A business will go through different stages over time, in a pattern that has been repeated throughout the ages.
Start-up -> Growth -> Maturity -> Decline
Starting a new business can be a challenging yet exhilarating time. Passing a business on to the next generation in the family can also be exciting and bring enthusiasm and fresh new ideas. But what happens when this isn’t an option, particularly when the circumstances are out of your control?
Phase one: Start-up
The most exciting time in the business lifecycle. Characterised by high energy, passion for new ideas, and the freedom to march by the beat of your own drum. Understanding why you have decided to start your own business is essential, and what will differentiate you from the rest of the pack.
Make or break. Statistics show that approximately two-thirds of Australian businesses will not progress past the 12-month mark.
New businesses started in July 2020 increased by 34% compared to July 2019 (ASIC, 2020).
Phase two: Growth
Time to test if you have laid good foundations.
Cash flow is important during growth stages, where sales are growing but there are more bills to be paid. Sales will be increasing; however, profit growth isn’t as rapid.
Securing finance can be crucial in the growth stage. This could include external investment if commercial finance is not an option.
Phase three: Maturity
The business has been steady for a while and the cash has been rolling in, sales have remained consistent or are declining slowly, and there is a minimal investment into the business.
The brand is established, and there may be little effort into making sales.
The good times don’t last forever, will the business pivot to a growth strategy or progress to the decline phase?
Phase four: Decline
The good times are over, and the cycle is complete. Sales, profit, and cash flow all decline as the competitive advantage is lost.
Time to ride the gravy train until it stops?
Now, where to from here?
There can be a natural shift between the growth and maturity stages in the business lifecycle, even from decline back to growth in some cases. Every owner inevitably gets to the stage where they want out, which dictates the need for either an exit strategy or a succession plan.
The third option of exiting a business is involuntarily, and statistics show that many new businesses will not last far into 2021.
What stage is your business at in the lifecycle, and have the events of 2020 prompted a shift in strategy?
HOW CAN RSM HELP?
If you have any questions regarding the business lifecycle, get in touch with your local RSM agribusiness expert.