Business Life Cycle

The business life-cycle refers to the stages of growth and development a business can experience.

Business life cycle: Establishment, Growth, Maturity, Post-Maturity (Renewal, Steady State, Decline).

Establishment Phase

	Start-up the business
	Goals: survival and setting a firm foundation for future growth
	Overriding concern: get the business on a solid foundation.

Growth Phase

	A time of accelerating growth
	Goals: To constantly increase the average level of sales; to continue growing through mergers and takeovers; to diversify business activities.
	Business may grow through a merger or takeover. Merger: when the owners of two separate businesses agree to combine their resources and form a new organisation. Takeover: when one business takes control of another business by purchasing a controlling interest in it.
	There are 3 types of mergers/takeovers: Vertical integration: when a business expands at different but related levels in the production and marketing of a product. E.g. a baker buys a wheat farm. Horizontal integration: when a business takes over or merges with another firm which makes and sells similar products. E.g. a baker buys another bakery. Diversification (conglomerate) integration: when a business takes over or merges with a business in a completely unrelated industry. E.g. a baker buys a sports store.

Maturity Stage

	The owner realises that the business could easily lose the energy, enthusiasm and vitality of its earlier times. A sense of complacency is a danger.
	Goals: to maintain profits at pre-existing levels.
	Sales: the rate of growth slows and eventually flattens out; plateauing.

Post-Maturity Stage

In this final stage the business will either: Go into a steady state: keeping the business operating at the level it has been at during the maturity stage. Go into decline: falling sales and profits ultimately resulting in business failure. Go into renewal: increasing sales and profits due to new growth areas

Business life cycle challenges: a summary

	Establishment challenge: lack of experience, customers, finance and advice.
	Rapid growth challenge: not being able to keep up with the increasing demand. Losing control of the business’s direction.
	Cash flow challenge: sales are increasing but there is not enough income to pay for all the expenses.
	Delegation challenge: as the business expands and becomes too difficult for one person to manage the owner may not be able to hand over responsibility to managers or employees.
	Competition challenge: unable to meet the quality, delivery time or prices being offered by the competitors.
	Leadership challenge: as the businesses expands long-term planning will be required. Positive and committed leadership is needed to provide stability.
	Paperwork challenge: amount of paperwork increases, taking away valuable time which could be spent on other activities.
	Red-tape challenge: a never-ending list of rules and regulation to abide by and forms to complete.
	Prosperity challenge: becoming complacent due to the past successes
	Renewal challenge: can the levels of increased sales be maintained over the long term?
	Big-biz challenge: the business expands to become a large trans-national organisation with the possibility of becoming a depersonalised and inefficient workplace.
	Decline challenge: the enormous difficulty in turning around a business that is in decline
	Failure challenge: how to end business operations without losing everything

Reasons for business failure:

	Lack of sufficient money- undercapitalisation
	Lack of management expertise

Voluntary cessation: ceasing to operate of your own accord.

Involuntary cessation: the owner is forced to cease trading by the creditors of the business.

Bankruptcy: a declaration that a business, or person (not a company) is unable to pay his/her debts.

Realisation: the process of converting the assets of a business into cash

Voluntary administration: when an independent administrator is appointed to operate the business in the hope of trading the business out of the present financial problems.

Liquidation: the process of converting the business’s assets into cash (companies only).