Business life cycle
Good morning/afternoon I am here to talk about the business life cycle. The business life cycle refers to the stages and growth a business can experience. An owner of a business must be able to asses the businesses position on the business life cycle in order to develop strategies to deal with business expansions and business problems. But this can be difficult for two reasons. One change is gradual and it is hard to notice and two the owner may be to involved with the business to observe objectively. Also the owner may be emotionally tied up , they may just lack basic skills or may just be too busy.
There are four phases that a business may go through establishment, growth, maturity and post maturity. In the business life cycle there is no set time limit for the phases.
Establishment- This is the start up of the business. The main concern is to get the business onto a solid foundation and to generate enough income to cover expenses and to generate a cash flow. The main goal is survival.
The next is growth or “take off”. This is the time of accelerating growth. The sales rise and the cash flow is positive. The main goal in this stage is sales. Family members can take on roles in the business and the business can develop a good reputation. This growth can lead to complexity, responsibility and the need for long term planning. Business growth and expansion can occur in different ways.
Merger- This is where two or more business agree to combine. Like Hardware house combining with Bunnings warehouse. A take over this is where one business gains controlling interest in another. There are different types of mergers and take overs. Vertical integration and there are two types. Backward integration this is where one business takes over it suppliers like Mitre 10 taking over Dremel and there is forward integration which is where a business takes over its distributors. Like Dremel taking over Mitre 10. Another type of merger is horizontal integration. This is where a business takes over another business in the same line of work. Mitre 10 taking over hardware house. The last type of growth or expansion is diversification. This is where a business buys out or takes over a totally unrelated business like Mitre 10 taking over McDonalds.
The next phase in the business life cycle is Maturity or “Harvest” One of the main goals in this phase is profit. This period the owners have to guarantee survival so more formal and professional approach to planing is required. Grow will have slowed which could be a danger sign. Restructuring and reorganising maybe needed in this stage and the “family” atmosphere may be lost.
The last phase is post maturity. The main goal for this phase is revival. This is the last stage in the four phases and usually has three options. Steady state. This is a holding pattern where the owner is content to leave things the way they [next page]