The Business Life Cycle: 5 Stages of Development

Together we will know why business is like a living organism and why we should “feed” our own business with investments, even if it has already grown.

Any company during its existence passes certain stages of business development. And in the family cafe, and in the clothes online store, and at the factory on manufacture of steel pipes there are similar processes and problems which economists compare to the existence of a living organism. These stages make up the full life cycle of a business.

Such comparison is possible also because at each stage business as well as a living organism should be “fed” with investments for it to live and develop.

The main thing that distinguishes a business from a living being is that death is not necessary for its scenario. And it is important for an entrepreneur to understand at what stage of development his company is in order to know how to grow it further.

1. Foundation stage

You are starting a business. This means that you have already assessed the viability of the idea, considered all the risks, calculated what costs await you at the start, and write a financial plan.

At the foundation stage, you register a sole proprietorship or a limited liability company, recruit a team, look for the first clients. At this point, the project needs funding. There are various ways of finding its sources – everything will depend on the type of business and your idea of how the business should develop.

How do you raise money?

At least part of the starting capital you will need to raise independently: save money or, for example, sell real estate. If personal savings for the start-up are insufficient, funding can be found in the following ways:

Apply for government assistance

If your business is important to the region, you can ask the government for financial (and other) help with special business support programs.

Raising the necessary sum through crowdfunding

“Crowdfunding” at the beginning of a project can work if you have a creative project or an unusual product – you produce something you want to order immediately. Read how to take advantage of this in this article about types of crowdfunding.

Find a venture capital investor

A startup related to technology can attract a venture capital investor at the founding stage. This is usually a technology expert who puts his resources into fast-growing startups, expecting a big return. Resources are not only money but also knowledge. The investor can suggest a development strategy, search and train specialists, and find the right contacts – to get results faster and recoup his financial investment.

Starting a business with a venture capitalist is worth at least 50% investment, otherwise, there is a high probability that your partner will be too much influence on the processes, expecting to get more profit.

Take a long-term loan for business development

This item is a nuisance to many, but sometimes, a loan can really help grow a business and jump-start the mechanism to make it work to its fullest potential. These days, many investors and businessmen start out as young as 18 years old. Under such circumstances, it can be difficult to find financial support from the government or another institution. But you can turn to credit cards for 18 year olds to help in the early stages of business development. 

But remember, you have to be careful with credit, and you should not take out a loan if you feel you can’t afford to pay it back in three to five years.

Lease equipment or property

If your business needs a car, large equipment, or premises, you can lease them: you lease the property, but with the option to buy it outright. The leasing fee won’t hit your budget too hard, and you’ll still have the equipment, which will likely pay off the payments for it. You pay for the leased property for a while, but it works for you and continually makes a profit.

2. The break-even stage

The business has a minimum profit, and you can use it to maintain turnover: there is enough money from the sale of goods to buy new batches. But there may not be enough money for improvements that will allow you to make more profits: you can’t hire new employees or buy more goods. So the business still needs financing.

3. Growth Stage

Your business is increasing profits and customer base: you can pay out debt if you have it, hire new employees, and ramp up production. Additional investments should be used to improve service and the solution of problems that hamper development. Let’s say your courier service does not need two cars, but five. Or the site of the online store is worth a serious overhaul.

Also at this stage, there is a high probability of encountering a cash gap: when you have already earned money, but their hands are not and you can not put them into circulation or spend.

How to attract money?

  1. Connect a factor in a payment scheme
  2. Lease equipment or property
  3. Take a loan
  4. Sell a share of the business
  5. Attract co-investors

4. Maturity stage

At this stage, the business stops growing intensively and becomes resistant to external circumstances. Problems in the economy (for example, growth of prices for raw materials) or force majeure should not be a death sentence for the company – for this case, there must be a financial safety cushion that allows to survive the crisis and find a way out of the situation.

Although there are fewer risks, you should not let things slide. If you keep the situation under control, you can stay at this stage for a long time. But you can develop your business further and scale it up. For example, expand the geography and volume of sales, or increase the number of outlets in your region. This will require not only effort but also finances.

How to attract money?

  1. Take out a loan with the help of crowding investing
  2. Issue securities

5. Decline stage

Profits are declining, costs are rising, clients are losing clients – these are signs of the decline stage. It is possible that even if you have new clients, net profits are still not increasing: the money will go to paying off costs.

But the decline stage does not necessarily herald the closure of the business. At this stage, the enterprise can still be saved.

How to attract money?

At this stage do not rush to close the problem by simply pouring money into the existing structure. First, identify the problems: you may be spending money inefficiently now and your budgets just need to be reallocated.

Adjust your internal processes, try to bring something new to the business. This may be a managerial decision – for example, introduce a new system of motivation for employees or implement a program that will optimize their work. You can also try strategic innovations: start selling products that your competitors don’t have, or develop a convenient mobile app, with the help of which you will be able to reach new customers. You can raise money for this in ways you already know, such as taking out a loan or a loan or finding co-investors.