Every successful small business inevitably goes through the same four stages of the business lifecycle – start-up, ramp-up, expansion and maturity. While the journey that each business takes through these stages is likely to be different, research shows that regardless of business type, size and industry, you’ll find yourself moving through these phases.
Having a solid understanding of the different stages of the business lifecycle will help you to prepare for the opportunities and challenges that are associated with each phase. The more prepared you are in advance of each stage of growth, the better your chances of building a successful ongoing business.
Depending on your stage of growth, your business will require different strategy, operational and funding solutions to meet the challenges you’ll encounter. We explore some common challenges and strategies to address these below.
Four stages of business growth
· Start-up stage
The start-up phase is an exciting but challenging period for most small businesses. During this phase, your goal is to prove your concept and achieve a positive cash flow before you run out of money.
Common challenges at the start-up stage include limited resources (money, time and employees), lack of processes and systems, difficulty in preparing a realistic budget and poor cash flow management. Business owners will often seek to fund their start-up purely from personal savings; when combined with their finite time and lack of support from a larger team, there’s a high risk of burnout at start-up – after all, you can only underpay yourself and wear multiple business hats for so long. Around 80% of new businesses fail during this stage.
To give yourself the best chance of making it through the start-up phase, you should spend as much time as possible acquiring new clients and coming up with new ways to sell your products or services. Don’t let your cash flow fall by the wayside, however – your focus should be on building a business model that has a sustainable cash flow and consistent growth.
Debtor finance (also known as invoice factoring) is a popular product for start-ups looking to achieve a more consistent cash flow and make income regular and reliable.
· Ramp-up stage
You’ve successfully made it through the start-up phase, however, the ramp-up stage can also be a dangerous time for small businesses. While you’re building momentum and enjoying growth, it’s common to encounter issues because your existing business model and ways of working don’t reflect what’s required in this next stage of growth.
Revenue growth is certainly something to celebrate – but it’s vital to ensure you have a handle on your expenses. Moving to a new premises, building out your team and investing in stock are common expenses that need to be balanced with revenue at this stage. Your fulfilment process may not be readily scalable, meaning that it’s a struggle to match supply to demand without further investment.
An invoice finance or trade finance solution can help to take the pressure off during the ramp-up stage. Allowing you to turn unpaid invoices into cash or access a flexible line of credit to pay supplier bills, these products can help you to take a more proactive approach to cash flow management.
· Expansion stage
Your business has made it through the tough initial stages of the business cycle and is growing consistently, generating additional revenue and acquiring new customers. You’re in a solid operating rhythm, but it’s easy to underestimate the amount of work and change that steady, well-managed growth requires.
To ensure this growth is sustainable, you’ll need to continue to invest – either by returning profits to the business or seeking external funding. The funding solution that’s right for you will depend on your financial position and priorities – you should speak with your accountant about the pros and cons of debt and equity finance to decide which type of finance is most suitable for you.
During the expansion phase, you may also want to consider hiring subject matter experts to support you with the areas that you’re less skilled or experienced in – either on a consultancy or permanent basis. Hiring, training and managing staff is likely to consume more of your time at this stage of the business lifecycle.
· Maturity stage
Your business is successful and well established. The maturity phase is generally associated with stable growth and less rapid change – but it’s no time to put your feet up.
Larger businesses are often more complex – and inefficient – than smaller operations. You’ll be dealing with more employees, more expenses, and more competitors – often new entrants who are hungry and nimble.
The maturity phase is a time to innovate and look for opportunities to reinvent your business. You should be aiming to move into new markets and add new products and services to your portfolio to ensure that your business doesn’t start to stagnate.
For many owners, the maturity stage is the point where they start to think about selling their business. If you’re thinking about an exit strategy, getting your financials in order should be your top priority. You should be able to demonstrate a solid financial history and prudent financial management to any potential buyers.
No matter what stage of the business lifecycle you’re at, it’s vital to have a plan to access additional capital if and when you need it. Whether you want additional funding to avoid cash flow shortages or need to invest in your business to achieve your growth aspirations, Cashflow Finance’s flexible invoice and trade finance solutions can help you to access extra funds quickly and easily.
Call Cashflow Finance on 1300 760 205 for a free 30-minute consultation to explore your funding needs and discuss how we can help.