Regardless of their size, all business go through five key phases throughout their lifecycle. All of them face similar issues at each key phase. So the phases become a framework to help business owners understand the problems, characteristics and the nature of the business better.
When you know what the key phases of the lifecycle are, you can prevent the problems that may arise. Work out what phase your business is currently in to help you plan your future.
Meaning of a business cycle
A business cycle is the repetitive pattern that all businesses go through at different stages in their lifecycle. In other words, it is the journey of a business and the opportunities and challenges it faces during each phase.
The lifecycle of a business is the changes and growth it goes through over time. There are five phases:
1. Start-up and launch
2. Growth
3. Shake-out
4. Maturity
5. Innovate or decline.
Understanding each cycle helps you make better business decisions.
The five key phases
All businesses go through five phases during their lifecycle. So, if you want to succeed, you should understand:
* How each phase works.
* What actions to take for success.
When you understand the phases, it helps you to predict the challenges and make informed decisions.
Phase 1: Start-up and launch
During the first phase, all businesses introduce services and products for sale. The focus is on customer growth and delivering what you sell.
Sales are low during this phase, but will improve slowly. It is a time for concentrating business marketing towards your target market.
During this time there may be financial losses because the sales are low, which should steadily grow, and there are high start-up costs.
Research and development is critical at this time so you:
* Create a business plan.
* Make decisions about what you will sell products and services.
* Estimate costs.
* Determine a business model.
When you launch a business, risk is high while sales are low. This means you can borrow little as your business has not yet proven itself.
Phase 2: Growth
During the growth phase, you should experience rapid sales growth. Once this occurs, you will pass the break-even point and start making a profit. Cash flow also becomes positive, which means there is more money coming into the business than leaving it.
It is a time for you to:
* Concentrate on developing the business further.
* Foster relationships with clients and customers.
* Grow investments.
* Raise capital.
High sales decreases business risks and increases the ability to borrow. You can repay any debts from profits and good cash flow, and you may even consider going public or taking on more debt.
Make sure you focus on any challenges that could restrict your growth.
Phase 3: Shake out
During shake-out, while sales continue to grow, it will be at a slower pace. This could be because of market saturation or due to new competition in the space.
Even though sales increase, profits start to fall and this could represent an increase in costs. However, cash flow improves to the point that it is more than the company s profit. This means that a business can prove it can pay its debts so this decreases company risk
Phase 4: Maturity
Sales slowly drop during the maturity phase, which lessens any profit margins. Cash flow stagnates and there is less major spending.
During phase 4 you may either decide to maintain its stability or expand the business because the business is doing well. This may be a time where you invest in technology or plan to reinvent the business by planning to enter different markets.
Phase 5: Innovate or Decline
This is a challenging phase where cash flow, profit and sales all decline. If this occurs consistently, then the business is in a decline.
You either need to:
* Sell the business
* Reinvest
* Innovate.
The business needs to adapt to a rapidly changing environment or accept failure.
Final thoughts
To maximise the benefits of change, you need a plan for every phase of the business lifecycle. With strategies in place to help you adapt, you can sustain and grow your business, while embracing new possibilities and opportunities as they emerge.
For assistance implementing strategies to grow your business, Ben can provide you with the business support and strategies you need to empower you to take steps forward.
To find out more about the value Ben s support can add to your business, set up a time to talk with him about your business needs.