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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.
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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 are but sales can fall resulting in profit loss. Decline. Profits fall and it is difficult to borrow money. Suppliers refuse credit and stock is lost also qualified employees may leave to seek better opportunities. The last option is renewal. Businesses try to come up with new marketing strategies to satisfy the consumers demands. Also the timing of when you release your product is also effective.
When a business stops operating it has two options. Voluntary cessation and involuntary cessation. Voluntary cessation is when the owner decides to stop trading and prevent the culminations of debt. While the other option involuntary cessation is forced upon. The owner is forced to stop sale by the creditors(the people who are owed money).
Business failure is a major issue a business faces. 5% of small business fail in the first year and 75% in the first 5 years. The main causes are Under capitalisation(lack of money)not enough to purchase enough stock and materials due to lack of profit and sales. Another reason is a lack of management expertise. Mangers with lack of experience can make the wrong decision and the whole business can go down with it. If managers follow the four phases there business is on the right track. The Business Life Cycle has its ups and downs but if you manage a business well you can establish a well respected business and a successful one also. But if you don't follow the BLC you couldn't have a business at all. Businesses don't plan to fail, the fail to plan.
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