What are the 5 stages of a business life cycle?
Just as a seed must be planted before a tree can flourish, a business doesn't spring to life fully formed. There are generally five stages in a business entity life cycle, and each stage has differing and unique entity management needs.
The 5 stages of a business life cycle
Stage 1: Seed and development
So, you've had a great idea for a business ' congratulations! You're officially at the seed stage. Now you need to plant that business seed and start to nurture it so that it can grow into a successful business. This first stage of the business entity lifecycle is sometimes called the seed stage and sometimes the development stage, depending on the sector and the industry. It's where you take your idea and start to assess whether it's worth developing into an actual business. A business plan soon follows once key target areas are identified and a strategy is developed. It's here that you ask yourself:
- Does this concept, product or idea fill a need in the market?
- Will it be accepted in the market?
- How do I establish a business structure?
- Will this idea yield me any profits?
Once you've analyzed the market and the concept and decided that it's still worth pursuing, your seed is in the ground and you move on to the next phase of business entities.
Stage 2: Startup
Businesses usually go one of two ways at the startup phase: They seek funding, either from a bank or another investor, or they decide to 'bootstrap' and work within their means initially. At any rate, startups must be incredibly resourceful and flexible regardless of funding ' it's a matter of iterating, testing and learning, and trying again, knowing that you are unlikely to have everything perfect from the outset. Startups must be committed to doing it over and over again until they get it right.
Startup business entities face many challenges, including:
- Managing cash reserves
- Managing sales expectations
- Accounting management
- Establishing a customer base
- Establishing a market presence
It's also at this stage that you'll start to pay closer attention to entity management. You won't have many processes in place yet, but the beginnings of your governance and compliance function will start to appear. It's important to think about things like the appropriate entity type for your business, and the right jurisdiction in which to incorporate. In the US, many venture capital firms will require a startup to be incorporated in Delaware; in the UK, one-person startups may work as a sole trader, while groups may incorporate a limited liability company.
Stage 3: Growth and establishment/survival
The growth phase is where our business solidifies its place in the market and its view on the world. Your business strategy will start to settle down more, though many at this stage of the business entity lifecycle will embark on a stage of aggressive and quick growth ' it all depends on the end goal for the business entity.
It's also where entity management starts to get more intense, as the focus is turned inward, and the initial blocks of the growing company begin to build. Recruitment drives bring both experienced senior leaders and lower-level workers into the fold, and client relationships are strengthened. Your clients become advocates and help you to grow your business, too.
There's an oft-quoted statistic that nine out of every 10 startups fail. To make sure your business entity is the one in 10 that succeeds, you'll require investment to grow and mature your business. It's likely you'll seek outside investment capital or build up a debt profile. Either way, entity management must be tight, whether it's to ensure any personal guarantees signed with banks don't negatively impact directors, or whether it's to track and manage the equity given to investors.
Stage 4: Expansion
Your business has become routine, and your confidence has grown. You've got great leaders and workers helping to build your business further, and your position in the industry is established. Now's the time to start thinking about the next phase: Expand further and keep growing, or maybe even plan for your exit.
It's here that businesses often see rapid growth in both revenue and cash flow as they get more comfortable with how they do things, but it's important not to get complacent. Ensure compliance and governance is given the priority it needs in your business entity, and keep a robust corporate record ' investors, auditors and regulators could all ask to view your entity data at any minute.
As you expand, keep in mind that just because your business worked in one jurisdiction does not mean that it will automatically work elsewhere. Each new office should be treated as a new startup, with the appropriate level of research and analysis undertaken to inform any expansion strategies.
Stage 5: Maturity and possible exit
A mature business doesn't have to be one that's hitting the headlines as the talk of the town. Sometimes, a mature business chugs along with sustainable profit growth and loyal employees reaching long service leave time. Many mature businesses have a strong cash position, which makes them an attractive target for mergers or acquisitions. The business may also reach a position where it devolves into spin-offs for other products or services, and grows into a wider subsidiary group.
Business owners at this final stage of the business entity lifecycle are focused on:
- How long the business can maintain and manage the appropriate rate of cash flow
- Expanding the business
- Finding and executing an exit strategy
Whether exit or further expansion is the end goal, entity data again plays a pivotal role. Any exit will involve robust analysis of the company's position both internally and externally, and the entity managers must be ready to efficiently and effectively get the right information to the right people at the right time.
Manage the five stages of a business life cycle with technology
So, what are the five stages of a business life cycle? Whether you're at seed, startup, growth, expansion or exit, you'll need to have strong entity management and an ability to interrogate real-time entity data that you know is accurate and up to date.
Entity management software can help your business throughout its lifecycle by:
- Storing entity information and documents in a highly secure format to create a single source of truth
- Creating organizational charts to highlight gaps in entity data
- Managing the ongoing accuracy of the corporate record using compliance calendars, reminders and workflows for better data
- Reporting on governance and compliance requirements and electronically filing statutory forms into global regulatory bodies
- Integrating data from multiple business units like legal, tax, finance, treasury and compliance to build a single system of record for all corporate governance
Diligent Entities, a secure, cloud-based entity management software, also closely integrates with the board portal and secure file-sharing platform to create the Governance Cloud, helping you to fulfill modern governance requirements and deliver the right information at the right time. Get in touch and request a demo to see how Diligent Entities can help you, no matter which stage of a business life cycle you are currently at.
