a business?

Answer 29

it is the process of an appointed liquidator converting the businesses assets into cash, this happens because the company is insolvent (unable to pay the bills)

Question 30

why would a company go into receivership

Answer 30

to have someone sell all a businesses assets when not doing so therefore is involuntary administration

Question 31

define receivership

Answer 31

when a business has s receiver take charge of the affairs of the business, unlike liquidation, the business may not necessarily be wound up (involuntary administration)

Question 32

what are the main features of liquidation

Answer 32

can be regarded as the equivalent of bankruptcy for a company
results in the life of a company to an end
normally occurs because the company is unable to pay its debts as and when they fall due (insolvent)

Question 33

define insolvent

Answer 33

a company is not able to pay its debts as and when they fall due