Figure 1 is known as a Business Life Cycle Chart and illustrates the four phases of the business life cycle
- The Establishment phase
This phase is when the business is set up. A main goal during this time is to set a firm foundation for future growth and get the product out there for the retailers to see. Sales are often hard as customers stick to brand names usually. Costs are high through this time and the lack of income from sales doesn’t help. All your money seems to be going into advertising but none coming back in with sales. Often this results in losses rather than profits. Loans are also difficult to gain as new businesses are very risky with about 33% failing in there first year of sales.
To succeed a well-developed business plan is needed. This will show where you plan your costs and how much money will be needed all together. This will also be helpful in showing banks for a loan. Usually during this stage the legal entity is a sole trader or partnership. The management is just 1 or 2 people making all the decisions. Decisions are often made in a rush instead of sitting down and talking about it. The Establishment phase can be seen on the graph as the first section. You can see that the sales are increasing during this phase as time goes on.
- The Growth Phase
This phase is known for sales increasing and profit finally coming in. The goals in this phase include:
- Increase the average level of sales
- To grow through mergers and takeovers
- To diversify business activities
Sales are rapidly increased during this stage as customer loyalty is shown. As the owner gets a feel for the market they introduce new products and take the slower selling products off the shelf. As the money comes in the owner begins to spend more and more on the advertising side which results in a greater customer range.
The main costs during this phase seem to be advertising. A lot of capital is coming in but it must be maintained if the business wants to survive. The legal entity is now usually an incorporated entity as in a private or public company. So decisions are now made by a group of people and sat down and thought about.
- The Maturity phase
The maturity phase can be seen in figure 1 as a phase when the sales start to level out. The goal during this phase is to maintain the profits at the existing rate. Throughout this stage competition will be trying to take your share of the market but to regain it, product quality may need to be increased or discounts given. Costs now need to be controlled and the owner has to be calm and start to make changes now before it’s too late. The changes need to be made but at little cost to the cash flow. The financial management should look after that. Little change should be made to where you are selling the product or to the market you’re aimed at. A change that can be made without affecting customer loyalty can be changes to the packaging. A nice change to the packaging can renew your place in the market.
4. The Post-Maturity
Often during the post-maturity phase, the business sales are going down. But the managers try there best to renew the business. Business renewal is need to continue in a steady state or even into renewal. The main goal during this period is to avoid cessation. There are four possible routes during post maturity. These paths are:
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Renewal- when the business changes and sales begin to go up again.
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Steady state- when the business changes but the sales do not rise or fall
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Decline- when the business leaves it to late to change but doesn’t stop selling products.
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Cessation- where the business does not change but the sales go down until there is little or no sales.
Conclusion
My conclusion is that a business is a very risky thing to set up, but with help from things like business reports, business plans and the business life cycle chart.