Business growth and decline

• Establishment

  Sales begin irratic and slow, occasionally losses. This requires enough sales to be generated to bring in the much needed income, which will be used to pay expenses and to generate a positive cash flow. goals-survival and setting a firm foundation for growth

  • Very HIGH risk of failure (33% within the first year)  
  • Inexpensive promotion strategies used (social media, online website)
  • There may be cash flow issues as there are many early expenses and a small customer base)
  • Expenses are usually higher than the sales revenue
• Overcoming establishment

  • Ensure detailed planning is undertaken when establishing the business which can help to greatly reduce the risk of failing in the first year or so. 
  • Establish a customer base
• Growth

  • Sales experience a rapid increase (increasing profitability) 
  • Cash flow: Difficulties can be experienced if growth is too rapid (less control over finance and debts)
  • Expanding too quickly and losing control of the business direction is the biggest risk.
  • May choose to become incorporated 
  • Clear lines of communication to management is essential 
  • Constantly increase the average level of sales 
  • Reduced risk level, failure rate is lessen 
  • Gain more loyal customers domestic and overseas 
  • New products, discounts and low production (more profits)
• Overcoming growth

  • Adhere to a business plan, have clearer goals and communication, continually improve competitive edge, continuing to diversify the business. 
  • A merger or acquisition (company takeover) combining two businesses may allow the company to continue succeeding within their industry and maintain that competitive edge. 
• Maturity

  • Maintaining profit at the pre-existing level is a goal 
  • Marketing: Enhance quality of products 
  • Profit: Rate of growth slows (sales begin to decrease slowly), flattening out, reflecting the level of sales. 
  • Cash Flow: If costs are not controlled, the cash flow position will deteriorate. 
• Overcoming maturity

  To overcome the stage of maturity and progress into the next stages:

  • Maintain control of costs, avoid complacency, a more formal and professional approach to planning is required
  • A need to restructure and reorganise the business may be beneficial, which can be a painful and overwhelming experience. 
  • May want to introduce a work team approach, developing employee responsibility and avoiding complacency
  • Leadership is crucial from the manager to redefine the business’ objectives and vision 
• Post maturity

  Steady state

  The business continues to operate at the level it has been during the maturity phase 

  • The business has not experienced
  • The business can not maintain this state and will eventually experience a loss of sales and competitive edge. Therefore entering  
  • Will not continue spending money on research and development 
  • The business should participate in the process of innovation and development of a new product for example. 
• Post maturity

  Decline-Falling sales and profits ultimately resulting in business failure.

  • Due to poor strategic management of business, inadequate cash flow or high cash use, failure to plan.  
  • Decline of profits meaning look towards financial institutions
  • Suppliers are reluctant to supply materials to the business
  • Employees may leave the business
• Post maturity

  Renewal-Increasing sales and profits due to new growth areas. The key to achieving a long-term, sustainable recovery in sales is to focus production on what the customers are presently demanding

  Overcoming this stage of the business cycle: 

  • Using market research to successfully target new customers/develop new products
  • May decline in cash flow in the short term
  • Employees may become unhappy/disenchanted with restructuring
  • May be an increase in sales overtime 
  • Have a new vision 
  • Employees need to be aware of where the business is headed
• Factors that can contribute to business decline

  Faliure to plan

  Poor location

  Uncontrolled growth

  Lack of management skills
• Cessation-Voluntary and involuntary

  Sole trader or partnership-Bankruptcy

  • This is a declaration that the business owner can no longer pay its debts. Either the business will declare itself bankrupt o a creditor will do so to a court.
  • A court may then order the “realisation” (selling) of the business’ and the owners assets to pay debts. 
• Cessation-Private or public company voluntary administration 


  Private or public company

  -voluntary administration

  • A company experiencing financial difficulties appoints an independent administration to run it trading out of financial difficulties. (the business owner chooses to appoint someone themselves)
• Cessation-private or public company liquidation

  1. Liquidation: 

  • Independent “liquidator” is appointed to control the business and sell its assets in order to repay creditors. Liquidation=turning assets such as cars, furniture, stock into cash. 
  • Insolvent=Applies to companies who cannot pay their debts (companies)
• Cessation-private or public company recievership

  1. Receivership:

  • A receivership is appointed by the courts or a creditor to compulsorily take charge of a failing business that is a bit different to Voluntary administration. (compulsory/no choice for the business owner meaning an outside force has to take charge)