The Three Stages Of Business Growth ‒What You Need To Know
- Brainz Magazine
- Nov 8, 2022
- 5 min read
Written by: Kadena Tate, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
There are three stages of business growth: startup, growth, and maturity. Each stage has its own unique financial needs, which can be difficult to navigate if you don't know what to look for.
In the early stages of a business, it's important to focus on generating revenue and building market share. This means that your expenses will likely be high, and your profits will be low. But as your company grows, you'll need to start spending more money on things like marketing and research and development to maintain or increase your market share. And once your business reaches maturity, you'll need to shift your focus towards profitability and sustainability.
So how do you know which stage your business is in? Here are a few tips:
If you're bootstrapping your business ‒ that is, if you're funding it yourself ‒ then you're probably in the startup phase. If you're seeing rapid growth but haven't turned a profit yet, then you're probably in the growth phase. And if you've been around for a while and are profitable but growing at a slower rate, then you're probably in the maturity phase.
Of course, these are just general guidelines ‒ every business is different. So if you're not sure where your company stands, in addition to reading this blog post, it's always best to consult with an accountant or financial advisor. They can help identify any potential red flags and suggest strategies for moving forward.
In this blog post, we will discuss the three stages of business growth and the financial ratios you want to be aware of during each stage. A financial ratio is simply a way to compare two financial variables in order to better understand a company's financial health.
We'll also provide questions you should ask yourself during each stage to make the most informed decisions about your business' future. Let's get started!
Startup
The first stage of business growth is the startup phase. This is when you're just getting your business off the ground, and you need to raise capital to get things started. During this phase, it's important to ask yourself how much money you need to get your business up and running. Startups must focus on building a solid foundation. To do this, you'll need to answer key questions such as:
How much money do you need to get started?
What are your goals ‒ both personal and professional ‒ for this business?
How much time do you spend working on your business each week?
What are your risks during this phase of growth? How can you minimize risks?
Are you starting from scratch, or do you have some initial funding?
What are some creative ways to raise capital?
Do you have a clear idea of your business model?
What are your long-term goals for your business?
Who is your target market? How will you reach your target market?
What need does your product or service fill?
Do you have any systems or processes in place to help run your business effectively?
How many employees or contractors can you afford to hire?
Are you currently generating any revenue? If so, how much?
What are your expenses?
Are you using a cloud-based accounting software?
Financial Ratios to consider during the startup phase:
Current ratio: This measures whether you have enough current assets to cover your short-term debts. To calculate, divide your current assets by your current liabilities. The ideal number depends on the industry you're in, but as a rule of thumb, a ratio of over two is good news and anything under one could be cause for concern
Burn rate: the rate at which your company is spending funds
Runway: the amount of time your company has to achieve profitability
Growth
The next stage of business growth is the growth phase. This is when (a) you've successfully established yourself in the market; (b) your business has started to take off and (c) you're looking to continue growing at a rapid pace. To scale your business operations, place your focus on answering key questions such as:
How can you continue to grow at your current pace?
In what ways have you iterated your business model?
Do you have a clear understanding of your customer acquisition costs? (What are your marketing and sales strategies?)
What is your retention rate? (Do you have repeat customers or clients?)
What are your expansion plans? (Do you have a team of employees to help with the day-to-day operations of your business? Have you established key partnerships or collaborations?)
Do you have the necessary infrastructure in place to support growth? (Do you have systems and processes in place to scale your business?)
Do you have a clear understanding of your financial situation? (Are you considering taking on debt? If so, what are the terms and conditions?)
Are you generating enough revenue to cover your costs? (Are you starting to see some traction with your product or service?)
Have you secured support in understanding the language of capital. business credit, lines of credit and business loans?
Financial Ratios to consider during the growth phase:
customer acquisition costs: the costs associated with acquiring new customers or clients
customer churn rate: the rate at which your customers are leaving
customer lifetime value: the total amount of revenue that a customer will generate during their relationship with your company
lifetime value of a customer: the amount of revenue that a customer is expected to generate over the course of their relationship with a company
gross margin: the difference between revenue and cost of goods sold (COGS)
If you're able to effectively scale your business, you'll be well on your way to a successful future.
Maturity
The final stage of business growth is the maturity phase. This is when your business has reached a stable point and you're looking to maintain your current level of growth. During this phase, it's important to ask yourself how you can keep your business growing. To do this, you'll need to answer key questions such as:
Is your business generating consistent revenue?
Are profits growing year-over-year? (What is your pricing strategy? )
What is your market share? (Do you have a well-defined brand identity? )
What is your customer base? (Do you have a large customer or client base? )
Who are your main competitors? (What is your competitive advantage? What is your competitive landscape like?)
What are your expansion plans? (Are you looking to expand into new markets or product lines?)
Do you have the necessary infrastructure in place to support growth?
What is your financial situation?
Financial Ratios to consider during the maturity phase:
Operating margin: the ratio of operating income to revenue
Return on investment: the amount of money that has been generated from an investment
Gross profit margin: the percentage of revenue that is left after COGS is deducted
Net margin: the percentage of revenue that is left after all expenses are paid
If you can maintain a strong position in the market, you'll be well on your way to continued success.
Now that you know what stage your business is in, you can begin to answer some key questions that will help you move forward. Remember, each stage of the business cycle is important and comes with its own set of challenges. But if you're prepared and have a solid plan in place, you'll be able to overcome anything that comes your way. Good luck!
Do you have any questions about the stages of the business cycle? Let us know in the comments below. We're always happy to help!
In addition to writing books, Kadena also works as a revenue strategist and business model designer for authors, coaches and speakers who want to create movements, masterminds, and membership programs.
Kadena Tate, Executive Contributor Brainz Magazine
Kadena Tate is the author of “Cultivating Courage: The Path to Reclaiming Your Power” and contributing author of the NY Times Bestseller “Business Model You,” published by Wiley Press. In addition to writing books, Kadena also works as a revenue strategist and business model designed for authors, coaches, and speakers who want to create movements, masterminds, and membership programs.
