Stages of the business life cycle

Question 1

Establishment

Answer 1

The establishment phase is where the business first enters
the market.
The owner must decide on:
• The location of the business,
• The types of products the
business will sell
• How to find motivated, appropriately trained staff and the most suitable legal
structure.

Question 2

Growth

Answer 2

The growth phase is
characterized by increasing sales and revenue for the business.
Customers are now aware of the business and/or product
The business begins to increase its market share.

Question 3

Maturity

Answer 3

During the maturity phase,
business growth and market share begin to slow.
The business is faced with increased competition from
new entrants.

Question 4

Post maturity

Answer 4

The post-maturity phase is the
final stage of the business life
cycle.
There are four very different stages in the post-maturity phase: steady state,
decline, renewal and cessation

Question 5

Challenges to the Establishment

phase

Answer 5

The most appropriate legal structure for the business
• Who is going to provide the finance (most of the finance
at this stage is usually from the owner, and is known as
owners’ equity)
• Choosing the right location for the business (whether or
not location is considered a critical success factor for the
business)
Ensuring that government regulations are adhered to
(involving registering a business name, etc.)
• Finding motivated, enthusiastic and appropriately trained
staff.

Question 6

Challenges to the Growth phase

Answer 6

Developing a human resource management policy
outlining the roles and responsibilities of staff
• Developing a financial management plan outlining
procedures for collecting debts when they fall due,
looking after the cash within the business and
implementing a credit policy
• Controlling inventories to ensure that over- or underbuying does not occur.

Question 7

Challenges to the Maturity phase

Answer 7

Adapting the latest technology to improve the existing
production value chain
• Improving the efficiency of business operations
• Taking advantage of new market opportunities
• Building customer loyalty
• Managing cash flow and finance successfully

Question 8

Challenges to the Post-Maturity

phase

Answer 8

The business decision to take one of four different paths:

steady state, renewal, decline or cessation

Question 9

Decline: Factors that contribute

Answer 9

Internal factors
• Lack of management knowledge
• Inadequate planning
• Lack of adequate cash flow and finance
• Incorrect location

External Factors
• Government policies
• Unexpected competition
• Natural disasters
• Involuntary cessation

Question 10

Cessation

Answer 10

Cessation refers to the closure of a business.
• Voluntary cessation occurs when the owner of a business
decides to cease the operations of the business.
• Involuntary cessation occurs when the closure of the
business is forced on the owner. The most common cause
of involuntary cessation is the inability of the business to
repay its debt.
Bankruptcy occurs when a sole trader or business
partnership is unable to repay the financial obligations
(debt) of the business.
• A business will enter liquidation when an independent
party is appointed by the court to sell the assets of the
business so as to recover all outstanding debt owing to
the business’s creditors.