U4.1: Business Lifestyles and Responding to Challenges

Question 1

Phases of a Business Cycle

Answer 1

1. Establishment
2. Growth
3. Maturity
4. Post-maturity
   - steady state
   - decline
   - renewal

Question 2

Establishment Phase

Answer 2

for business:
- location
- types of products to sell
- finding useful staff
- most suitable legal structure

Question 3

Growth Phase

Answer 3

for business:
- increasing sales and revenue
- increases market share (aware to customers)
- develops new products, improves cash flow
- spending on marketing is high

mergers:
- owners of two separate businesses combine and form a new organisation
acquisition:
- one business takes control of another by purchasing a controlling interest in it

Question 4

Types of Mergers or Acquisitions (m/a)

Answer 4

vertical integration:
- backward vertical integration: m/a of a supplier
- forward vertical integration: m/a of business who distributes or sells its products
horizontal integration:
- m/a of a business that produces, distributes and/or sells similar products
diversification:
- m/a of an unrelated business

Question 5

Maturity Phase

Answer 5

• a sense of complacency often envelops the business, affecting both management and staff
• more formal, professional approach to planning
• sales increase at slower rate; early warning sign of possible decline
• possible realisation to completely restructure and reorganise the business

Question 6

Post-Maturity Phase

Answer 6

final stage is faced with three outcomes:
- steady state
- decline
- renewal

Question 7

Steady State

Answer 7

• continues to operate at level during maturity phase
• does not continue expenditure on research and development
• ultimately will enter decline

Question 8

Decline

Answer 8

• failing sales and profits, resulting in business failure
  difficult to reverse:
• difficult to borrow money, reluctant to lend to high-risk businesses
• suppliers may insist on cash payments
• products become obsolete, leaving business with unsold stock
• well-qualified employees may leave

Question 9

Renewal

Answer 9

• difficult to accomplish, requires enormous effort from owners and employees
• new products developed and new markets created, leading to increase sales and profits
• decline can be avoided by careful planning in markets and satisfying unmet demand
• long-term recovery means to focus production on what customers are demanding