Properly timed planning is essential to your business success.
There are those who believe they can achieve business success without any type of planning and those who prepare one business plan and believe, incorrectly, that they are done.
However, it doesn’t matter where you’re at with your business planning right now. Let’s set that aside for a moment.
The more important thing is to understand that the business lifecycle covers a span of years and includes 5 key stages each of which comes with a different focus for business planning requirements.
Also, not every business will go through all 5 stages in the lifecycle and not all small businesses will succeed as a result of these stages.
Stage 1: Start up
The first stage of any small business is obviously – the start up or establishment of the business. At this stage, the business is being created, planned, and the early days of operations take place. For some of you, this is the only stage your business will see, as it is by far one of the most difficult to survive. Many things can go wrong at this stage; thus, good business planning is a crucial and necessary part of it.
Without a good business plan, it is impossible to get a small business off the ground, running, and eventually moving through the next stages of its lifecycle. Your plan may only exist in your head but, when you decided to start a business you had a plan for it even if many of the required components of a solid plan were missing. No one starts a business with a plan for it to be a colossal, expensive failure.
Stage 2: Growth
The second stage of small business is the growth period. During this stage, a business has an initial time of negative profit until it breaks even and begins to show increased revenues that allow it to truly grow. This is also the stage that the real test of a business comes into play. How the business is managed and how it is able to compete within its designated market will determine whether it will survive and head into the next stage or whether it will decline and reach the last stage of its life before it really got going.
Stage 3: Expansion
The third stage of small business is about expansion. This is the point at which a business gets to a state where there is sufficient revenue being brought in so that there are no doubts of its survival and it can expand its horizons. This includes taking on staff, building a support team, expanding the office space of the business or even investing in equipment and additional services to deal with a larger client base. This stage also entails producing more products, if necessary.
Stage 4: Maturity
The fourth stage of small business is about maturity. The business is now stable enough to survive most unforeseen circumstances. It has enough backing, capital and support to ensure that even if the market becomes unstable, it can pull through. This may be accomplished by rearranging its management plan, getting rid of one product to replace another, or adding an additional product to an already existing product line. However, if the market declines, it might survive, though its profits can take a temporary slide backwards.
Stage 5: Decline
In the small business lifecycle the fifth stage is about decline. In fact, it is the easiest stage to reach for any business because it is the point where a starting business will fail. An existing business, even a mature one, can decline in profits, take heavy losses and eventually either fail or cease operations to avoid further losses.
As any business owner can attest, the stages of business are necessary and a normal part of the lifecycle. By the way, the “stage” you are in is not determined by number of years your business has been in existence. Business is always changing.
With the passage of time, your business will go through these various stages, each of which requires a different focus, presents unique challenges, and requires different levels of funding and financial support. Not surprisingly, your planning in each stage of the lifecycle varies as well.
Stage-Specific Planning Requirements & Challenges
Raising a business is not unlike raising a child. The parenting strategies that work for your toddler won’t work for your teen. In the same way, the business strategies you use at start up are not appropriate for the growth, expansion and maturity stages of your business.
In the Beginning
When your business is “just an idea”, your challenge is to enter the right market and pursue a profitable niche opportunity. You do not want to spread money and time resources too thin. Your focus is on matching the business opportunity with your skills, experience and passions.
You’ll also decide on a business ownership structure, find your professional advisers and prepare your business plans. Most likely the money is going to come from your own pocket with perhaps some help from friends and family. You might also be able to tap into other sources such as suppliers, customers and government grants.
Once your business is born and exists legally, and you have products and services in place to sell and your first customers, things change. The typical challenge for a small business owner is financial. Most underestimate money needs and time-to-market and quickly burn through whatever cash they have. You need to learn what profitable needs your clients have and do a reality check to make sure your business is on the right track.
In the start up stage, the emphasis is on establishing a customer base, growing your list of prospects and market presence while at the same time you are tracking and conserving your cash. You can only tap the sources of funding in place for so long.
As You Grow and Expand
When you get to the growth stage, you’ve made it through the toddler years. Now it is a child. Your revenues and customers are increasing and this brings with it many new opportunities and issues to manage. Profits are strong (if you’ve planned well) but competition is surfacing more day by day.
Your biggest challenge is dealing with the constant range of issues bidding for more time, money and attention. Effective management is required; this is a learned skill. You might need a completely new business plan. You’ll certainly need to step up into a leadership role, train others and delegate effectively to survive this stage.
Your focus is running the business in a more formal fashion to deal with increased sales and customers. Better accounting and management systems must be set up. New employees and team members must be hired to deal with the influx of business. At this point, you’ll be looking at additional sources of funding for operations from banks, profits, partnerships, grants and leasing options.
Once you’ve got a thriving company in place in the market and loyal customers, business life becomes more routine. However, if you stop to rest on your laurels, you’ll risk quickly losing all you’ve worked hard to build up.
The marketplace is relentless and competitive. You must stay focused on the bigger picture. Issues like the economy, competitors or changing customer tastes can bring a fast end to all your hard work. Focus on improvement and productivity in this stage. To compete effectively, you’ll need better business practices, automation and outsourcing to carry on. You might also consider taking on outside investors.
Eventually you’ll consider expansion. Possibly creating new products and services. Or entering into new markets and distribution channels. That’s typically how business owners find new revenue and profit channels. You must plan for expansion as carefully as you planned for start up.
Focus on businesses and product areas that complement your existing experience and capabilities. Moving into unrelated fields can be disastrous. You may start looking into joint venture partnerships, licensing and other strategic alliances to get money needed to move forward.
When The End Is Near
A decline can put a quick end to your business. Changes in the economy, society, or market conditions can cripple sales and profits. You’ll be challenged with dropping sales, profits and negative cashflow. The biggest issue is how long can you support negative cashflow? You’ll need to know when to pull the plug and execute your exit strategy. The focus will be on searching for new opportunities and business ventures. Cutting costs and finding ways to sustain cashflow are vital. It may or may not make sense to put more money into the business.
The exit stage of your business is where you finally get to cash out on all the effort and years of hard work you put into it. Or, if you haven’t planned appropriately, it could mean just shutting down the business and taking on financial losses personally.
Selling a business requires your realistic valuation – all that matters is what your business is worth in the marketplace. Your sweat equity doesn’t count in the valuation.
If you shut down your business, your challenge will be facing the financial and psychological aspects of the loss. The focus in this stage is getting a proper valuation on your business. This involves looking at operations, management and competitive barriers to make your company worth more to the buyer.
You’ll need to set up legal buy-sell agreements along with a business transition plan but it is in selling a business (or even just some parts of your business) that fortunes are made. Your accountant and financial advisers can help you come up with the best tax strategy to sell or close-out the business.
Things to keep in mind
Each stage of the business lifecycle may not occur in chronological order. Some businesses will be “built to flip” quickly going from start up to exit. Others will choose to avoid expansion and stay in the established stage.
But one thing is for certain, whether your business is a glowing success or a dismal failure depends on your ability to adapt to its changing life cycles and plan appropriately. What you focus on and overcome today will change in the future. Understanding where your business fits into the lifecycle helps you foresee upcoming challenges and make the best business decisions.
More next time. Until then, remember to LOVE YOUR WORK, whatever it may be.
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