The Nature of a Business - Growth and Decline

Question 1

Establishment

Answer 1

• Sales are often slow to begin with and are erratic (good one week, bad the next)
• Strong promotion of product/business is important (free samples, advertising, demonstrations etc.)
• 33% of businesses (including franchises) fail in the first year
• Lack of recognition and client base.

Question 2

Growth

Answer 2

• Time of increasing growth for business
• Sales increase and cash flow is usually positive
• Business often develops new products and there is more emphasis on marketing
• Easier to obtain finance

Question 3

Backward vertical integration

Answer 3

Integrates with suppliers

Question 4

Diversification

Answer 4

merges with business in unrelated industries

Question 5

Horizontal integration

Answer 5

Makes and sells similar products

Question 6

forward vertical integration

Answer 6

Integrates with firm it sells to

Question 7

Maturity

Answer 7

• Business has been operating for some time
• Business could lose earlier energy that is recognised in growth and establishment stage
• Must adopt professional approach to planning to ensure competitiveness
• More formal organisational structure may be adopted
• Sales increase but at a slower rate

Question 8

Post-Maturity

Answer 8

• Once business reaches final stage it is faced with 3 possible outcomes:
  1) Steady
  Keeps operating at similar level as maturity stage
  2) Decline / Cessation
  Falling sales and profit eventually result in business failure
  3) Renewal
  Increasing sales and profit due to new growth ideas

Question 9

response to challenges - establishment

Answer 9

• Personal finances and bank loans to combat lack of capital
• Wary of cash flow (erraticism)
• Limit business spending
• Seek new customers
• Gain experience in management

Question 10

response to challenges - Growth

Answer 10

• Delegating responsibilities
• Ensuring quality
• Expansion/merging businesses
• New products
• Consistency of product
• Wary of competitors
• Financial management
• New employees

Question 11

response to challenges - maturity

Answer 11

• Maintain profits and control costs
• Maintain customer loyalty
• Advertising
• Improve products quality
• Personalised services (appeal to niche market)
• Ensure leadership can adapt to changing markets
• Work-team approach

Question 12

response to challenges - post maturity

Answer 12

• Ensure sale increases with new products
• Identify changes in market demand (market research)
• Strategies for long-term profit
• Additional finance through new share issues
• Cash flow maintained
• Costs need to be managed as some will increase with marketing and new share issues
• New markets and customers
• Organisation structure directed towards new goals and objectives
• Communication of new goals and strategies

Question 13

factors influencing business decline

Answer 13

1. lack of management experience

2. insufficient capital

Question 14

Voluntary cessation

Answer 14

• Occurs when the owner ceases operations of business on their own accord
• Any assets owned by business are sold
• Could be due to business failure, owner dying, retirement etc.

Question 15

Involuntary cessation

Answer 15

• Occurs when the owner is forced to cease trading by the creditors of the business (i.e. shareholders, banks etc.)

Question 16

Liquidation

Answer 16

• commonly referred to as ‘winding up a company’
• Liquidator appointed to take control on business with intention of selling or assets to pay creditors in a fair and orderly way
• Regarded as equivalent to bankruptcy, but for corporations
• recievership

Question 17

Creditors and Courts Liquidation

Answer 17

• Creditors (involuntary) liquidation is when court appoints liquidator to cease operations – after application
• Courts (voluntary) liquidation involves 1) creditors voting for liquidation following voluntary administration or 2) Company’s shareholders agree to liquidate company and appoint liquidator – after application from creditor, shareholder, company director or ASIC