Business life cycle: growth and decline Flashcards
What are the 4 stages of the business life cycle?
Establishment
Growth
Maturity
Post maturity
What is the establishment phase?
The establishment phase is the first stage of the business lifecycle and occurs when a business launches into a market.
What is the growth phase?
The growth phase is the second stage of the business life cycle and occurs when a business starts to sustainably increase its sales and turnover in a market.
What is the maturity phase?
The maturity phase is the 3rd stage of the business lifecycle and occurs when a business has achieved a stable market share. It is at this point that management decisions become important to the future survival of the business.
What is the post-maturity phase?
post-maturity is the fourth and final stage of the business life cycle. In this stage businesses either decline (and eventually cease operations), or it will find new opportunities, regrow, and decrease in scale.
What are features of the establishment phase?
Biggest issue → to generate enough sales to make an income
Hard to generate a positive cash flow
Income is needed to pay both the fixed and variable costs
Failure to start up the business may be due to under capitalisation (not enough funding)
What are the features of the growth phase?
Period of fast growth
Establishing a customer base
Sales increase
Development of new products to satisfy different markets
Positive cash flow
Business can grow through mergers and acquisitions
Vertical integration → when a business expands at different but related levels in the production and marketing of a product
Horizontal integration → occurs when a business acquires or merges with another firm that makes and sells similar products
Diversification → when a business acquires or merges with a business in a completely different and unrelated industry (conglomerate integration)
What are the features of the maturity phase?
Sales are flattening (no longer growing)
Sense of complacency envelops the business affecting both staff and management
Owners realise business could lose energy and become stagnant
Employers start to get sick of the business
What are the features of the post-maturity phase?
3 possible outcomes
Steady state → to keep business going at the same level as the maturity stage
Decline → falling sales leading to business failure
Renewal → increasing sales and profits due to new growth areas
Post maturity stage presents both opportunities and threats
Decisions made by the owner will be crucial in the future survival of the business
