5 Stages of Every Business

Every company is similar when it comes to the stages of growth. Whether it is an apple chip maker or a moving and storage business, they face common problems that happen at parallel stages in their growth.

Learning to understand the stages of small business growth and natural problems can help you assess where in the growth pattern you are, and help you be alert to what’s going to be needed to succeed. In the beginning, owners will have to spend an overwhelming amount of time during the initial start-up phase, but then have to teach themselves to begin delegating work and authority as the company grows.

1) Existence Stage

This is a very challenging stage since the owner is doing the majority of the work. They are the chief source of capital and energy. The only goal here is to exist and survive. Most formal planning is rarely a part of the process. In order to remain alive, a new business must seek customers.

2) Survival Stage

Once you have a product that people can and will buy, then survival becomes the primary concern. A business in this stage is now a more efficient working entity with some profit. It is not uncommon for companies to “shut the doors” at this stage. Cash forecasting becomes job one. Now is the time for an owner to start thinking of hiring someone who knows how to manage a business, not start one.

3) Success Stage

Once systems are established and profits are consistent, the small business is now successful. Here, the choice becomes to grow or maintain the success created up to this point. Having systems in place is a big difference between the Survival and Success stages. At this stage, the owner is not doing the bulk of the work. Everyone deserves a vacation every once in a while!

4) Take-Off (Growth)

Competent management is vital at this stage being that financing and delegations will be your key issues. The proper people must be put into place to handle growth, a more complex business, and an evolving business environment. This is a crucial time for an owner. They need to decide whether they want to become a big business or sell the company at a significant profit. If mismanaged the small business could fail as a direct result of poor cost management of expenses over revenue.

5) Maturity Stage

The company is now big and runs at a slower pace, and has “arrived”. It has the advantages of size, financial resources, and managerial talent. At this stage, a company may have difficulty in retaining its entrepreneurial spirit. If it can, it will be an impressive force in the market. If not, it may enter a stage of ossification. This is characterized by a lack of innovative decision making and the avoidance of risks. The unfortunate part of this, it is usually their rapidly growing competitors that notice the environmental change first.

There are times when a company can benefit from a third-party, unbiased opinion. That may be because your profits are going down, growth has stalled, having internal financial issues you can’t work out on your own, or you want to know how to improve. Working with a business consultant can provide a cost-effective injection of knowledge and expertise when it is needed most. A skilled consultant –whether it be in management, marketing, technology, financial planning, etc.- can provide a knowledge transfer that helps your company become more efficient and successful.

 Timothy S. Blomstrom is a Business Specialist for Legacy Alpha in Raleigh-Durham, NC. For more information about the Legacy Alpha Business DNA Profile please email at timblomstrom@legacyalpha.com or call 919-656-0592.

What Every Business Owner Should Know

“It’s hard to see the forest for the trees.”

Simply put, you have focused on the many details and have failed to see the overall picture or key point. Often times as a small business owner it is difficult to see the forest for the trees. Especially when the situation(s) has to do with lost revenue, low cash flow, poor net income, or negative gross margin. Day to day operations can fill an owner’s time up with an endless number of tasks. After fulfilling all of these duties and feeling exhausted, one usually does not want to pour over financial statements. This is a big, big, mistake.

No doubt this is something many do not consider to be a favorite post-work activity, but it is crucial to keep a close eye on the critical numbers that can help predict the success of your business. Every business owner wants to stay in the black, but without knowing what to do to stay there is flying blind.

Below are 5 financial numbers every business owner should know:

1. Cash flow. When your operating cash inflow exceeds your cash outflow, this is a sign that you’re operating in the black. If the reverse is true, take a closer look at your income and expenses.
2. Profit and Loss (P&L). Knowing and understanding your company’s profit and loss over time allows you to project earnings and make realistic short term and long term plans for the future.
3. Sales. It’s a given, but must be said. Watching your sales closely can help understand why there is a dip and take corrective action. It also allows a business owner to react quickly to an increase in sales, which helps determine what is needed to keep going to sustain that growth.
4. Price Point. A small business owner must know exactly how much it costs them to purchase their goods and then how much they’ll need to sell those goods or services in order to make a profit. For restaurants and retailers, this is especially critical. When determining price point, always take into account overhead expenses –such as utilities, payroll, and sales tax.
5. Gross margin. Sometimes called gross profit -and closely related to price point- this figure reflects how much money remains after the actual cost of your merchandise is subtracted from the selling price. If this figure is low and not sufficient to cover operating costs such as salaries, rent, marketing, and utilities, then you’re likely not charging enough for your products and services.

Don’t be afraid to seek an objective third-person viewpoint when analyzing these financial numbers. A consultant can come into a business and address the obvious truth that is either being ignored or unaddressed (i.e. the white elephant in the room). While methodology will differ, a good consultant comes in to listen, has no agenda, becomes a worthy partner in the financial aspects of the company and always understands that it is about your company and not the consulting firms.

Finally, always seek a consultant that is truly interested in your business and seeing it succeed.