growth and decline Flashcards
define the business cycle
refers to the stages of growth and development a business can experience
what are the four life cycle stages of a business
establishment, growth, maturity, post-maturity
what are some features of the establishment stage?
small product range, small group of customers, local, owner financed
what are some challenges in the establishment stage, how must businesses respond?
high set-up costs-don’t spend on unnecessary items
cashflow shortages-prepare forecasts/budgets
establishing a customer base-undertake market research
what are some challenges in the growth stage, how must businesses respond?
employees-source employees with relevant skills
growing too quick leads to cashflow shortages- prepare detailed budgets
what are some challenges in the maturity stage, how must businesses respond?
competition in the market-differentiate the product, seek new markets, marketing
management structure and inactivity - change management (traditional or flat)
what are some challenges in the post-maturity stage, how must businesses respond?
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
identify features of the growth stage
growing product range, increased sales, need for long-term planning, increasing/regular customer base
identify features of the maturity stage
product differentiation, saturated customer market, rate of growth slows
identify growth strategies
merger, acquisition(takeover), vertical integration, horizontal integration, diversification
define merger
when the owners of two seperate businesses agree to combine their resources and form a new organisation
define vertical intergration
when a business expands at different but related levels in the production and marketing of a product
define backward vertical integration
when a business integrates with one of its suppliers
define forward vertical integration
when a business integrates with a firm it sells to
define acquisition(takeover)
when one business takes control of another business by purchasing a controlling interest in it
define horizontal integration
when a business acquires or merges with or is acquired by another firm that makes and sells similar products
define diversification
when a business acquires or merges with a business in a completely unrelated industry
what are the three possible outcomes for a business in the post maturity stage?
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
identify the features of post maturity
product development, smaller/niche market or global market, rate of growth slows
what are the reason for business decline and failure?
lack of management expertise, undercapitalisation, trading losses
define voluntary cessation
when the owner ceases to operate the business of their own record
define involuntary cessation
when the owner is forced to cease trading by the creditors of the business
what are the reasons for involuntary cessation
death, lack of demand, unfavourable economic conditions, increased competition, court order
what are types of involuntary cessation for a business
bankruptcy, voluntary administration, liquidation
what is the process of sole traders and partnership when leading to cessation and having financial difficulties
may go into voluntary or involuntary bankruptcy and business owner begins realisation
define bankruptcy
a declaration that a business or person is unable to pay his or her debts
define realisation
the process of converting the assets of a business into cash
what is the process of a company when leading to cessation and having financial difficulties
voluntary administration or liquidation (voluntary or involuntary)
define liquidation and why does it happen to a business?
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)
why would a company go into receivership
to have someone sell all a businesses assets when not doing so therefore is involuntary administration
define receivership
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)
what are the main features of liquidation
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)
define insolvent
a company is not able to pay its debts as and when they fall due
