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Growth phase (Financial management (Use of sophisticated, computerised…
Growth phase
Financial management
Use of sophisticated, computerised accounting procedures and systems. Raising of finance tends to be easier. Main sources of finances are from financial institutions, the selling of shares or taking on more partners.
Cash flow
Difficulties can be experienced if the growth is too rapid. Adequate cash flow must be maintained to continue expansion. A credit policy needs to be organised. Forecasting of sales and expenditures becomes more crucial.
Costs
Production costs tend to decrease due to economies of scale — that is, cheaper unit costs due to larger production runs. Business becomes more efficient in areas of administration, finance and production.
Customers
Concentration on satisfying existing customer base while at the same time tapping into new market, both domestic and overseas. Mass markets become a possibility.
Management
Delegation of some responsibilities. Development of a formalised organisational structure. Introduction of line managers (supervisors). Clear lines of communication become essential. Specialist departments are established. Some functions may be outsourced.
Goals
To constantly increase the average level of sales; to continue growing through mergers and takeovers; to diversify business activities
Sales
Rapid increase, especially in the early stages of the growth phase. New products introduced and some slow-selling products deleted
Marketing
Development of new products to satisfy market niches. Price discounts due to lower production costs. Extensive promotional activities and a widening distribution network. Desire to increase market share by using mass-marketing techniques
Profit
Should increase due to rising sales and falling production costs. As well, profits of other businesses acquired through acquisition (takeover) or merger are available for use.
Employees
Increased specialisation of workforce requiring formal and informal training. Human resource strategies need to be implemented, especially in compiling job analyses and descriptions.
Failure rate
Lessened, especially after successful mergers or takeovers, which result in increased diversification and reduced competition
Main problems
Expanding too rapidly and therefore losing control of the business’s direction. Moving away from the core business activities — that is, what the business originally produced. Business may not have enough experience in the new areas. The need for finance to continue with the growth
Risk level
Reduced, due to diversification and less competition. However, if borrowings increased too rapidly the business may leave itself exposed — that is, with liabilities far greater than its assets.